Internet Initiative Japan Inc. ("IIJ") (NASDAQ:IIJI) (TSE:3774)
today announced its consolidated financial results for the first
six months of the fiscal year ending March 31, 2017 (“1H16”, from
April 1, 2016 to September 30, 2016).1
Highlights of Financial Results for
1H16 |
|
Revenues |
JPY74,123 million |
(up 13.5% YoY) |
Operating Income |
JPY1,948 million |
(down 24.0% YoY) |
Net Income attributable to IIJ |
JPY1,108 million |
(down 33.0% YoY) |
Overview of 1H16 Financial Results and Business
Outlook
“As announced on November 4th, we have revised down
our financial targets for the fiscal year ending March 31, 2017,
principally because our aggressive business investments and
services developments have been taking longer than expected to
start contributing to revenues accumulation. The revised annual
revenue is JPY158.0 billion, JPY1.0 billion down from our initial
target of JPY159.0 billion. The revised operating income is JPY5.0
billion, JPY2.3 billion down from our initial target of JPY7.3
billion,” said Eijiro Katsu, COO and President of IIJ.
“As we expect great market opportunities in the
middle term with more advanced cloud usage, IoT type of network
systems adoption and greater demand for security by many Japanese
entities, consumer mobile service’s market explosion and so on,
we’ve been making proactive business investments including the
commencement of “IIJ GIO Infrastructure P2” and “IIJ Omnibus
Services”2 later last year. We’re also engaged in IoT service
development3, continuous enhancement of security services4 and
preparation for Full-MVNO5. As for IoT, we’re going to launch “IIJ
IoT Service” which offers functions such as network, cloud and
devise control elements required for IoT systems. With these
required components, we’ve received several orders from local
governments very large-scale multiple-year projects in which cloud,
security, system and network are mostly outsourced and we expect
recurring revenue growth should become strong the next year with
these kinds of full-outsourcing trend,” said Katsu.
“In this first half, we continued to have strong
year over year revenue growth rate of 13.5%. On the other hand, in
addition to the current relatively high level of increasing costs
due to the implementation of business expansion strategy, we saw SI
gross margin deterioration as an additional factor impacting our
operating income. The low SI gross margin was temporarily, we
believe, by combination of factors such as low productivity of
systems engineers,6 temporal profit deterioration due to the
delay in offering some functions of our foreign exchange system ASP
service, low profitability in a certain construction project, and
weaker than expected systems operation and maintenance revenue with
the cancellation of certain relatively large projects from 1Q16.
Although 1H16 total revenues slightly exceeded our initial target,
we missed the operating income target and it decreased by 24.0%
from 1H15,” continued Katsu.
“For the remaining half, we expect low productivity
of systems engineers to improve based on the current SI projects
situation. However, based on the current services order
accumulation, we’d miss the revenue targets of new services such as
“IIJ GIO Infrastructure P2” and “IIJ Omnibus Services” which should
increase but not as strongly as our initial expectation. Since the
depreciation for these new services have already begun, the revenue
gap will directly impact our operating income. Because Japanese
companies are conservative with their systems, especially with
larger and mission-critical ones, the lead time, including clients’
internal judgments and preparation, takes longer than expected.
And, some delays of our services developments would have some
impacts as well. Another issue that would impact our operating
income against our initial expectation is the cost related to
mobile services. We increased leasing MVNO bandwidth largely during
2Q16 along with increasing traffic trend; therefore, this recurring
type cost for MVNO infrastructure would exceed our initial
expectation in 2H16. Although the excessive cost is not expected to
become larger in 2H16 and the mobile services’ gross margin amount
is expected to increase year over year, it would continue to impact
our network services’ gross margin against our initial expectation.
Regarding the details about our revision, please refer to our press
release titled “IIJ Revises its First Half and Full-Year Financial
Targets for FY2016,” said Katsu.7
“The income level for this fiscal year is to be
weak. However, we believe our recent business developments for
future sustainable growth should contribute to stronger revenue
growth for the middle term which should ultimately lead to income
growth. It’s inevitable that the role of IIJ to be larger and more
critical along with the progression of IT usage such as IoT and
BigData. We believe we’d be able to return to operating income
growth the next fiscal year because SI deterioration is expected to
be temporary, costs and revenues time-gap for new services would be
diminished by the continuous revenue accumulation and mobile
profitability to improve by gathering many more diversified mobile
traffic8. Although the operating income is expected to be 1 or 1.5
years delayed from what we initially expected at the beginning of
this fiscal year, we believe strong revenue would generate
continuous operating margin improvement. Therefore, we decided the
dividend targets to remain unchanged (annual dividend of JPY27.00
per share) and to implement share buyback of JPY1.5 billion,”
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. All financial figures are unaudited and
consolidated.
2 “IIJ GIO Infrastructure P2” launched in
November 2015 is our new cloud service platform to promote Japanese
enterprises demand to migrate their core business platform to
cloud. “IIJ Omnibus Service” launched in September 2015
incorporates SDN and NFV technologies, automatically offers several
network elements. For details please refer to our pree releases
titled “IIJ to Launch ‘IIJ GIO Infrastructure P2’ – A
Next-generation Cloud Service” at
http://www.iij.ad.jp/en/news/pressrelease/2015/0714.html and “IIJ
to Launch ‘IIJ Omnibus Service’ – A New generation of Cloud
Networking Services” at
http://www.iij.ad.jp/en/news/pressrelease/2015/0715.html
3 “IIJ IoT Service” will be launched in
November. For detail, please refer to our press release titled “IIJ
to Launch the IIJ IoT Service, a New IoT Platform that Combines
Networks with the Cloud” which can be found at
http://www.iij.ad.jp/en/news/pressrelease/2016/0719.html
4 For example, we have launched consultation
service to help companies implement CSIRT (Computer Security
Incident Response Team) and expanded functions for our email
security gateway service, recently.
5 For detail, please refer to our press
release titled “IIJ Begins to Engage in a Full MVNO for Enhanced
MVNO Business” which can be found at
http://www.iij.ad.jp/en/news/pressrelease/2016/0830.html. Related
FAQ is available at
http://www.iij.ad.jp/en/ir/news/2016/pdf/20160830_fullMVNO_E.pdf
6 We had low productivity of systems engineers
mainly because 1) of the projects already recognized as revenue in
FY2015 (1Q16), 2) we assigned system engineers to handle several
large projects while others were postponed (2Q16) , and 3) some
prospective orders including cloud-related systems required
pre-sales activities conducted by engineers (2Q16).
7 Please refer to our press release titled
”IIJ Revises its First Half and Full-Year Financial Targets for
FY2016.”
8 As we purchase mobile network from NTT
Docomo on the unit of bandwidth, once we gather various types of
mobile traffic that should lead to improved utilization of network
and thus profitability.
