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IIJ Announces Full Year and Fourth Quarter Financial Results for the Fiscal Year Ended March 31, 2018
[May 14, 2018]

IIJ Announces Full Year and Fourth Quarter Financial Results for the Fiscal Year Ended March 31, 2018


TOKYO, May 15, 2018 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (NASDAQ:IIJI) (TSE:3774) today announced its full year (“FY2017”) and fourth quarter (“4Q17”) consolidated financial results for the fiscal year ended March 31, 2018 (from April 1, 2017 to March 31, 2018).1

  
Highlights of Financial Results for FY2017
  
Revenues 
Operating Income 
Income before Income Tax Expense
Net Income attributable to IIJ 
Annual Cash Dividend    
JPY176.1 billion (up 11.6% YoY)
JPY6.8 billion (up 31.7% YoY)
JPY7.8 billion (up 44.5% YoY)
JPY5.1 billion (up 61.3% YoY)
JPY27.00 per common share
  
Financial Targets for FY2018
  
Revenues
Operating Income
Annual Cash Dividend
JPY190.0 billion (up 7.9% YoY)
JPY7.0 billion (up 3.5% YoY)
JPY27.00 per common share
  

Overview of FY2017 Financial Results and Business Outlook 
“As a leading comprehensive network service provider, we continued to expand recurring revenue which contributed to revenue and operating income growth for FY2017. Year over year revenue growth of recurring revenue, which amounted to 82.9% of FY2017 total revenue, was 14.0%, especially led by mobile and security. As for mobile, we accumulated subscription mainly through our 137 MVNE clients, despite the ongoing competitive consumer mobile market, as well as accumulation of M2M/IoT type transactions. Security-related services largely grew by 26.2% year over year due to overall strong demand and a particularly large project for a local government. Other recurring revenues such as Internet connectivity, outsourcing, WAN and systems operation and maintenance also grew with continuous accumulation of contracts. Operating income increased year over year mainly because both network and SI gross margin amount grew and a larger than expected NTT Docomo’s mobile interconnectivity unit price revision,” said Eijiro Katsu, COO and President of IIJ. 

“As for business developments, we made several progress by leveraging our business assets: We launched full-MVNO services and plan to further accumulate enterprise IoT projects which inquiry number reached over 320 as of March 2018. Such IoT projects include connected homes business with Chubu Electric Power, smart factory business with Hirata, a factory production engineering company to name a few; We decided to build our second module-based data center near Tokyo to integrate our data center racks currently spread out in the metropolitan area for more effective operation; By leveraging IIJ Raptor,2 we established a new equity method investee, DeCurret, with eighteen prominent Japanese companies to launch cryptocurrency exchange and settlement platform business and plan to provide services from the latter half of FY2018; Almost all major Japanese broadcasting companies joined our equity method investee, JOCDN, to provide CDN services best-suited for Japanese Internet contents holders including TVer and others. Its business has kicked off quite fine and currently provide highly reliable CDN services to fifteen clients and expect to expand its customer base. We believe these are critical successful factors for our middle-to-long term growth,” said Katsu.

“For FY2018, we plan to continuously accumulate recurring revenue. As for operating income, we expect the continuous revenue growth of network, cloud and SI to create the total operating income growth while forefront fixed cost related to full-MVNO operations increases,” said Katsu.

“We seek for a significant income growth in FY2019 as the full-MVNO related cost burden should impose much less negative impact on our income as we accumulate revenue growth. For the middle term, we believe we shall be even more well positioned in the coming IoT society by leveraging our full-MVNO operations as well our strong competitive advantage of having wide range of service line-ups including cloud and mobile, SI expertise, and blue-chip customer base,” concluded Koichi Suzuki, Founder, CEO and Chairman of IIJ.

______________________
1 Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with U.S. GAAP, unaudited and consolidated.
2 IIJ Raptor Service was launched in 2010 and its 13 customers include Nomura Securities and Sony Bank.

 

FY2017 Financial Results Summary

Operating Results Summary
 FY2016FY2017YoY Change
 JPY millionsJPY millions%
Total revenues157,789176,051  11.6 
Network services92,996108,119  16.3 
Systems integration (SI)57,74960,431  4.6 
Equipment sales2,9943,470  15.9 
ATM operation business4,0504,031(0.5)
Total costs132,542  147,818  11.5 
Network services76,38788,698  16.1 
Systems integration (SI)50,99253,612  5.1 
Equipment sales2,7353,142  14.9 
ATM operation business2,4282,366(2.6)
Total gross margin25,247  28,233  11.8 
Network services16,60919,42116.9 
Systems integration (SI)6,7566,8190.9 
Equipment sales26032826.6 
ATM operation business1,6221,6652.7 
SG&A expenses and R&D20,113  21,471  6.8 
Operating income5,134  6,762  31.7 
Income before income tax expense5,427  7,840  44.5 
Net income attributable to IIJ3,1675,10961.3 
     

 

Segment Results Summary
 FY2016FY2017
 JPY millionsJPY millions
Total revenues157,789 176,051 
Network services and SI business154,126 172,370 
ATM operation business4,050 4,031 
Elimination(387)(350)
Operating income5,134 6,762 
Network service and SI business3,854 5,430 
ATM operation business1,438 1,510 
Elimination(157)(178)

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

FY2017 Revenues and Income
Revenues 
Total revenues were JPY176,051 million, up 11.6% YoY (JPY157,789 million for FY2016).

Network services revenue was JPY108,119 million, up 16.3% YoY (JPY92,996 million for FY2016).

Revenues for Internet connectivity services for enterprise were JPY27,944 million, up 23.5% YoY from JPY22,634 million for FY2016, mainly due to an increase in mobile-related services revenues along with an expansion of MVNE business clients’ transactions.

Revenues for Internet connectivity services for consumers were JPY24,761 million, up 13.9% YoY from JPY21,735 million for FY2016, mainly due to the revenue growth of “IIJmio Mobile Service,” consumer mobile services which offer inexpensive data communication and voice services with SIM cards.

Revenues for WAN services were JPY29,295 million, up 10.7% YoY compared to JPY26,460 million for FY2016, mainly due to the revenue growth along with order accumulation.

Revenues for Outsourcing services were JPY26,119 million, up 17.8% YoY from JPY22,167 million for FY2016, mainly due to an increase in security-related services revenues.

Network Services Revenues Breakdown
 FY2016 FY2017 YoY
Change
 JPY millions JPY millions %
Internet connectivity services (Enterprise)22,634 27,944 23.5 
IP service*9,768 10,105 3.4 
IIJ FiberAccess/F and IIJ DSL/F3,043 2,997 (1.5)
IIJ Mobile service (Enterprise)9,595 14,619 52.4 
          IIJ Mobile MVNO Platform Service 6,441 10,866 68.7 
Others228 223 (2.1)
Internet connectivity services (Consumer)21,735 24,761 13.9 
IIJ19,634 23,448 19.4 
         IIJmio Mobile Service17,109 20,710 21.0 
hi-ho2,101 1,313 (37.5)
WAN services26,460 29,295 10.7 
Outsourcing services22,167 26,119 17.8 
Total network services92,996 108,119 16.3 

* IP service revenues include revenues from the data center connectivity service.

