IIJ Announces its First Three Months Results for the Fiscal

TOKYO, Aug. 10, 2021 (GLOBE NEWSWIRE) — Internet Initiative Japan Inc. (“IIJ”, TSE1: 3774) today announced its consolidated financial results for the first three months for the fiscal year ending March 31, 2022 (“1Q21”, from April 1, 2021 to June 30, 2021) under International Financial Reporting Standards (IFRS)¹

Overview of 1Q21 Financial Results and Business Outlook
“Under the increasing IT utilization by Japanese enterprises, we significantly expanded profit in the last fiscal year. This was realized by our continuous business investment on a long-term basis, including expansion and operation of reliable network infrastructure, development of various service line-ups and business, and enhancement of customer relations. Digital transformation (DX), accelerated by the COVID-19 pandemic, would not be a temporary phenomenon but a long lasting trend which should continue to grow. By leveraging such tailwind circumstance with our competitive advantages, we would like to largely expand our business scale in the middle-to-long term,” said Koichi Suzuki, Founder and Chairman of IIJ.

“As the first fiscal year of our new Mid-term Plan, we are pleased to announce that we had a strong start. In 1Q21, we saw strong demands from Japanese enterprises in various industries for both network services and systems integration. Driven by the continuous demands for network services, such as IP services⁴, outsourcing services, which includes security services, and WAN services, we continuously accumulated recurring revenues⁵, 85.8% of 1Q21 total revenues. With regard to systems integration, we strongly accumulated order received for systems construction which increased by 30.5% YoY, as well as expanded 1Q21 system integration revenue and gross profit, which included our new consolidated subsidiary PTC⁶ in Singapore,” said Eijiro Katsu, President of IIJ.

“By realizing our ongoing strategy, we would be able to continuously achieve profit growth as well, which should be reflected in our shareholder return. Accordingly, we expect our market value to increase by which we believe it gives us more flexibility to our strategies including pursuit of M&A opportunities more than ever. Advancement of Internet-related technology and spread of DX would further improve the efficiency of social behavior, and reduce total energy consumption in the long-term. As a leading comprehensive network solution provider in Japan, we would like to contribute to realizing sustainable society through our business activities,” concluded Katsu.

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1 Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with IFRS, unaudited and consolidated.
2 YoY is an abbreviation for year over year change.
3 Net profit is “profit for the year attributable to owners of the parent.”
4 IP services are IIJ’s dedicated-type Internet connectivity services, mainly used by corporate users.
5 Recurring revenues is revenues that users can count on receiving every single month through continuous provision of services.
6 For details, please refer to our press release titled “Notice Regarding Acquisition of Shares in PTC SYSTEM (S) PTE LTD (as a New Subsidiary)” https://www.iij.ad.jp/en/news/pressrelease/2021/pdf/PTC%20SYSTEM_E.pdf

1Q21 Financial Results Summary
We have omitted segment analysis because most of our revenues are dominated by network services and systems integration (SI) business.

1Q21 Revenues and Profit
Revenues
Total revenues were JPY52,975 million, up 5.2% YoY (JPY50,379 million for 1Q20).

Network services revenue was JPY31,475 million, up 1.7% YoY (JPY30,934 million for 1Q20).

Revenues for Internet connectivity services for enterprises were JPY9,410 million, down 4.1% YoY from JPY9,809 million for 1Q20, mainly due to decrease in IIJ Mobile MVNO Platform service, while revenues of IP services and Enterprise mobile services increased.

Revenues for Internet connectivity services for consumers were JPY6,108 million, down 5.4% YoY from JPY6,454 million for 1Q20, mainly due to reduction in unit price of our consumer mobile services.

Revenues for WAN services were JPY6,447 million, up 4.4% YoY from JPY6,175 million for 1Q20.

Revenues for Outsourcing services were JPY9,510 million, up 11.9% YoY from JPY8,496 million for 1Q20, mainly due to an increase in security-related services revenues.

SI revenues, including equipment sales, were JPY20,807 million, up 10.2% YoY (JPY18,875 million for 1Q20).
Systems construction and equipment sales, a one-time revenue, was JPY6,832 million, up 4.3% YoY (JPY6,550 million for 1Q20). Of this amount, revenue of PTC was JPY840 million.
Systems operation and maintenance revenue, a recurring revenue, was JPY13,974 million, up 13.4% YoY (JPY12,325 million for 1Q20), mainly due to continued accumulation of systems operation orders as well as an increase in private cloud services’ revenues. Of this amount, revenue of PTC was JPY473 million.