1H16 Financial Results Summary
Operating Results
Summary |
|
1H15 |
1H16 |
YoY Change |
|
JPY
millions |
JPY millions |
% |
Total revenues |
65,334 |
74,123 |
|
13.5 |
|
Network services |
38,000 |
44,836 |
|
18.0 |
|
Systems integration (SI) |
23,725 |
25,768 |
|
8.6 |
|
Equipment sales |
1,638 |
1,467 |
|
(10.5 |
) |
ATM operation business |
1,971 |
2,052 |
|
4.2 |
|
Total costs |
53,626 |
62,275 |
|
16.1 |
|
Network services |
30,501 |
36,715 |
|
20.4 |
|
Systems integration (SI) |
20,341 |
22,993 |
|
13.0 |
|
Equipment sales |
1,480 |
1,343 |
|
(9.3 |
) |
ATM operation business |
1,304 |
1,224 |
|
(6.2 |
) |
Total gross margin |
11,708 |
11,848 |
|
1.2 |
|
Network services |
7,498 |
8,120 |
|
8.3 |
|
Systems integration (SI) |
3,385 |
2,775 |
|
(18.0 |
) |
Equipment sales |
158 |
124 |
|
(21.8 |
) |
ATM operation business |
667 |
829 |
|
24.4 |
|
SG&A expenses and
R&D |
9,145 |
9,900 |
|
8.3 |
|
Operating income |
2,563 |
1,948 |
|
(24.0 |
) |
Income before income tax expense |
2,647 |
2,105 |
|
(20.5 |
) |
Net income attributable to IIJ |
1,652 |
1,108 |
|
(33.0 |
) |
Segment Results
Summary |
|
1H15 |
1H16 |
|
JPY millions |
JPY millions |
Total revenues |
|
65,334 |
|
|
74,123 |
|
Network services and SI business |
|
63,557 |
|
|
72,257 |
|
ATM operation business |
|
1,971 |
|
|
2,052 |
|
Elimination |
|
(194 |
) |
|
(186 |
) |
Operating income |
|
2,563 |
|
|
1,948 |
|
Network service and SI business |
|
2,056 |
|
|
1,281 |
|
ATM operation business |
|
576 |
|
|
734 |
|
Elimination |
|
(69 |
) |
|
(67 |
) |
We have omitted segment analysis because most of
our revenues are dominated by network services and systems
integration (SI) business.
1H16 Revenues and Income
Revenues
Total revenues were JPY74,123 million, up 13.5%
YoY (JPY65,334 million for 1H15).
Network services revenue was JPY44,836 million,
up 18.0% YoY (JPY38,000 million for 1H15).
Revenues for Internet connectivity services for
enterprise were JPY10,577 million, up 26.6% YoY from JPY8,357
million for 1H15 mainly due to an increase in mobile related
services revenues along with an expansion of MVNE business clients’
business volume.
Revenues for Internet connectivity services for
consumers were JPY10,328 million, up 56.6% YoY from JPY6,596
million for 1H15, mainly due to revenue growth of “IIJmio
High-speed Mobile/D services,” consumer mobile services which offer
inexpensive data communication and voice services with SIM
cards.
Revenues for WAN services revenues were
JPY13,289 million, up 5.8% YoY compared to JPY12,558 million for
1H15.
Revenues for Outsourcing services revenues were
JPY10,642 million, up 1.5% YoY from JPY10,489 million for 1H15.
Network Services
Revenues Breakdown |
|
1H15 |
1H16 |
YoY %Change |
|
JPY millions |
JPY millions |
|
Internet connectivity services (Enterprise) |
8,357 |
10,577 |
|
26.6 |
|
IP service*1 |
4,773 |
4,873 |
|
2.1 |
|
IIJ FiberAccess/F and IIJ DSL/F |
1,538 |
1,518 |
|
(1.3 |
) |
IIJ Mobile service (Enterprise) |
1,912 |
4,072 |
|
113.0 |
|
IIJ Mobile MVNO Platform Service*2 |
699 |
2,573 |
|
267.8 |
|
Others |
134 |
114 |
|
(14.8 |
) |
Internet connectivity services (Consumer) |
6,596 |
10,328 |
|
56.6 |
|
IIJ |
5,276 |
9,226 |
|
74.9 |
|
IIJmio High Speed Mobile Service*3 |
4,564 |
8,035 |
|
76.1 |
|
hi-ho |
1,320 |
1,102 |
|
(16.6 |
) |
WAN services |
12,558 |
13,289 |
|
5.8 |
|
Outsourcing services |
10,489 |
10,642 |
|
1.5 |
|
Total network services |
38,000 |
44,836 |
|
18.0 |
|
*1. IP service revenues include revenues from
the data center connectivity service.*2. From 1Q16, the revenue
from “IIJ Mobile MVNO Platform Service”, which is included in “IIJ
Mobile service (Enterprise)”, is disclosed. “IIJ Mobile MVNO
Platform Service” provides MVNO platform to our MVNE clients.*3.
From 1Q16, the revenue from “IIJmio High Speed Mobile Services”,
which is included in “Internet connectivity services (Consumer)”
provided by IIJ, is disclosed.
Number of
Contracts and Subscription for Connectivity
Services*1 |
|
as ofSep. 30, 2015 |
as ofSep. 30, 2016 |
YoY Change |
Internet connectivity services (Enterprise) |
348,345 |
721,691 |
|
373,346 |
|
IP service (1Gbps-) |
343 |
410 |
|
67 |
|
IP service (100Mbps-999Mbps) |
513 |
559 |
|
46 |
|
IP service (-99Mbps) |
715 |
642 |
|
(73 |
) |
IIJ Data center connectivity service |
272 |
262 |
|
(10 |
) |
IIJ FiberAccess/F and IIJ DSL/F |
70,071 |
72,102 |
|
2,031 |
|
IIJ Mobile service (Enterprise) |
275,146 |
646,650 |
|
371,504 |
|
IIJ Mobile MVNO Platform Service*2 |
136,160 |
418,098 |
|
281,938 |
|
Others |
1,285 |
1,066 |
|
(219 |
) |
Internet connectivity services (Consumer) |
1,078,798 |
1,346,477 |
|
267,679 |
|
IIJ |
926,873 |
1,207,184 |
|
280,311 |
|
IIJmio High Speed Mobile Service*3 |
604,586 |
874,852 |
|
270,266 |
|
hi-ho |
151,925 |
139,293 |
|
(12,632 |
) |
Total contracted bandwidth*4 |
1,982.4Gbps |
2,371.8Gbps |
389.4Gbps |
*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. From 1Q16, the number of subscription for “IIJ
Mobile MVNO Platform Service”, which is included in “IIJ Mobile
service (Enterprise)”, is disclosed.
*3. From 1Q16, the number of subscription for
“IIJmio High Speed Mobile Service”, which is included in “Internet
connectivity services (Consumer)” provided by IIJ, is
disclosed.
*4. 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 JPY25,768 million, up 8.6% YoY
(JPY23,725 million for 1H15).
Systems construction revenue, a one-time revenue,
was JPY8,583 million, up 12.3% YoY. Systems operation and
maintenance revenue, a recurring revenue, was JPY17,185 million, up
6.9% YoY, mainly due to an increase in private cloud services
revenues although certain relatively large systems operation and
maintenance projects were cancelled .
Orders received for SI and equipment sales
totaled JPY34,516 million, up 20.1% YoY; orders received for
systems construction and equipment sales were JPY13,321 million, up
0.4% YoY and orders received for systems operation and maintenance
were JPY21,194 million, up 37.0% YoY.
Order backlog for SI and equipment sales as of
September 30, 2016 amounted to JPY40,926 million, up 26.2% YoY;
order backlog for systems construction and equipment sales was
JPY9,349 million, up 7.2% YoY and order backlog for systems
operation and maintenance was JPY31,577 million, up 33.2% YoY.
Equipment sales revenues were JPY1,467 million,
down 10.5% YoY (JPY1,638 million for 1H15).
ATM operation business revenues were JPY2,052
million, up 4.2% YoY (JPY1,971 million for 1H15). As of September
30, 2016, 1,066 ATMs have been placed.
Cost and expense
Total cost of revenues was JPY62,275 million, up
16.1% YoY (JPY53,626 million for 1H15).
Cost of network services revenue was JPY36,715
million, up 20.4% YoY (JPY30,501 million for 1H15). The increase
was mainly because outsourcing-related costs increased along with
the increase in mobile-related revenue and circuit-related costs
increased along with the increase in WAN services revenue. Gross
margin was JPY8,120 million, up 8.3% YoY and gross margin ratio was
18.1% compared to 19.7% in 1H15.
