IIJ Announces its First Three Months Results for the Fiscal Year Ending March 31, 2024

TOKYO, Aug. 08, 2023 (GLOBE NEWSWIRE) — Internet Initiative Japan Inc. (“IIJ”, TSE Prime: 3774) today announced its consolidated financial results for the first three months for the fiscal year ending March 31, 2024 (“1Q23”, from April 1, 2023 to June 30, 2023) under International Financial Reporting Standards (IFRS).¹

Overview of 1Q23 Financial Results and Business Outlook
“Legacy Japanese enterprises’ internal trunk networks and systems have been gradually shifting to more complex and combined ones with adopting Internet technologies. As the consequence to this movement, we are seeing dramatically increasing business opportunities to acquire large-scale network replacement transactions, which have been mainly covered by system integrators and telecom carriers. For such projects, we offer our various Internet-related network services elements including cybersecurity related services line-up and systems integration (SI) function in front. As we believe that one of our competitive advantages would be stable network operation capability, once Japanese enterprises become to utilize ICT⁴/DX (Digital transformation) more and new technologies such as AI for their businesses, our business values would become further significant. We would like to pursue our consistent business growth strategy going forward,” said Koichi Suzuki, Founder and Chairman of IIJ.

“We started 1Q23 with continuous demands for network enhancement and replacement among Japanese enterprises. We had 5.6% of revenue growth among which network services revenues excluding mobile services grew by 11.1% YoY and operating profit slightly decreased by 0.5% YoY. Generally, since 1Q is the calm season in Japan, our 1Q revenues are the lowest throughout the year, while some of our costs increase from the beginning of fiscal year. In this 1Q23, our systems construction and equipment sales, a one-time revenue, did not grow YoY, mainly because our SI projects became large and complex, and required longer lead time. Although we have not recognized large scale systems construction transactions in 1Q23, our order received and order backlog for systems construction and equipment sales grew by 31.0% and 32.5% YoY respectively, and there are many of prospected network replacement projects such as large financial institutions’ one. Further, we expect to recognize approximately JPY3 billion of one-time revenues for overseas data center construction transaction in 2Q23. With regard to increased cost from 1Q23, as we are focusing to strengthen our human resources for absorbing growing demands and accelerate our business expansion, we recruited 246 new graduates which was approximately 1.4 times that of the previous year with a certain wage rise like other Japanese enterprises this April. Besides that, our profit before tax and net profit largely decreased YoY, as there was a reactionary drop in fund valuation gains from JPY1.2 billion in 1Q22 to JPY0.3 billion in 1Q23. We recognize that our business model and our position are undergoing certain changes as we have begun to deal with much larger and more complex network based systems. While this transitional process may impose some volatility in our financial performance in the short term like this 1Q, we are confident that our business areas are structurally expanding and that would result in huge increase of our business scale,” said Eijiro Katsu, President of IIJ.

“We established a new shareholder structure by inviting KDDI as one of our largest shareholders with the same position of NTT group, 11.1% of shareholding percentage each, this May⁵. As a network services providers using telecom carriers’ fibers, we are very excited with having two largest telecom carriers in Japan as our major shareholders. It would result in further strengthening our business. Through this series of transactions, we had approximately JPY11.4 billion of share buy-back and cancellation,” concluded Suzuki.

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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 Information and Communication Technology (ICT) is a general term of technologies in relation to hardware, software, system and data communication used for information communication by computers.
⁵ For details, please refer to our press release titled “Partial Disposal of Shares of Common Stock Held by Nippon Telegraph and Telephone Corporation (Largest Shareholder), Acquisition of Shares of Common Stock by KDDI Corporation, Acquisition of Treasury Stock, etc.” (https://www.iij.ad.jp/en/ir/news/2023/pdf/20230518_E.pdf).

1Q23 Financial Results Summary
We have omitted segment analysis because most of our revenues are dominated by network services and systems integration (SI) business.