Orders received for SI, including equipment sales, totaled JPY21,649 million, up 4.9% YoY (JPY20,643 million for 1Q20); orders received for systems construction and equipment sales were JPY8,737 million, up 30.5% YoY (JPY6,693 million for 1Q20), and orders received for systems operation and maintenance were JPY12,911 million, down 7.4% YoY (JPY13,949 million for 1Q20).

Order backlog for SI, including equipment sales, as of June 30, 2021 amounted to JPY67,496 million, up 17.1% YoY (JPY57,631 million as of June 30, 2020); order backlog for systems construction and equipment sales was JPY11,073 million, up 44.7% YoY (JPY7,650 million as of June 30, 2020) and order backlog for systems operation and maintenance was JPY56,424 million, up 12.9% YoY (JPY49,981 million as of June 30, 2020).

ATM operation business revenues were JPY693 million, up 21.7% YoY (JPY570 million for 1Q20).

Cost of sales
Total cost of sales was JPY41,548 million, down 1.7% YoY (JPY42,266 million for 1Q20).

Cost of network services revenue was JPY23,145 million, down 7.2% YoY (JPY24,944 million for 1Q20), mainly due to a decrease in outsourcing costs. Gross profit was JPY8,330 million, up 39.1% YoY (JPY5,990 million for 1Q20), and gross profit ratio was 26.5% (19.4% for 1Q20).

Cost of SI revenues, including equipment sales was JPY17,959 million, up 6.4% YoY (JPY16,884 million for 1Q20), mainly due to increases in outsourcing and personnel costs. The amount included PTC’s cost of JPY1,164 million. Gross profit was JPY2,848 million, up 43.0% YoY (JPY1,991 million for 1Q20) and gross profit ratio was 13.7% (10.5% for 1Q20).

Cost of ATM operation business revenues was JPY444 million, up 1.2% YoY (JPY438 million for 1Q20). Gross profit was JPY249 million (JPY132 million for 1Q20) and gross profit ratio was 36.0% (23.1% for 1Q20).

Selling, general and administrative expenses and other operating income and expenses
Selling, general and administrative expenses, including research and development expenses, totaled JPY7,083 million, up 17.1% YoY (JPY6,049 million for 1Q20), mainly due to increases in personnel-related expenses and advertising expenses. Of this amount, PTC’s expenses was JPY96 million.
Other operating income was JPY52 million (JPY48 million for 1Q20).
Other operating expenses was JPY36 million (JPY65 million for 1Q20), mainly due to disposal loss on fixed assets.

Operating profit
Operating profit was JPY4,360 million (JPY2,047 million for 1Q20), up 113.0% YoY.

Finance income and expenses, and share of profit (loss) of investments accounted for using equity method
Finance income was JPY1,361 million, compared to JPY80 million for 1Q20. It included gains on financial instruments, mainly related to funds, of JPY1,296 million (loss of JPY3 million for 1Q20).

Finance expense was JPY154 million, compared to JPY154 million for 1Q20. It included interest expenses of JPY137 million (JPY151 million for 1Q20).

Share of loss of investments accounted for using equity method was JPY217 million (compared to loss of JPY279 million for 1Q20), mainly due to loss of DeCurret Inc. of JPY296 million.

Profit before tax
Profit before tax was JPY5,350 million (JPY1,694 million for 1Q20), up 215.8% YoY.

Profit for the period
Income tax expense was JPY1,807 million (JPY572 million for 1Q20). As a result, profit for the period was JPY3,543 million (JPY1,122 million for 1Q20), up 215.8% YoY.

Profit for the period attributable to non-controlling interests was JPY36 million (JPY6 million for 1Q20), mainly related to net income of Trust Networks Inc.

Profit for the period attributable to owners of parent was JPY3,507 million (JPY1,116 million for 1Q20), up 214.1% YoY.

Financial Position as of June 30, 2021
As of June 30, 2021, the balance of total assets was JPY217,263 million, decreased by JPY3,515 million from the balance as of March 31, 2021 of JPY220,777 million.

As of June 30, 2021, the balance of current assets was JPY84,717 million, decreased by JPY8,688 million from the balance as of March 31, 2021 of JPY93,405 million. The major breakdown of balance and fluctuation of current assets was: a decrease in cash and cash equivalents by JPY7,636 million, mainly due to the acquisition of PTC, to JPY34,831 million, a decrease in trade receivables by JPY6,879 million to JPY27,920 million and an increase in prepaid expenses by JPY4,486 million, of which JPY1,162 million is related to the acquisition of PTC, to JPY15,084 million.

