OREANDA-NEWS. Internet Initiative Japan Inc. ("IIJ") (NASDAQ:IIJI) (TSE:3774) today announced its first three months consolidated financial results for the fiscal year ending March 31, 2018 (“1Q17” from April 1, 2017 to June 30, 2017).1

 
Highlights of Financial Results for 1Q17
                     
Revenues         JPY41.0 billion         (up 13.2% YoY)
Operating Income         JPY1.1 billion         (up 34.4% YoY)
Net Income attributable to IIJ         JPY0.7 billion         (up 33.4% YoY)
                     
Financial Targets for FY2017
                     
Revenues         JPY176.0 billion         (up 11.5% YoY)
Operating Income         JPY6.5 billion         (up 26.6% YoY)
Net Income attributable to IIJ         JPY4.0 billion         (up 26.3% YoY)
                     
Financial Targets for 1H17
                     
Revenues         JPY82.4 billion         (up 11.2% YoY)
Operating Income         JPY2.0 billion         (up 2.7% YoY)
Net Income attributable to IIJ         JPY1.1 billion         (down 0.7% YoY)
                     
                     

Overview of 1Q17 Financial Results and Business Outlook

“We started 1Q17 with strong year over year revenue growth of 13.2%. The operating income also increased 34.4% year over year. This good start reflects continuous recurring revenue growth we’ve been accumulating from the last fiscal year,” said Eijiro Katsu, COO and President of IIJ.

“1Q17 monthly recurring revenues, which were 85.1% of 1Q17 total revenue, increased 3.2% quarter over quarter and 13.3% year over year. With an accumulation of many transactions, network, cloud, security, mobile, WAN and all these monthly recurring revenues accomplished a favorable start, overall. We also had local governments’ “Information Security Cloud” projects, in which we provide Internet connectivity, cloud, security, data center, and SI, which contributed to the quarter over quarter revenue growth. Gross margin amount increased for both network services and systems integration which absorbed the increase in operating costs and made the overall operating income increase,” continued Katsu.

“Japan is approaching towards a network-based society and IoT should be a key theme. As examples, the Ministry of Agriculture, Forestry and Fishers has chosen us for a feasibility study on paddy water control management system. We also co-work with a prominent Japanese housing corporation and an electric power company on low-carbon housing system by incorporating IoT-based air-conditioning systems combined with weather forecast data. We’ve been involved in these kinds of IoT-related discussions, received from Japanese companies. We expect to play an important role with our technology and wide range of services we’ve accumulated towards a forthcoming connected society in the middle to long term,” said 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. All financial figures are unaudited and consolidated.

1Q17 Financial Results Summary

Operating Results Summary
  1Q16   1Q17   YoY
Change
  JPY millions   JPY millions   %
Total revenues 36,179   40,964   13.2  
Network services 22,075   25,686   16.4  
Systems integration (SI) 12,366   13,599   10.0  
Equipment sales 730   676   (7.4 )
ATM operation business 1,008   1,003   (0.5 )
Total costs 30,397   34,434   13.3  
Network services 18,030   21,066   16.8  
Systems integration (SI) 11,094   12,163   9.6  
Equipment sales 665   604   (9.2 )
ATM operation business 608   601   (1.3 )
Total gross margin 5,782   6,530   12.9  
Network services 4,045   4,619   14.2  
Systems integration (SI) 1,272   1,436   12.9  
Equipment sales 65   72   11.2  
ATM operation business 400   402   0.6  
SG&A expenses and R&D 4,946   5,406   9.3  
Operating income 836   1,124   34.4  
Income before income tax expense 994   1,163   17.0  
Net income attributable to IIJ 529   706   33.4  
Segment Results Summary
    1Q16 1Q17
     JPY millions   JPY millions 
Total revenues   36,179   40,964  
Network services and SI business   35,264   40,052  
ATM operation business   1,008   1,003  
Elimination   (93 ) (91 )
Operating income   836   1,124  
Network service and SI business   514   804  
ATM operation business   356   367  
Elimination   (34 ) (47 )

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

1Q17 Revenues and Income

Revenues

Total revenues were JPY40,964 million, up 13.2% YoY (JPY36,179 million for 1Q16).

Network services revenue was JPY25,686 million, up 16.4% YoY (JPY22,075 million for 1Q16).