Number of Contracts and Subscription for Connectivity Services*1
 as of
Mar. 31, 2017
 as of
Mar. 31, 2018
 YoY
Change
Internet connectivity services (Enterprise)933,496 1,414,782 481,286 
IP service (1Gbps-)437 468 31 
IP service (100Mbps-999Mbps)591 658 67 
IP service (-99Mbps)658 614 (44)
IIJ Data center connectivity service253 241 (12)
IIJ FiberAccess/F and IIJ DSL/F72,605 72,630 25 
IIJ Mobile service (Enterprise)857,903 1,339,586 481,683 
         IIJ Mobile MVNO Platform Service*2582,250 824,731 242,481 
Others1,049 585 (464)
Internet connectivity services (Consumer) 1,409,259 1,363,531 (45,728)
IIJ*21,275,875 1,363,531 87,656 
         IIJmio Mobile Service951,249 1,005,092 53,843 
hi-ho*2133,384 - (133,384)
Total contracted bandwidth (Gbps)*3  2,773.3   3,117.7 344.4 

*1. Numbers in the table above show number of contracts except for “IIJ Mobile service (Enterprise),” “IIJ” and “hi-ho” which show number of subscriptions.
*2. On December 31, 2017, IIJ sold all the shares of common stock of hi-ho which was IIJ’s wholly owned subsidiary. Accordingly, hi-ho’s subscription for “Internet connectivity services (Consumer)” decreased to zero, hi-ho’s mobile service subscription of 14,735 was reclassed to “IIJ Mobile MVNO Platform Service” and a part of hi-ho’s subscription other than mobile service subscription of 47,683 is included in IIJ’s subscription for “Internet connectivity services (Consumer)” in our 3Q17 (from April 1, 2017 to December 31, 2017) financial results.
*3. Regarding IP service, data center connectivity service and IIJ FiberAccess/F and IIJ DSL/F of Internet connectivity services (Enterprise), total contracted bandwidths are calculated by multiplying number of contracts by contracted bandwidths respectively.

SI revenues were JPY60,431 million, up 4.6% YoY (JPY57,749 million for FY2016).

Systems construction revenue, a one-time revenue, was JPY22,528 million, almost same revenue volume as FY2016 revenue of JPY22,626 million, mainly due to continuous acquisition of system construction projects. Systems operation and maintenance revenue, a recurring revenue, was JPY37,903 million, up 7.9% YoY (JPY35,123 million for FY2016), mainly due to continued accumulation of systems operation orders as well as an increase in private cloud services’ revenues.

Orders received for SI and equipment sales totaled JPY68,988 million, up 0.6% YoY (JPY68,599 million for FY2016); orders received for systems construction and equipment sales were JPY25,810 million, down 3.4% YoY (JPY26,721 million for FY2016) and orders received for systems operation and maintenance were JPY43,178 million, up 3.1% YoY (JPY41,877 million for FY2016).

Order backlog for SI and equipment sales as of March 31, 2018 amounted to JPY46,588 million, up 12.3% YoY (JPY41,501 million as of March 31, 2017); order backlog for systems construction and equipment sales was JPY6,991 million, down 2.6% YoY (JPY7,179 million as of March 31, 2017) and order backlog for systems operation and maintenance was JPY39,597 million, up 15.4% YoY (JPY34,322 million as of March 31, 2017).

Equipment sales revenues were JPY3,470 million, up 15.9% YoY (JPY2,994 million for FY2016).

ATM operation business revenues were JPY4,031 million, down 0.5% YoY (JPY4,050 million for FY2016). As of March 31, 2018, 1,096 ATMs have been placed.

Cost and expense 
Total cost of revenues was JPY147,818 million, up 11.5% YoY (JPY132,542 million for FY2016).

Cost of network services revenue was JPY88,698 million, up 16.1% YoY (JPY76,387 million for FY2016). There were an increase in outsourcing-related costs due to our mobile services and an increase in circuit-related costs along with our WAN services revenue increase. Regarding NTT Docomo’s interconnectivity charge for MVNO-related services, the charge based on their FY2016 actual cost was revised in March 2018 and it decreased by 18.2% year over year. Gross margin was JPY19,421 million, up 16.9% YoY (JPY16,609 million for FY2016) and gross margin ratio was 18.0%.

Cost of SI revenues was JPY53,612 million, up 5.1% YoY (JPY50,992 million for FY2016). There was an increase in outsourcing-related costs along with our SI revenue increase. Gross margin was JPY6,819 million, up 0.9% YoY (JPY6,756 million for FY2016) and gross margin ratio was 11.3%.

Cost of equipment sales revenues was JPY3,142 million, up 14.9% YoY (JPY2,735 million for FY2016). Gross margin was JPY328 million, up 26.6% YoY (JPY260 million for FY2016) and gross margin ratio was 9.5%.

Cost of ATM operation business revenues was JPY2,366 million, down 2.6% YoY (JPY2,428 million for FY2016). Gross margin was JPY1,665 million, up 2.7% YoY (JPY1,622 million for FY2016) and gross margin ratio was 41.3%.

SG&A and R&D expenses 
SG&A and R&D expenses in total were JPY21,471 million, up 6.8% YoY (JPY20,113 million for FY2016).

Sales and marketing expenses were JPY12,688 million, up 11.0% YoY (JPY11,432 million for FY2016) mainly due to increases in advertising expenses, personnel-related expenses, and sales commission expenses.

General and administrative expenses were JPY8,296 million, up 1.0% YoY (JPY8,215 million for FY2016) mainly due to increases in personnel-related expenses.

Research and development expenses were JPY487 million, up 4.5% YoY (JPY466 million for FY2016).

Operating income 
Operating income was JPY6,762 million, up 31.7% YoY (JPY5,134 million for FY2016).

Other income (expenses) 
Other income (expenses) was an income of JPY1,078 million (an income of JPY293 million for FY2016), mainly because of net gain on sales of other investments, including available-for-sale securities, of JPY1,068 million (JPY217 million for FY2016), distribution from fund investment of JPY270 million (included in other-net of JPY237 million, JPY321 million for FY2016), dividend income of JPY243 million (JPY118 million for FY2016), interest expense of JPY375 million (JPY304 million for FY2016), and foreign exchange losses of JPY16 million (foreign exchange losses of JPY45 million for FY2016).

Income before income tax expenses 
Income before income tax expenses was JPY7,840 million, up 44.5% YoY (JPY5,427 million for FY2016).

Net income 
Income tax expense was JPY2,696 million (JPY2,225 million for FY2016).

Equity in net income of equity method investees was JPY135 million (JPY130 million for FY2016) mainly due to net income of Internet Multifeed Co.

As a result of the above, net income was JPY5,279 million, up 58.4% YoY (JPY3,332 million for FY2016).

Net income attributable to IIJ 
Net income attributable to non-controlling interests was JPY170 million (JPY165 million for FY2016) mainly related to net income of Trust Networks Inc.

Net income attributable to IIJ was JPY5,109 million, up 61.3% YoY (JPY3,167 million for FY2016).

FY2017 Balance Sheets
Balance sheets
As of March 31, 2018, the balance of total assets was JPY153,449 million, increased by JPY16,054 million from the balance as of March 31, 2017 of JPY137,395 million.

