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IIJ Announces First Three Months Financial Results for the Fiscal Year Ending March 31, 2016

TOKYO, Aug. 7, 2015 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (NASDAQ:IIJI) (TSE:3774) today announced its consolidated financial results for the first three months of the fiscal year ending March 31, 2016 ("1Q15", from April 1, 2015 to June 30, 2015).1

 
Highlights of Financial Results for 1Q15
Revenues JPY31,464 million (up 14.2% YoY)
Operating Income JPY1,141 million (up 48.5% YoY)
Net Income attributable to IIJ JPY721 million (up 46.8% YoY)
 

Overview of 1Q15 Financial Results and Business Outlook

"We continue to see revenue accumulation at an accelerated pace under favorable market situation where demands for mobile, cloud and systems integration continue to be strong. 1Q15 three-month revenue growth rate year over year ("YoY") increased to 14.2% from 11.7% in 4Q14 and 8.2% in 3Q14," said Eijiro Katsu, President and COO of IIJ.

"Consumer mobile has been particularly strong; its subscription increased by 97 thousand in 1Q15, compared to 91 thousand increase in 4Q14 and 94 thousand in 3Q14. Strong 1Q15 growth was related to 1Q seasonality2 as well as our updated competitive price plan.3 Furthermore, we've enhanced a sales partnership with one of the largest retailers in Japan, Aeon, who started to handle MNP4 transaction in their 209 stores nationwide from July. Systems operation and maintenance, which includes private cloud revenues,5 also showed a strong revenue growth of 23.5% YoY in 1Q15," continued Katsu.

"1Q15 operating income grew by 48.5% YoY to JPY1.1 billion. We recognized a temporary positive impact of approx. JPY0.27 billion related to NTT Docomo's mobile interconnectivity cost. We applied our supposed annual decrease rate of 15% for interconnectivity telecommunications service charge per bandwidth, which should be fixed in March 2016, to our mobile infrastructure usage during FY2014.6 Last fiscal year, we recognized the same positive impact of approx. JPY0.29 billion in 2Q. Although 1Q contribution to the full fiscal year is small, we think we had a good start for FY2015," said Katsu.

1 Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with U.S. GAAP. All financial figures are unaudited and consolidated.

2 New fiscal year generally begins in April in Japan when new jobs, new school and moving, for example, trigger many changes in people's living environment.

3 We increased bundled data volume with the same monthly charge under the new price plan, which went effective in April 2015. For detail, please refer to our press release: http://www.iij.ad.jp/en/news/pressrelease/2015/0310.html

4 Mobile Number Portability known as MNP enables mobile phone users to retain their phone number when switching from one mobile phone carrier to another.

5 Approx. 85% of 1Q15 cloud revenues were recognized in systems operation and maintenance.

6 NTT Docomo's FY2013 mobile interconnectivity telecommunications service charge per bandwidth, which was fixed in March 2015, decreased by 23.5% from a year ago. The same charge for FY2014 should be fixed in March 2016. In the meantime, NTT Docomo's bill for FY2015 mobile interconnectivity usage has been 25% off temporarily from April 2015. During FY2015, IIJ has been calculating its mobile interconnectivity costs by applying our supposed annual decrease rate of 15%. In 1Q15, IIJ recognized a deduction amount which amounted to approx. JPY0.27 billion for FY2014 mobile interconnectivity cost by applying our supposed annual decrease rate of 15% to our FY2014 mobile infrastructure usage.

"We're happy to announce about our new services which will be launched this fall. The new cloud services, "IIJ GIO Infrastructure P2," offers reliable public cloud infrastructure with increased processing performance as well as private cloud infrastructure which can be accessed instantly through an online application form.7 The new network service, "IIJ Omnibus Service," which incorporates SDN and NFV technologies,8 automatically offers several network elements.9 We see a rapid increase in demands for Internet security as a response to the recent security incidents and threats. Our new security solution, which was launched in July, responds to cyber-attacks by collecting log data from a variety of customers' networking devises.10 Together with our existing multi-layered security services and solution line-ups, we can serve the needs of large Japanese enterprises and governmental organizations. We firmly believe continuous development and offering of innovative and highly reliable services/solutions should promote Japanese enterprises to outsource their IT systems, strengthen our cross-selling business model and ultimately contribute to our sustainable business growth," concluded Koichi Suzuki, Founder and CEO of IIJ.