Revenues for Internet connectivity services for enterprise were JPY6,524 million, up 29.2% YoY from JPY5,048 million for 1Q16, 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 JPY6,155 million, up 23.2% YoY from JPY4,996 million for 1Q16, mainly due to the revenue growth of “IIJmio Mobile Services,” consumer mobile services which offer inexpensive data communication and voice services with SIM cards.

Revenues for WAN services were JPY6,970 million, up 3.6% YoY compared to JPY6,729 million for 1Q16.

Revenues for Outsourcing services were JPY6,037 million, up 13.9% YoY from JPY5,302 million for 1Q16, mainly due to an increase in security-related services revenues.

Network Services Revenues Breakdown
    1Q16   1Q17   YoY
Change
    JPY millions   JPY millions   %
Internet connectivity services (Enterprise)   5,048   6,524   29.2  
IP service*1   2,401   2,490   3.7  
IIJ FiberAccess/F and IIJ DSL/F   761   753   (1.0 )
IIJ Mobile service (Enterprise)   1,829   3,225   76.4  
IIJ Mobile MVNO Platform Service   1,123   2,359   110.0  
Others   57   56   (2.8 )
Internet connectivity services (Consumer)   4,996   6,155   23.2  
IIJ   4,430   5,697   28.6  
IIJmio Mobile Service   3,864   5,013   29.8  
hi-ho   566   458   (19.1 )
WAN services   6,729   6,970   3.6  
Outsourcing services   5,302   6,037   13.9  
Total network services   22,075   25,686   16.4  

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

Number of Contracts and Subscription for Connectivity Services*1
    as of
June 30, 2016		   as of
June 30, 2017		   YoY
Change
Internet connectivity services (Enterprise)   616,356   1,005,410   389,054  
IP service (1Gbps-)   376   450   74  
IP service (100Mbps-999Mbps)   540   598   58  
IP service (-99Mbps)   659   642   (17 )
IIJ Data center connectivity service   264   240   (24 )
IIJ FiberAccess/F and IIJ DSL/F   73,111   71,390   (1,721 )
IIJ Mobile service (Enterprise)   540,326   931,049   390,723  
IIJ Mobile MVNO Platform Service   333,375   639,659   306,284  
Others   1,080   1,041   (39 )
Internet connectivity services (Consumer)   1,283,614   1,453,068   169,454  
IIJ   1,141,236   1,322,313   181,077  
IIJmio Mobile Service   810,753   965,692   154,939  
hi-ho   142,378   130,755   (11,623 )
Total contracted bandwidth*2   2,239.0Gbps   2,882.6Gbps   643.6Gbps

*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. 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 JPY13,599 million, up 10.0% YoY (JPY12,366 million for 1Q16).

Systems construction revenue, a one-time revenue, was JPY4,440 million, up 20.7% YoY (JPY3,678 million for 1Q16). Systems operation and maintenance revenue, a recurring revenue, was JPY9,159 million, up 5.4% YoY (JPY8,688 million for 1Q16), mainly due to continued accumulation of the orders and an increase in private cloud services’ revenues.

Orders received for SI and equipment sales totaled JPY16,990 million, down 0.9% YoY (JPY17,150 million for 1Q16); orders received for systems construction and equipment sales were JPY6,664 million, up 1.5% YoY (JPY6,564 million for 1Q16) and orders received for systems operation and maintenance were JPY10,326 million, down 2.5% YoY (JPY10,586 million for 1Q16).

Order backlog for SI and equipment sales as of June 30, 2017 amounted to JPY44,216 million, up 17.3% YoY (JPY37,699 million as of June 30, 2016); order backlog for systems construction and equipment sales was JPY8,727 million, up 6.0% YoY (JPY8,233 million as of June 30, 2016) and order backlog for systems operation and maintenance was JPY35,489 million, up 20.4% YoY (JPY29,466 million as of June 30, 2016).

Equipment sales revenues were JPY676 million, down 7.4% YoY (JPY730 million for 1Q16) mainly due to the fluctuation in sales of equipment and mobile devices.

ATM operation business revenues were JPY1,003 million, down 0.5% YoY (JPY1,008 million for 1Q16). As of June 30, 2017, 1,083 ATMs have been placed.