As of March 31, 2018, the balance of current assets was JPY67,185 million, increased by JPY3,463 million from the balance as of March 31, 2017 of JPY63,722 million. The major breakdown of current assets was: an increase in accounts receivables by JPY4,447 million to JPY31,831 million, a decrease in inventories by JPY1,084 million to JPY1,715 million, an increase in prepaid expenses by JPY832 million to JPY8,443 million and a decrease in cash and cash equivalents by JPY556 million to JPY21,403 million. As of March 31, 2018, the balance of noncurrent assets was JPY86,264 million, increased by JPY12,591 million from the balance as of March 31, 2017 of JPY73,673 million. The major breakdown of noncurrent assets was: property and equipment of JPY46,414 million, increased by JPY6,639 million, including JPY1,205 million by purchase of land, from the balance as of March 31, 2017, other investments of JPY11,374 million, increased by JPY3,450 million mainly due to an increase in the fair value of available-for-sale securities and an increase in prepaid expenses-noncurrent by JPY1,358 million to JPY7,966 million. Other investments as of March 31, 2018, consisted of JPY9,288 million in available-for-sale securities, JPY1,014 million in nonmarketable equity securities and JPY1,072 million in investments in funds, including some through a trust. As of March 31, 2018, the balance of non-amortized intangible assets was JPY6,116 million, decreased by JPY104 million from the balance as of March 31, 2017 of JPY6,220 million. The major breakdown of non-amortized intangible assets was JPY6,082 million in goodwill. The balance of amortized intangible assets, which was customer relationships, was JPY2,671 million, decreased by JPY365 million from the balance as of March 31, 2017 of JPY3,036 million.

As of March 31, 2018, the balance of current liabilities was JPY42,145 million, increased by JPY2,162 million from the balance as of March 31, 2017 of JPY39,983 million. The major breakdown of current liabilities was: an increase in income taxes payable by JPY852 million to JPY1,928 million, an increase in capital lease obligations-current portion by JPY837 million to JPY5,656 million and a decrease in accounts payable (trade and other) by JPY563 million to JPY16,399 million. As of March 31, 2018, the balance of noncurrent liabilities was JPY37,315 million, increased by JPY7,283 million from the balance as of March 31, 2017 of JPY30,032 million. The major breakdown of noncurrent liabilities was: an increase in long-term borrowings by JPY7,000 million to JPY15,500 million and an increase in capital lease obligations-noncurrent by JPY536 million to JPY10,921 million.

As of March 31, 2018, the balance of total IIJ shareholders’ equity was JPY73,270 million, increased by JPY6,528 million from the balance as of March 31, 2017 of JPY66,742 million and IIJ shareholders’ equity ratio (total IIJ shareholders’ equity divided by total assets) as of March 31, 2018 was 47.7%.

FY2017 Cash Flows
Cash flows 
Cash and cash equivalents as of March 31, 2018 were JPY21,403 million (JPY21,959 million as of March 31, 2017).

Net cash provided by operating activities for FY2017 was JPY13,262 million (net cash provided by operating activities of JPY7,368 million for FY2016). There were net income of JPY5,279 million, depreciation and amortization of JPY12,365 million, and adjustment of net gain on sales of other investments, which was deducted from proceeds provided by operating activities, of JPY1,068 million. Regarding changes in operating assets and liabilities, it was net cash out of JPY3,526 million mainly due to an increase in accounts receivable along with revenue growth, an increase in prepaid expenses (including prepaid expense-noncurrent) in relation to upfront payment for software licenses and maintenance cost for service facilities.

Net cash used in investing activities for FY2017 was JPY13,037 million (net cash used in investing activities of JPY7,376 million for FY2016), mainly due to payments for purchase of property and equipment of JPY15,771 million (JPY10,624 million for FY2016), including JPY1,205 million for purchase of land, proceeds from sales of property and equipment, which include sales and leaseback transactions, of JPY3,306 million (JPY3,046 million for FY2016), investment in equity method investees, including DeCurret Inc., of JPY2,005 million (JPY99 million for FY2016) and proceeds from sales of available-for-sale securities of JPY1,207 million (JPY5 million for FY2016).

Net cash used in financing activities for FY2017 was JPY748 million (net cash provided by financing activities of JPY2,492 million for FY2016), mainly due to proceeds from long-term borrowings of JPY7,000 million, principal payments under capital leases of JPY5,724 million (JPY4,820 million for FY2016), FY2016 year-end and FY2017 interim dividends payments of JPY1,217 million (JPY1,126 million for FY2016) and payments of long-term accounts payable of JPY571 million (JPY30 million for FY2016).

FY2018 Financial Targets
Our total revenue and operating income targets for the fiscal year ending March 31, 2019 are as follows. 

(JPY in billions)
 Total Revenue Operating Income 
1H FY2018 Target90.0 2.5 
Full FY2018 Target190.0 7.0 

As Japanese economy continues to recover slowly, Japanese enterprises’ IT-related investment as well as spending should continue to grow during FY2018. For the mid-to-long term, market opportunity should expand as mobile-related services growth along with IoT-related projects and further penetration of cloud service as well as demand for outsourcing by Japanese enterprises. For FY2018, with continuous accumulation of network services and SI projects, we seek to increase revenue and operating income by expanding gross margin amount.

We target total revenue of JPY190.0 billion, up 7.9% year over year, mainly by continuously accumulating recurring revenue of network services and systems operation and maintenance. As for operating income, we target JPY7.0 billion, up 3.5% year over year. Gross margin growth, mainly by continuous expansion of network services gross margin as well as SI gross margin ratio improvement, should absorb forefront fixed cost increase related to full-MVNO operations.

Due to the revision of the accounting principles generally accepted in the U.S. (“U.S.GAAP”), fluctuation of unrealized gains or losses on holding available-for-sale equity securities will be recognized in other income (expenses) on our consolidated statements of income from 1Q18* and fluctuations of stock prices may impact our consolidated statements of income. Due to difficulties of forecasting such fluctuation, we do not disclose our FY2018 targets for income before income tax expense, net income attributable to IIJ, basic net income attributable to IIJ per share, and consolidated payout ratio of dividends.

*Unrealized gains or losses on holding available-for-sale equity securities are evaluated based on the closing price of March 30, 2018, FY2017-end, and are reclassed from accumulated other comprehensive income to retained earnings at the beginning of our FY2018. After that, fluctuations of unrealized gains or losses due to fluctuations of stock prices will be recognized in other income (expenses) at every quarter.

Consideration on IFRS Adoption
We are considering to voluntarily adopt International Financial Reporting Standards (“IFRS”) from the filing of our FY2018 annual report “Yuka-shoken-houkokusho.” Under IFRS, we have an alternative to recognize unrealized gains or losses on holding available-for-sale equity securities as other comprehensive income.

Because of different accounting principles, our FY2018 consolidated financial statements disclosed in “Yuka-shoken-houkokusho” which will be prepared under IFRS might differ from our FY2018 consolidated financial statements disclosed in earnings press release as well as in the Convocation Notice for the 27th Ordinary General Meeting for Shareholders which will be prepared under the U.S. GAAP.