1Q23 Revenues and Income

Revenues
Total revenues were JPY61,420 million, up 5.6% YoY (JPY58,190 million for 1Q22).

Network services revenue was JPY36,354 million, up 9.4% YoY (JPY33,234 million for 1Q22).

Revenues for Internet connectivity services for enterprise were JPY10,772 million, up 13.2% YoY from JPY9,516 million for 1Q22, mainly due to an increase in revenues of enterprise mobile services, IP services and IIJ Mobile MVNO Platform service.

Revenues for Internet connectivity services for consumers were JPY5,993 million, down 1.7% YoY from JPY6,099 million for 1Q22, mainly due to a decrease in the sales scale of mobile devices, while the number of subscription largely increased.

Revenues for Outsourcing services were JPY12,534 million, up 14.5% YoY from JPY10,944 million for 1Q22, mainly due to an increase in security-related services revenues.

Revenues for WAN services were JPY7,055 million, up 5.7% YoY from JPY6,675 million for 1Q22.

SI revenues, including equipment sales, were JPY24,341 million, up 0.3% YoY (JPY24,269 million for 1Q22).
Systems construction and equipment sales, a one-time revenue, was JPY7,242 million, down 5.1% YoY (JPY7,628 million for 1Q22) mainly because projects tended to require longer lead time until our revenue recognition due to projects getting larger and more complex. Systems operation and maintenance revenue, a recurring revenue, was JPY17,099 million, up 2.8% YoY (JPY16,641 million for 1Q22), mainly due to continued accumulation of systems operation orders.　

Orders received for SI, including equipment sales, totaled JPY33,830 million, down 0.2% YoY (JPY33,889 million for 1Q22); orders received for systems construction and equipment sales were JPY14,087 million, up 31.0% YoY (JPY10,756 million for 1Q22), and orders received for systems operation and maintenance were JPY19,743 million, down 14.7% YoY (JPY23,133 million for 1Q22), mainly due to a reactionary drop by the lump-sum recognition of large scale projects with fixed multi-year contracts in 1Q22.

Order backlog for SI, including equipment sales, as of June 30, 2023 amounted to JPY92,246 million, up 11.9% YoY (JPY82,411 million as of June 30, 2022); order backlog for systems construction and equipment sales was JPY20,644 million, up 32.5% YoY (JPY15,579 million as of June 30, 2022) and order backlog for systems operation and maintenance was JPY71,602 million, up 7.1% YoY (JPY66,832 million as of June 30, 2022).

ATM operation business revenues were JPY725 million, up 5.5% YoY (JPY687 million for 1Q22).

Cost of sales
Total cost of sales was JPY47,620 million, up 4.7% YoY (JPY45,490 million for 1Q22).

Cost of network services revenue was JPY26,133 million, up 7.0% YoY (JPY24,431 million for 1Q22), mainly due to increases in network operation-related costs and circuit-related costs. Gross profit was JPY10,221 million, up 16.1% YoY (JPY8,803 million for 1Q22), and gross profit ratio was 28.1% (26.5% for 1Q22).

Cost of SI revenues, including equipment sales was JPY21,085 million, up 2.1% YoY (JPY20,659 million for 1Q22), mainly due to increases in outsourcing-related costs and personnel-related costs. Gross profit was JPY3,256 million, down 9.8% YoY (JPY3,610 million for 1Q22) and gross profit ratio was 13.4% (14.9% for 1Q22).

Cost of ATM operation business revenues was JPY402 million, up 0.5% YoY (JPY400 million for 1Q22). Gross profit was JPY323 million (JPY287 million for 1Q22) and gross profit ratio was 44.6% (41.8% for 1Q22).

Selling, general and administrative expenses and other operating income and expenses
Selling, general and administrative expenses, including research and development expenses, totaled JPY8,795 million, up 11.9% YoY (JPY7,858 million for 1Q22), mainly due to an increase in personnel-related expenses resulted from the recruitment of approximately 1.4 times more new graduates than the previous year and the revision of salary table.