Cost and expense

Total cost of revenues was JPY34,434 million, up 13.3% YoY (JPY30,397 million for 1Q16).

Cost of network services revenue was JPY21,066 million, up 16.8% YoY (JPY18,030 million for 1Q16). There were an increase in outsourcing-related costs with our mobile infrastructure enhancement along with our mobile-related revenue increase, an increase in circuit-related costs along with our WAN services revenue increase, and an increase in network operation-related costs.  Gross margin was JPY4,619 million, up 14.2% YoY (JPY4,045 million for 1Q16) and gross margin ratio was18.0% compared to 18.3% in 1Q16.

Cost of SI revenues was JPY12,163 million, up 9.6% YoY (JPY11,094 million for 1Q16). The increase was mainly due to the increase in outsourcing-related and personnel-related costs. Gross margin was JPY1,436 million, up 12.9% YoY (JPY1,272 million for 1Q16) and gross margin ratio was 10.6% compared to 10.3% in 1Q16.

Cost of equipment sales revenues was JPY604 million, down 9.2% YoY (JPY665 million for 1Q16). Gross margin was JPY72 million (JPY65 million for 1Q16) and gross margin ratio was 10.6% compared to 8.9% in 1Q16.

Cost of ATM operation business revenues was JPY601 million, down 1.3% YoY (JPY608 million for 1Q16). Gross margin was JPY402 million (JPY400 million for 1Q16) and gross margin ratio was 40.1% compared to 39.7% in 1Q16.

SG&A and R&D expenses

SG&A and R&D expenses in total were JPY5,406 million, up 9.3% YoY (JPY4,946 million for 1Q16).

Sales and marketing expenses were JPY3,149 million, up 13.8% YoY (JPY2,766 million for 1Q16) mainly due to increases in advertising expenses, sales commission expenses of mobile-related services, and personnel-related expenses.

General and administrative expenses were JPY2,130 million, up 3.6% YoY (JPY2,056 million for 1Q16) mainly due to increases in personnel-related expenses.

Research and development expenses were JPY127 million, up 2.9% YoY (JPY124 million for 1Q16).

Operating income

Operating income was JPY1,124 million, up 34.4% YoY (JPY836 million for 1Q16).

Other income (expenses)

Other income (expenses) was an income of JPY39 million (an income of JPY158 million for 1Q16), mainly because of dividend income of JPY72 million (JPY63 million for 1Q16), distribution from fund investment of JPY57 million (included in other-net of JPY42 million, JPY49 million for 1Q16), and interest expense of JPY89 million (JPY69 million for 1Q16).

Income before income tax expenses

Income before income tax expenses was JPY1,163 million, up 17.0% YoY (JPY994 million for 1Q16).

Net income

Income tax expense was JPY451 million (JPY440 million for 1Q16).

Equity in net income of equity method investees was JPY36 million (JPY17 million for 1Q16) mainly due to net income of Internet Multifeed Co.

As a result of the above, net income was JPY748 million, up 31.0% YoY (JPY571 million for 1Q16).

Net income attributable to IIJ

Net income attributable to non-controlling interests was JPY42 million (JPY42 million for 1Q16) mainly related to net income of Trust Networks Inc.

Net income attributable to IIJ was JPY706 million, up 33.4% YoY (JPY529 million for 1Q16)

1Q17 Balance Sheets

Balance sheets

As of June 30, 2017, the balance of total assets was JPY136,500 million, decreased by JPY895 million from the balance as of March 31, 2017 of JPY137,395 million.

As of June 30, 2017, the balance of current assets was JPY60,246 million, decreased by JPY3,476 million from the balance as of March 31, 2017 of JPY63,722 million. The major breakdown of current assets was a decrease in accounts receivable by JPY3,325 million to JPY24,059 million, a decrease in cash and cash equivalents by JPY1,450 million to JPY20,508 million, an increase in prepaid expenses by JPY2,108 million to JPY9,719 million. As of June 30, 2017, the balance of noncurrent assets was JPY76,254 million, increased by JPY2,581 million from the balance as of March 31, 2017 of JPY73,673 million. The major breakdown of noncurrent assets was an increase in deferred tax asset-noncurrent by JPY1,060 million to JPY1,141 million mainly due to a change of the accounting standard, an increase in other investments by JPY906 million to JPY8,831 million mainly due to an increase in the fair value of available-for-sale securities, and an increase in property and equipment by JPY640 million to JPY40,415 million. Other investments as of June 30, 2017, consisted of JPY6,670 million in available-for-sale securities, JPY1,124 million in nonmarketable equity securities and JPY1,038 million in investments in funds, including some through a trust. As of June 30, 2017, the balance of non-amortized intangible assets was JPY6,220 million and the major breakdown of non-amortized intangible assets was JPY6,170 million in goodwill. The balance of amortized intangible assets, which was customer relationships, was JPY2,944 million, decreased by JPY92 million from the balance as of March 31, 2017 of JPY3,036 million.

