IIJ Announces its Nine Months Results for the Fiscal Year

TOKYO, Feb. 08, 2022 (GLOBE NEWSWIRE) — Internet Initiative Japan Inc. (“IIJ”, TSE1: 3774) today announced its consolidated financial results for the nine months for the fiscal year ending March 31, 2022 (“1Q-3Q21”, from April 1, 2021 to December 31, 2021) under International Financial Reporting Standards (IFRS)¹

Overview of 1Q-3Q21 Financial Results and Business Outlook
“Along with a further shift toward IT utilization by Japanese enterprises, we believe our business status has entered into a profit margin expansion phase since the last fiscal year. This has been achieved mainly by steady growth of recurring revenues: our enterprise recurring revenues⁴ grew by 13.3% year over year, mostly due to 18.7% year over year growth from security services, 12.0% from IP services⁵, 36.3% from enterprise mobile and 15.1% from systems operation and maintenance. These led our operating profit to increase by 60.9% year over year and operating profit margin to reach 9.8% in this nine-month period for FY2021. As we continued to see strong demands from various industries for both network services and systems integration, we expect this trend to continue. Then, we decided to construct the second site of our Shiroi data center, which is to absorb growing demands for server racks by around FY2027,” said Eijiro Katsu, President of IIJ.

“For the past two consecutive fiscal years, we are seeing visible improvement in our financials, which has come from our long-term and consistent business strategy and investments in Internet-related technology for almost thirty years. Ever since our inception in 1992, the spread of Internet has been transforming business activities gradually and consistently, and that should continue to bring us further business opportunities. By leveraging our competitive assets such as reliable network infrastructure, various services developed in-house, blue-chip client base and skilled engineers, we believe our business scale and domain should largely expand to the next stage in the middle to long term,” concluded Koichi Suzuki, Founder and Chairman of IIJ.”

1Q-3Q21 Financial Results Summary
We have omitted segment analysis because most of our revenues are dominated by network services and systems integration (SI) business.

1Q-3Q21 Revenues and Profit
Revenues
Total revenues were JPY165,600 million, up 6.1% YoY (JPY156,070 million for 1Q-3Q20).

Network services revenue was JPY95,097 million, up 1.2% YoY (JPY93,983 million for 1Q-3Q20).

Revenues for Internet connectivity services for enterprises were JPY28,082 million, down 5.4% YoY from JPY29,699 million for 1Q-3Q20. The decrease was due to the decrease in IIJ Mobile MVNO Platform service (MVNE) revenue, which was mainly in the response to the reduction in procurement cost, while revenues of IP services and enterprise mobile services increased.

Revenues for Internet connectivity services for consumers were JPY17,780 million, down 8.3% YoY from JPY19,390 million for 1Q-3Q20, mainly due to a decrease in average revenue per user of new plan for our consumer mobile services.

Revenues for Outsourcing services were JPY29,831 million, up 13.5% YoY from JPY26,289 million for 1Q-3Q20, mainly due to an increase in security-related services revenues.

Revenues for WAN services were JPY19,404 million, up 4.3% YoY from JPY18,605 million for 1Q-3Q20.

SI revenues, including equipment sales, were JPY68,413 million, up 14.2% YoY (JPY59,927 million for 1Q-3Q20). Systems construction and equipment sales, a one-time revenue, was JPY24,415 million, up 12.6% YoY (JPY21,687 million for 1Q-3Q20). Of this amount, revenue of PTC SYSTEM (S) PTE LTD⁶ (“PTC”) was JPY3,714 million. Systems operation and maintenance revenue, a recurring revenue, was JPY43,998 million, up 15.1% YoY (JPY38,240 million for 1Q-3Q20), 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 JPY1,587 million.

Orders received for SI, including equipment sales, totaled JPY69,910 million, up 6.2% YoY (JPY65,821 million for 1Q-3Q20); orders received for systems construction and equipment sales were JPY26,501 million, up 10.7% YoY (JPY23,943 million for 1Q-3Q20), and orders received for systems operation and maintenance were JPY43,409 million, up 3.7% YoY (JPY41,878 million for 1Q-3Q20).

Order backlog for SI, including equipment sales, as of December 31, 2021 amounted to JPY68,151 million, up 10.4% YoY (JPY61,758 million as of December 31, 2020); order backlog for systems construction and equipment sales was JPY11,254 million, up 15.3% YoY (JPY9,763 million as of December 31, 2020) and order backlog for systems operation and maintenance was JPY56,897 million, up 9.4% YoY (JPY51,995 million as of December 31, 2020).

ATM operation business revenues were JPY2,090 million, down 3.2% YoY (JPY2,160 million for 1Q-3Q20).

Cost of sales
Total cost of sales was JPY128,816 million, up 1.2% YoY (JPY127,273 million for 1Q-3Q20).

Cost of network services revenue was JPY68,653 million, down 7.5% YoY (JPY74,201 million for 1Q-3Q20). Costs of mobile services were decreased due to reduction of purchase price in voice services from the beginning of FY2021 and one-time cost reimbursement of mobile unit charge by NTT DOCOMO, INC. in 3Q21 as FY2020 mobile unit charge was fixed based on its actual results for the corresponding period. Gross profit was JPY26,444 million, up 33.7% YoY (JPY19,782 million for 1Q-3Q20), and gross profit ratio was 27.8% (21.0% for 1Q-3Q20).

