Financial Results for the Year Ended December 31, 2024 (Unaudited)

February 14, 2025

(Unit: thousands, % change as compared to the previous year)

The Company’s consolidated financial statements are prepared in U.S. dollars. For amounts disclosed in Japanese yen, an exchange rate of ¥158.18 Japanese yen to $1.00 U.S. dollar was used based on the Telegraphic Transfer Middle Rate quoted by Mitsubishi UFJ Financial Group’s official index as of December 30, 2024. This rate is also used for amounts disclosed in Japanese yen for prior periods in order to exclude the impact from the change in foreign currency exchange rates when comparing financial results in the current period to those in the prior period, which is permitted according to the current disclosure requirements for Tanshin in Japan.

The Company’s comprehensive income for the year ended December 31, 2024 and 2023 was $19.2 million (¥3,031.4 million) and $18.0 million (¥2,843.1 million), respectively. The Company’s non-GAAP operating income for the year ended December 31, 2024 was $20.7 million (¥3,268.6 million) based on the exclusion of stock-based compensation of $1.6 million (¥251.0 million). The Company’s non-GAAP net income for the year ended December 31, 2024 was $20.6 million (¥3,251.2 million) based on the exclusion of stock-based compensation of $1.6 million (¥251.0 million) and the related income tax impact based on a 13.49% effective tax rate. The Company’s non-GAAP operating income for the year ended December 31, 2023 was $19.6 million (¥3,096.7 million) based on the exclusion of stock-based compensation of $1.6 million (¥245.5 million). The Company’s non-GAAP net income for the year ended December 31, 2023 was $19.2 million (¥3,034.2 million) based on the exclusion of stock-based compensation of $1.6 million (¥245.5 million) and the related income tax impact based on a 11.56% effective tax rate.

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Audit Procedures:

This Tanshin is not in the scope of audit procedures by the Company’s independent auditors under the Financial Instruments and Exchange Act of Japan. Additionally, as of the date of this Tanshin, audit procedures performed in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”) in the United States have yet to be completed. The Company’s independent auditors have not compiled or been involved in the preparation of the forecasted financial results for the year ending December 31, 2025. Accordingly, they assume no responsibility for the accuracy or presentation of this information.

Forward Looking Statements:

The Tanshin includes forward-looking statements that involve a number of risks and uncertainties, many of which are beyond the Company’s control. The Company’s actual results may differ from those anticipated or expressed in these forward-looking statements as a result of various factors. All statements other than statements of historical facts contained in the Tanshin, including statements regarding the Company’s future results of operations, revenue and financial position, strategy and plans, the Company’s expectations for future operations and plans to declare dividends, are forward-looking statements. The Company has based these forward-looking statements largely on its current expectations and projections about future events and trends that it believes may affect the Company’s financial condition, results of operations, strategy, short-term and long-term business operations and objectives, and financial needs. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in the Tanshin may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance, or achievements. Any forward-looking statement made by the Company in the Tanshin speaks only as of the date on which it is made. The Company disclaims any duty to update any of these forward-looking statements after the date of the Tanshin, except as required by law.

Investors Meeting:

Please refer to the Company’s website for details on its Investors Meetings for holders of the Company’s Japanese depositary shares (“JDSs”).

Appendix Index

The Company’s consolidated financial statements are prepared in U.S. dollars. For amounts disclosed in Japanese yen, an exchange rate of ¥158.18 Japanese yen to $1.00 U.S. dollar was used based on the Telegraphic Transfer Middle Rate quoted by Mitsubishi UFJ Financial Group’s official index as of December 30, 2024. This rate is also used for amounts disclosed in Japanese yen for prior periods in order to exclude the impact from the change in foreign currency exchange rates when comparing financial results in the current period to those in the prior periods, which is permitted according to the current disclosure requirements for Tanshin in Japan. The Company’s JDSs are traded on the Growth market of the Tokyo Stock Exchange. Each JDS represents one share of common stock.

Revenue

Revenue increased $5.0 million, or 8%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023. This was attributable to a $6.7 million increase in automotive market revenue as a result of an increase in the volume of shipments offset by a decrease in average selling price attributable to product mix. Security surveillance market revenue decreased by $1.8 million due to a decrease in the volume of shipments and a decrease in average selling prices attributable to product mix.

Product pricing increases or decreases in the Company’s target markets in response to increased or decreased manufacturing costs. Additionally, fluctuations in the Company’s overall average selling price are directly attributable to changes in product mix given the natural pricing variation of the products in the Company’s portfolio and customer base. When the product mix shifts towards higher priced products in the Company’s portfolio, the average selling price will be higher than when the product mix shifts towards lower price point products.

Revenue by geographic region

The table below sets forth the major components of revenues by the geographic region to which products were delivered as a percentage of total revenues for the year ended December 31, 2024 and 2023:

Cost of revenue and gross margin

Cost of revenue increased $1.6 million, or 5%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Gross margin increased to 54% for the year ended December 31, 2024 from 53% for the year ended December 31, 2023, due to changes in product mix, and average unit selling prices. The Company expects gross margins to fluctuate in future periods due to changes in product mix, average unit selling prices, manufacturing costs, adjustments to inventory, if any, and end market product demand.

