IIJ Announces its First Six Months Results for the Fiscal Year Ending March 31, 2023

TOKYO, Nov. 07, 2022 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. (“IIJ”, TSE Prime: 3774) today announced its consolidated financial results for the first six months for the fiscal year ending March 31, 2023 (“1H22”, from April 1, 2022 to September 30, 2022) under International Financial Reporting Standards (IFRS).1

Overview of 1H22 Financial Results and Business Outlook
“Digital transformation trend among Japanese enterprises, accelerated by the COVID-19 pandemic, has continued to expand, while business activities have been gradually getting back to normal. Under those circumstances, revenue growth rate year over year (YoY), which we regard as an important indicator for business expansion, showed the increasing trend from 9.8% in 1Q22 to 13.7% in 2Q22. For this six-month period of 1H22, network services recurring revenues excluding mobile services continued to accumulate with 10.1% YoY growth, mainly driven by IP services4, security services and WAN services. Also, we have been seeing strong demands for network related integration from various industries and had 1H22 systems integration revenue and orders received increased by 19.5% and 31.2% YoY respectively. As a result, we exceeded each of our 1H22 financial targets. As for the further expansion of our network services line-up, we internally developed and launched "IIJ Secure Access Service" as our SASE5 service based on our service development strategy. Through offering a combination of our highly reliable and value-added services with systems integration, we are confident that our revenue growth would be stronger, which should lead to significant profit expansion,” said Eijiro Katsu, President of IIJ.

“Japanese enterprises and government agencies have just started to evolve their network and systems to the ones that combine Internet technologies such as Cloud, remote access and advanced security features based on zero-trust, which is what we had foreseen years ago. These shifts are making our expertise in Internet and network technologies more prominent against competitors such as telecom carriers and system integrators. In order to strengthen our business expansion further, we are enhancing on recruiting activities and have acquired 1.5 times more new graduates expected to join IIJ next spring. We believe that our technology-oriented business operation continues to attract engineers which contribute further business expansion,” concluded Koichi Suzuki, Founder and Chairman of IIJ.

_____________________

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 SASE (Secure Access Service Edge) is a concept to shift controls of network and security on the route to Cloud services to enable secure access from any points, instead of the conventional centralized management through headquarters or data centers.

1H22 Financial Results Summary

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

1H22 Revenues and Income
Revenues
Total revenues were JPY121,962 million, up 11.8% YoY (JPY109,054 million for 1H21).

Network services revenue was JPY67,707 million, up 6.7% YoY (JPY63,436 million for 1H21).

Revenues for Internet connectivity services for enterprise were JPY19,269 million, up 2.4% YoY from JPY18,813 million for 1H21. The increase was due to an increase in revenues of IP services and enterprise mobile services, which absorbed a decrease in IIJ Mobile MVNO Platform service (MVNE) revenue in the response to the reduction in procurement cost.

Revenues for Internet connectivity services for consumers were JPY12,453 million, up 2.1% YoY from JPY12,196 million for 1H21, mainly due to an increase in revenue of IIJmio Mobile services led by an increase in subscription, which absorbed a decrease in revenue resulted from a decrease in average revenue per user along with continued migration of old plan’s customers to “GigaPlans”, which launched at the beginning of the previous fiscal year.

Revenues for Outsourcing services were JPY22,469 million, up 15.0% YoY from JPY19,546 million for 1H21, mainly due to an increase in security-related services revenues.

Revenues for WAN services were JPY13,516 million, up 4.9% YoY from JPY12,881 million for 1H21.

SI revenues, including equipment sales, were JPY52,846 million, up 19.5% YoY (JPY44,209 million for 1H21).
Systems construction and equipment sales, a one-time revenue, was JPY19,549 million, up 26.4% YoY (JPY15,472 million for 1H21). Systems operation and maintenance revenue, a recurring revenue, was JPY33,297 million, up 15.9% YoY (JPY28,737 million for 1H21), mainly due to continued accumulation of systems operation orders as well as an increase in cloud-related services’ revenues.　

Orders received for SI, including equipment sales, totaled JPY60,992 million, up 31.2% YoY (JPY46,503 million for 1H21); orders received for systems construction and equipment sales were JPY21,670 million, up 14.9% YoY (JPY18,865 million for 1H21), and orders received for systems operation and maintenance were JPY39,322 million, up 42.3% YoY (JPY27,638 million for 1H21).

Order backlog for SI, including equipment sales, as of September 30, 2022 amounted to JPY80,937 million, up 17.4% YoY (JPY68,949 million as of September 30, 2021); order backlog for systems construction and equipment sales was JPY14,572 million, up 16.0% YoY (JPY12,561 million as of September 30, 2021) and order backlog for systems operation and maintenance was JPY66,365 million, up 17.7% YoY (JPY56,388 million as of September 30, 2021).

ATM operation business revenues were JPY1,409 million, almost same revenue as JPY1,409 million for 1H21.

Cost of sales
Total cost of sales was JPY95,471 million, up 11.1% YoY (JPY85,969 million for 1H21).