Cost of SI revenues was JPY22,993 million, up
13.0% YoY (JPY20,341 million for 1H15). There were increases in
outsourcing-related and purchasing-related along with the revenue
increase, personnel-related costs and network operation related
costs increased mainly with the service launch of “IIJ GIO
Infrastructure P2”. Gross margin was JPY2,775 million, down 18.0%
YoY and gross margin ratio was 10.8% compared to 14.3% in 1H15.
Cost of equipment sales revenues was JPY1,343
million, down 9.3% YoY (JPY1,480 million for 1H15). Gross margin
was JPY124 million and gross margin ratio was 8.4% compared to 9.6%
in 1H15.
Cost of ATM operation business revenues was
JPY1,224 million, down 6.2% YoY (JPY1,304 million for 1H15). Gross
margin was JPY829 million and gross margin ratio was 40.4% compared
to 33.8% in 1H15.
SG&A and R&D
expenses
SG&A and R&D expenses in total were
JPY9,900 million, up 8.3% YoY (JPY9,145 million for 1H15).
Sales and marketing expenses were JPY5,636 million, up 9.1% YoY
(JPY5,166 million for 1H15). There were increases in sales
commission expenses and advertising expenses.
General and administrative expenses were JPY4,020 million, up
7.3% YoY (JPY3,747 million for 1H15). There were increases in
office rent expenses, commission expenses and taxes and public
dues.
Research and development expenses were JP244
million, up 5.3% YoY (JPY232 million for 1H15).
Operating income
Operating income was JPY1,948 million, down
24.0% YoY (JPY2,563 million for 1H15).
Other income (expenses)
Other income (expenses) was an income of JPY157
million (an income of JPY84 million for 1H15), mainly because of
net gain on sales of other investments of JPY214 million,
distribution from fund investment of JPY120 million (included in
other-net, JPY115 million for 1H15), dividend income of JPY91
million from other investments (JPY74 million for 1H15), interest
expense of JPY142 million (JPY112 million for 1H15) and foreign
exchange losses of JPY106 million (JPY14 million for 1H15).
Income before income tax
expenses
Income before income tax expenses was JPY2,105
million, down 20.5% YoY (JPY2,647 million for 1H15).
Net income
Income tax expense was JPY954 million (JPY1,040
million for 1H15).
Equity in net income of equity method investees
was JPY42 million (JPY137 million for 1H15) mainly due to net
income of Internet Multifeed Co.
As a result of the above, net income was
JPY1,193 million, down 31.6% YoY (JPY1,744 million for 1H15).
Net income attributable to
IIJ
Net income attributable to non-controlling
interests was JPY85 million mainly related to net income of Trust
Networks Inc. (JPY92 million for 1H15).
Net income attributable to IIJ was JPY1,108 million, down 33.0%
YoY (JPY1,652 million for 1H15).
1H16 Balance Sheets and Cash Flows
Balance sheets
As of September 30, 2016, the balance of total
assets was JPY123,113 million, increased by JPY5,278 million from
the balance as of March 31, 2016 of JPY117,835 million.
As for current assets as of September 30, 2016,
as compared to the respective balances as of March 31, 2016,
prepaid expenses increased by JPY1,370 million and inventories
increased by JPY704 million. As for noncurrent assets as of
September 30, 2016, as compared to the respective balances as of
March 31, 2016, property and equipment increased by JPY2,288
million and prepaid expenses-noncurrent increased by JPY781
million. As for liabilities as of September 30, 2016, as compared
to the respective balance as of March 31, 2016, long-term
borrowings increased by JPY3,000 million.
As for the balances of capital lease obligations
as of September 30, 2016, as compared to the respective balances as
of March 31, 2016, capital lease obligations-current portion
increased by JPY328 million to JPY4,283 million and capital lease
obligations-noncurrent increased by JPY1,119 million to JPY8,899
million.
As of September 30, 2016, the balance of other
investments increased by JPY824 million to JPY6,772 million mainly
due to change an increase in the fair value of available-for-sale
securities. The breakdown of other investments were JPY4,570
million in available-for-sale securities, JPY1,124 million in
nonmarketable equity securities and JPY1,078 million in investments
in funds, including some through a trust.
As of September 30, 2016, the breakdown of major
non-amortized intangible assets were JPY6,170 million in goodwill
and JPY96 million in trademark. The balance of amortized intangible
assets, which was customer relationships, was JPY3,227 million.
Total IIJ shareholders’ equity as of September
30, 2016 compared to the balance as of March 31, 2016, increased by
JPY679 million to JPY65,524 million. IIJ shareholders’ equity ratio
(total IIJ shareholders’ equity divided by total assets) as of
September 30, 2016 was 53.2%.
Cash flows
Cash and cash equivalents as of September 30,
2016 were JPY19,668 million. (JPY20,098 million as of September 30,
2015.)
Net cash provided by operating activities for
1H16 was JPY4,073 million (net cash provided by operating
activities of JPY6,080 million for 1H15.) There were net income of
JPY1,193 million, depreciation and amortization of JPY5,284 million
and net cash out flow of JPY2,747 million from changes in operating
assets and liabilities (JPY584 for 1H15). There were an increase in
prepaid expenses (including prepaid expenses-noncurrent) mainly
along with an increase in maintenance for service facilities and
systems integration projects.
Net cash used in investing activities for 1H16
was JPY3,896 million (net cash used in investing activities of
JPY4,565 million for 1H15), mainly due to payments for purchase of
property and equipment of JPY5,358 million (JPY5,321 million for
1H15) and proceeds from sales of property and equipment, which
include sales and leaseback, of JPY1,209 million (JPY490 million
for 1H15).
Net cash provided by financing activities for
1H16 was JPY155 million (net cash used in financing activities of
JPY2,525 million for 1H15), mainly due to proceeds from long-term
borrowings of JPY3,000 million, principal payments under capital
leases of JPY2,314 million (JPY2,020 million for 1H15) and FY2015
year-end dividends payments of JPY505 million (JPY505 million for
1H15).
FY2016 Financial Targets
On November 4, 2016, we revised our financial
targets for FY2016 which was announced on May 13, 2016. Please
refer to our disclosure document titled “IIJ Revises its First Half
and Full-Year Financial Targets for FY2016” for details.
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 |
|
1H15 |
1H16 |
|
JPY millions |
JPY millions |
Adjusted EBITDA |
|
7,363 |
|
|
7,232 |
|
Depreciation and Amortization*1 |
|
(4,800 |
) |
|
(5,284 |
) |
Operating Income |
|
2,563 |
|
|
1,948 |
|
Other Income |
|
84 |
|
|
157 |
|
Income Tax Expense |
|
1,040 |
|
|
954 |
|
Equity in Net Income of Equity Method
Investees |
|
137 |
|
|
42 |
|
Net income |
|
1,744 |
|
|
1,193 |
|
Less: Net income attributable to noncontrolling
interests |
|
(92 |
) |
|
(85 |
) |
Net Income attributable to IIJ |
|
1,652 |
|
|
1,108 |
|
*1 Depreciation and amortization includes
impairment loss on other intangible assets. (See IIJ’s consolidated
financial statements for details)
CAPEX |
|
1H15 |
1H16 |
|
JPY millions |
JPY millions |
CAPEX, including capital leases |
7,943 |
8,372 |
Acquisition of Assets by Entering into Capital
Leases |
2,622 |
3,792 |
Purchase of Property and Equipment |
5,321 |
4,580 |
Presentation
Presentation materials will be posted on our web
site (http://www.iij.ad.jp/en/ir/) on November 8, 2016.
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, 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.