1Q15 Financial Results Summary

Operating Results Summary
  1Q14 1Q15 YoY %
Change
JPY millions JPY millions
Total revenues 27,552 31,464 14.2
Network services 16,800 18,481 10.0
Systems integration (SI) 9,457 11,074 17.1
Equipment sales 466 946 102.9
ATM operation business 829 963 16.2
Total costs 22,555 25,806 14.4
Network services 13,214 14,702 11.3
Systems integration (SI) 8,322 9,591 15.3
Equipment sales 417 859 105.8
ATM operation business 602 654 8.5
SG&A expenses and R&D 4,229 4,517 6.8
Operating income 768 1,141 48.5
Income before income tax expense 827 1,278 54.5
Net income attributable to IIJ 491 721 46.8
Segment Results Summary
  1Q14 1Q15
JPY millions JPY millions
Total revenues 27,552 31,464
Network services and SI business 26,819 30,597
ATM operation business 829 963
Elimination (96) (96)
Operating income 768 1,141
Network service and SI business 608 910
ATM operation business 189 265
Elimination (29) (34)

We have omitted segment analysis because most of our revenues are dominated by network services and systems integration (SI) business.

7 For detail, please refer to our press release: http://www.iij.ad.jp/en/news/pressrelease/2015/0714.html

8 Software Defined Networking known as SDN is often defined as a technology in which entire network is centrally controlled by software to dynamically configure the network. Network Function Virtualization known as NFV is often defined as a technology that virtualizes functions previously implemented using dedicated devises and instead, implements them as software on standard high-volume servers.

9 For detail, please refer to our press release: http://www.iij.ad.jp/en/news/pressrelease/2015/0715.html

10 For detail, please refer to our press release: http://www.iij.ad.jp/en/news/pressrelease/2015/0707.html

1Q15 Results of Operation

Revenues

Total revenues were JPY31,464 million, up 14.2% YoY.

Network services revenue was JPY18,481 million, up 10.0% YoY.

Revenues for Internet connectivity services for enterprise were JPY4,068 million, down 0.6% YoY from JPY4,093 million for 1Q14. There were increase in enterprise mobile service revenues and decrease in IP services revenues including data center connectivity services revenues.

Revenues for Internet connectivity services for consumer were JPY3,102 million, up 81.0% YoY from JPY1,714 million for 1Q14, mainly due to the revenue growth of consumer mobile services "IIJmio High-speed Mobile/D service," consumer mobile services which offers inexpensive data communication and voice services with SIM cards.

WAN services revenues were JPY6,216 million, up 3.9% YoY compared to JPY5,985 million for 1Q14.

Outsourcing services revenues were JPY5,095 million, up 1.7% YoY from JPY5,008 million for 1Q14.

Network Services Revenues Breakdown
1Q15 1Q14 YoY %
Change
4Q14 QoQ %
Change
JPY millions JPY millions JPY millions
Internet connectivity services (Enterprise) 4,068 4,093 (0.6) 4,062 0.1
IP service*1 2,341 2,500 (6.4) 2,406 (2.7)
IIJ FiberAccess/F and IIJ DSL/F 771 784 (1.6) 777 (0.7)
IIJ Mobile service (Enterprise) 889 752 18.2 819 8.5
Others 67 57 17.3 60 11.0
Internet connectivity services (Consumer) 3,102 1,714 81.0 2,469 25.6
IIJ*2 2,434 995 144.7 1,790 35.9
hi-ho 668 719 (7.0) 679 (1.5)
WAN services 6,216 5,985 3.9 6,181 0.6
Outsourcing services 5,095 5,008 1.7 5,132 (0.7)
Total network services 18,481 16,800 10.0 17,844 3.6
*1 IP service revenues include revenues from the data center connectivity service.
*2 From 1Q15, what were formerly known as "Under IIJ brand" and "OEM" are now merged under a newly created category "IIJ."
Number of Contracts and Subscription for Connectivity Services*1
as of
June 30,
2015
as of
June 30,
2014
YoY
Change
as of
March 31,
2015
QoQ
Change
Internet connectivity services (Enterprise) 298,385 192,508 105,877 253,549 44,836
IP service (-99Mbps) 737 810 (73) 763 (26)
IP service (100Mbps-999Mbps) 499 461 38 504 (5)
IP service (1Gbps-) 334 284 50 340 (6)
IIJ Data center connectivity service 273 288 (15) 278 (5)
IIJ FiberAccess/F and IIJ DSL/F 65,759 54,564 11,195 62,926 2,833
IIJ Mobile service (Enterprise) *2 229,492 134,767 94,725 187,429 42,063
Others 1,291 1,334 (43) 1,309 (18)
Internet connectivity services (Consumer) *2 996,367 665,288 331,079 891,519 104,848
IIJ*2 841,751 508,032 333,719 734,311 107,440
hi-ho*2 154,616 157,256 (2,640) 157,208 (2,592)
Total contracted bandwidth*3 1912.0Gbps 1581.4Gbps 330.6Gbps 1730.8Gbps 181.2Gbps
*1. Numbers in the table show number of contracts except for "IIJ Mobile service (Enterprise)," "IIJ" and "hi-ho" which show number of subscriptions.
*2. From 1Q15, the following changes are made to the table for "Number of Contracts and Subscription for Connectivity Services":
(1) Number of subscriptions related to "IIJ Mobile MVNO platform services" are now classified under "IIJ Mobile service (Enterprise)" in Internet connectivity services (Enterprise). They were formerly classified under "OEM" in Internet connectivity services (Consumer).
(2) A counting unit of mobile related services has been changed from number of contracts to number of subscriptions.
(3) Under Internet connectivity services (Consumer), what were formerly known as "Under IIJ brand" and "OEM" are now merged under a newly created category "IIJ."
(4) Number of subscriptions for prepaid SIM cards are added to "IIJ" in Internet connectivity services (Consumer).
*3. Regarding IP service, data center connectivity service and IIJ FiberAccess/F and IIJ DSL/F of Internet connectivity services (Enterprise), total contracted bandwidths are calculated by multiplying number of contracts by contracted bandwidths respectively.
*4. Below is a table reflecting the changes mentioned in the above note *1 and *2 for FY2014.
FY2014
as of as of as of as of
June 30, 2014 Sep 30, 2014 Dec 31, 2014 Mar 31, 2015
Internet connectivity services (Enterprise) 192,508 204,885 218,312 253,549
IIJ Mobile service (Enterprise) 134,767 142,832 153,743 187,429
Internet connectivity services (Consumer) 665,288 697,243 795,412 891,519
IIJ 508,032 540,205 637,958 734,311
hi-ho 157,256 157,038 157,454 157,208