Cost of network services revenue was JPY49,802 million, up 6.5% YoY (JPY46,754 million for 1H21), mainly due to an increase in purchasing cost of mobile device. Gross profit was JPY17,905 million, up 7.3% YoY (JPY16,682 million for 1H21), and gross profit ratio was 26.4% (26.3% for 1H21).

Cost of SI revenues, including equipment sales was JPY44,857 million, up 17.0% YoY (JPY38,340 million for 1H21), mainly due to increases in license fees along with an increase in multi-cloud related services’ revenues and purchasing costs. Gross profit was JPY7,989 million, up 36.1% YoY (JPY5,869 million for 1H21) and gross profit ratio was 15.1% (13.3% for 1H21).

Cost of ATM operation business revenues was JPY812 million, down 7.2% YoY (JPY875 million for 1H21). Gross profit was JPY597 million (JPY534 million for 1H21) and gross profit ratio was 42.4% (37.9% for 1H21).
        
Selling, general and administrative expenses and other operating income and expenses
Selling, general and administrative expenses, including research and development expenses, totaled JPY15,508 million, up 12.5% YoY (JPY13,790 million for 1H21), mainly due to increases in personnel-related expenses, advertising expenses and outsourcing expenses.

Other operating income was JPY221 million (JPY93 million for 1H21).

Other operating expenses was JPY31 million (JPY84 million for 1H21).

Operating profit
Operating profit was JPY11,173 million (JPY9,304 million for 1H21), up 20.1% YoY.

Finance income and expenses, and share of profit (loss) of investments accounted for using equity method
Finance income was JPY2,042 million, compared to JPY1,772 million for 1H21. It included gains on financial instruments, mainly related to funds, of JPY1,196 million (JPY1,692 million for 1H21) and foreign exchange gain of JPY761 million (JPY3 million for 1H21).

Finance expense was JPY279 million, compared to JPY272 million for 1H21. It included interest expenses of JPY266 million (JPY272 million for 1H21).

Share of loss of investments accounted for using equity method was JPY78 million (loss of JPY372 million for 1H21). There was a loss of DeCurret Holdings, Inc. of JPY180 million.

Profit before tax
Profit before tax was JPY12,858 million (JPY10,432 million for 1H21), up 23.3% YoY.

Profit for the period
Income tax expense was JPY4,118 million (JPY3,474 million for 1H21). As a result, profit for the period was JPY8,740 million (JPY6,958 million for 1H21), up 25.6% YoY.

Profit for the period attributable to non-controlling interests was JPY102 million (JPY66 million for 1H21), mainly related to net income of Trust Networks Inc.

Profit for the period attributable to owners of the parent was JPY8,638 million (JPY6,892 million for 1H21), up 25.3% YoY.

Financial Position as of September 30, 2022　
As of September 30, 2022, the balance of total assets was JPY235,160 million, increased by JPY3,355 million from the balance as of March 31, 2022 of JPY231,805 million.

As of September 30, 2022, the balance of current assets was JPY103,947 million, decreased by JPY538 million from the balance as of March 31, 2022 of JPY104,485 million. As for the major breakdown of balance and fluctuation of current assets, cash and cash equivalents decreased by JPY5,323 million to JPY42,068 million, trade receivables decreased by JPY103 million to JPY37,546 million, inventories increased by JPY1,279 million to JPY3,887 million, prepaid expenses increased by JPY2,097 million to JPY15,650 million, mainly due to operation and maintenance costs, and contract assets increased by JPY1,575 million to JPY3,445 million.

As of September 30, 2022, the balance of non-current assets was JPY131,213 million, increased by JPY3,893 million from the balance as of March 31, 2022 of JPY127,320 million. As for the major breakdown of balance and fluctuation of non-current assets, tangible assets increased by JPY2,838 million to JPY20,684 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 JPY214 million to JPY44,660 million mainly due to depreciation, intangible assets decreased by JPY746 million to JPY15,678 million mainly due to amortization of software, and prepaid expenses increased by JPY1,512 million to JPY11,964 million, mainly due to operation and maintenance costs.

As of September 30, 2022, the balance of current liabilities was JPY74,501 million, decreased by JPY2,276 million from the balance as of March 31, 2022 of JPY76,777 million. As for the major breakdown of balance and fluctuation of current liabilities, trade and other payables increased by JPY1,031 million to JPY21,773 million, borrowings increased by JPY250 million to JPY16,620 million due to a decrease of JPY750 million from repayment of long-term borrowings and an increase of JPY1,000 million owing to a transfer from non-current liabilities, income taxes payable decreased by JPY1,907 million to JPY3,888 million, contract liabilities increased by JPY435 million to JPY10,006 million and other financial liabilities decreased by JPY1,305 million to JPY15,730 million.

As of September 30, 2022, the balance of non-current liabilities was JPY49,154 million, decreased by JPY1,253 million from the balance as of March 31, 2022 of JPY50,407 million. As for the major breakdown of balance and fluctuation of non-current liabilities, long-term borrowings decreased by JPY1,000 million to JPY4,500 million due to a transfer to current portion, contract liabilities decreased by JPY921 million to JPY6,508 million and other financial liabilities increased by JPY911 million to JPY31,057 million.

