Internet Initiative Japan Inc. ("IIJ" NASDAQ:IIJI, TSE:3774) today
announced its first six months consolidated financial results for
the fiscal year ending March 31, 2019 (“1H18” from April 1, 2018 to
September 30, 2018).1
Highlights of Financial Results for
1H18
Revenues |
|
JPY91.0 billion (up 9.6% YoY2) |
Gross Margin |
|
JPY14.1
billion (up 8.2% YoY) |
Operating Income |
|
JPY2.9
billion (up 25.8% YoY) |
Adjusted Income before Income Tax Expense3 |
|
JPY2.9
billion (up 25.2% YoY) |
Adjusted Net Income attributable to IIJ3 |
|
JPY1.7 billion (up 22.7% YoY) |
Overview of 1H18 Financial Results and
Business Outlook
“Overall demands for network services and systems
integration by Japanese enterprises have been favorable. We
continued to meet their IT demands by leveraging our accumulated
business assets of technology, system infrastructure, and blue-chip
customer base as well as competitive various network services
including cloud, security and mobile. This effort has been
translated to strong 1H18 revenue and operating income growth of
9.6% and 25.8% YoY respectively, mainly led by our recurring
revenue growth of 11.0% YoY. The operating income grew with gross
margin expansion which absorbed an increase in operating costs such
as full-MVNO related fixed-type cost,” said Eijiro Katsu, COO and
President of IIJ.
“This fiscal year, we’re focusing on enhancing our
existing network services by adding various value-added features,
rather than developing entirely new businesses and/or services, to
gain further return from our already invested business assets. With
regards to security services, we launched “IIJ Secure Endpoint
Service”4 to include endpoint security solution to our wide range
of gateway type security services. Also, we started to provide
inexpensive SOC services5 with basic function to respond wider
range of enterprises’ demands. Our flagship “IIJ Omnibus Services”
were updated to incorporate cloud routing and SD-LAN, which make
effective traffic optimization. We also launched solutions of live
migration for enterprises’ on-premise systems to our cloud services
“IIJ GIO.”6 We believe these efforts should contribute to stronger
recurring revenue accumulation and income growth,” said Katsu.
“As for our mobile services under MVNO scheme,
2Q18-end total mobile subscription increased by 24.2% YoY to over
2.5 million and 1H18 total mobile revenue increased by 21.8% YoY to
JPY20.4 billion. One of full-MVNO functions of “SIM life cycle,”
which allows users to switch status of SIMs from/to activated and
suspended remotely, has been attracting IoT-related projects
including surveillance cameras, dashboard cameras, sensor devices,
cognitive factory, vending machines, traceability and
agriculture-related. We anticipate that having more IoT type
traffic, generally uplink, should make our mobile network
utilization improve as majority of current traffic flow is downlink
with consumers,” continued Katsu.
“Revenue accumulation of enterprise network
services during the first half was quite fine; stronger than
planned and exceeded our disclosed financial targets. While our
disclosed full year operating income target for this year isn’t a
large increase, which is due to an increase in fixed-type
additional cost of approximately JPY0.1 billion per month along
with full-MVNO service launch, we’d like to further enhance our
value-added services and solutions to strengthen our strong
recurring revenue accumulation to have large income growth next
fiscal year,” 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,
unaudited and consolidated.2 YoY is an abbreviation for year over
year change.3 “Adjusted income before income tax expense” and
“adjusted net income attributable to IIJ” exclude gains/losses on
equity securities and funds to which accounting policies were
changed due to revision of U.S. GAAP.4 For details, please refer to
our press release titled “IIJ to Launch "IIJ Secure Endpoint
Service Defending against External Threats and Deters/Visualizes
Internal Information Leaks as a Cloud-Based Service" published in
September 2018 which can be found here
https://www.iij.ad.jp/en/news/pressrelease/2018/0919.html5 Security
Operation Center (SOC) is an organization in charge of monitoring
network and equipment to detect and analyze network attacks and
suspicious activities and implement counter attacks.6 For details,
please refer to our press release titled “IIJ to Launch the IIJ GIO
Migration Solution: Smooth Migration from On-Premise Networks to a
Cloud Environment” published in October 2018 which can be found
here https://www.iij.ad.jp/en/news/pressrelease/2018/1022.html
1H18 Financial Results Summary
Operating Results Summary
|
1H17 |
1H18 |
YoY Change |
|
JPY millions |
JPY millions |
% |
Total revenues |
82,988 |
90,963 |
9.6 |
|
Network services |
52,285 |
58,118 |
11.2 |
|
Systems integration
(SI) |
26,999 |
28,631 |
6.0 |
|
Equipment sales |
1,660 |
2,143 |
29.1 |
|
ATM operation
business |
2,044 |
2,071 |
1.3 |
|
Total costs |
69,962 |
76,874 |
9.9 |
|
Network services |
43,036 |
48,519 |
12.7 |
|
Systems integration
(SI) |
24,221 |
25,261 |
4.3 |
|
Equipment sales |
1,505 |
1,927 |
28.0 |
|
ATM operation
business |
1,200 |
1,167 |
(2.7 |
) |
Total gross margin |
13,026 |
14,089 |
8.2 |
|
Network services |
9,249 |
9,599 |
3.8 |
|
Systems integration
(SI) |
2,778 |
3,370 |
21.3 |
|
Equipment sales |
155 |
216 |
39.5 |
|
ATM operation
business |
844 |
904 |
7.1 |
|
SG&A expenses and
R&D |
10,710 |
11,177 |
4.4 |
|
Operating income |
2,316 |
2,912 |
25.8 |
|
Income before income tax
expense |
2,469 |
3,317 |
34.4 |
|
Net income attributable to
IIJ |
1,488 |
1,982 |
33.2 |
|
Segment Results Summary
|
1H17 |
1H18 |
|
JPY millions |
JPY
millions |
Total revenues |
82,988 |
|
90,963 |
|
Network services and SI
business |
81,121 |
|
89,088 |
|
ATM operation
business |
2,044 |
|
2,071 |
|
Elimination |
(177 |
) |
(196 |
) |
Operating income |
2,316 |
|
2,912 |
|
Network service and SI
business |
1,640 |
|
2,220 |
|
ATM operation
business |
764 |
|
806 |
|
Elimination |
(88 |
) |
(114 |
) |
We have omitted segment analysis because most of
our revenues are dominated by network services and systems
integration (SI) business.