SI revenues were JPY11,074 million, up 17.1% YoY.

Systems construction revenue, a one-time revenue, was JPY3,203 million, up 3.8% YoY. Revenue increased mainly due to the increase in the number and the scale of systems construction projects. Systems operation and maintenance revenue, a recurring revenue, was JPY7,871 million, up 23.5% YoY mainly due to the continuous accumulation of systems construction projects that were shifted to system operation and maintenance.

Orders received for SI and equipment sales totaled JPY13,794 million, up 13.3% YoY; orders received for systems construction and equipment sales were JPY6,308 million, up 44.1% YoY and orders received for systems operation and maintenance were JPY7,486 million, down 4.1% YoY. In 1Q15, we received a systems construction order related to a large scale network integration project which amounts to approx. JPY2.1 billion.

Order backlog for SI and equipment sales as of June 30, 2015 amounted to JPY30,827 million, up 16.0% YoY; order backlog for systems construction and equipment sales was JPY6,893 million, up 16.3% YoY and order backlog for systems operation and maintenance was JPY23,934 million, up 16.0% YoY.

Equipment sales revenues were JPY946 million, up 102.9% YoY mainly due to an increase in portable devises and similar products along with an increase in mobile related services.

ATM operation business revenues were JPY963 million, up 16.2% YoY. The increase was in accordance with the increase in the number of placed ATMs. As of June 30, 2015, 1,081 ATMs have been placed.

Cost and expense

Total cost of revenues was JPY25,806 million, up 14.4% YoY.

Cost of network services revenue was JPY14,702 million, up 11.3% YoY. There was an increase in mobile related cost along with an increase in mobile related revenue. On the other hand, we had a temporary positive impact of approx. JPY0.27 billion related to NTT Docomo's mobile interconnectivity cost by applying supposed annual decrease rate of 15% to our mobile infrastructure usage during FY2014. Gross margin was JPY3,779 million, up 5.4% YoY and gross margin ratio was 20.4% compared to 21.3% in 1Q14.

Cost of SI revenues was JPY9,591 million, up 15.3% YoY. The increase was mainly due to the increase in outsourcing-related and personnel-related costs. Gross margin was JPY1,483 million, up 30.6% YoY and gross margin ratio was 13.4% compared to 12.0% in 1Q14.

Cost of equipment sales revenues was JPY859 million, up 105.8% YoY. Gross margin was JPY87 million and gross margin ratio was 9.2% compared to 10.5% in 1Q14.

Cost of ATM operation business revenues was JPY654 million, up 8.5% YoY in accordance with increase in the number of placed ATMs. Gross margin was JPY310 million and gross margin ratio was 32.1% compared to 27.4% in 1Q14.

SG&A and R&D expenses

SG&A and R&D expenses in total were JPY4,517 million, up 6.8 % YoY (JPY4,229 million in 1Q14).