Planned schedule for voluntary adoption of IFRS:

  • Mid-May 2019: FY2018 unaudited consolidated financial statements disclosed in earnings press release (U.S.GAAP)
  • Late-May 2019: FY2018 audited consolidated financial statements disclosed in the Convocation Notice for the 27th Ordinary General Meeting for Shareholders (U.S.GAAP)
  • Late-June 2019: FY2018 audited consolidated financial statements disclosed in annual report “Yuka-shoken-houkokusho” (IFRS)

FY2018 Dividend Forecast
Our FY2018 dividend forecast is as follows:

 Interim Year-end Full Year 
FY2018 Dividend (forecast)JPY13.50 (forecast) JPY13.50 (forecast) JPY27.00 (forecast) 
FY2017 Dividend (scheduled)JPY13.50 (paid) JPY13.50 (scheduled) JPY27.00 (scheduled) 

FY2017 Reconciliation of Non-GAAP Financial Measures
The following table summarizes the reconciliation of adjusted EBITDA to net income attributable to IIJ in our consolidated statements of income that are prepared in accordance with U.S. GAAP.

Adjusted EBITDA
 FY2016FY2017
 JPY millionsJPY millions
Adjusted EBITDA16,109 19,127 
Depreciation and Amortization(10,894)(12,365)
Impairment loss on other intangible assets(81)- 
Operating Income5,134 6,762 
Other Income293 1,078 
Income Tax Expense2,225 2,696 
Equity in Net Income of Equity Method Investees130 135 
Net income3,332 5,279 
Less: Net income attributable to noncontrolling interests(165)(170)
Net Income attributable to IIJ3,167 5,109 
     

 

CAPEX
 FY2016 FY2017 
 JPY millions JPY millions 
CAPEX, including capital leases16,531 20,828 
Acquisition of Assets by Entering into Capital Leases8,302 7,109 
Purchase of Property and Equipment8,229 13,719 

Presentation
Presentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on May 15, 2018.

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 U.S. NASDAQ Stock Market in 1999 and 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

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 operating and net profitability, are subject to various risks, uncertainties and other factors that could cause IIJ’s actual results to differ materially from those contained in any forward-looking statement. These risks, uncertainties and other factors include: IIJ’s ability to maintain and increase revenues from higher-margin services such as outsourcing services; the possibility that revenues from connectivity services may decline substantially as a result of competition and other factors; the ability to compete in a rapidly evolving and competitive marketplace; the impact on IIJ's profits of fluctuations in costs such as backbone costs and subcontractor costs; the impact on IIJ's profits of fluctuations in the price of available-for-sale securities; fluctuations of equity in net income (loss) of equity method investees; the impact of technological changes in its industry; IIJ’s ability to raise additional capital to cover its indebtedness; the possibility that NTT, IIJ’s largest shareholder, may decide to exercise substantial influence over IIJ; and other risks referred to from time to time in IIJ’s filings on Form 20-F of its annual report and other filings with the United States Securities and Exchange Commission.

 

 
Internet Initiative Japan Inc.
Consolidated Balance Sheets (Unaudited)
(As of March 31, 2017 and March 31, 2018)
   
 As of March 31, 2017As of March 31, 2018
 Thousands of
JPY
Thousands of
JPY
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents21,958,591 21,402,892 
Accounts receivable, net of allowance for doubtful accounts of
  JPY 107,684 thousand and JPY 123,453 thousand
  at March 31, 2017 and March 31, 2018, respectively
27,383,692 31,830,882 
Inventories2,798,054 1,714,547 
Prepaid expenses—current7,610,925 8,442,981 
Deferred tax assets—current1,298,469 - 
Other current assets, net of allowance for doubtful accounts of
  JPY 15,192 thousand and JPY 720 thousand at March 31, 2017 and
  March 31, 2018, respectively
2,672,008 3,793,449 
Total current assets63,721,739 67,184,751 
INVESTMENTS IN EQUITY METHOD INVESTEES3,150,175 5,246,313 
OTHER INVESTMENTS7,924,914 11,374,442 
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
  amortization of JPY 50,566,983 thousand and JPY 55,470,955 thousand
  at March 31, 2017 and March 31, 2018, respectively
39,775,444 46,414,250 
GOODWILL6,169,609 6,082,472 
OTHER INTANGIBLE ASSETS—Net3,087,017 2,704,668 
GUARANTEE DEPOSITS3,060,365 3,422,443 
DEFERRED TAX ASSETS—Noncurrent80,566 183,808 
NET INVESTMENT IN SALES-TYPE LEASES—Noncurrent2,047,682 1,545,293 
Prepaid expenses—Noncurrent6,607,437 7,965,889 
OTHER ASSETS, net of allowance for doubtful accounts of
  JPY 61,877 thousand and JPY 60,929 thousand
  at March 31, 2017 and March 31, 2018, respectively
1,770,201 1,324,490 
TOTAL137,395,149 153,448,819 
   
   
 As of March 31, 2017As of March 31, 2018
 Thousands of
JPY
Thousands of
JPY
LIABILITIES AND SHAREHOLDERS' EQUITY  
CURRENT LIABILITIES:  
Short-term borrowings9,250,000 9,250,000 
Capital lease obligations—current portion4,818,723 5,655,875 
Accounts payable—trade14,653,065 14,950,920 
Accounts payable—other2,308,790 1,448,423 
Income taxes payable1,075,745 1,928,037 
Accrued expenses2,755,581 3,111,385 
Deferred income—current3,750,542 4,237,676 
Other current liabilities1,370,661 1,562,717 
Total current liabilities39,983,107 42,145,033 
LONG-TERM BORROWINGS8,500,000 15,500,000 
CAPITAL LEASE OBLIGATIONS—Noncurrent10,384,643 10,920,726 
ACCRUED RETIREMENT AND PENSION COSTS—Noncurrent3,532,965 3,724,634 
DEFERRED TAX LIABILITIES—Noncurrent963,845 688,787 
DEFERRED INCOME—Noncurrent3,656,612 3,952,279 
OTHER NONCURRENT LIABILITIES2,993,777 2,528,803 
Total Liabilities70,014,949 79,460,262 
COMMITMENTS AND CONTINGENCIES  
   
SHAREHOLDERS' EQUITY:  
Common-stock—authorized, 75,520,000 shares; issued and
outstanding, 46,711,400 and 46,713,800 shares at March 31, 2017 and
March 31, 2018, respectively
25,509,499 25,511,804 
Additional paid-in capital36,117,511 36,175,937 
Retained earnings4,511,945 8,404,228 
Accumulated other comprehensive income2,499,700 5,074,872 
Treasury stock—1,650,909 shares held by the company at March 31,
2017 and March 31, 2018, respectively
(1,896,784)(1,896,784)
Total Internet Initiative Japan Inc. shareholders' equity66,741,871 73,270,057 
NONCONTROLLING INTERESTS638,329 718,500 
Total equity67,380,200 73,988,557 
TOTAL137,395,149 153,448,819 
   
   

 

 
Internet Initiative Japan Inc.
Consolidated Statements of Income and
Consolidated Statements of Comprehensive Income (Unaudited)
(For the fiscal year ended March 31, 2017 and March 31, 2018)
     