Other operating income was JPY30 million (JPY194 million for 1Q22, including one-time gain on sale of asset).

Other operating expenses was JPY32 million (JPY10 million for 1Q22).

Operating profit
Operating profit was JPY5,003 million (JPY5,026 million for 1Q22), down 0.5% YoY.

Finance income and expenses, and share of profit (loss) of investments accounted for using equity method
Finance income was JPY802 million, compared to JPY1,747 million for 1Q22. It included gains on financial instruments, mainly related to funds, of JPY310 million (JPY1,200 million for 1Q22) and foreign exchange gain of JPY401 million (gain of JPY474 million for 1Q22).

Finance expense was JPY170 million, compared to JPY136 million for 1Q22. It included interest expenses of JPY143 million (JPY133 million for 1Q22).

Share of loss of investments accounted for using equity method was JPY154 million (loss of JPY14 million for 1Q22), mainly due to loss of DeCurret Holdings, Inc. of JPY125 million (loss of JPY78 million for 1Q22).

Profit before tax
Profit before tax was JPY5,481 million (JPY6,623 million for 1Q22), down 17.2% YoY.

Profit for the period
Income tax expense was JPY1,824 million (JPY2,136 million for 1Q22). As a result, profit for the period was JPY3,657 million (JPY4,487 million for 1Q22), down 18.5% YoY.

Profit for the period attributable to non-controlling interests was JPY74 million (JPY96 million for 1Q22), mainly related to net income of Trust Networks Inc.

Profit for the period attributable to owners of parent was JPY3,583 million (JPY4,391 million for 1Q22), down 18.4% YoY.

Financial Position as of June 30, 2023
Figures for the fiscal year ended March 31, 2023 are based on the retrospective application of IAS 12 “Income Taxes.”

As of June 30, 2023, the balance of total assets was JPY247,888 million, increased by JPY1,570 million from the balance as of March 31, 2023 of JPY246,318 million.

As of June 30, 2023, the balance of current assets was JPY102,240 million, decreased by JPY4,438 million from the balance as of March 31, 2023 of JPY106,678 million. As for the major breakdown of balance and fluctuation of current assets, cash and cash equivalents decreased by JPY5,206 million to JPY37,266 million, trade receivables decreased by JPY6,701 million to JPY34,639 million, inventories increased by JPY2,059 million to JPY5,247 million and prepaid expenses increased by JPY5,842 million to JPY21,183 million.

As of June 30, 2023, the balance of non-current assets was JPY145,648 million, increased by JPY6,008 million from the balance as of March 31, 2023 of JPY139,640 million. As for the major breakdown of balance and fluctuation of non-current assets, tangible assets increased by JPY2,724 million to JPY26,045 million mainly due to purchases related to Shiroi Data Center Campus construction, 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 JPY3,151 million to JPY43,524 million mainly due to depreciation, intangible assets increased by JPY932 million to JPY17,548 million, prepaid expenses increased by JPY2,935 million to JPY15,514 million and other investments increased by JPY2,658 million to JPY21,808 million.

As of June 30, 2023, the balance of current liabilities was JPY88,201 million, increased by JPY10,337 million from the balance as of March 31, 2023 of JPY77,864 million. As for the major breakdown of balance and fluctuation of current liabilities, trade and other payables decreased by JPY2,733 million to JPY19,580 million, borrowings increased by JPY12,752 million to JPY29,580 million due to an increase of JPY12,000 million of short-term borrowings, a decrease of JPY1,015 million from repayment of long-term borrowings and an increase of JPY1,762 million owing to a transfer from non-current liabilities, income taxes payable decreased by JPY2,469 million to JPY1,565 million, contract liabilities increased by JPY1,613 million to JPY11,782 million and other financial liabilities increased by JPY1,472 million to JPY19,577 million.