Sales and marketing expenses were JPY2,507 million, up 10.2% YoY. The increase was mainly due to the increase personnel-related expenses and sales commission expenses, especially related to mobile services.

General and administrative expenses were JPY1,903 million, up 4.1% YoY. The increase was mainly due to the increase in personnel-related expenses.

Research and development expenses were JPY107 million, down 14.0% YoY.

Operating income

Operating income was JPY1,141 million, up 48.5% YoY (JPY768 million for 1Q14).

Other income (expenses)

Other income (expenses) was an income of JPY137 million (an income of JPY59 million for 1Q14), mainly due to distribution of JPY96 million (included in other-net of JPY100 million) and dividend income of JPY63 million from other investments and interest expense of JPY57 million.

Income before income tax expenses

Income before income tax expenses was JPY1,278 million, up 54.5% YoY (JPY827 million for 1Q14).

Net income

Income tax expense was JPY561 million (JPY352 million for 1Q14).

Equity in net income of equity method investees was JPY61 million (JPY34 million for 1Q14) mainly due to net income of Internet Multifeed Co.

As a result of the above, net income was JPY778 million, up 52.9% YoY (JPY509 million for 1Q14).

Net income attributable to IIJ

Net income attributable to non-controlling interests was JPY57 million mainly related to net income of Trust Networks Inc. (JPY18 million for 1Q14).

Net income attributable to IIJ was JPY721 million, up 46.8% YoY (JPY491 million for 1Q14).

1Q15 Financial Condition

Balance sheets

As of June 30, 2015, the balance of total assets was JPY107,292 million, decreased by JPY1,413 million from the balance as of March 31, 2015 of JPY108,705 million.

As for current assets as of June 30, 2015, as compared to the respective balances as of March 31, 2015, accounts receivable decreased by JPY3,070 million, prepaid expenses increased by JPY1,751 million and cash and cash equivalents decreased by JPY1,089 million. As for noncurrent assets as of June 30, 2015, as compared to the respective balances as of March 31, 2015, property and equipment increased by JPY375 million. As for current liabilities as of June 30, 2015, as compared to the respective balances as of March 31, 2015, accounts payable decreased by JPY1,771 million and income taxes payable decreased by JPY294 million.

As for the balances of capital lease obligations as of June 30, 2015, as compared to the respective balances as of March 31, 2015, capital lease obligations-current portion decreased by JPY178 million to JPY3,344 million and capital lease obligations-noncurrent decreased by JPY206 million to JPY4,134 million.

As of June 30, 2015, the balance of other investments increased by JPY406 million to JPY7,067 million. The breakdown of other investments were JPY4,496 million in available-for-sale securities, JPY1,592 million in investments in funds, including some through a trust, and JPY979 million in nonmarketable equity securities.

As of June 30, 2015, the breakdown of major non-amortized intangible assets were JPY6,170 million in goodwill and JPY108 million in trademark. The balance of amortized intangible assets, which was customer relationships, was JPY3,708 million.

Total IIJ shareholders' equity as of June 30, 2015 compared to the balance as of March 31, 2015, increased by JPY295 million to JPY62,800 million. IIJ shareholders' equity ratio (total IIJ shareholders' equity divided by total assets) as of June 30, 2015 was 58.5%.

Cash flows

Cash and cash equivalents as of June 30, 2015 were JPY20,004 million compared to JPY20,421 million as of June 30, 2014.

Net cash provided by operating activities for 1Q15 was JPY2,498 million compared to net cash provided by operating activities of JPY2,855 million for 1Q14. While 1Q15 operating income increased compared to 1Q14, there were effects of changes in operating assets and liabilities such as an increase in prepaid expenses.

Net cash used in investing activities for 1Q15 was JPY2,053 million compared to net cash used in investing activities of JPY3,339 million for 1Q14, mainly due to payments for purchase of property and equipment of JPY2,370 million (JPY1,936 million for 1Q14).

Net cash used in financing activities for 1Q15 was JPY1,539 million compared to net cash used in financing activities of JPY1,509 million for 1Q14, mainly due to principal payments under capital leases of JPY1,034 million (JPY1,004 million for 1Q14) and FY2014 year-end dividends payments of JPY505 million (JPY505 million for 1Q14).

Prospects for the Fiscal Year Ending March 31, 2016

Due to seasonal factors, our financial results tend to be weak in first quarter and strong in fourth quarter every fiscal year, and our FY2015 financial targets announced on May 15, 2015 remain unchanged. We had a temporary positive impact of approx. JPY0.27 billion in 1Q15 as we applied our supposed annual decrease rate to NTT Docomo's mobile interconnectivity charge, which should be fixed in March 2016, for our mobile infrastructure usage during FY2014. We also had the same temporary positive impact of approx. JPY0.29 billion in last fiscal year's 2Q.