As of June 30, 2017, the balance of current liabilities was JPY37,738 million, decreased by JPY2,245 million from the balance as of March 31, 2017 of JPY39,983 million. The major breakdown of current liabilities was a decrease in accounts payable (trade and other) JPY2,980 million and an increase in capital lease obligations-current portion by JPY305 million to JPY5,124 million. As of June 30, 2017, the balance of noncurrent liabilities was JPY30,739 million, increased by JPY708 million from the balance as of March 31, 2017 of JPY30,032 million. The major breakdown of noncurrent liabilities was an increase in capital lease obligations-noncurrent by JPY624 million to JPY11,009 million.

As of June 30, 2017, the balance of total IIJ shareholders’ equity was JPY67,389 million, increased by JPY647 million and IIJ shareholders’ equity ratio (total IIJ shareholders’ equity divided by total assets) as of June 30, 2017 was 49.4%.

1Q17 Cash Flows

Cash flows

Cash and cash equivalents as of June 30, 2017 were JPY20,508 million (JPY18,504 million as of June 30, 2016).

Net cash provided by operating activities for 1Q17 was JPY3,237 million (net cash used in operating activities of JPY117 million for 1Q16.) There were net income of JPY748 million, depreciation and amortization of JPY2,979 million and net cash out flow of JPY690 million (JPY3,571 million for 1Q16) from changes in operating assets and liabilities. As for changes in operating assets and liabilities, there were a decrease in accounts receivable mainly due to receipts of accounts receivable, an increase in prepaid expenses mainly due to payments in relation to upfront payment for maintenance cost for service facilities and software licenses and seasonal bonus payments to our employees, and a decrease in accounts payable (trade and other) mainly due to payments of accounts payable.

Net cash used in investing activities for 1Q17 was JPY2,572 million (net cash used in investing activities of JPY2,188 million for 1Q16), mainly due to payments for purchase of property and equipment of JPY3,839 million (JPY3,085 million for 1Q16) and proceeds from sales of property and equipment, which include sales and leaseback transactions, of JPY1,276 million (JPY404 million for 1Q16).

Net cash used in financing activities for 1Q17 was JPY2,098 million (net cash provided by financing activities of JPY1,344 million for 1Q16), mainly due to principal payments under capital leases of JPY1,335 million (JPY1,125 million for 1Q16) and FY2016 year-end dividends payments of JPY608 million (JPY505 million for 1Q16).

FY2017 Financial Targets

Due to seasonal factors, our financial results tend to be small in first quarter and large in fourth quarter every fiscal year. 1Q17 income was slightly higher than we expected; however, contribution of first quarter to full year results are not very large. Therefore, our financial targets for the fiscal year ending March 31, 2018 (FY2017) announced on May 15, 2017 remain unchanged.

1Q17 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
    1Q16 1Q17
    JPY millions     JPY millions
Adjusted EBITDA   3,448     4,103  
Depreciation and Amortization   (2,612 )   (2,979 )
Operating Income   836     1,124  
Other Income   158     39  
Income Tax Expense   440     451  
Equity in Net Income of Equity Method Investees   17     36  
Net income   571     748  
Less: Net income attributable to noncontrolling interests   (42 )   (42 )
Net Income attributable to IIJ   529     706  
CAPEX
    1Q16   1Q17  
    JPY millions   JPY millions  
CAPEX, including capital leases   4,688   5,340  
Acquisition of Assets by Entering into Capital Leases   1,891   2,268  
Purchase of Property and Equipment   2,797   3,072  

 


About Internet Initiative Japan Inc.