For inquiries, contact:
IIJ Investor RelationsTel: +81-3-5205-6500
E-mail: ir@iij.ad.jp URL: http://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
FY2016 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 systems integration and
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; 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, 2016 and September 30,
2016) |
|
|
As of March 31, 2016 |
|
As of September 30, 2016 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
ASSETS |
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
Cash and cash equivalents |
|
19,569,095 |
|
|
|
19,667,822 |
|
|
Accounts receivable, net of allowance for doubtful accounts of JPY
74,229 thousand and JPY 75,142 thousand at March 31, 2016 and
September 30, 2016, respectively |
|
23,746,683 |
|
|
|
23,161,168 |
|
|
Inventories |
|
2,003,573 |
|
|
|
2,707,499 |
|
|
Prepaid expenses—current |
|
4,769,988 |
|
|
|
6,139,576 |
|
|
Deferred tax assets—current |
|
1,481,651 |
|
|
|
1,101,955 |
|
|
Other current assets, net of allowance for doubtful accounts of JPY
15,693 thousand and JPY 15,193 thousand at March 31, 2016 and
September 30, 2016, respectively |
|
1,834,951 |
|
|
|
2,801,455 |
|
|
Total current assets |
|
53,405,941 |
|
|
|
55,579,475 |
|
|
INVESTMENTS IN EQUITY METHOD INVESTEES |
|
2,979,652 |
|
|
|
2,938,200 |
|
|
OTHER INVESTMENTS |
|
5,948,741 |
|
|
|
6,772,245 |
|
|
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of JPY 45,345,543 thousand and JPY 47,857,557 thousand
at March 31, 2016 and September 30, 2016, respectively |
|
34,324,150 |
|
|
|
36,612,558 |
|
|
GOODWILL |
|
6,169,609 |
|
|
|
6,169,609 |
|
|
OTHER INTANGIBLE ASSETS—Net |
|
3,549,459 |
|
|
|
3,359,032 |
|
|
GUARANTEE DEPOSITS |
|
3,084,681 |
|
|
|
3,039,743 |
|
|
DEFERRED TAX ASSETS—Noncurrent |
|
224,316 |
|
|
|
212,865 |
|
|
NET INVESTMENT IN SALES-TYPE LEASES—Noncurrent |
|
2,444,848 |
|
|
|
2,145,676 |
|
|
Prepaid expenses—Noncurrent |
|
4,987,193 |
|
|
|
5,768,684 |
|
|
OTHER ASSETS, net of allowance for doubtful accounts of JPY 61,593
thousand and JPY 61,733 thousand at March 31, 2016 and September
30, 2016, respectively |
|
716,314 |
|
|
|
515,299 |
|
|
TOTAL |
|
117,834,904 |
|
|
|
123,113,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016 |
|
As of September 30, 2016 |
|
|
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 |
|
3,954,386 |
|
|
|
4,282,781 |
|
|
Accounts payable—trade |
|
13,906,703 |
|
|
|
14,391,744 |
|
|
Accounts payable—other |
|
1,497,767 |
|
|
|
1,254,427 |
|
|
Income taxes payable |
|
1,078,412 |
|
|
|
485,186 |
|
|
Accrued expenses |
|
2,932,653 |
|
|
|
2,867,174 |
|
|
Deferred income—current |
|
2,528,885 |
|
|
|
2,542,305 |
|
|
Other current liabilities |
|
917,300 |
|
|
|
1,006,430 |
|
|
Total current liabilities |
|
36,066,106 |
|
|
|
36,080,047 |
|
|
LONG-TERM BORROWINGS |
|
- |
|
|
|
3,000,000 |
|
|
CAPITAL LEASE OBLIGATIONS—Noncurrent |
|
7,779,367 |
|
|
|
8,898,766 |
|
|
ACCRUED RETIREMENT AND PENSION COSTS—Noncurrent |
|
3,581,426 |
|
|
|
3,691,580 |
|
|
DEFERRED TAX LIABILITIES—Noncurrent |
|
710,055 |
|
|
|
792,350 |
|
|
DEFERRED INCOME—Noncurrent |
|
3,092,562 |
|
|
|
3,193,888 |
|
|
OTHER NONCURRENT LIABILITIES |
|
1,261,413 |
|
|
|
1,374,496 |
|
|
Total Liabilities |
|
52,490,929 |
|
|
|
57,031,127 |
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY: |
|
|
|
|
Common-stock—authorized, 75,520,000 shares; issued and outstanding,
46,711,400 shares at March 31, 2016 and September 30, 2016,
respectively |
|
25,509,499 |
|
|
|
25,509,499 |
|
|
Additional paid-in capital |
|
36,059,833 |
|
|
|
36,088,351 |
|
|
Retained earnings |
|
2,471,276 |
|
|
|
3,073,730 |
|
|
Accumulated other comprehensive income |
|
1,196,669 |
|
|
|
1,244,592 |
|
|
Treasury stock —758,709 shares held by the company at March 31,
2016 and September 30, 2016, respectively |
|
(392,070 |
) |
|
|
(392,070 |
) |
|
Total Internet Initiative Japan Inc. shareholders' equity |
|
64,845,207 |
|
|
|
65,524,102 |
|
|
NONCONTROLLING INTERESTS |
|
498,768 |
|
|
|
558,157 |
|
|
Total equity |
|
65,343,975 |
|
|
|
66,082,259 |
|
|
TOTAL |
|
117,834,904 |
|
|
|
123,113,386 |
|
|
|
|
|
|
|
|
|
|
|
|
Internet Initiative Japan Inc. |
Consolidated Statements of Income and
Consolidated Statements of Comprehensive Income
(Unaudited) |
(For the six months ended September 30, 2015
and September 30, 2016) |
|
|
Six Months Ended |
|
Six Months Ended |
|
|
September 30, 2015 |
|
September 30, 2016 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
REVENUES: |
|
|
|
|
Network services: |
|
|
|
|
Internet connectivity services (enterprise) |
|
8,356,668 |
|
|
|
10,576,874 |
|
|
Internet connectivity services (consumer) |
|
6,596,559 |
|
|
|
10,328,320 |
|
|
WAN services |
|
12,557,807 |
|
|
|
13,288,712 |
|
|
Outsourcing services |
|
10,488,529 |
|
|
|
10,641,860 |
|
|
Total |
|
37,999,563 |
|
|
|
44,835,766 |
|
|
Systems integration: |
|
|
|
|
Systems construction |
|
7,643,200 |
|
|
|
8,583,419 |
|
|
Systems operation and maintenance |
|
16,082,385 |
|
|
|
17,184,907 |
|
|
Total |
|
23,725,585 |
|
|
|
25,768,326 |
|
|
Equipment sales |
|
1,638,023 |
|
|
|
1,466,658 |
|
|
ATM operation business |
|
1,970,563 |
|
|
|
2,052,520 |
|
|
Total revenues |
|
65,333,734 |
|
|
|
74,123,270 |
|
|
COSTS AND EXPENSES: |
|
|
|
|
Cost of network services |
|
30,501,305 |
|
|
|
36,715,290 |
|
|
Cost of systems integration |
|
20,340,583 |
|
|
|
22,992,923 |
|
|
Cost of equipment sales |
|
1,480,124 |
|
|
|
1,343,117 |
|
|
Cost of ATM operation business |
|
1,304,136 |
|
|
|
1,223,494 |
|
|
Total costs |
|
53,626,148 |
|
|
|
62,274,824 |
|
|
Sales and marketing |
|
5,165,482 |
|
|
|
5,635,948 |
|
|
General and administrative |
|
3,746,825 |
|
|
|
4,020,356 |
|
|
Research and development |
|
232,194 |
|
|
|
244,440 |
|
|
Total costs and expenses |
|
62,770,649 |
|
|
|
72,175,568 |
|
|