Cost of SI revenues, including equipment sales was JPY58,869 million, up 13.9% YoY (JPY51,672 million for 1Q-3Q20), mainly due to increases in outsourcing and purchasing costs. Of this amount, PTC’s cost was JPY4,713 million. Gross profit was JPY9,544 million, up 15.6% YoY (JPY8,255 million for 1Q-3Q20) and gross profit ratio was 13.9% (13.8% for 1Q-3Q20).

Cost of ATM operation business revenues was JPY1,294 million, down 7.6% YoY (JPY1,400 million for 1Q-3Q20). Gross profit was JPY796 million (JPY760 million for 1Q-3Q20) and gross profit ratio was 38.1% (35.2% for 1Q-3Q20).

Selling, general and administrative expenses and other operating income and expenses
Selling, general and administrative expenses, including research and development expenses, totaled JPY20,494 million, up 11.8% YoY (JPY18,328 million for 1Q-3Q20), mainly due to increases in personnel-related expenses, advertising expenses and sales commission expenses. Of this amount, PTC’s expenses was JPY329 million.

Other operating income was JPY125 million (JPY113 million for 1Q-3Q20).

Other operating expenses was JPY117 million (JPY455 million for 1Q-3Q20), mainly due to disposal loss on fixed assets.

Operating profit
Operating profit was JPY16,298 million (JPY10,127 million for 1Q-3Q20), up 60.9% YoY.

Finance income and expenses, and share of profit (loss) of investments accounted for using equity method
Finance income was JPY2,756 million, compared to JPY317 million for 1Q-3Q20. It included valuation gains on financial instruments of JPY2,560 million which mainly came from fund investments (gains of JPY192 million for 1Q-3Q20).

Finance expense was JPY401 million, compared to JPY490 million for 1Q-3Q20. It included interest expenses of JPY401 million (JPY440 million for 1Q-3Q20).

Share of loss of investments accounted for using equity method was JPY1,056 million (compared to loss of JPY727 million for 1Q-3Q20). There was an equity method loss of JPY1,332 million related to DeCurret Holdings, Inc., including temporary losses of JPY484 million related to a divestment of its crypto asset business on February 1, 2022.

Profit before tax
Profit before tax was JPY17,597 million (JPY9,227 million for 1Q-3Q20), up 90.7% YoY.

Profit for the period
Income tax expense was JPY5,974 million (JPY3,281 million for 1Q-3Q20). As a result, profit for the period was JPY11,623 million (JPY5,946 million for 1Q-3Q20), up 95.5% YoY.

Profit for the period attributable to non-controlling interests was JPY101 million (JPY69 million for 1Q-3Q20), mainly related to net income of Trust Networks Inc.

Profit for the period attributable to owners of parent was JPY11,522 million (JPY5,877 million for 1Q-3Q20), up 96.1% YoY.

Financial Position as of December 31, 2021
As of December 31, 2021, the balance of total assets was JPY224,599 million, increased by JPY3,821 million from the balance as of March 31, 2021 of JPY220,777 million.

As of December 31, 2021, the balance of current assets was JPY94,571 million, increased by JPY1,166 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 JPY1,507 million, including payment of the acquisition of PTC, to JPY40,960 million, a decrease in trade receivables by JPY3,049 million to JPY31,750 million and an increase in prepaid expenses by JPY3,157 million, of which JPY1,369 million is related to the acquisition of PTC, to JPY13,755 million.

As of December 31, 2021, the balance of non-current assets was JPY130,028 million, increased by JPY2,655 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 JPY525 million to JPY17,609 million. 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 JPY6,298 million to JPY44,410 million, mainly due to depreciation. Goodwill increased by JPY3,153 million to JPY9,236 million, due to the acquisition of PTC. Investments accounted for using the equity method decreased by JPY1,127 million, mainly due to loss of DeCurret Holdings, Inc., to JPY7,900 million, which included JPY1,181 million of corresponding amount of goodwill related to DeCurret Holdings, Inc. Prepaid expenses increased by JPY1,270 million to JPY10,807 million, including an increase of JPY1,075 million related to the acquisition of PTC. The amount of other investments was JPY18,608 million, increased by JPY5,695 million mainly due to fluctuation of fair value of our holding marketable equity securities and funds.

As of December 31, 2021, the balance of current liabilities was JPY72,021 million, decreased by JPY1,238 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 increased by JPY223 million to JPY19,467 million. Borrowings decreased by JPY2,190 million to JPY16,370 million, due to an increase of JPY1,480 million in short-term borrowings, a decrease by JPY5,170 million from repayment of long-term borrowings and an increase of JPY1,500 million due to a transfer from non-current liabilities. Contract liabilities increased by JPY1,904 million to JPY9,006 million, including an increase of JPY1,571 million related to the acquisition of PTC. Other financial liabilities decreased by JPY1,057 million to JPY16,822 million.