Founded in 1992, IIJ is one of Japan's leading Internet-access and comprehensive network solutions roviders. 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, systems integration, cloud computing services, security services and mobile services. Moreover, IIJ has built 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.

   
Internet Initiative Japan Inc.  
Consolidated Balance Sheets (Unaudited)  
(As of March 31, 2017 and June 30, 2017)  
             
    As of March 31, 2017   As of June 30, 2017    
    Thousands of
JPY		   Thousands of
JPY		    
  ASSETS          
  CURRENT ASSETS:          
  Cash and cash equivalents 21,958,591     20,508,225      
  Accounts receivable, net of allowance for doubtful accounts of JPY 107,684 thousand and JPY 112,385 thousand   at March 31, 2017 and June 30, 2017, respectively 27,383,692     24,059,068      
  Inventories 2,798,054     3,115,959      
  Prepaid expenses—current 7,610,925     9,718,714      
  Deferred tax assets—current 1,298,469     -      
  Other current assets, net of allowance for doubtful accounts of JPY 15,192 thousand at March 31, 2017 and June 30, 2017, respectively 2,672,008     2,843,592      
  Total current assets 63,721,739     60,245,558      
  INVESTMENTS IN EQUITY METHOD INVESTEES 3,150,175     3,173,008      
  OTHER INVESTMENTS 7,924,914     8,831,196      
  PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of JPY 50,566,983 thousand and JPY 51,987,126 thousand at March 31, 2017 and June 30, 2017, respectively 39,775,444     40,415,418      
  GOODWILL 6,169,609     6,169,609      
  OTHER INTANGIBLE ASSETS—Net 3,087,017     2,995,042      
  GUARANTEE DEPOSITS 3,060,365     3,065,701      
  DEFERRED TAX ASSETS—Noncurrent 80,566     1,140,682      
  NET INVESTMENT IN SALES-TYPE LEASES—Noncurrent 2,047,682     1,845,894      
  Prepaid expenses—Noncurrent 6,607,437     6,968,043      
  OTHER ASSETS, net of allowance for doubtful accounts of JPY 61,877 thousand and JPY 59,498 thousand at March 31, 2017 and June 30, 2017, respectively 1,770,201     1,649,540      
  TOTAL 137,395,149     136,499,691      
             
             
    As of March 31, 2017   As of June 30, 2017    
    Thousands of
JPY		   Thousands of
JPY		    
  LIABILITIES AND SHAREHOLDERS' EQUITY          
  CURRENT LIABILITIES:          
  Short-term borrowings 9,250,000     9,250,000      
  Capital lease obligations—current portion 4,818,723     5,124,025      
  Accounts payable—trade 14,653,065     13,028,880      
  Accounts payable—other 2,308,790     952,611      
  Income taxes payable 1,075,745     318,179      
  Accrued expenses 2,755,581     2,714,107      
  Deferred income—current 3,750,542     4,462,206      
  Other current liabilities 1,370,661     1,888,255      
  Total current liabilities 39,983,107     37,738,263      
  LONG-TERM BORROWINGS 8,500,000     8,500,000      
  CAPITAL LEASE OBLIGATIONS—Noncurrent 10,384,643     11,008,657      
  ACCRUED RETIREMENT AND PENSION COSTS—Noncurrent 3,532,965     3,593,797      
  DEFERRED TAX LIABILITIES—Noncurrent 963,845     1,222,341      
  DEFERRED INCOME—Noncurrent 3,656,612     3,471,380      
  OTHER NONCURRENT LIABILITIES 2,993,777     2,943,221      
  Total Liabilities 70,014,949     68,477,659      
  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 June 30, 2017, respectively 25,509,499     25,511,804      
  Additional paid-in capital 36,117,511     36,129,788      
  Retained earnings 4,511,945     4,609,672      
  Accumulated other comprehensive income 2,499,700     3,034,242      
  Treasury stock —1,650,909 shares held by the company at March 31, 2017 and June 30, 2017, respectively (1,896,784 )   (1,896,784 )    
  Total Internet Initiative Japan Inc. shareholders' equity 66,741,871     67,388,722      
  NONCONTROLLING INTERESTS 638,329     633,310      
  Total equity 67,380,200     68,022,032      
  TOTAL 137,395,149     136,499,691      
             