As of June 30, 2021, the balance of non-current assets was JPY132,546 million, increased by JPY5,173 million from the balance as of March 31, 2021 of JPY127,373 million. As for the major breakdown of balance and fluctuation of non-current assets, tangible assets increased by JPY696 million to JPY17,780 million, mainly due to an expansion of Shiroi Data Center Campus. Right-of-use assets, which include right to use leased assets under operating lease contracts such as office and data centers and assets under finance lease contracts such as data communication equipment, decreased by JPY1,992 million to JPY48,715 million, mainly due to depreciation. Goodwill increased by JPY3,181 million to JPY9,264 million, due to the acquisition of PTC. Prepaid expenses increased by JPY1,131 million to JPY10,668 million, including an increase of JPY951 million related to the acquisition of PTC. The amount of other investments was JPY15,702 million, increased by JPY2,789 million mainly due to fluctuation of fair value of our holding marketable equity securities and funds.

As of June 30, 2021, the balance of current liabilities was JPY68,535 million, decreased by JPY4,724 million from the balance as of March 31, 2021 of JPY73,259 million. As for the major breakdown of balance and fluctuation of current liabilities, trade and other payables decreased by JPY3,760 million to JPY15,484 million. Borrowings decreased by JPY1,855 million to JPY16,705 million, due to an increase of JPY1,480 million in short-term borrowings, an increase of JPY750 million due to a transfer from non-current liabilities and a decrease by JPY4,085 million from repayment of long-term borrowings. Income taxes payable decreased by JPY1,441 million to JPY1,571 million. Contract liabilities increased by JPY2,483 million to JPY9,585 million, including an increase of JPY1,336 million related to the acquisition of PTC. Other financial liabilities increased by JPY732 million to JPY18,611 million. Other current liabilities decreased by JPY873 million to JPY6,509 million.

As of June 30, 2021, the balance of non-current liabilities was JPY55,144 million, decreased by JPY1,402 million from the balance as of March 31, 2021 of JPY56,547 million. As for the major breakdown of balance and fluctuation of non-current liabilities, long-term borrowings decreased by JPY750 million to JPY6,250 million due to a transfer to current portion. Contract liabilities increased by JPY706 million to JPY7,951 million, of which JPY1,086 million was an increase related to the acquisition of PTC. Other financial liabilities decreased by JPY1,800 million to JPY33,848 million, mainly due to a transfer to current portion.

As of June 30, 2021, the balance of total equity attributable to owners of the parent was JPY92,580 million, increased by JPY2,624 million from the balance as of March 31, 2021 of JPY89,956 million. Ratio of owners’ equity to total assets was 42.6% as of June 30, 2021.

1Q21 Cash Flows
Cash and cash equivalents as of June 30, 2021 were JPY34,831 million (JPY38,893 million as of June 30, 2020).

Net cash provided by operating activities for 1Q21 was JPY7,654 million (net cash provided by operating activities of JPY11,635 million for 1Q20). There was profit before tax of JPY5,350 million, depreciation and amortization of JPY6,606 million, including JPY2,500 million of depreciation of right-of-use operating lease assets under IFRS 16, and income taxes paid of JPY3,334 million, compared to JPY2,177 million for 1Q20. Regarding changes in working capital, there was net cash out of JPY70 million compared to net cash in of JPY4,576 million for 1Q20. As for the major factors in comparison with 1Q20, there were increases in payment of current liabilities, such as trade payable and other liabilities. The increase in net cash-outflow related to these factors exceeded the increase in cash-inflow due to a decrease in trade and other receivable and an increase in contract liabilities.

Net cash used in investing activities for 1Q21 was JPY6,414 million (net cash used in investing activities of JPY4,592 million for 1Q20), mainly due to payments for purchases of tangible assets of JPY2,839 million (JPY1,407 million for 1Q20), payments for purchases of intangible assets, such as software, of JPY1,325 million (JPY1,805 million for 1Q20), payments for the acquisition of PTC (net of its cash) of JPY2,612 million and proceeds from sales of tangible assets, which include sale and leaseback, of JPY584 million (JPY1,017 million for 1Q20).

Net cash used in financing activities for 1Q21 was JPY8,875 million (net cash used in financing activities of JPY6,802 million for 1Q20), mainly due to payments of other financial liabilities of JPY4,463 million (JPY5,223 million for 1Q20), which included payments under operating lease contracts such as office rent and finance lease contracts such as network equipment, repayments of long-term bank borrowings of JPY4,085 million (JPY915million for 1Q20), dividends paid of JPY1,759 million (JPY609 million for 1Q20) and net increase in short-term borrowings of JPY1,480 million.

Future Prospects including FY2021 Financial Targets
While 1Q21 financial results, profit in particular, exceeded our plan, as of today, our financial targets for the fiscal year ending March 31, 2022 (FY2021) announced on May 12, 2021 remain unchanged.

Presentation
Presentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on August 10, 2021.
Presentation material can be found in the following file archive: http://ml.globenewswire.com/Resource/Download/74825c07-9812-470d-96a2-d9360e9780c4 

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, mobile services, security services, cloud computing services, and systems integration. Moreover, IIJ operates 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 First Section of the Tokyo Stock Exchange in 2006.