 Fiscal Year Ended Fiscal Year Ended 
 March 31, 2017 March 31, 2018 
 Thousands of
JPY
 Thousands of
JPY
 
REVENUES:    
Network services:    
Internet connectivity services (enterprise)22,633,739  27,943,656  
Internet connectivity services (consumer)21,734,968  24,761,487  
WAN services26,459,697  29,295,097  
Outsourcing services22,167,432  26,118,657  
   Total92,995,836  108,118,897  
Systems integration:    
Systems construction22,625,753  22,527,433  
Systems operation and maintenance35,122,940  37,903,235  
   Total  60,430,668  
Equipment sales2,994,449  3,470,400  
ATM operation business4,050,081  4,030,684  
   Total revenues157,789,059  176,050,649  
COSTS AND EXPENSES:    
Cost of network services76,386,849  88,697,639  
Cost of systems integration50,992,480  53,612,063  
Cost of equipment sales2,735,169  3,142,262  
Cost of ATM operation business2,427,870  2,365,403  
   Total costs132,542,368  147,817,367  
Sales and marketing11,431,467  12,688,046  
General and administrative8,214,598  8,295,583  
Research and development466,319  487,451  
   Total costs and expenses152,654,752  169,288,447  
OPERATING INCOME5,134,307  6,762,202  
OTHER INCOME (EXPENSES):    
Dividend income117,567  242,576  
Interest income35,259  30,527  
Interest expense(303,685) (375,202) 
Foreign exchange gain (loss), net(45,116) (15,863) 
Net gain on sales of other investments216,646  1,068,303  
Loss on sales of stocks of an affiliate(12,070) -  
Impairment of other investments(30,554) (109,840) 
Other —net314,806  237,420  
Other income —net292,853  1,077,921  
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE
  AND EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES
5,427,160  7,840,123  
INCOME TAX EXPENSE 2,224,880  2,695,839  
EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES129,791  134,656  
NET INCOME3,332,071  5,278,940  
LESS: NET INCOME ATTRIBUTABLE TO
  NONCONTROLLING INTERESTS
(165,561) (169,991) 
NET INCOME ATTRIBUTABLE TO INTERNET
  INITIATIVE JAPAN INC.
3,166,510  5,108,949  
     
     
 Fiscal Year Ended Fiscal Year Ended 
 March 31, 2017 March 31, 2018 
NET INCOME PER SHARE    
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares)45,652,981  45,062,878  
DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares)45,772,470  45,215,686  
BASIC WEIGHTED-AVERAGE NUMBER OF
  ADS EQUIVALENTS (ADSs)
91,305,962  90,125,756  
DILUTED WEIGHTED-AVERAGE NUMBER  OF
  ADS EQUIVALENTS (ADSs)
91,544,940  90,431,372  
BASIC NET INCOME PER SHARE  (JPY)69.36  113.37  
DILUTED NET INCOME PER SHARE  (JPY)69.18  112.99  
BASIC NET INCOME PER ADS  EQUIVALENT  (JPY)34.68  56.69  
DILUTED NET INCOME PER ADS  EQUIVALENT  (JPY)34.59  56.50  
     
 
Consolidated Statements of Comprehensive Income (Unaudited)   
 Fiscal Year Ended Fiscal Year Ended 
 March 31, 2017 March 31, 2018 
 Thousands of
JPY
 Thousands of
JPY
 
NET INCOME3,332,071  5,278,940  
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:    
  Foreign currency translation adjustments(181,110) (904) 
  Unrealized holding gain on securities1,280,095  2,542,210  
  Defined benefit pension plans204,046  33,866  
TOTAL COMPREHENSIVE INCOME 4,635,102  7,854,112  
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO
 NONCONTROLLING INTERESTS
(165,561) (169,991) 
COMPREHENSIVE INCOME ATTRIBUTABLE TO
  INTERNET INITIATIVE JAPAN INC.
4,469,541  7,684,121  
     
     


 
Internet Initiative Japan Inc.
Consolidated Statements of Shareholders' Equity (Unaudited)
(For the fiscal year ended March 31, 2017 and March 31, 2018)
                 
 Total
equity
Internet Initiative Japan Inc. shareholders' equityNON
CONTROLLING
INTERESTS
 Retained earnings
(Accumulated deficit)
Accumulated
other
comprehensive
income (loss)
 Shares of
common
stock
outstanding
 Common
stock
 Treasury
stock
Additional
paid-in
capital
 Thousands
of JPY
Thousands
of JPY
Thousands
of JPY
 Shares Thousands
of JPY
 Thousands
of JPY
Thousands
of JPY
Thousands
of JPY
BALANCE, MARCH 31, 201665,343,975 2,471,276 1,196,669 46,711,400 25,509,499 (392,070)36,059,833 498,768 
  Dividends paid to noncontrolling interests(26,000)         (26,000)
  Stock-based compensation57,678         57,678  
Net Income3,332,071 3,166,510         165,561 
Other Comprehensive
  income (loss), net of tax
1,303,031  1,303,031        
  Dividends paid(1,125,841)(1,125,841)         
  Payments for purchase of treasury stock(1,504,714)       (1,504,714)  
BALANCE, MARCH 31, 201767,380,200 4,511,945 2,499,700 46,711,400 25,509,499 (1,896,784)36,117,511 638,329 
  Issuance of common stock upon 
  exercise of stock options
2    2,400 2,305  (2,303) 
  Dividends paid to noncontrolling interests(46,800)         (46,800)
  Change in ownership for non-controlling
  interests and others
(39,612)        3,408 (43,020)
  Stock-based compensation57,321         57,321  
Net Income5,278,940 5,108,949         169,991 
  Other Comprehensive
  income (loss), net of tax
2,575,172  2,575,172        
  Dividends paid(1,216,666)(1,216,666)         
BALANCE, MARCH 31, 201873,988,557 8,404,228 5,074,872 46,713,800 25,511,804 (1,896,784)36,175,937 718,500 
            
            


   
Internet Initiative Japan Inc.
Consolidated Statements of Cash Flows (Unaudited)
(For the fiscal year ended March 31, 2017 and March 31, 2018)
   