             

 

   
Internet Initiative Japan Inc.  
Quarterly Consolidated Statements of Income and
Quarterly Consolidated Statements of Comprehensive Income (Unaudited)		  
(For the three months ended June 30, 2016 and June 30, 2017)  
             
             
    Three Months Ended   Three Months Ended    
    June 30, 2016   June 30, 2017    
    Thousands of
JPY		   Thousands of
JPY		    
  REVENUES:          
  Network services:          
  Internet connectivity services (enterprise) 5,047,825     6,523,846      
  Internet connectivity services (consumer) 4,996,069     6,154,713      
  WAN services 6,729,601     6,969,904      
  Outsourcing services 5,301,656     6,037,221      
  Total 22,075,151     25,685,684      
  Systems integration:          
  Systems construction 3,678,367     4,439,994      
  Systems operation and maintenance 8,687,939     9,159,313      
  Total 12,366,306     13,599,307      
  Equipment sales 729,699     675,922      
  ATM operation business 1,008,095     1,002,992      
  Total revenues 36,179,251     40,963,905      
  COSTS AND EXPENSES:          
  Cost of network services 18,030,232     21,066,296      
  Cost of systems integration 11,093,569     12,162,837      
  Cost of equipment sales 664,985     603,976      
  Cost of ATM operation business 608,327     600,642      
  Total costs 30,397,113     34,433,751      
  Sales and marketing 2,766,497     3,148,710      
  General and administrative 2,055,679     2,129,782      
  Research and development 123,643     127,271      
  Total costs and expenses 35,342,932     39,839,514      
  OPERATING INCOME 836,319     1,124,391      
  OTHER INCOME (EXPENSES):          
  Dividend income 63,379     72,272      
  Interest income 9,123     7,978      
  Interest expense (69,157 )   (88,932 )    
  Foreign exchange gain (loss), net (90,500 )   5,087      
  Net gain on sales of other investments 213,938     -      
  Impairment of other investments (17,829 )   -      
  Other —net 48,797     41,811      
  Other income —net 157,751     38,216      
  INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES 994,070     1,162,607      
  INCOME TAX EXPENSE 440,089     450,641      
  EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES 16,735     35,859      
  NET INCOME 570,716     747,825      
  LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS (41,457 )   (41,781 )    
  NET INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC. 529,259     706,044      
             
             
    Three Months Ended   Three Months Ended    
    June 30, 2016   June 30, 2017    
  NET INCOME PER SHARE          
  BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 45,952,691     45,062,838      
  DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 46,059,998     45,202,227      
  BASIC WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) 91,905,382     90,125,677      
  DILUTED WEIGHTED-AVERAGE NUMBER  OF ADS EQUIVALENTS (ADSs) 92,119,996     90,404,454      
  BASIC NET INCOME PER SHARE  (JPY) 11.52     15.67      
  DILUTED NET INCOME PER SHARE  (JPY) 11.49     15.62      
  BASIC NET INCOME PER ADS  EQUIVALENT  (JPY) 5.76     7.83      
  DILUTED NET INCOME PER ADS  EQUIVALENT  (JPY) 5.75     7.81      
             
     
  Quarterly Consolidated Statements of Comprehensive Income (Unaudited)        
    Three Months Ended   Three Months Ended    
    June 30, 2016   June 30, 2017    
    Thousands of
JPY		   Thousands of
JPY		    
  NET INCOME 570,716     747,825      
  OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:          
  Foreign currency translation adjustments (222,449 )   (75,709 )    
  Unrealized holding gain (loss) on securities 121,246     609,373      
  Defined benefit pension plans -     878      
  TOTAL COMPREHENSIVE INCOME 469,513     1,282,367      
  LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS (41,457 )   (41,781 )    
  COMPREHENSIVE INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC. 428,056     1,240,586      
             

 

             
Internet Initiative Japan Inc.  
Quarterly Consolidated Statements of Cash Flows (Unaudited)  
(For the three months ended June 30, 2016 and June 30, 2017)  
             