OPERATING INCOME |
|
2,563,085 |
|
|
|
1,947,702 |
|
|
OTHER INCOME (EXPENSES): |
|
|
|
|
Dividend income |
|
74,208 |
|
|
|
91,407 |
|
|
Interest income |
|
11,112 |
|
|
|
18,518 |
|
|
Interest expense |
|
(111,560 |
) |
|
|
(142,345 |
) |
|
Foreign exchange gain (loss), net |
|
(14,066 |
) |
|
|
(105,916 |
) |
|
Net gain on sales of other investments |
|
- |
|
|
|
213,938 |
|
|
Impairment of other investments |
|
- |
|
|
|
(30,554 |
) |
|
Other —net |
|
124,178 |
|
|
|
112,605 |
|
|
Other income—net |
|
83,872 |
|
|
|
157,653 |
|
|
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET
INCOME OF EQUITY METHOD INVESTEES |
|
2,646,957 |
|
|
|
2,105,355 |
|
|
INCOME TAX EXPENSE |
|
1,039,885 |
|
|
|
953,678 |
|
|
EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES |
|
137,401 |
|
|
|
41,646 |
|
|
NET INCOME |
|
1,744,473 |
|
|
|
1,193,323 |
|
|
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
(91,974 |
) |
|
|
(85,389 |
) |
|
NET INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC. |
|
1,652,499 |
|
|
|
1,107,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Six Months Ended |
|
|
September 30, 2015 |
|
September 30, 2016 |
|
NET INCOME PER SHARE |
|
|
|
|
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares) |
|
45,947,519 |
|
|
|
45,952,691 |
|
|
DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares) |
|
46,035,832 |
|
|
|
46,065,072 |
|
|
BASIC WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) |
|
91,895,038 |
|
|
|
91,905,382 |
|
|
DILUTED WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) |
|
92,071,664 |
|
|
|
92,130,144 |
|
|
BASIC NET INCOME PER SHARE (JPY) |
|
35.96 |
|
|
|
24.11 |
|
|
DILUTED NET INCOME PER SHARE (JPY) |
|
35.90 |
|
|
|
24.05 |
|
|
BASIC NET INCOME PER ADS EQUIVALENT (JPY) |
|
17.98 |
|
|
|
12.06 |
|
|
DILUTED NET INCOME PER ADS EQUIVALENT (JPY) |
|
17.95 |
|
|
|
12.03 |
|
|
|
|
|
|
|
|
Quarterly Consolidated Statements of Comprehensive
Income (Unaudited) |
|
|
|
|
Six Months Ended |
|
Six Months Ended |
|
|
September 30, 2015 |
|
September 30, 2016 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
NET INCOME |
|
1,744,473 |
|
|
|
1,193,323 |
|
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
|
|
|
|
Foreign currency translation adjustments |
|
20,692 |
|
|
|
(410,090 |
) |
|
Unrealized holding gain (loss) on securities |
|
(175,575 |
) |
|
|
450,761 |
|
|
Defined benefit pension plans |
|
(831 |
) |
|
|
7,252 |
|
|
TOTAL COMPREHENSIVE INCOME |
|
1,588,759 |
|
|
|
1,241,246 |
|
|
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING
INTERESTS |
|
(95,932 |
) |
|
|
(85,389 |
) |
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN
INC. |
|
1,492,827 |
|
|
|
1,155,857 |
|
|
|
|
|
|
|
|
Internet Initiative Japan Inc. |
Consolidated Statements of Cash Flows
(Unaudited) |
(For the six months ended September 30, 2015
and September 30, 2016) |
|
|
Six Months Ended |
|
Six Months Ended |
|
|
September 30, 2015 |
|
September 30, 2016 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
OPERATING ACTIVITIES: |
|
|
|
|
Net income |
|
1,744,473 |
|
|
|
1,193,323 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization |
|
4,800,290 |
|
|
|
5,283,504 |
|
|
Provision for retirement and pension costs, less payments |
|
70,410 |
|
|
|
122,446 |
|
|
Provision for allowance for doubtful accounts |
|
23,312 |
|
|
|
5,133 |
|
|
Gain on sales of property and equipment |
|
(20,942 |
) |
|
|
(7,704 |
) |
|
Loss on disposal of property and equipment |
|
31,852 |
|
|
|
35,656 |
|
|
Net gain on sales of other investments |
|
- |
|
|
|
(213,938 |
) |
|
Impairment of other investments |
|
- |
|
|
|
30,554 |
|
|
Foreign exchange loss, net |
|
984 |
|
|
|
83,098 |
|
|
Equity in net loss (income) of equity method investees, less
dividends received |
|
(88,891 |
) |
|
|
9,436 |
|
|
Deferred income tax expense |
|
117,673 |
|
|
|
283,182 |
|
|
Others |
|
(15,046 |
) |
|
|
(5,180 |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
Decrease in accounts receivable |
|
2,165,231 |
|
|
|
495,836 |
|
|
Decrease (increase) in net investment in sales-type lease —
noncurrent |
|
(3,263 |
) |
|
|
299,172 |
|
|
Increase in inventories |
|
(829,251 |
) |
|
|
(712,514 |
) |
|
Increase in prepaid expenses |
|
(1,166,908 |
) |
|
|
(1,407,533 |
) |
|
Increase in other current and noncurrent assets |
|
(284,569 |
) |
|
|
(1,684,572 |
) |
|
Increase (decrease) in accounts payable |
|
(352,766 |
) |
|
|
518,161 |
|
|
Increase (decrease) in income taxes payable |
|
299,927 |
|
|
|
(592,886 |
) |
|
Increase (decrease) in accrued expenses |
|
160,381 |
|
|
|
(46,417 |
) |
|
Increase in deferred income—current |
|
214,092 |
|
|
|
48,007 |
|
|
Increase (decrease) in deferred income—noncurrent |
|
(63,742 |
) |
|
|
123,300 |
|
|
Increase (decrease) in other current and noncurrent
liabilities |
|
(723,169 |
) |
|
|
212,789 |
|
|
Net cash provided by operating activities |
|
6,080,078 |
|
|
|
4,072,853 |
|
|
INVESTING ACTIVITIES: |
|
|
|
|
Purchase of property and equipment |
|
(5,321,194 |
) |
|
|
(5,358,105 |
) |
|
Proceeds from sales of property and equipment |
|
489,963 |
|
|
|
1,209,468 |
|
|
Purchase of available-for-sale securities |
|
(59,490 |
) |
|
|
- |
|
|
Purchase of other investments |
|
(246,982 |
) |
|
|
(287,058 |
) |
|
Investment in an equity method investee |
|
(39,974 |
) |
|
|
- |
|
|
Proceeds from sales of available-for-sale securities |
|
141,235 |
|
|
|
- |
|
|
Proceeds from sales of other investments |
|
302,906 |
|
|
|
304,542 |
|
|
Payments of guarantee deposits |
|
(17,062 |
) |
|
|
(14,403 |
) |
|
Refund of guarantee deposits |
|
4,318 |
|
|
|
77,476 |
|
|
Payments for refundable insurance policies |
|
(28,181 |
) |
|
|
(28,181 |
) |
|
Refund from insurance policies |
|
10,108 |
|
|
|
- |
|
|
Proceeds from subsidies |
|
200,000 |
|
|
|
200,000 |
|
|
Other |
|
(678 |
) |
|
|
- |
|
|
Net cash used in investing activities |