As of June 30, 2023, the balance of non-current liabilities was JPY48,509 million, decreased by JPY518 million from the balance as of March 31, 2023 of JPY49,027 million. As for the major breakdown of balance and fluctuation of non-current liabilities, long-term borrowings decreased by JPY1,762 million to JPY1,840 million due to a transfer to current portion, contract liabilities increased by JPY713 million to JPY8,124 million and other financial liabilities increased by JPY43 million to JPY30,738 million.

As of June 30, 2023, the balance of total equity attributable to owners of the parent was JPY109,968 million, decreased by JPY8,274 million from the balance as of March 31, 2023 of JPY118,242 million, mainly due to a decrease by acquisition of treasury shares. Ratio of owners’ equity to total assets was 44.4% as of June 30, 2023.

1Q23 Cash Flows
Cash and cash equivalents as of June 30, 2023 were JPY37,266 million (JPY42,557 million as of June 30, 2022).

Net cash provided by operating activities for 1Q23 was JPY5,016 million (net cash provided by operating activities of JPY4,855 million for 1Q22). There were profit before tax of JPY5,481 million (JPY6,623 million for 1Q22), depreciation and amortization of JPY7,285 million (JPY7,055 million for 1Q22), including JPY2,961 million (JPY2,808 million for 1Q22) of depreciation of right-of-use operating lease assets under IFRS 16, and income taxes paid of JPY4,299 million (JPY6,091 million for 1Q22). Regarding changes in working capital, there was net cash out of JPY3,113 million compared to net cash out of JPY1,063 million for 1Q22. As for the major factors for the increase in net cash outflow in comparison with 1Q22, there was an increase in payments of prepaid expenses, trade and other liabilities and others, which exceeded an increase in proceeds mainly from trade receivables and contract liabilities.

Net cash used in investing activities for 1Q23 was JPY6,366 million (net cash used in investing activities of JPY2,366 million for 1Q22), mainly due to payments for purchases of tangible assets, such as Shiroi Data Center Campus construction-related, of JPY3,670 million (JPY1,839 million for 1Q22) and purchases of intangible assets, such as software, of JPY2,689 million (JPY1,149 million for 1Q22) .

Net cash used in financing activities for 1Q23 was JPY4,535 million (net cash used in financing activities of JPY7,875 million for 1Q22), mainly due to proceeds from short-term borrowings of JPY12,000 million, payments for acquisition of treasury shares of JPY11,405 million, payments of other financial liabilities of JPY5,010 million (JPY4,819 million for 1Q22), which included payments under operating lease contracts such as office rent and finance lease contracts such as network equipment, proceeds from other financial liabilities of JPY3,582 million, dividends paid of JPY2,644 million (JPY2,258 million for 1Q22) and repayments of long-term bank borrowings of JPY1,015 million (JPY750 million for 1Q22).

Future Prospects including FY2023 Financial Targets
As for financial results for 1Q23, although systems construction and equipment sales, one-time revenues, were lower than expected partly due to a delay and requiring longer lead time to recognize as revenues, other business domains were within our expectation. Therefore, financial targets for the fiscal year ending March 31, 2024 (FY2023) announced on May 12, 2023 remain unchanged.

Presentation
Presentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on August 8, 2023. 

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 (“TSE”) in 2006 and transitioned to the Prime Market of TSE from April 2022.

For inquiries, contact:

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.

Condensed Consolidated Statements of Financial Position (Unaudited)

Condensed Consolidated Statements of Profit or Loss (Unaudited)

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

Condensed Consolidated Statements of Cash Flows (Unaudited)

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

Changes in Accounting Policies
As a result of the accordance of IAS 12 “Income Taxes”(revised May 2021), the initial recognition that give rise to equal taxable temporary difference and deductible temporary difference at the time of the transaction is clarified. Consequently, deferred tax liabilities and deferred tax assets related to such taxable and deductible temporary difference will be recognized in the Consolidated Statement of Financial Position.

The accordance of this standard also requires retrospective adjustments to the Consolidated Financial Statements of the previous fiscal year. As a result, the consolidated statement of financial position of the previous fiscal year for, “Deferred tax assets” increased by JPY125 million, and “Retained earnings” increased by JPY125 million.