    Three Months Ended   Three Months Ended    
    June 30, 2016   June 30, 2017    
    Thousands of
JPY		   Thousands of
JPY		    
  OPERATING ACTIVITIES:          
  Net income 570,716     747,825      
  Adjustments to reconcile net income to net cash provided by operating activities:          
  Depreciation and amortization 2,612,239     2,979,342      
  Provision for retirement and pension costs, less payments 61,172     62,303      
  Provision for allowance for doubtful accounts 1,423     23,661      
  Gain on sales of property and equipment (5,425 )   (13,869 )    
  Loss on disposal of property and equipment 9,954     21,639      
  Net gain on sales of other investments (213,938 )   -      
  Impairment of other investments 17,829     -      
  Foreign exchange loss (gain), net 73,002     (2,589 )    
  Equity in net income of equity method investees, less dividends received 34,347     15,332      
  Deferred income tax expense 300,934     108,916      
  Others (9,020 )   (15,109 )    
             
  Changes in operating assets and liabilities:          
             
  Decrease in accounts receivable 1,673,982     3,288,086      
  Decrease in net investment in sales-type lease — noncurrent 183,809     201,788      
  Increase in inventories (6,587 )   (320,774 )    
  Increase in prepaid expenses (2,175,960 )   (2,113,231 )    
  Increase in other current and noncurrent assets (1,593,216 )   (447,177 )    
  Decrease in accounts payable (2,079,654 )   (1,718,921 )    
  Decrease in income taxes payable (836,023 )   (757,485 )    
  Decrease in accrued expenses (32,340 )   (39,674 )    
  Increase in deferred income—current 289,208     714,717      
  Increase (decrease) in deferred income—noncurrent 104,511     (175,856 )    
  Increase in other current and noncurrent liabilities 901,588     678,461      
  Net cash provided by (used in) operating activities (117,449 )   3,237,385      
  INVESTING ACTIVITIES:          
  Purchase of property and equipment (3,084,531 )   (3,839,315 )    
  Proceeds from sales of property and equipment 404,390     1,275,766      
  Purchase of other investments (37,796 )   (27,656 )    
  Investment in an equity method investee -     (43,000 )    
  Proceeds from sales of other investments 303,614     33,199      
  Payments of guarantee deposits (2,024 )   (12,559 )    
  Refund of guarantee deposits 42,387     10,077      
  Payments for refundable insurance policies (14,091 )   (14,091 )    
  Proceeds from subsidies 200,000     48,976      
  Other -     (3,000 )    
  Net cash used in investing activities (2,188,051 )   (2,571,603 )    
             
    Three Months Ended   Three Months Ended    
    June 30, 2016   June 30, 2017    
    Thousands of
JPY		   Thousands of
JPY		    
  FINANCING ACTIVITIES:          
  Proceeds from short-term borrowings with initial maturities over three months and long-term borrowings 3,000,000     2,500,000      
  Net decrease in short-term borrowings with initial maturities less than three months -     (2,500,000 )    
  Principal payments under capital leases (1,124,910 )   (1,334,954 )    
  Repayments of long-term accounts payable -     (108,135 )    
  Dividends paid (505,480 )   (608,317 )    
  Other (26,000 )   (46,797 )    
  Net cash provided by (used in) financing activities 1,343,610     (2,098,203 )    
             
  EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (102,714 )   (17,945 )    
             
  NET DECREASE IN CASH AND CASH EQUIVALENTS (1,064,604 )   (1,450,366 )    
                 
  CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 19,569,095     21,958,591      
  CASH AND CASH EQUIVALENTS, END OF THE PERIOD 18,504,491     20,508,225      
             
  ADDITIONAL CASH FLOW INFORMATION:          
  Interest paid 68,699     87,211      
  Income taxes paid 941,083     1,027,984      
             
  NONCASH INVESTING AND FINANCING ACTIVITIES:          
  Acquisition of assets by entering into capital leases 1,891,072     2,268,329      
  Facilities purchase liabilities 796,407     952,611      
             

 

  Going Concern Assumption (Unaudited)    
      Nothing to be reported.    
                 
  Material Changes In Shareholders' Equity  (Unaudited)  
      Nothing to be reported.
                 