Reconciliation of Non-GAAP Financial Measures

The following table summarizes the reconciliation of adjusted EBITDA to net income attributable to IIJ in our consolidated statements of income that are prepared in accordance with U.S. GAAP.

Adjusted EBITDA
1Q14 1Q15
JPY millions JPY millions
Adjusted EBITDA 3,080 3,480
Depreciation and Amortization*1 (2,312) (2,339)
Operating Income 768 1,141
Other Income 59 137
Income Tax Expense 352 561
Equity in Net Income of Equity Method Investees 34 61
Net income 509 778
Less: Net income attributable to noncontrolling interests (18) (57)
Net Income attributable to IIJ 491 721
*1 Depreciation and amortization includes impairment loss on other intangible assets. (See IIJ's consolidated financial statements for details)
CAPEX
1Q14 1Q15
JPY millions JPY millions
CAPEX, including capital leases 2,630 3,020
Acquisition of Assets by Entering into Capital Leases 694 650
Purchase of Property and Equipment 1,936 2,370

Presentation

Presentation materials will be posted on our web site (http://www.iij.ad.jp/en/ir/) on August 7, 2015.

About Internet Initiative Japan Inc.

Founded in 1992, IIJ is one of Japan's leading Internet-access and comprehensive network solutions providers. IIJ and its group companies provide total network solutions that mainly cater to high-end corporate customers. IIJ's services include high-quality Internet connectivity services, systems integration, cloud computing services, security services and mobile services. Moreover, IIJ has built one of the largest Internet backbone networks in Japan that is connected to the United States, the United Kingdom and Asia. IIJ listed on the U.S. NASDAQ Stock Market in 1999 and on the First Section of the Tokyo Stock Exchange in 2006.

Statements made in this press release regarding IIJ's or management's intentions, beliefs, expectations, or predictions for the future are forward-looking statements that are based on IIJ's and managements' current expectations, assumptions, estimates and projections about its business and the industry. These forward-looking statements, such as statements regarding FY2015 revenues and operating and net profitability, are subject to various risks, uncertainties and other factors that could cause IIJ's actual results to differ materially from those contained in any forward-looking statement. These risks, uncertainties and other factors include: IIJ's ability to maintain and increase revenues from higher-margin services such as systems integration and outsourcing services; the possibility that revenues from connectivity services may decline substantially as a result of competition and other factors; the ability to compete in a rapidly evolving and competitive marketplace; the impact on IIJ's profits of fluctuations in costs such as backbone costs and subcontractor costs; the impact on IIJ's profits of fluctuations in the price of available-for-sale securities; the impact of technological changes in its industry; IIJ's ability to raise additional capital to cover its indebtedness; the possibility that NTT, IIJ's largest shareholder, may decide to exercise substantial influence over IIJ; and other risks referred to from time to time in IIJ's filings on Form 20-F of its annual report and other filings with the United States Securities and Exchange Commission.