Furthermore, the cumulative effect of the accordance of this standard has been reflected the Consolidated Statement of Changes in Shareholder’s Equity of previous first quarter cumulative period, as a result, “Retained earnings” increased by JPY111 million.

Segment Information
IIJ and its subsidiaries (collectively “the Company”) primarily operates its network service and system integration business, which provides a comprehensive range of network solutions to meet its 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:

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 first three months ended June 30, 2023 (“1Q23”) in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Three Months ended June 30, 2023　[Under IFRS]

August 8, 2023

Company name: Internet Initiative Japan Inc.
Exchange listed: Tokyo Stock Exchange
Ticker symbol: 3774
URL: https://www.iij.ad.jp/ 
Representative: Eijiro Katsu, President and Representative Director
Contact: Akihisa Watai, Senior Managing Director and CFO
TEL: (03) 5205-6500
Scheduled date for filing of quarterly report (Shihanki-houkokusho) to Japan’s regulatory organization: August 14, 2023
Scheduled date for dividend payment: –
Supplemental material on quarterly results: Yes
Presentation on quarterly results: 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, 2023 (April 1, 2023 to June 30, 2023)

(1) Consolidated Results of Operations

(% shown is YoY change)

(Note) IIJ conducted a stock split at a ratio of two-for-one with an effective date of October 1, 2022. Accordingly, basic earnings per share and diluted earnings per share have been calculated as if the stock split had been conducted at the beginning of the previous consolidated fiscal year.

(2) Consolidated Financial Position

(Note) Figures for the fiscal year ended March 31, 2023 are based on the retrospective application of IAS 12 “Income Taxes.”

2．Dividends

(Notes)

1. Changes from the latest forecasts disclosed: No
2. IIJ conducted a stock split at a ratio of two-for-one effective as of October 1, 2022. The interim dividend for the fiscal year ended March 31, 2023 is on a pre-split basis, and if calculated on a post-split basis, the interim dividend is 14.625 yen per share and the total annual dividend is 29.255 yen per share.

3．Targets of Consolidated Financial Results for the Fiscal Year ending March 31, 2024
(April 1, 2023 through March 31, 2024)

(% shown is YoY change)

(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, 2024, please refer to “Future Prospects including FY2023 Financial Targets ” which is disclosed on page 8 of this earnings release.
3. YoY change of Profit (loss) for the year attributable to owners of the parent is compared with the previous year’s figures after retrospective application of IAS 12 “Income Taxes.”
4. IIJ acquired 3,928,500 shares of treasury stock on May 19, 2023. The target of basic earnings per share is the amount after the acquisition of treasury stock.

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

(2) Changes in accounting policies and estimate

1. Changes in accounting policies required by IFRS: Yes
2. Other changes in accounting policies: None
3. Changes in accounting estimates: None
   As for the details, please refer to “Changes in Accounting Policies” in Notes to Condensed Consolidated Financial Statements (Unaudited), which is disclosed on page 16 of this earnings release.

(3) Number of shares issued (common stock)

1. Number of shares issued (inclusive of treasury stock):
   As of June 30, 2023: 183,141,100 shares
   As of March 31, 2023: 187,069,600 shares
2. Number of treasury stock:
   As of June 30, 2023: 6,329,602 shares
   As of March 31, 2023: 6,371,732 shares
3. Number of weighted average common shares outstanding:
   For the three months ended June 30, 2023: 179,022,096 shares
   For the three months ended June 30, 2022: 180,638,862 shares

    * IIJ conducted a stock split at a ratio of two-for-one with an effective date of October 1, 2022. Accordingly, number of shares issued, number of treasury stock and number of weighted average shares outstanding above have been 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 audit procedures 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 8, 2023. 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, please refer to “Future Prospects including FY2023 Financial Targets” written on page 8 of this document.

ii) Others
Presentation material will be disclosed on TDnet as well as posted on our website on August 8, 2023.