As of December 31, 2021, the balance of non-current liabilities was JPY51,586 million, decreased by JPY4,961 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 JPY1,500 million to JPY5,500 million due to a transfer to current portion. Contract liabilities increased by JPY209 million to JPY7,453 million, of which JPY1,215 million was an increase related to the acquisition of PTC. Other financial liabilities decreased by JPY4,934 million to JPY30,714 million, mainly due to a transfer to current portion.

As of December 31, 2021, the balance of total equity attributable to owners of the parent was JPY99,926 million, increased by JPY9,970 million from the balance as of March 31, 2021 of JPY89,956 million. Ratio of owners’ equity to total assets was 44.5% as of December 31, 2021.

1Q-3Q21 Cash Flows
Cash and cash equivalents as of December 31, 2021 were JPY40,960 million (JPY41,970 million as of December 31, 2020).

Net cash provided by operating activities for 1Q-3Q21 was JPY30,370 million (net cash provided by operating activities of JPY31,399 million for 1Q-3Q20). There were profit before tax of JPY17,597 million, depreciation and amortization of JPY21,088 million, including JPY8,643 million of depreciation of right-of-use operating lease assets under IFRS 16, and income taxes paid of JPY5,680 million, compared to JPY3,928 million for 1Q-3Q20. Regarding changes in working capital, there was net cash-out of JPY1,298 million compared to net cash-in of JPY3,526 million for 1Q-3Q20. As for the major factors in comparison with 1Q-3Q20, 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 receivable.

Net cash used in investing activities for 1Q-3Q21 was JPY9,832 million (net cash used in investing activities of JPY8,918 million for 1Q-3Q20), mainly due to payments for purchases of tangible assets of JPY4,893 million (JPY4,555 million for 1Q-3Q20), payments for purchases of intangible assets, such as software, of JPY3,627 million (JPY3,722 million for 1Q-3Q 20), 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 JPY1,776 million (JPY1,859 million for 1Q-3Q20).

Net cash used in financing activities for 1Q-3Q21 was JPY22,240 million (net cash used in financing activities of JPY19,031 million for 1Q-3Q20), mainly due to payments of other financial liabilities of JPY14,665 million (JPY15,252 million for 1Q-3Q20), 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 JPY5,170 million (JPY1,830 million for 1Q-3Q20), dividends paid of JPY3,836 million (JPY1,533 million for 1Q-3Q20) and net increase in short-term borrowings of JPY1,480 million (net decrease of 360 million for 1Q-3Q20).

FY2021 Financial Targets
Although our profits for 1Q-3Q21 exceeded our expectation, our FY2021 financial targets which were revised upward on November 5, 2021, remain unchanged because our 4Q financial results, which tend to be strong due to seasonal factors, affect the full year financial results considerably.

Presentation
Presentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on February 8, 2022.

Presentation material can be also found in the following URL: http://ml.globenewswire.com/Resource/Download/2c5b59c6-80b2-4638-8754-5adb492298e1

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.

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

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.

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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/period attributable to owners of the parent.”
⁴ Enterprise recurring revenues represent Internet connectivity services for enterprise excluding MVNE, Outsourcing services, WAN Services, and Systems operation and maintenance revenues.
⁵ IP services are IIJ’s dedicated-type Internet connectivity services, mainly used by corporate users.
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

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:

Nine months ended December 31, 2020

        
Nine months ended December 31, 2021

Intersegment transactions are based on market price.         

Subsequent Events
Nothing to be reported.

Note: The following information is provided to disclose Internet Initiative Japan Inc. (“IIJ”) financial results (unaudited) for the nine months ended December 31, 2021 (“1Q-3Q21”) in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Nine Months ended December 31, 2021 [Under IFRS]

February 8, 2022

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: February 14, 2022
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 Nine Months ended December 31, 2021

(April 1, 2021 to December 31, 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 are calculated as if the stock split had been conducted at the beginning of the previous consolidated fiscal year.

2. Dividends

(Notes)
1. Changes from the latest forecasts disclosed: None
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                                               

(Notes)
1. Changes from the latest forecasts disclosed: None
2. As for the details about our financial targets for the fiscal year ending March 31, 2022, please refer to “FY2021 Financial Targets” which is disclosed on page 7 of this earnings release.

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

(2) Changes in accounting policies and estimate
      i. Changes in accounting policies required by IFRS: None
     ii. Other changes in accounting policies: None
    iii. Changes in accounting estimates: None 
             
(3) Number of shares issued (common stock)
     i. Number of shares issued (inclusive of treasury stock):
        As of December 31, 2021: 93,534,800 shares
        As of March 31, 2021: 93,469,200 shares

   ii. Number of treasury stock:
       As of December 31, 2021: 3,221,667 shares
       As of March 31, 2021: 3,263,532 shares

 iii. Number of weighted average common shares outstanding:
      For the Nine months ended December 31, 2021: 90,290,511 shares
      For the Nine months ended December 31, 2020: 90,191,724 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 are calculated as if the stock split had been 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 February 8, 2022. 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 7 of this document.

ii) Others
    Presentation material will be disclosed on TDnet as well as posted on our website on February 8, 2022.