Internet Initiative Japan Inc.
Consolidated Balance Sheets (Unaudited)
(As of March 31, 2015 and June 30, 2015)
As of March 31, 2015 As of June 30, 2015
Thousands of
JPY
Thousands of
JPY
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 21,093,633 20,004,403
Accounts receivable, net of allowance for doubtful accounts of JPY 54,590 thousand and JPY 54,836 thousand at March 31, 2015 and June 30, 2015, respectively 22,251,818 19,181,406
Inventories 1,229,463 1,675,669
Prepaid expenses 3,691,643 5,442,889
Deferred tax assets—current 1,547,474 1,518,683
Other current assets, net of allowance for doubtful accounts of JPY 720 thousand at March 31, 2015 and June 30, 2015, respectively 2,272,605 2,334,753
Total current assets 52,086,636 50,157,803
INVESTMENTS IN EQUITY METHOD INVESTEES 2,560,557 2,590,234
OTHER INVESTMENTS 6,660,706 7,066,937
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of JPY 39,591,769 thousand and JPY 40,235,363 thousand at March 31, 2015 and June 30, 2015, respectively 29,370,054 29,745,390
GOODWILL 6,169,609 6,169,609
OTHER INTANGIBLE ASSETS—Net 3,941,279 3,844,937
GUARANTEE DEPOSITS 2,800,201 2,797,406
DEFERRED TAX ASSETS—Noncurrent 471,087 369,212
NET INVESTMENT IN SALES-TYPE LEASES—Noncurrent 762,159 662,756
Prepaid expenses—Noncurrent 2,914,375 2,964,475
OTHER ASSETS, net of allowance for doubtful accounts of JPY 92,935 thousand and JPY 67,647 thousand at March 31, 2015 and June 30, 2015, respectively 968,652 923,264
TOTAL 108,705,315 107,292,023
As of March 31, 2015 As of June 30, 2015
Thousands of
JPY
Thousands of
JPY
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings 9,250,000 9,250,000
Capital lease obligations—current portion 3,522,113 3,343,719
Accounts payable—trade 12,182,908 10,603,590
Accounts payable—other 1,442,810 1,250,781
Income taxes payable 499,104 205,325
Accrued expenses 2,968,139 3,166,471
Deferred income—current 2,143,480 2,616,738
Other current liabilities 1,732,781 1,738,065
Total current liabilities 33,741,335 32,174,689
CAPITAL LEASE OBLIGATIONS—Noncurrent 4,340,421 4,134,431
ACCRUED RETIREMENT AND PENSION COSTS—Noncurrent 2,792,617 2,818,780
DEFERRED TAX LIABILITIES—Noncurrent 1,097,650 1,143,270
DEFERRED INCOME—Noncurrent 2,943,975 2,871,423
OTHER NONCURRENT LIABILITIES 945,537 948,951
Total Liabilities 45,861,535 44,091,544
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common-stock—authorized, 75,520,000 shares; issued and outstanding, 46,701,000 shares at March 31, 2015 and June 30, 2015, respectively 25,499,857 25,499,857
Additional paid-in capital 36,014,128 36,027,652
Accumulated deficit (556,162) (340,488)
Accumulated other comprehensive income 1,938,649 2,004,792
Treasury stock —758,709 shares held by the company at March 31, 2015 and June 30, 2015, respectively (392,070) (392,070)
Total Internet Initiative Japan Inc. shareholders' equity 62,504,402 62,799,743
NONCONTROLLING INTERESTS 339,378 400,736
Total equity 62,843,780 63,200,479
TOTAL 108,705,315 107,292,023
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Income and
Quarterly Consolidated Statements of Other Comprehensive Income (Unaudited)
(For the three months ended June 30, 2014 and June 30, 2015)
Three Months Ended
June 30, 2014
Three Months Ended
June 30, 2015
Thousands of
JPY
Thousands of
JPY
REVENUES:
Network services:
Internet connectivity services (enterprise) 4,092,430 4,067,441
Internet connectivity services (consumer) 1,713,742 3,102,048
WAN services 5,985,212 6,216,087
Outsourcing services 5,007,891 5,095,159
Total 16,799,275 18,480,735
Systems integration:
Systems construction 3,084,319 3,202,545
Systems operation and maintenance 6,373,163 7,871,174
Total 9,457,482 11,073,719
Equipment sales 466,221 945,890
ATM operation business 829,249 963,257
Total revenues 27,552,227 31,463,601
COST AND EXPENSES:
Cost of network services 13,213,441 14,702,015
Cost of systems integration 8,321,833 9,591,101
Cost of equipment sales 417,241 858,575
Cost of ATM operation business 602,245 653,677
Total cost 22,554,760 25,805,368
Sales and marketing 2,276,043 2,507,084
General and administrative 1,829,349 1,903,671
Research and development 124,015 106,701
Total cost and expenses 26,784,167 30,322,824
OPERATING INCOME 768,060 1,140,777
OTHER INCOME (EXPENSE):
Dividend income 25,350 63,043
Interest income 4,917 4,572
Interest expense (61,402) (57,103)
Foreign exchange gains (losses) (15,499) 27,293
Other —net 105,932 99,689
Other income—net 59,298 137,494
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES 827,358 1,278,271
INCOME TAX EXPENSE 352,253 561,301
EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES 33,904 61,469
NET INCOME 509,009 778,439
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS (17,938) (57,400)
NET INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC. 491,071 721,039
Three Months Ended
June 30, 2014