|
(4,565,031 |
) |
|
|
(3,896,261 |
) |
|
|
Six Months Ended |
|
Six Months Ended |
|
|
September 30, 2015 |
|
September 30, 2016 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
FINANCING ACTIVITIES: |
|
|
|
|
Proceeds from issuance of short-term borrowings with initial
maturities over three months and long-term borrowings |
|
1,500,000 |
|
|
|
3,000,000 |
|
|
Repayments of short-term borrowings with initial maturities over
three months and long-term borrowings |
|
(1,500,000 |
) |
|
|
- |
|
|
Principal payments under capital leases |
|
(2,019,755 |
) |
|
|
(2,313,763 |
) |
|
Dividends paid |
|
(505,365 |
) |
|
|
(505,480 |
) |
|
Other |
|
10 |
|
|
|
(26,000 |
) |
|
Net cash provided by (used in) financing activities |
|
(2,525,110 |
) |
|
|
154,757 |
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
|
14,899 |
|
|
|
(232,622 |
) |
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
(995,164 |
) |
|
|
98,727 |
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD |
|
21,093,633 |
|
|
|
19,569,095 |
|
|
CASH AND CASH EQUIVALENTS, END OF THE PERIOD |
|
20,098,469 |
|
|
|
19,667,822 |
|
|
|
|
|
|
|
ADDITIONAL CASH FLOW INFORMATION: |
|
|
|
|
Interest paid |
|
111,834 |
|
|
|
142,045 |
|
|
Income taxes paid |
|
657,294 |
|
|
|
1,333,495 |
|
|
|
|
|
|
|
NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
Acquisition of assets by entering into capital leases |
|
2,622,120 |
|
|
|
3,792,166 |
|
|
Facilities purchase liabilities |
|
2,411,321 |
|
|
|
1,254,427 |
|
|
Asset retirement obligation |
|
7,349 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Going Concern Assumption (Unaudited) |
Nothing to be reported. |
|
Material Changes In Shareholders'
Equity
(Unaudited) |
Nothing to be reported. |
|
Segment Information (Unaudited) |
Business Segments: |
Revenues: |
|
|
|
Six Months Ended |
Six Months Ended |
|
September 30, 2015 |
September 30, 2016 |
|
Thousands of JPY |
Thousands of JPY |
Network service and systems integration business |
|
63,557,271 |
|
|
72,257,102 |
|
|
Customers |
|
63,363,171 |
|
|
72,070,750 |
|
|
Intersegment |
|
194,100 |
|
|
186,352 |
|
ATM operation business |
|
1,970,563 |
|
|
2,052,520 |
|
|
Customers |
|
1,970,563 |
|
|
2,052,520 |
|
|
Intersegment |
|
- |
|
|
- |
|
Elimination |
|
(194,100 |
) |
|
(186,352 |
) |
Consolidated total |
|
65,333,734 |
|
|
74,123,270 |
|
Segment profit or loss: |
|
|
|
Six Months Ended |
Six Months Ended |
|
September 30, 2015 |
September 30, 2016 |
|
Thousands of JPY |
Thousands of JPY |
Network service and systems integration business |
|
2,056,041 |
|
|
1,280,776 |
|
ATM operation business |
|
576,450 |
|
|
734,373 |
|
Elimination |
|
(69,406 |
) |
|
(67,447 |
) |
Consolidated operating income |
|
2,563,085 |
|
|
1,947,702 |
|
|
Geographic information is not presented due to immateriality of
revenue attributable to international operations. |
|
Subsequent Events (Unaudited) |
Repurchase of IIJ's Common Shares |
IIJ's Board of Directors has resolved on November 4, 2016 to
repurchase its own shares pursuant to Article 156, Paragraph
1 of the Corporation Law as applied pursuant to Article 165,
Paragraph 3 of the Corporation Law and IIJ’s Article of
Incorporation. |
|
Outline of repurchase |
|
(1) Type of shares to be repurchased: |
Common
stock of IIJ |
|
(2) Total number of shares to be repurchased: |
Up to
950,000 shares |
|
(3) Total amount to be repurchased: |
Up to JPY
1,500,000,000 |
|
(4) Period of repurchase: |
From
November 7, 2016 to January 31, 2017 |
|
(5) Method of repurchase: |
Open market
purchase at the Tokyo Stock Exchange |
Second Quarter FY2016 Consolidated
Financial Results (3 months)
The following tables are highlight data of 2nd
Quarter FY2016 (3 months) consolidated financial results
(unaudited, for the three months ended September 30, 2016).
Operating Results
Summary |
|
2Q15 |
2Q16 |
YoY % Change |
|
JPY millions |
JPY millions |
|
Total Revenues: |
33,870 |
37,944 |
|
12.0 |
|
Network Services |
19,519 |
22,761 |
|
16.6 |
|
Systems Integration (SI) |
12,652 |
13,402 |
|
5.9 |
|
Equipment Sales |
692 |
737 |
|
6.5 |
|
ATM Operation Business |
1,007 |
1,044 |
|
3.7 |
|
Cost of Revenues: |
27,821 |
31,878 |
|
14.6 |
|
Network Services |
15,799 |
18,685 |
|
18.3 |
|
Systems Integration (SI) |
10,750 |
11,900 |
|
10.7 |
|
Equipment Sales |
622 |
678 |
|
9.1 |
|
ATM Operation Business |
650 |
615 |
|
(5.4 |
) |
SG&A Expenses and R&D |
4,627 |
4,955 |
|
7.1 |
|
Operating Income |
1,422 |
1,111 |
|
(21.9 |
) |
Income before Income Tax Expense |
1,369 |
1,111 |
|
(18.8 |
) |
Net Income attributable to IIJ |
931 |
579 |
|
(37.9 |
) |
Network Service
Revenue Breakdown |
|
2Q15 |
2Q16 |
YoY % Change |
|
JPY millions |
JPY millions |
|
Internet Connectivity Service (Enterprise) |
4,289 |
5,529 |
|
28.9 |
|
IP Service*1 |
2,432 |
2,472 |
|
1.6 |
|
IIJ FiberAccess/F and IIJ DSL/F |
767 |
757 |
|
(1.2 |
) |
IIJ Mobile Service |
1,023 |
2,243 |
|
119.3 |
|
IIJ Mobile MVNO Platform Service*2 |
407 |
1,450 |
|
256.8 |
|
Others |
67 |
57 |
|
(15.2 |
) |
Internet Connectivity Service (Consumer) |
3,495 |
5,332 |
|
52.6 |
|
IIJ*2 |
2,843 |
4,796 |
|
68.7 |
|
IIJmio High Speed Mobile Service*3 |
2,471 |
4,171 |
|
68.8 |
|
hi-ho |
652 |
536 |
|
(17.8 |
) |
WAN Services |
6,342 |
6,559 |
|
3.4 |
|
Outsourcing Services |
5,393 |
5,341 |
|
(1.0 |
) |
Network Services Revenues |
19,519 |
22,761 |
|
16.6 |
|
*1 IP service revenues include revenues from the
data center connectivity service.*2 From 1Q16, the revenue from
“IIJ Mobile MVNO Platform Service”, which is included in “IIJ
Mobile service (Enterprise)”, is disclosed. “IIJ Mobile MVNO
Platform Service” provides MVNO platform to our MVNE clients.*3
From 1Q16, the revenue from “IIJmio High Speed Mobile Services”,
which is included in “Internet connectivity services (Consumer)”
provided by IIJ, is disclosed.