 Fiscal Year EndedFiscal Year Ended
 March 31, 2017March 31, 2018
 Thousands of
JPY
Thousands of
JPY
OPERATING ACTIVITIES:  
Net income3,332,071 5,278,940 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization10,893,657 12,364,873 
Impairment loss on other intangible assets81,000 - 
Provision for retirement and pension costs, less payments252,825 241,868 
Provision for allowance for doubtful accounts68,300 94,839 
Gain on sales of property and equipment(31,809)(12,376)
Loss on disposal of property and equipment170,971 112,329 
Net gain on sales of other investments(216,646)(1,068,303)
Loss on sales of stocks of an affiliate12,070 - 
Impairment of other investments30,554 113,450 
Foreign exchange loss, net18,152 32,514 
Equity in net income of equity method investees, less dividends received(78,709)(83,465)
Deferred income tax benefit(94,343)(312,933)
Other(44,667)25,856 
Changes in operating assets and liabilities net of effects from divestitures of a company :  
Increase in accounts receivable(3,751,392)(4,823,584)
Decrease in net investment in sales-type lease — noncurrent492,530 502,389 
Decrease (increase) in inventories(800,296)1,085,649 
Increase in prepaid expenses(2,859,763)(842,521)
Increase in other current and noncurrent assets(3,317,968)(2,194,591)
Increase in accounts payable827,792 358,299 
Increase (decrease) in income taxes payable(2,621)861,899 
Increase (decrease) in accrued expenses(167,597)351,710 
Increase in deferred income—current1,257,870 487,931 
Increase in deferred income—noncurrent604,269 332,765 
Increase in other current and noncurrent liabilities691,442 354,226 
   Net cash provided by operating activities7,367,692 13,261,764 
INVESTING ACTIVITIES:  
Purchase of property and equipment(10,623,993)(15,770,587)
Proceeds from sales of property and equipment3,046,189 3,305,813 
Purchase of other investments(410,587)(286,695)
Investment in equity method investees(99,000)(2,004,808)
Proceeds from sales of available-for-sale securities4,840 1,206,516 
Proceeds from sales of other investments534,549 157,341 
Payments of guarantee deposits(50,345)(380,343)
Refund of guarantee deposits92,002 26,458 
Payments for refundable insurance policies(56,476)(56,362)
Proceeds from sale of stock of a subsidiary, net of cash divested- 726,081 
Proceeds from subsidies200,000 48,976 
Other(13,000)(9,715)
   Net cash used in investing activities(7,375,821)(13,037,325)
     
 Fiscal Year EndedFiscal Year Ended
 March 31, 2017March 31, 2018
 Thousands of
JPY
Thousands of
JPY
FINANCING ACTIVITIES:  
Proceeds from short-term borrowings with initial maturities over three months and
long-term borrowings
8,550,000 9,550,000 
Net increase in short-term borrowings with initial maturities less than three months- (150,000)
Repayments of short-term borrowings with initial maturities over three months(50,000)(2,550,000)
Principal payments under capital leases(4,819,530)(5,723,729)
Proceeds from long-term accounts payable1,498,306 - 
Payments of long-term accounts payable(30,122)(571,373)
Dividends paid(1,125,841)(1,216,666)
Payments for purchase of treasury stock(1,504,714)- 
Other(26,000)(86,410)
Net cash provided by (used in) financing activities2,492,099 (748,178)
   
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS(94,474)(31,960)
   
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS2,389,496 (555,699)
     
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD19,569,095 21,958,591 
CASH AND CASH EQUIVALENTS, END OF THE PERIOD21,958,591 21,402,892 
   
ADDITIONAL CASH FLOW INFORMATION:  
Interest paid302,035 368,413 
Income taxes paid2,462,106 2,063,530 
   
NONCASH INVESTING AND FINANCING ACTIVITIES:  
Acquisition of assets by entering into capital leases8,301,695 7,108,629 
Facilities purchase liabilities2,308,790 1,448,423 
Asset retirement obligation31,980 49,609 
   
   

Fourth Quarter FY2017 Consolidated Financial Results (3 months)
The following tables are highlight data of fourth Quarter FY2017 (3 months) consolidated financial results (unaudited, for the three months ended March 31, 2018).

Operating Results Summary
 4Q16 4Q17 YoY
Change
 JPY millions JPY millions %
Total Revenues:44,187 48,439 9.6 
Network Services24,515 28,119 14.7 
Systems Integration (SI)17,891 18,130 1.3 
Equipment Sales787 1,195 51.9 
ATM Operation Business994 995 0.0 
Cost of Revenues:36,770 39,961 8.7 
Network Services20,113 22,588 12.3 
Systems Integration (SI)15,348 15,715 2.4 
Equipment Sales711 1,089 53.2 
ATM Operation Business598 569 (4.7)
SG&A Expenses and R&D5,438 5,491 1.0 
Operating Income1,979 2,987 50.9 
Income before Income Tax Expense1,994 3,512 76.1 
Net Income attributable to IIJ1,256 2,421 92.7 
       

 

Network Service Revenue Breakdown
 4Q16 4Q17 YoY
Change
 JPY millions JPY millions %
Internet Connectivity Service (Enterprise)6,173 7,526 21.9 
  IP Service*12,438 2,552 4.7 
  IIJ FiberAccess/F and IIJ DSL/F763 735 (3.8)
  IIJ Mobile Service2,915 4,183 43.5 
IIJ Mobile MVNO Platform Service2,083 3,125 50.0 
   Others57 56 (0.3)
Internet Connectivity Service (Consumer)5,832 6,054 3.8 
IIJ5,344 6,054 13.3 
IIJmio Mobile Service4,672 5,367 14.9 
hi-ho*2488 - (100.0)
WAN Services6,612 7,619 15.2 
Outsourcing Services5,899 6,920 17.3 
Network Services Revenues24,515 28,119 14.7 

*1 IP service revenues include revenues from the data center connectivity service.
*2. On December 31, 2017, IIJ sold all the shares of common stock of hi-ho which was IIJ’s wholly owned subsidiary. Accordingly, hi-ho’s revenue for “Internet connectivity services (Consumer)” decreased to zero.

Reconciliation of Non-GAAP Financial Measures (Fourth Quarter FY2017 (3 months))
The following table summarizes the reconciliation of adjusted EBITDA to net income in our consolidated statements of income that are prepared in accordance with U.S. GAAP.

Adjusted EBITDA
 4Q164Q17
 JPY millionsJPY millions
Adjusted EBITDA4,948 6,196 
Depreciation and Amortization(2,888)(3,209)
Impairment loss on other intangible assets(81)- 
Operating Income1,979 2,987 
Other Income (Expense)15 525 
Income Tax Expense (Benefit)759 1,082 
Equity in Net Income of Equity Method Investees61 33 
Net income1,296 2,463 
Less: Net income attributable to noncontrolling interests(39)(42)
Net Income attributable to IIJ1,257 2,421 

The following table summarizes the reconciliation of capital expenditures to the purchase of property and equipment in our consolidated statements of cash flows that are prepared and presented in accordance with U.S. GAAP.

CAPEX
 4Q164Q17
 JPY millionsJPY millions
CAPEX, including capital leases4,2735,072
Acquisition of Assets by Entering into Capital Leases2,4591,484
Purchase of Property and Equipment1,8143,588


   
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Income and
Quarterly Consolidated Statements of Comprehensive Income (Unaudited)
(Three Months ended March 31, 2017 and March 31, 2018)
   