  Segment Information (Unaudited)    
      Business Segments:    
        Revenues:    
          Three Months Ended Three Months Ended
              June 30, 2016 June 30, 2017
              Thousands of JPY Thousands of JPY
        Network service and systems integration business 35,263,867   40,051,731  
          Customers 35,171,156   39,960,913  
          Intersegment 92,711   90,818  
        ATM operation business 1,008,095   1,002,992  
          Customers   1,008,095   1,002,992  
          Intersegment -   -  
        Elimination (92,711 ) (90,818 )
        Consolidated total 36,179,251   40,963,905  
        Segment profit or loss:    
          Three Months Ended Three Months Ended
              June 30, 2016 June 30, 2017
              Thousands of JPY Thousands of JPY
        Network service and systems integration business 513,553   804,025  
        ATM operation business 356,232   366,832  
        Elimination (33,466 ) (46,466 )
        Consolidated operating income 836,319   1,124,391  
                 
        Geographic information is not presented due to immateriality of revenue attributable to international operations.
                 
  Subsequent Events (Unaudited)    
      Nothing to be reported.    
                 
                 

Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the three months ended June 30, 2017 (“1Q17”) in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Three Months ended June 30, 2017
[Under accounting principles generally accepted in the United States ("U.S. GAAP")]

August 8, 2017
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 filing of quarterly report (Shihanki-houkokusho) to Japan’s regulatory organization: August 14, 2017
Scheduled date for dividend payment: -
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 Three Months Ended June 30, 2017 (April 1, 2017 to June 30, 2017)
(1) Consolidated Results of Operations                           (% shown is YoY change)
  Total revenues     Operating income       Income before
income tax expense		       Net income
attributable to IIJ		  
  JPY millions   %       JPY millions %   JPY millions %   JPY millions %
Three months ended
June 30, 2017		 40,964   13.2       1,124   34.4         1,163   17.0         706   33.4  
                                                 
Three months ended
June 30, 2016		 36,179   15.0       836   (26.7 )       994   (22.2 )       529   (26.6 )
(Note1)       Total comprehensive income attributable to IIJ
        For the three months ended June 30, 2017: JPY1,241 million (up 189.8% YoY)
        For the three months ended June 30, 2016: JPY428 million (down 45.6%)
(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		  
    JPY     JPY  
Three months ended
June 30, 2017		   15.67     15.62  
             
Three months ended
June 30, 2016		   11.52     11.49  

 

(2) Consolidated Financial Position
      Total assets     Total equity     Total IIJ shareholders'
equity		     Total IIJ shareholders'
equity to total assets		  
      JPY millions     JPY millions     JPY millions     %  
As of June 30, 2017     136,500     68,022     67,389     49.4  
                           
As of March 31, 2017     137,395     67,380     66,742     48.6  
2. Dividends    
    Dividend per Shares
    1Q-end     2Q-end     3Q-end     Year-end     Total  
      JPY     JPY     JPY     JPY     JPY  
Fiscal Year Ended
March 31, 2017		     -     13.50     -     13.50     27.00  
                                 
Fiscal Year Ending 
March 31, 2018		     -                          
Fiscal Year Ending
March 31, 2018
 (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, 2018
(April 1, 2017 through March 31, 2018)                                                 (% shown is YoY change)  
      Total
Revenues		     Operating
Income		     Income before
Income Tax
Expense (Benefit)		       Net Income
attributable to IIJ		       Basic Net Income
attributable to IIJ per
Share		  
      JPY millions   %     JPY millions   %     JPY millions   %       JPY millions   %       JPY  
Interim Period Ending
September 30, 2017		     82,400   11.2     2,000   2.7     2,000   (5.0 )     1,100   (0.7 )     24.41  
Fiscal Year Ending
March 31, 2018		     176,000   11.5     6,500   26.6     6,500   19.8       4,000   26.3       88.77  

(Note1) Changes from the latest forecasts released: No

* Notes

(1 ) Changes in significant subsidiaries for the three months ended June 30, 2017
   (Changes in significant subsidiaries for the three months ended June 30, 2017 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 June 30, 2017: 46,713,800 shares
   As of March 31, 2017: 46,711,400 shares
  2 ) The number of treasury stock:
   As of June 30, 2017: 1,650,909 shares
   As of March 31, 2017: 1,650,909 shares
  3 ) The weighted average number of shares outstanding:
   For the three months ended June 30, 2017: 45,062,838 shares
   For the three months ended June 30, 2016: 45,952,691 shares