Reconciliation of Non-GAAP Financial
Measures (2nd Quarter FY2016 (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 |
|
2Q15 |
2Q16 |
|
JPY millions |
JPY millions |
Adjusted EBITDA |
|
3,883 |
|
|
3,782 |
|
Depreciation and Amortization |
|
(2,461 |
) |
|
(2,671 |
) |
Operating Income |
|
1,422 |
|
|
1,111 |
|
Other Income (Expense) |
|
(53 |
) |
|
0 |
|
Income Tax Expense (Benefit) |
|
479 |
|
|
514 |
|
Equity in Net Income of Equity Method
Investees |
|
76 |
|
|
25 |
|
Net income |
|
966 |
|
|
622 |
|
Less: Net income attributable to noncontrolling
interests |
|
(35 |
) |
|
(43 |
) |
Net Income attributable to IIJ |
|
931 |
|
|
579 |
|
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 |
|
2Q15 |
2Q16 |
|
JPY millions |
JPY millions |
CAPEX, including capital leases |
4,923 |
3,684 |
Acquisition of Assets by Entering into Capital
Leases |
1,972 |
1,901 |
Purchase of Property and Equipment |
2,951 |
1,783 |
|
Internet Initiative Japan Inc. |
Quarterly Consolidated Statements of Income
and Quarterly Consolidated Statements of
Comprehensive Income (Unaudited) |
(Three Months ended September 30, 2015 and
September 30, 2016) |
|
|
Three Months Ended |
|
Three Months Ended |
|
|
September 30, 2015 |
|
|
September 30, 2016 |
|
|
Thousands of JPY |
|
|
Thousands of JPY |
|
REVENUES: |
|
|
|
|
|
Network services: |
|
|
|
|
|
Internet connectivity services (enterprise) |
|
4,289,227 |
|
|
|
|
5,529,049 |
|
|
Internet connectivity services (consumer) |
|
3,494,511 |
|
|
|
|
5,332,251 |
|
|
WAN services |
|
6,341,720 |
|
|
|
|
6,559,111 |
|
|
Outsourcing services |
|
5,393,370 |
|
|
|
|
5,340,204 |
|
|
Total |
|
19,518,828 |
|
|
|
|
22,760,615 |
|
|
Systems integration: |
|
|
|
|
|
Systems construction |
|
4,440,655 |
|
|
|
|
4,905,052 |
|
|
Systems operation and maintenance |
|
8,211,211 |
|
|
|
|
8,496,968 |
|
|
Total |
|
12,651,866 |
|
|
|
|
13,402,020 |
|
|
Equipment sales |
|
692,133 |
|
|
|
|
736,959 |
|
|
ATM operation business |
|
1,007,306 |
|
|
|
|
1,044,425 |
|
|
Total revenues |
|
33,870,133 |
|
|
|
|
37,944,019 |
|
|
COST AND EXPENSES: |
|
|
|
|
|
Cost of network services |
|
15,799,290 |
|
|
|
|
18,685,058 |
|
|
Cost of systems integration |
|
10,749,482 |
|
|
|
|
11,899,354 |
|
|
Cost of equipment sales |
|
621,549 |
|
|
|
|
678,132 |
|
|
Cost of ATM operation business |
|
650,459 |
|
|
|
|
615,167 |
|
|
Total costs |
|
27,820,780 |
|
|
|
|
31,877,711 |
|
|
Sales and marketing |
|
2,658,398 |
|
|
|
|
2,869,451 |
|
|
General and administrative |
|
1,843,154 |
|
|
|
|
1,964,677 |
|
|
Research and development |
|
125,493 |
|
|
|
|
120,797 |
|
|
Total costs and expenses |
|
32,447,825 |
|
|
|
|
36,832,636 |
|
|
OPERATING INCOME |
|
1,422,308 |
|
|
|
|
1,111,383 |
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
Dividend income |
|
11,165 |
|
|
|
|
28,028 |
|
|
Interest income |
|
6,540 |
|
|
|
|
9,395 |
|
|
Interest expense |
|
(54,457 |
) |
|
|
|
(73,188 |
) |
|
Foreign exchange gain (loss), net |
|
(41,359 |
) |
|
|
|
(15,416 |
) |
|
Impairment of other investments |
|
- |
|
|
|
|
(12,725 |
) |
|
Other—net |
|
24,489 |
|
|
|
|
63,808 |
|
|
Other expense—net |
|
(53,622 |
) |
|
|
|
(98 |
) |
|
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET
INCOME OF EQUITY METHOD INVESTEES |
|
1,368,686 |
|
|
|
|
1,111,285 |
|
|
INCOME TAX EXPENSE |
|
478,584 |
|
|
|
|
513,589 |
|
|
EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES |
|
75,932 |
|
|
|
|
24,911 |
|
|
NET INCOME |
|
966,034 |
|
|
|
|
622,607 |
|
|
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS |
|
(34,574 |
) |
|
|
|
(43,932 |
) |
|
NET INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN INC. |
|
931,460 |
|
|
|
|
578,675 |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
September 30, 2015 |
|
September 30, 2016 |
|
NET INCOME PER SHARE |
|
|
|
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares) |
|
45,952,691 |
|
|
|
45,952,691 |
|
|
DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares) |
|
46,041,718 |
|
|
|
46,070,091 |
|
|
BASIC WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) |
|
91,905,382 |
|
|
|
91,905,382 |
|
|
DILUTED WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) |
|
92,083,436 |
|
|
|
92,140,182 |
|
|
BASIC NET INCOME PER SHARE (JPY) |
|
20.27 |
|
|
|
12.59 |
|
|
DILUTED NET INCOME PER SHARE (JPY) |
|
20.23 |
|
|
|
12.56 |
|
|
BASIC NET INCOME PER ADS EQUIVALENT (JPY) |
|
10.13 |
|
|
|
6.30 |
|
|
DILUTED NET INCOME PER ADS EQUIVALENT (JPY) |
|
10.12 |
|
|
|
6.28 |
|
|
|
|
Quarterly Consolidated Statements of Comprehensive
Income (Unaudited) |
|
Three Months Ended |
|
Three Months Ended |
|
|
September 30, 2015 |
|
September 30, 2016 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
NET INCOME |
|
966,034 |
|
|
|
622,607 |
|
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: |
|
|
|
|
Foreign currency translation adjustments |
|
71,961 |
|
|
|
(187,641 |
) |
|
Unrealized holding gain (loss) on securities |
|
(297,361 |
) |
|
|
329,515 |
|
|
Defined benefit pension plans |
|
(415 |
) |
|
|
7,252 |
|
|
TOTAL COMPREHENSIVE INCOME |
|
740,219 |
|
|
|
771,733 |
|
|
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING
INTERESTS |
|
(34,574 |
) |
|
|
(43,932 |
) |
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO INTERNET INITIATIVE JAPAN
INC. |
|
705,645 |
|
|
|
727,801 |
|
|
|
Internet Initiative Japan Inc. |
Quarterly Consolidated Statements of Cash Flows
(Unaudited) |
(Three Months ended September 30, 2015 and
September 30, 2016) |
|
|
Three Months Ended |
|
Three Months Ended |
|
|
September 30, 2015 |
|
September 30, 2016 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
OPERATING ACTIVITIES: |
|
|
|
|
Net income |
|
966,034 |
|
|
|
622,607 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization |
|
2,460,903 |
|
|
|
2,671,265 |
|
|
Provision for retirement and pension costs, less payments |
|
44,247 |
|
|
|
61,274 |
|
|
Provision for allowance for doubtful accounts |
|
8,397 |
|
|
|
3,710 |
|
|
Gain on sales of property and equipment |
|
(12 |
) |
|
|
(2,279 |
) |
|
Loss on disposal of property and equipment |
|
1,246 |
|
|
|
25,702 |
|
|
Impairment of other investments |
|
- |
|
|
|
12,725 |
|
|
Foreign exchange loss, net |
|
24,947 |
|
|
|
10,096 |
|
|
Equity in net income of equity method investees, less dividends
received |
|
(27,422 |
) |
|
|
(24,911 |
) |
|
Deferred income tax expense (benefit) |
|
6,275 |
|
|
|
(17,752 |
) |
|
Other |
|
(6,751 |
) |
|
|
3,840 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Increase in accounts receivable |
|
(876,520 |
) |
|
|
(1,178,146 |
) |
|
Decrease (increase) in net investment in sales-type lease —
noncurrent |
|
(102,666 |
) |
|
|
115,363 |
|
|
Increase in inventories |
|
(380,874 |
) |
|
|
(705,927 |
) |
|
Decrease in prepaid expenses |
|
586,539 |
|
|
|
768,427 |
|
|