Three Months Ended
June 30, 2015
NET INCOME PER SHARE
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 45,942,291 45,942,291
DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 46,004,747 46,029,883
BASIC WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) 91,884,582 91,884,582
DILUTED WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) 92,009,494 92,059,766
BASIC NET INCOME PER SHARE (JPY) 10.69 15.69
DILUTED NET INCOME PER SHARE (JPY) 10.67 15.66
BASIC NET INCOME PER ADS EQUIVALENT (JPY) 5.34 7.85
DILUTED NET INCOME PER ADS EQUIVALENT (JPY) 5.34 7.83
Quarterly Consolidated Statements of Other Comprehensive Income (Unaudited)
Three Months Ended
June 30, 2014
Three Months Ended
June 30, 2015
Thousands of
JPY
Thousands of
JPY
NET INCOME 509,009 778,439
Comprehensive income (loss):
Foreign currency translation adjustments (40,988) (51,269)
Unrealized holding gain (loss) on securities (495,948) 121,786
Defined benefit pension plans 59 (416)
Total comprehensive income (27,868) 848,540
Less: Comprehensive income attributable to noncontrolling interests (18,056) (61,358)
Comprehensive income attributable to Internet Initiative Japan Inc. (45,924) 787,182
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Cash Flows (Unaudited)
(For the three months ended June 30, 2014 and June 30, 2015)
Three Months Ended
June 30, 2014
Three Months Ended
June 30, 2015
Thousands of
JPY
Thousands of
JPY
OPERATING ACTIVITIES:
Net income 509,009 778,439
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,312,086 2,339,387
Provision for retirement and pension costs—less payments 61,230 26,163
Provision for allowance for doubtful accounts 1,495 14,915
Gain on sales of property and equipment (29,038) (20,930)
Loss on disposal of property and equipment 5,702 30,606
Foreign exchange losses (gains)—net 2,655 (23,963)
Equity in net income of equity method investees, less dividends received (33,904) (61,469)
Deferred income tax expense 132,402 111,398
Others 5,709 (8,295)
Changes in operating assets and liabilities net of effects from acquisition of a company:
Decrease in accounts receivable 1,911,247 3,041,751
Decrease in net investment in sales-type lease — noncurrent 148,895 99,403
Increase in inventories (267,798) (448,377)
Increase in prepaid expenses (1,408,944) (1,753,447)
Decrease (increase) in other current and noncurrent assets 450,534 (391,447)
Decrease in accounts payable (1,634,123) (1,581,146)
Decrease in income taxes payable (912,999) (293,613)
Increase in accrued expenses 103,042 201,517
Increase in deferred income—current 506,535 480,357
Decrease in deferred income—noncurrent (79,509) (54,803)
Increase in other current and noncurrent liabilities 1,070,776 11,354
Net cash provided by operating activities 2,855,002 2,497,800
INVESTING ACTIVITIES:
Purchase of property and equipment (1,935,917) (2,370,014)
Proceeds from sales of property and equipment 270,647 218,600
Purchase of available-for-sale securities -- (12,178)
Purchase of other investments (91,403) (228,379)
Investment in an equity method investee (50,000) --
Proceeds from sales of available-for-sale securities -- 141,235
Proceeds from sales of other investments 7,887 4,000
Payments of guarantee deposits (1,536,768) (2,620)
Refund of guarantee deposits 7,358 1,434
Payments for refundable insurance policies (11,176) (14,091)
Refund from insurance policies -- 10,108
Proceeds from subsidies -- 200,000
Other -- (666)
Net cash used in investing activities (3,339,372) (2,052,571)
Three Months Ended
June 30, 2014
Three Months Ended
June 30, 2015
Thousands of
JPY
Thousands of
JPY
FINANCING ACTIVITIES:
Proceeds from issuance of short-term borrowings with initial maturities over three months -- 1,500,000
Principal payments under capital leases (1,003,824) (1,034,055)
Net decrease in short-term borrowings with initial maturities less than three months -- (1,500,000)
Dividends paid (505,330) (505,365)
Other 3 --
Net cash used in financing activities (1,509,151) (1,539,420)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (6,532) 4,961
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,000,053) (1,089,230)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 22,421,100 21,093,633
CASH AND CASH EQUIVALENTS, END OF THE PERIOD 20,421,047 20,004,403
ADDITIONAL CASH FLOW INFORMATION:
Interest paid 61,400 56,690
Income taxes paid 1,450,035 735,399
NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of assets by entering into capital leases 694,211 650,385
Facilities purchase liabilities 889,368 1,250,781
Going Concern Assumption (Unaudited)
Nothing to be reported.
Material Changes In Shareholders' Equity (Unaudited)
Nothing to be reported.
Segment Information (Unaudited)
Business Segments:
Revenues:
Three Months Ended
June 30, 2014
Three Months Ended
June 30, 2015
Thousands of JPY Thousands of JPY