 Three Months EndedThree Months Ended
 March 31, 2017March 31, 2018
 Thousands of
JPY
Thousands of
JPY
REVENUES:  
Network services:  
Internet connectivity services (enterprise)6,172,534 7,525,693 
Internet connectivity services (consumer)5,832,016 6,054,155 
WAN services6,611,961 7,619,194 
Outsourcing services5,898,789 6,920,258 
    Total24,515,300 28,119,300 
Systems integration:  
Systems construction8,652,946 7,996,955 
Systems operation and maintenance9,237,719 10,132,656 
   Total17,890,665 18,129,611 
Equipment sales786,800 1,195,037 
ATM operation business994,342 994,727 
   Total revenues44,187,107 48,438,675 
COST AND EXPENSES:  
Cost of network services20,113,321 22,588,521 
Cost of systems integration15,348,322 15,714,175 
Cost of equipment sales710,907 1,088,830 
Cost of ATM operation business597,775 569,491 
   Total costs36,770,325 39,961,017 
Sales and marketing3,039,453 3,137,162 
General and administrative2,286,433 2,225,575 
Research and development111,908 128,326 
   Total costs and expenses42,208,119 45,452,080 
OPERATING INCOME1,978,988 2,986,595 
OTHER INCOME (EXPENSE):  
Dividend income11,231 11,792 
Interest income8,478 7,397 
Interest expense(85,481)(98,828)
Foreign exchange gain (loss), net(22,044)(44,394)
Net gain on sales of other investments2,708 694,804 
Loss on sales of stocks of an affiliate(12,070)- 
Impairment of other investments- (109,840)
Other—net112,320 64,024 
Other income —net15,142 524,955 
INCOME FROM OPERATIONS BEFORE INCOME
  TAX EXPENSE AND EQUITY IN NET INCOME
  OF EQUITY METHOD INVESTEES
1,994,130 3,511,550 
INCOME TAX EXPENSE759,028 1,081,884 
EQUITY IN NET INCOME OF EQUITY
  METHOD INVESTEES
60,547 33,487 
NET INCOME1,295,649 2,463,153 
LESS: NET INCOME ATTRIBUTABLE TO
  NONCONTROLLING INTERESTS
(39,400)(42,100)
NET INCOME ATTRIBUTABLE TO
  INTERNET INITIATIVE JAPAN INC.
1,256,249 2,421,053 
   
 Three Months EndedThree Months Ended
 March 31, 2017March 31, 2018
NET INCOME PER SHARE  
BASIC WEIGHTED-AVERAGE NUMBER OF
  SHARES (shares)
45,652,981 45,062,891 
DILUTED WEIGHTED-AVERAGE NUMBER
  OF SHARES (shares)
45,772,470 45,227,668 
BASIC WEIGHTED-AVERAGE NUMBER OF
  ADS EQUIVALENTS (ADSs)
91,305,962 90,125,782 
DILUTED WEIGHTED-AVERAGE NUMBER
  OF ADS EQUIVALENTS (ADSs)
91,544,940 90,455,336 
BASIC NET INCOME PER SHARE  (JPY)27.52 53.73 
DILUTED NET INCOME PER SHARE  (JPY)27.45 53.53 
BASIC NET INCOME PER ADS
  EQUIVALENT (JPY)
13.76 26.86 
DILUTED NET INCOME PER ADS
  EQUIVALENT (JPY)
13.72 26.77 
   
   
Quarterly Consolidated Statements of Comprehensive Income (Unaudited) 
 Three Months EndedThree Months Ended
 March 31, 2017March 31, 2018
 Thousands of
JPY
Thousands of
JPY
NET INCOME1,295,649 2,463,153 
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:  
  Foreign currency translation adjustments274,048 12,497 
  Unrealized holding gain on securities359,360 410,023 
  Defined benefit pension plans193,168 31,369 
TOTAL COMPREHENSIVE INCOME 2,122,225 2,917,042 
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO
 NONCONTROLLING INTERESTS
(39,400)(42,100)
COMPREHENSIVE INCOME ATTRIBUTABLE TO
  INTERNET INITIATIVE JAPAN INC.
2,082,825 2,874,942 
     


   
Internet Initiative Japan Inc.
Consolidated Statements of Cash Flows (Unaudited)
(Three Months ended March 31, 2017 and March 31, 2018)
   
 Three Months EndedThree Months Ended 
 March 31, 2017March 31, 2018
 Thousands of
JPY
Thousands of
JPY
OPERATING ACTIVITIES:  
Net income1,295,649 2,463,153 
Adjustments to reconcile net income to net cash
  provided by operating activities:
  
Depreciation and amortization2,887,608 3,209,013 
Impairment loss on other intangible assets81,000 - 
Provision for retirement and pension costs, less payments63,902 45,669 
Provision for allowance for doubtful accounts48,311 26,908 
Loss (gain) on sales of property and equipment(16,399)1,260 
Loss on disposal of property and equipment116,490 49,938 
Net gain on sales of other investments(2,708)(694,804)
Loss on sales of stocks of an affiliate12,070 - 
Impairment of other investments  - 113,450 
Foreign exchange loss, net18,429 43,525 
Equity in net income of equity method investees, less dividends received(60,547)(33,487)
Deferred income tax benefit(444,078)(289,924)
Other7,049 71,165 
Changes in operating assets and liabilities net of effects from divestitures of a company :  
Increase in accounts receivable(3,687,105)(4,233,708)
Decrease in net investment in sales-type lease — noncurrent92,140 130,941 
Decrease in inventories786,260 2,614,446 
Decrease (increase) in prepaid expenses(405,326)512,885 
Decrease (increase) in other current and noncurrent assets1,216,437 (202,209)
Increase (decrease) in accounts payable667,465 (540,684)
Increase in income taxes payable764,551 1,397,103 
Increase (decrease) in accrued expenses(186,236)110,343 
Increase in deferred income—current1,117,832 67,994 
Increase in deferred income—noncurrent302,112 96,280 
Increase (decrease) in other current and noncurrent liabilities(1,714,893)6,504 
    Net cash provided by operating activities2,960,013 4,965,761 
INVESTING ACTIVITIES:  
Purchase of property and equipment(2,683,903)(3,985,425)
Proceeds from sales of property and equipment827,010 549,094 
Purchase of other investments(94,416)(155,577)
Investment in an equity method investee- (1,830,000)
Proceeds from sales of available-for-sale securities4,840 746,499 
Proceeds from sales of other investments300 1,075 
Payments of guarantee deposits(33,243)(82,198)
Refund of guarantee deposits4,298 5,625 
Payments for refundable insurance policies(14,091)(14,090)
Other2,000 (5)
    Net cash used in investing activities(1,987,205)(4,765,002)
     
 Three Months EndedThree Months Ended 
 March 31, 2017March 31, 2018
 Thousands of
JPY
Thousands of
JPY
FINANCING ACTIVITIES:  
Net increase in short-term borrowings with initial maturities less than three months- (150,000)
Principal payments under capital leases(1,284,643)(1,493,754)
Proceeds from long-term accounts payable1,498,306 - 
Payments of long-term accounts payable(30,122)(165,122)
Payments for purchase of treasury stock(522,607)- 
Other- 11,250 
Net cash used in financing activities(339,066)(1,797,626)
   
EFFECT OF EXCHANGE RATE CHANGES ON
  CASH AND CASH EQUIVALENTS
58,631 (44,389)
   
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS692,373 (1,641,256)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD21,266,218 23,044,148 
CASH AND CASH EQUIVALENTS, END OF THE PERIOD21,958,591 21,402,892 
   


Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the fiscal year ended March 31, 2018 (“FY2017”) in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Fiscal Year Ended March 31, 2018
[Under accounting principles generally accepted in the United States ("U.S. GAAP")]