Disclaimer:
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 revenues and profits, 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.

Notes to Condensed Consolidated Financial Statements (UNAUDITED)
Going Concern Assumption
Nothing to be reported. 

Material Changes In Shareholders’ Equity
Nothing to be reported.

Segment Information
IIJ and its subsidiaries (collectively “the Company”) primarily operate their network service and system integration business, which provides a comprehensive range of network solutions to meet their customers’ needs by cross-selling a variety of services, including Internet connectivity services, WAN services, outsourcing services, systems integration and sales of network-related equipment, and the ATM operation business. Therefore, the Company defined two reportable segments: “Network service and systems integration business” and “ATM operation business.”

Segment information for the Company is as follows:

Three months ended June 30, 2020

Three months ended June 30, 2021

Intersegment transactions are based on market price.

Subsequent Events
Nothing to be reported.

Changes in Accounting Policies
Nothing to be reported.

Note: The following information is provided to disclose Internet Initiative Japan Inc. (“IIJ”) financial results (unaudited) for the first three months ended June 30, 2021 (“1Q21”) in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Three Months ended June 30, 2021 [Under IFRS]

August 10, 2021

Company name: Internet Initiative Japan Inc.
Exchange listed: Tokyo Stock Exchange First Section
Stock code number: 3774
URL: https://www.iij.ad.jp/en
Representative: Eijiro Katsu, President and Representative Director
Contact: Akihisa Watai, Senior Managing Director and CFO
TEL: +81-3-5205-6500
Scheduled date for filing of quarterly report (Shihanki-houkokusho) to Japan’s regulatory organization: August 16, 2021
Scheduled date for dividend payment: –
Supplemental material on financial 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, 2021 (April 1, 2021 to June 30, 2021)

(Note) IIJ conducted a stock split at a ratio of two-for-one with an effective date of January 1, 2021. Accordingly, basic earnings per share and diluted earnings per share have been calculated as if the stock split was conducted at the beginning of the previous consolidated fiscal year.

(2) Consolidated Financial Position

2．Dividends

(Notes)

1. Changes from the latest forecasts disclosed: No
2. IIJ conducted a stock split at a ratio of two-for-one with an effective date of January 1, 2021. The 2Q-end dividend per share for the fiscal year ended March 31, 2021 is the amount before the stock split. Regarding the post-split basis amount for the fiscal year ended March 31, 2021, 2Q-end and annual dividend per share are JPY10. 25 and JPY29.75, respectively.

3．Targets of Consolidated Financial Results for the Fiscal Year Ending March 31, 2022

(% shown is YoY change)

(Notes)
1. Changes from the latest forecasts disclosed: No
2. As for the details about our financial targets for the fiscal year ending March 31, 2022, please refer to “Future Prospects including FY2021 Financial Targets” which is disclosed on page 8 of this earnings release.

* Notes:
(1) Changes in significant subsidiaries: None

(2) Changes in accounting policies and estimate

1. Changes in accounting policies required by IFRS: None
2. Other changes in accounting policies: None
3. Changes in accounting estimates: None

(3) Number of shares issued (common stock)

1. Number of shares issued (inclusive of treasury stock):
   As of June 30, 2021: 93,502,400 shares
   As of March 31, 2021: 93,469,200 shares
2. Number of treasury stock:
   As of June 30, 2021: 3,221,667 shares
   As of March 31, 2021: 3,263,532 shares
3. Number of weighted average common shares outstanding:
   For the three months ended June 30, 2021: 90,244,770 shares
   For the three months ended June 30, 2020: 90,167,300 shares

   * IIJ conducted a stock split at a ratio of two-for-one with an effective date of January 1, 2021. Accordingly, number of shares issued, number of treasury stock and number of weighted average common shares outstanding above have been calculated as if the stock split was conducted at the beginning of the previous consolidated fiscal year, respectively.

* Status of Audit Procedures
This document is not subject to the quarterly review by certified public accountant or independent auditor.

* Explanation on the Appropriate Use of Future Outlook and other special instructions
i) Forward-looking statements
Forward-looking statements disclosed in this document are based on IIJ Group’s expectation, estimates, and projections based on information available to IIJ Group as of August 10, 2021. As these forward-looking statements are subject to known and unknown risks and uncertainties, actual results may differ from those disclosed due, for example, to but not limited to changes in business climate and/or market trends. As for our latest forecast of our financial targets for the fiscal year ending March 31, 2022, please refer to the page 8 of this document.

ii) Others
Presentation material will be disclosed on TDnet as well as posted on our website on August 10, 2021.