Decrease (increase) in other current and noncurrent assets |
|
106,878 |
|
|
|
(91,356 |
) |
|
Increase in accounts payable |
|
1,228,380 |
|
|
|
2,597,815 |
|
|
Increase in income taxes payable |
|
593,540 |
|
|
|
243,137 |
|
|
Decrease in accrued expenses |
|
(41,136 |
) |
|
|
(14,077 |
) |
|
Decrease in deferred income—current |
|
(266,265 |
) |
|
|
(241,201 |
) |
|
Increase (decrease) in deferred income—noncurrent |
|
(8,939 |
) |
|
|
18,789 |
|
|
Decrease in other current and noncurrent liabilities |
|
(734,523 |
) |
|
|
(688,799 |
) |
|
Net cash provided by operating activities |
|
3,582,278 |
|
|
|
4,190,302 |
|
|
INVESTING ACTIVITIES: |
|
|
|
|
Purchase of property and equipment |
|
(2,951,180 |
) |
|
|
(2,273,574 |
) |
|
Proceeds from sales of property and equipment |
|
271,363 |
|
|
|
805,078 |
|
|
Purchase of available-for-sale securities |
|
(47,312 |
) |
|
|
- |
|
|
Purchase of other investments |
|
(18,603 |
) |
|
|
(249,262 |
) |
|
Investment in an equity method investee |
|
(39,974 |
) |
|
|
- |
|
|
Proceeds from sales of other investments |
|
298,906 |
|
|
|
928 |
|
|
Payments of guarantee deposits |
|
(14,442 |
) |
|
|
(12,379 |
) |
|
Refund of guarantee deposits |
|
2,884 |
|
|
|
35,089 |
|
|
Payments for refundable insurance policies |
|
(14,090 |
) |
|
|
(14,090 |
) |
|
Other |
|
(12 |
) |
|
|
- |
|
|
Net cash used in investing activities |
|
(2,512,460 |
) |
|
|
(1,708,210 |
) |
|
|
Three Months Ended |
|
Three Months Ended |
|
|
September 30, 2015 |
|
September 30, 2016 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
FINANCING ACTIVITIES: |
|
|
|
|
Proceeds from issuance of short-term borrowings with initial
maturities over three months |
|
(1,500,000 |
) |
|
|
- |
|
|
Principal payments under capital leases |
|
(985,700 |
) |
|
|
(1,188,853 |
) |
|
Net decrease in short-term borrowings with initial maturities less
than three months |
|
1,500,000 |
|
|
|
- |
|
|
Other |
|
10 |
|
|
|
- |
|
|
Net cash used in financing activities |
|
(985,690 |
) |
|
|
(1,188,853 |
) |
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
|
9,938 |
|
|
|
(129,908 |
) |
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
94,066 |
|
|
|
1,163,331 |
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD |
|
20,004,403 |
|
|
|
18,504,491 |
|
|
CASH AND CASH EQUIVALENTS, END OF THE PERIOD |
|
20,098,469 |
|
|
|
19,667,822 |
|
|
|
Note: The following information is provided to
disclose Internet Initiative Japan Inc. ("IIJ") financial results
(unaudited) for the six months ended September 30, 2016 (“1H16”) in
the form defined by the Tokyo Stock Exchange.
Consolidated Financial Results for the
Six Months ended September 30, 2016 [Under accounting principles
generally accepted in the United States ("U.S. GAAP")]
November 8, 2016Company name: Internet Initiative
Japan Inc.Exchange listed: Tokyo Stock Exchange First SectionStock
code number: 3774URL: http://www.iij.ad.jp/Representative: Eijiro
Katsu, President and Representative DirectorContact: Akihisa Watai,
Managing Director and CFOTEL: (03) 5205-6500Scheduled date for
filing of quarterly report (Shihanki -houkokusho) to Japan’s
regulatory organization: November 14, 2016Scheduled date for
dividend payment: December 6, 2016Supplemental material on annual
results: YesPresentation on quarterly report: Yes (for
institutional investors and analysts)
(Amounts of less than JPY one million are
rounded)
1. Consolidated Financial Results for the
Six Months ended September 30, 2016(April 1, 2016 to September 30,
2016)
(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 |
% |
Six Months EndedSeptember 30, 2016 |
74,123 |
13.5 |
1,948 |
|
(24.0 |
) |
2,105 |
|
(20.5 |
) |
1,108 |
|
(33.0 |
) |
Six Months EndedSeptember 30, 2015 |
65,334 |
14.3 |
2,563 |
|
6.1 |
|
2,647 |
|
6.2 |
|
1,652 |
|
14.4 |
|
(Note1) Total comprehensive income
attributable to IIJ |
For the six months ended September
30, 2016: JPY1,156 million (down 22.6% YoY) |
For the six months ended September
30, 2015: JPY1,493 million (up 177.5% 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 incomeattributable to IIJ per share |
Diluted net income attributable to IIJ per share |
|
JPY |
JPY |
Six Months EndedSeptember 30, 2016 |
24.11 |
24.05 |
Six Months EndedSeptember 30, 2015 |
35.96 |
35.90 |
(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 September 30, 2016 |
123,113 |
66,082 |
65,524 |
53.2 |
As of March 31, 2016 |
117,835 |
65,344 |
64,845 |
55.0 |
2. Dividends
|
Dividend per Shares |
1Q-end |
2Q-end |
3Q-end |
Year-end |
Total |
|
JPY |
JPY |
JPY |
JPY |
JPY |
Fiscal Year Ended March 31, 2016 |
- |
11.00 |
- |
11.00 |
22.00 |
Fiscal Year Ended March 31, 2017 |
- |
13.50 |
|
|
|
Fiscal Year Ending March 31, 2017 (forecast) |
|
|
- |
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, 2017
(April 1, 2016
through March 31, 2017) |
|
|
(% shown is YoY
change) |
|
Total Revenues |
Operating Income |
Income beforeIncome Tax Expense (Benefit) |
Net Incomeattributable to IIJ |
Basic Net Incomeattributable to IIJper Share |
|
JPY millions |
% |
JPY millions |
% |
JPY millions |
% |
JPY millions |
% |
JPY |
Fiscal Year EndingMarch 31, 2017 |
158,000 |
12.3 |
5,000 |
|
(18.6 |
) |
5,100 |
|
(17.7 |
) |
3,000 |
|
(25.7 |
) |
65.67 |
(Note1) Changes from the latest forecasts released:
No
* Notes
(1) Changes in significant subsidiaries for the
six months ended September 30, 2016 |
(Changes in significant
subsidiaries for the six months ended September 30, 2016 which
resulted in changes in scope of consolidation): None |
|
(2) Application of simplified or exceptional
accounting: No |
|
(3) Changes in significant accounting and
reporting policies for the consolidated financial statements |
1) Changes due to the revision of
accounting standards: No |
2) Others: No |
|
(4) Number of shares outstanding (shares of
common stock) |
1) The number of shares outstanding
(inclusive of treasury stock): |
As of September 30, 2016:
46,711,400 shares |
As of March 31, 2016: 46,711,400
shares |
2) The number of treasury
stock: |
As of September 30, 2016: 758,709
shares |
As of March 31, 2016: 758,709
shares |
3) The weighted average number of
shares outstanding: |
For the six months ended September
30, 2016: 45,952,691 shares |
For the six months ended September
30, 2015: 45,947,519 shares |
|
(5) Regarding the basic net income attributable
to IIJ per share and share buyback: |
The basic net income attributable
to IIJ per share for the fiscal year ending March 31, 2017
disclosed in this document is calculated based on the assumption
that 950,000 shares of IIJ’s own shares to be repurchased by us
during the period disclosed in our disclosure titled “Notice
Regarding Repurchase of Own Shares of Internet Initiative Japan
Inc.” which was announced on November 4, 2016. |
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