May 15, 2018

Company name: Internet Initiative Japan Inc.
Exchange listed: Tokyo Stock Exchange First Section
Stock code number: 3774
URL: https://www.iij.ad.jp/
Representative: Eijiro Katsu, President and Representative Director
Contact: Akihisa Watai, Managing Director and CFO
TEL: (03) 5205-6500
Scheduled date for annual general shareholder’s meeting: June 28, 2018
Scheduled date for dividend payment: June 29, 2018
Scheduled date for filing of annual report (Yuka-shoken-houkokusho) to Japan’s regulatory organization: June 29, 2018
Supplemental material on annual results: Yes
Presentation on quarterly report: Yes (for institutional investors and analysts)

(Amounts of less than JPY one million are rounded)

1. Consolidated Financial Results for the Fiscal Year Ended March 31, 2018
(April 1, 2017 to March 31, 2018)

(1) Consolidated Results of Operations(% shown is YoY change)
 Total revenuesOperating incomeIncome before
income tax expense
Net income
attributable to IIJ
 JPY millions JPY millions JPY millions JPY millions 
Fiscal year ended March 31, 2018176,05111.6 6,76231.7 7,84044.5 5,10961.3 
Fiscal year ended March 31, 2017157,78912.2 5,134(16.4)5,427(12.4)3,167(21.6)


(Note1) Total comprehensive income attributable to IIJ
Fiscal year ended March 31, 2018: JPY7,684 million (up 71.9% YoY)
Fiscal year ended March 31, 2017: JPY4,470 million (up 35.6% YoY)
(Note2) Income before income tax expense represents income from operations before income tax expense and equity in net income in equity method investees, respectively, in IIJ's consolidated financial statements.


 Basic net income
attributable to IIJ
per share
 Diluted net income
attributable to IIJ
per share
 Net income
attributable to IIJ
to total
shareholders' equity
 Income before
income tax
expense to total
assets
 Total revenues
operating margin
ratio
 
 JPY  JPY     
Fiscal year ended
March 31, 2018
113.37 112.99 7.3 5.4 3.8 
Fiscal year ended
March 31, 2017
69.36 69.18 4.8 4.3 3.3 


(Reference) Equity in net income of equity method investees
Fiscal year ended March 31, 2018: JPY135 million
Fiscal year ended March 31, 2017: JPY130 million


(2) Consolidated Financial Position
 Total assets Total equity Total IIJ
shareholders'
equity
 Total IIJ
shareholders'
equity to total
assets
 Total IIJ
shareholders’
equity per share
 
 JPY millions JPY millions JPY millions % JPY 
As of March 31, 2018153,449 73,989 73,270 47.7 1,625.95 
As of March 31, 2017137,395 67,380 66,742 48.6 1,481.16 


(3) Consolidated Cash Flow
 Operating activities Investing activitiesFinancing activitiesCash and cash
equivalents
(end of the
period)
 
 JPY millions JPY millions JPY millions JPY millions 
Fiscal year ended
March 31, 2018
13,262 (13,037)(748)21,403 
Fiscal year ended
March 31, 2017
7,368 (7,376)2,492 21,959 


2. Dividends
 Dividend per SharesTotal cash
dividends for
the year
 Payout
Ratio
(consolidated)
 Ratio of
Dividends to
Shareholder's
Equity
(consolidated)
 
1Q-end 2Q-end 3Q-end Year-end Total    
 JPY JPY JPY JPY JPY JPY millions % % 
Fiscal Year Ended
March 31, 2017
- 13.50 - 13.50 27.00 1,229 38.9 1.9 
Fiscal Year Ended
March 31, 2018
- 13.50 - 13.50 27.00 1,217 23.8 1.7 
Fiscal Year Ending
March 31, 2019
 (forecast)
- 13.50 - 13.50 27.00       

(Note) Change from the latest released dividend forecasts: No.

3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2019

(April 1, 2018 through March 31, 2019) (% shown is YoY change)
 Total
Revenues
Operating
Income
 JPY millions %  JPY millions %  
Interim Period Ending
September 30, 2018
90,0008.4 2,5008.0 
Fiscal Year Ending
March 31, 2019
190,0007.9 7,0003.5 

* Notes

  1. Changes in significant subsidiaries for the fiscal year ended March 31, 2018
    (Changes in significant subsidiaries for the fiscal year ended March 31, 2018 which resulted in changes in scope of consolidation): None

  2. Changes in significant accounting and reporting policies for the consolidated financial statements
    1. Changes due to the revision of accounting standards: Yes 
      In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17 “Balance Sheet Classification of Deferred Taxes.” This ASU requires that deferred tax assets and liabilities be classified as noncurrent on the consolidated balance sheet. IIJ adopted this ASU from the first quarter beginning April 1, 2017, on a prospective basis, and did not retrospectively adjust the consolidated balance sheet as of March 31, 2017.
      As of March 31, 2017, the balance of current deferred tax assets and liabilities amounted to JPY1,298,469 thousand and JPY108,994 thousand, respectively.

    2. Others: No

  3. Number of shares outstanding (shares of common stock)
    1. The number of shares outstanding (inclusive of treasury stock): 
      As of March 31, 2018: 46,713,800 shares 
      As of March 31, 2017: 46,711,400 shares

    2. The number of treasury stock: 
      As of March 31, 2018: 1,650,909 shares 
      As of March 31, 2017: 1,650,909 shares

    3. The weighted average number of shares outstanding: 
      For the fiscal year ended March 31, 2018: 45,062,878 shares 
      For the fiscal year ended March 31, 2017: 45,652,981 shares


[English Translation]

May 15, 2018

Company name: Internet Initiative Japan Inc.

Company representative: Eijiro Katsu, President and Representative Director
(Stock Code Number: 3774, The First Section of the Tokyo Stock Exchange)

Contact: Akihisa Watai, Managing Director and CFO
TEL: 81-3-5205-6500

Information Pertaining to Our Largest Shareholder

1. About Our Largest Shareholder (As of March 31, 2018)

NameRelationshipIts Ownership Percentage (%)Securities Exchanges
where its Shares are Listed
Direct
ownership
Indirect
ownership
Total
Nippon
Telegraph and
Telephone
Corporation
(“NTT”)
IIJ is NTT's
affiliate
company
22.44.526.9Tokyo Stock Exchange (First Section)

2. Position of the Listed Company (IIJ) within NTT Group and other relationships

The ownership percentage by NTT, which is IIJ's largest shareholder, was 26.9% as of March 31, 2018, including its indirect ownership. However, IIJ's business activities are not affected by NTT's ownership in IIJ and IIJ is maintaining its management independence.

3. Business Relationship with NTT Group

IIJ uses services provided by Nippon Telegraph and Telephone East Corporation and Nippon Telegraph and Telephone West Corporation for a significant portion of IIJ’s access circuits, services provided by NTT Communications Corporation for a significant portion of IIJ’s domestic and international backbone circuits, and services provided by NTT DOCOMO, INC for a significant portion of IIJ’s mobile infrastructure, to provide Internet connectivity and other services to IIJ’s customers. IIJ also leases a part of Internet data center facilities from NTT Group companies to provide Internet data center services. The aggregate amount paid to for these services was JPY27,545 million for the fiscal year ended March 31, 2018.

4. Policy Concerning Measures to Protect Minority Shareholders in Transactions with NTT Group

Business transactions with the NTT Group are within the scope of normal business practices and there is no special contract made in relation to the investment by NTT Group.

End

 

 

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