Research and development expense

Research and development expense increased $1.3 million, or 18%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, due to a $0.5 million increase in tape-out and design service cost, a $0.5 million increase in software cost, and a $0.3 million increase in personnel cost.

Selling, general and administrative expense

Selling, general and administrative expenses increased by $1.0 million, or 11%, for the year ended 2024 as compared to the year ended December 31, 2023, due to a $0.6 million increase in professional service cost, a $0.3 million increase in personnel cost, and a $0.1 million increase in other general administrative expenses.

Other income – net

Other income - net for the year ended December 31, 2024 increased by $1.0 million, or 47% as compared to the year ended December 31, 2023, primarily due to a $0.8 million increase in interest income, and a $0.1 million increase due to reimbursement of fixed asset purchased and depreciated previously.

Provision for income taxes

The provision for income taxes increased by $0.7 million, or 28%, for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily due to an increase in profit before taxes.

Net Income

As a result of the foregoing, net income increased by $1.4 million, or 8% for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

The Company's cash, cash equivalents and short-term investments as of December 31, 2024 were $72.3 million. The Company believes its existing cash, cash equivalents, short-term investments and the cash it expects to generate from operations will be sufficient to meet its anticipated cash needs for at least the next 12 months.

Operating activities

The Company expects cash inflows from operating activities to be affected by fluctuations in sales. The Company’s primary uses of cash from operating activities have been for personnel costs and investments in research and development and sales and marketing.

During the year ended December 31, 2024, net cash provided by operating activities was $14.7 million, due to net income of $19.2 million, non-cash charges of $1.1 million, and net cash outflows from changes in operating assets and liabilities of $5.6 million.

Non-cash charges totaled $1.1 million, primarily consisting of stock-based compensation of $1.6 million, amortization of operating lease right-of-use assets of $0.7 million, and depreciation and amortization of $0.4 million, partially offset by accretion of premium on available-for-sale investments of $1.3 million, and increase in deferred tax assets of $0.2 million.

Net cash outflows from changes in operating assets and liabilities totaled $5.6 million, primarily consisting of a $4.8 million increase in inventory, net of valuation adjustment, as units manufactured during the period and on hand were more than product sales, a $0.5 million increase in accounts receivable, a $0.5 million decrease in other liabilities, and a $0.3 million increase in prepaid expenses. Outflows were partially offset by the inflow from a $0.4 million increase in customer deposit, and a $0.2 million increase in accounts payable.

Investing activities

During the year ended December 31, 2024, cash provided by investing activities was $48.8 million, primarily attributable to proceeds from maturity of debt securities, net of investments in debt securities.

Financing activities

During the year ended December 31, 2024,cash used in financing activities was approximately $9.3 million, primarily due to payment of dividends totaling $9.2 million in February and July of 2024.

Dividend policy

The Company’s Board of Directors (the “Board”) has adopted a dividend policy to link dividend payments to business performance on an ongoing basis. The amount to be paid in future dividends will be reviewed by the Board, with an aggregate dividend target amount for each fiscal year equal to approximately 50% of the Company’s annual non-GAAP net income for the prior fiscal year. The Company anticipates making payment of future dividends in two installments following its December 31 year end. This policy can be modified or terminated at any time at the discretion of the Board, including the Board’s determination to cease paying dividends in the future. The payments will be made in accordance with and subject to the terms of the Trust Agreement dated August 31, 2017 between the Company; Mizuho Securities Co., Ltd.; Mitsubishi UFJ Trust and Banking Corporation; and The Master Trust Bank of Japan, Ltd., which agreement governs the rights of JDS holders.

2025 dividend

On December 17, 2024, the Company announced a cash dividend of an aggregate of $0.50 per share for fiscal year 2025, payable in two equal installments of $0.25 per share. The first installment of the dividend has been accrued as of December 31, 2024 in the amount of $4.7 million and is payable to stockholders of record as of January 31, 2025. The payment date for the first installment on its shares of common stock (including common stock underlying its JDSs) will be on or around February 14, 2025. The second installment of the dividend is not accrued as of December 31, 2024 because it is anticipated to be paid in the third fiscal quarter of 2025 and the declaration of the second installment is subject to the Board approval and applicable law. The Board reserves the right to cancel dividend payments prior to the applicable payment date in its discretion. The Company intends to provide additional information about the second installment of the dividend in the second fiscal quarter of 2025. The timing for receipt of the dividend payments by individual holders of common stock and

JDSs will vary due to the payment process for JDS holders. The amount paid to JDS holders will be reduced by any applicable U.S. withholding income tax, and then converted into Japanese yen. Once the dividend is converted into Japanese yen, a distribution payment fee and any additional local taxes will be paid from the distribution amount. As a result, the net amount of the first dividend installment that is ultimately received by JDS holders will be less than $0.25 per JDS. The Company anticipates that JDS holders will receive the payment of the first installment of the fiscal year 2025 dividend in their accounts in late-March 2025.

None.

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