As of September 30, 2022, the balance of total equity attributable to owners of the parent was JPY110,359 million, increased by JPY6,831 million from the balance as of March 31, 2022 of JPY103,528 million. Ratio of owners' equity to total assets was 46.9% as of September 30, 2022.

1H22 Cash Flows
Cash and cash equivalents as of September 30, 2022 were JPY42,068 million (JPY39,795 million as of September 30, 2021).

Net cash provided by operating activities for 1H22 was JPY13,457 million (net cash provided by operating activities of JPY18,865 million for 1H21). There were profit before tax of JPY12,858 million (JPY10,432 million for 1H21), depreciation and amortization of JPY14,145 million (JPY13,266 million for 1H21), including JPY5,629 million (JPY5,035 million for 1H21) of depreciation of right-of-use operating lease assets under IFRS 16, and income taxes paid of JPY6,035 million (JPY3,352 million for 1H21). Regarding changes in working capital, there was net cash out of JPY5,992 million compared to net cash-out of JPY399 million for 1H21. As for the major factors for the increase in net cash outflow in comparison with 1H21, there were a decrease in proceeds from trade receivables and increases in payments of prepaid expenses and inventories, which exceeded a decrease in payments of trade and other payables.

Net cash used in investing activities for 1H22 was JPY7,219 million (net cash used in investing activities of JPY8,185 million for 1H21), mainly due to payments for purchases of tangible assets of JPY5,704 million (JPY4,164 million for 1H21), payments for purchases of intangible assets, such as software, of JPY2,137 million (JPY2,167 million for 1H21), and proceeds from sales of tangible assets of JPY947 million (JPY1,011 million for 1H21).

Net cash used in financing activities for 1H22 was JPY12,601 million (net cash used in financing activities of JPY13,402 million for 1H21), mainly due to payments of other financial liabilities of JPY9,544 million (JPY8,989 million for 1H21), 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 JPY750 million (JPY4,085 million for 1H21) and dividends paid of JPY2,258 million (JPY1,759 million for 1H21).

Future Prospects including FY2022 Financial Targets
1H22 financial results slightly exceeded our financial targets announced on May 13, 2022. Meanwhile, FY2022 financial targets remain unchanged, because the full-year forecasts are largely dependent on the fourth quarter results in general.

Presentation
Presentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on November 7, 2022.
The presentation material can also be found here  http://ml.globenewswire.com/Resource/Download/a34c18ba-de82-4548-a2d3-461ea6a97120

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:
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.

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 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

Based on the resolution of the IIJ’s board of directors held on August 5, 2022, IIJ conducted the stock split of shares as of the record date of September 30, 2022, at a ratio of two-for-one with an effective date of October 1, 2022. Therefore, the information per share for the first half ended September 30, 2021, for the second quarter ended September 30, 2021, for the first half ended September 30, 2022 and for the second quarter ended September 30, 2022 in the consolidated financial statements is based on the post-split basis.

Note: The following information is provided to disclose Internet Initiative Japan Inc. (“IIJ”) financial results (unaudited) for the first six months ended September 30, 2022 (“1H22”) in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Six Months ended September 30, 2022　[Under IFRS]

November 7, 2022

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: +81-3-5205-6500
Scheduled date for filing of quarterly report ( Shihanki-houkokusho ) to Japan’s regulatory organization: November 14, 2022
Scheduled date for dividend payment: December 2, 2022
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 Six Months ended September 30, 2022 (April 1, 2022 to September 30, 2022)

(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

2．Dividends

(Notes)
1. Changes from the latest forecasts disclosed: None
2. IIJ conducted a stock split at a ratio of two-for-one effective as of October 1, 2022. The forecast of year-end dividend per share is the amount after the stock split. Regarding the amount on a pre-split basis, the forecast of year-end and annual dividend per share are JPY29.26 and JPY58.51, respectively.

3．Targets of Consolidated Financial Results for the Fiscal Year ending March 31, 2023
(April 1, 2022 through March 31, 2023)

(% shown is YoY change)

(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 October 1, 2022. The target of basic earnings per share is the amount after the stock split.
3. As for the details about our financial targets for the fiscal year ending March 31, 2023, please refer to “Future Prospects including FY2022 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

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 September 30, 2022: 187,069,600 shares
As of March 31, 2022: 187,069,600 shares

ii. Number of treasury stock:
As of September 30, 2022: 6,371,656 shares
As of March 31, 2022: 6,443,334 shares

iii. Number of weighted average common shares outstanding:
For the six months ended September 30, 2022: 180,668,564 shares
For the six months ended September 30, 2021: 180,558,276 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 common 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 November 7, 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, please refer to “Future Prospects including FY2022 Financial Targets” written on page 8 of this document.

ii) Change in the unit of presentation for monetary amounts
Amounts of accounts and other items presented in our condensed quarterly consolidated financial statements were previously stated in thousands of yen, but effective from the first quarter ended June 30, 2022, IIJ has changed to present such amounts in millions of yen. In order to facilitate comparison, the amounts for the previous consolidated fiscal year are also presented in millions of yen.

iii) Others
Presentation material will be disclosed on TDnet as well as posted on our website on November 7, 2022.