Network service and systems integration business 26,819,369 30,597,120
Customers 26,722,978 30,500,344
Intersegment 96,391 96,776
ATM operation business 829,249 963,257
Customers 829,249 963,257
Intersegment -- --
Elimination (96,391) (96,776)
Consolidated total 27,552,227 31,463,601
Segment profit or loss:
Three Months Ended
June 30, 2014
Three Months Ended
June 30, 2015
Thousands of JPY Thousands of JPY
Network service and systems integration business 607,629 910,482
ATM operation business 189,437 264,663
Elimination (29,006) (34,368)
Consolidated operating income 768,060 1,140,777
Geographic information is not presented due to immateriality of revenue attributable to international operations.
Subsequent Events (Unaudited)
Nothing to be reported.
Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the three months ended June 30, 2015 ("1Q15") in the form defined by the Tokyo Stock Exchange.
Consolidated Financial Results for the Three Months ended June 30, 2015
[Under accounting principles generally accepted in the United States ("U.S. GAAP")]
August 7, 2015
Company name: Internet Initiative Japan Inc.
Exchange listed: Tokyo Stock Exchange First Section
Stock code number: 3774
URL: http://www.iij.ad.jp/
Representative: Eijiro Katsu, President and Representative Director
Contact: Akihisa Watai, Managing Director and CFO
TEL: (03) 5205-6500
Scheduled date for filing of quarterly report (Shihanki -houkokusho) to Japan's regulatory organization: August 14, 2015
Supplemental material on annual results: Yes
Presentation on quarterly report: Yes (for institutional investors and analysts)
(Amounts of less than JPY one million are rounded)
1. Consolidated Financial Results for the Three Months Ended June 30, 2015 (April 1, 2015 to June 30, 2015)
(1) Consolidated Results of Operations (% shown is YoY change)
Total revenues Operating income Income before
income tax expense
Net income
attributable to IIJ
JPY millions % JPY millions % JPY millions % JPY millions %
Three Months Ended June 30, 2015 31,464 14.2 1,141 48.5 1,278 54.5 721 46.8
Three Months Ended June 30, 2014 27,552 4.2 768 (41.2) 827 (42.2) 491 (48.5)
(Note1) Total comprehensive income attributable to IIJ
For the three months ended June 30, 2015: JPY787 million (-)
For the three months ended June 30, 2014: JPY(46) million (-)
(Note2) Income before income tax expense represents income from operations before income tax expense and equity in net income in equity method investees, respectively, in IIJ's consolidated financial statements.
Basic net income
attributable to IIJ per share
Diluted net income
attributable to IIJ per share
JPY JPY
Three Months Ended June 30, 2015 15.69 15.66
Three Months Ended June 30, 2014 10.69 10.67
(2) Consolidated Financial Position
Total assets Total equity Total IIJ shareholders'
equity
Total IIJ shareholders'
equity to total assets
JPY millions JPY millions JPY millions %
As of June 30, 2015 107,292 63,200 62,800 58.5
As of March 31, 2015 108,705 62,844 62,504 57.5
2. Dividends
Dividend per share
1Q-end 2Q-end 3Q-end Year-end Total
JPY JPY JPY JPY JPY
Fiscal Year Ended March 31, 2015 -- 11.00 -- 11.00 22.00
Fiscal Year Ended March 31, 2016 --
Fiscal Year Ending March 31, 2016 11.00 -- 11.00 22.00
(forecast)
(Note) Change from the latest released dividend forecasts: No.
3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2016
(April 1, 2015 through March 31, 2016)         (% shown is YoY change)
Total revenues Operating income Income before
income tax expense
(benefit)
Net income
attributable to IIJ
Basic net income
attributable to IIJ
per share
JPY millions % JPY millions % JPY millions % JPY millions % JPY
Interim Period Ending September 30, 2015 64,000 11.9 2,450 1.4 2,400 (3.7) 1,500 3.9 32.65
Fiscal Year Ending March 31, 2016 139,000 13.0 6,500 28.1 6,400 24.5 4,000 20.4 87.07
* Notes
(1) Changes in significant subsidiaries for the three months ended June 30, 2015
(Changes in significant subsidiaries for the three months ended June 30, 2015 which resulted in changes in scope of consolidation): None
(2) Changes in significant accounting and reporting policies for the consolidated financial statements
1) Changes due to the revision of accounting standards: No
2) Others: No
(3) Number of shares outstanding (shares of common stock)
1) The number of shares outstanding (inclusive of treasury stock):
As of June 30, 2015: 46,701,000 shares
As of March 31, 2015: 46,701,000 shares
2) The number of treasury stock:
As of June 30, 2015: 758,709 shares
As of March 31, 2015: 758,709 shares
3) The weighted average number of shares outstanding:
For the three months ended June 30, 2015: 45,942,291 shares
For the three months ended June 30, 2014: 45,942,291 shares

CONTACT: For inquiries, contact: IIJ Investor Relations Tel: +81-3-5205-6500 E-mail: ir@iij.ad.jp URL: http://www.iij.ad.jp/en/ir

Source:Internet Initiative Japan Inc.