1H18 Revenues and Income
Revenues
Total revenues were JPY90,963 million, up 9.6% YoY
(JPY82,988 million for 1H17).
Network services revenue was JPY58,118 million, up
11.2% YoY (JPY52,285 million for 1H17).
Revenues for Internet connectivity services for
enterprise were JPY15,944 million, up 20.2% YoY from JPY13,266
million for 1H17, 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 JPY12,585 million, up 1.9% YoY from JPY12,352
million for 1H17. The revenue growth mainly due to “IIJmio Mobile
Service,” consumer mobile services which offer inexpensive data
communication and voice services with SIMs, offset revenue decrease
due to divesture of a former subsidiary, hi-ho in December
2017.
Revenues for WAN services were JPY15,471 million,
up 9.9% YoY compared to JPY14,083 million for 1H17, mainly due to
the revenue growth along with order accumulation.
Revenues for Outsourcing services were JPY14,118
million, up 12.2% YoY from JPY12,584 million for 1H17, mainly due
to an increase in security-related services revenues.
Network Services Revenues
Breakdown (*)
|
1H17 |
1H18 |
YoYChange |
JPY millions |
JPY millions |
% |
Total network
services |
52,285 |
58,118 |
11.2 |
|
|
Internet connectivity
services (enterprise) |
13,266 |
15,944 |
20.2 |
|
|
|
IP services (including
data center connectivity services) |
4,996 |
5,201 |
4.1 |
|
|
|
IIJ Mobile
services |
6,649 |
9,162 |
37.8 |
|
|
|
|
IIJ Mobile MVNO Platform
Service |
4,919 |
6,927 |
40.8 |
|
|
|
Others |
1,621 |
1,581 |
(2.4 |
) |
|
Internet connectivity
services (consumer) |
12,352 |
12,585 |
1.9 |
|
|
|
IIJ |
11,458 |
12,585 |
9.8 |
|
|
|
|
IIJmio Mobile Service |
10,087 |
11,216 |
11.2 |
|
|
|
hi-ho |
894 |
- |
(100.0 |
) |
|
WAN
services |
14,083 |
15,471 |
9.9 |
|
|
Outsourcing
services |
12,584 |
14,118 |
12.2 |
|
(*) From 1Q18, “IIJ FiberAccess/F and IIJ DSL/F”
which was formerly classified under “Internet connectivity services
(enterprise)” is now added to “Others.”
Number of Contracts and Subscription for
Connectivity Services*1,*2
|
As of September 30, 2017 |
As of September 30,
2018 |
YoY Change |
Internet connectivity
services (enterprise) |
1,095,677 |
1,561,977 |
466,300 |
|
|
IP service (greater than
or equal to 1Gbps, including data center
connectivity) |
698 |
735 |
37 |
|
|
IP service (less than
1Gbps) |
1,254 |
1,302 |
48 |
|
|
IIJ Mobile
Services |
1,021,327 |
1,483,479 |
462,152 |
|
|
|
IIJ Mobile MVNO Platform
Service |
682,512 |
936,067 |
253,555 |
|
|
Others |
72,398 |
76,461 |
4,063 |
|
Internet connectivity
services (consumer) |
1,419,329 |
1,395,648 |
(23,681 |
) |
|
IIJ |
1,290,735 |
1,395,648 |
104,913 |
|
|
|
IIJmio Mobile Service |
972,284 |
1,048,136 |
75,852 |
|
|
hi-ho |
128,594 |
- |
(128,594 |
) |
Total contracted
bandwidth (Gbps)*3 |
2,932.5 |
3,547.4 |
614.9 |
|
*1) Numbers in the table above show number of
contracts except for “IIJ Mobile Services (enterprise),” “IIJ” and
“hi-ho” which show number of subscriptions.*2) From 1Q18, following
changes are made to the breakdown of “Internet connectivity
services
(enterprise).”
i. “Data center connectivity services” is added to “IP
services (1Gbps-)” and labeled it as “IP services (greater than or
equal to 1Gbps, including data center connectivity services).”
ii. “IP
services (100Mbps-999Mbps)” and “IP services (-99Mbps)” are now
combined and labeled as “IP services (less than
1Gbps).” iii. “IIJ
FiberAccess/F and IIJ DSL/F” is added to “Others.”*3) Total
contracted bandwidth is calculated by multiplying number of
contracts under “Internet connectivity services (enterprise),
excluding mobile services” and the contracted bandwidths of the
services respectively.
SI revenues were JPY28,631 million, up 6.0% YoY
(JPY26,999 million for 1H17).
Systems construction revenue, a one-time revenue,
was JPY8,499 million, down 3.5% YoY (JPY8,808 million for 1H17).
Systems operation and maintenance revenue, a recurring revenue, was
JPY20,132 million, up 10.7% YoY (JPY18,191 million for 1H17),
mainly due to continued accumulation of systems operation orders as
well as an increase in private cloud services’ revenues.
Orders received for SI and equipment sales totaled
JPY34,706 million, up 7.6% YoY (JPY32,246 million for 1H17); orders
received for systems construction and equipment sales were
JPY14,616 million, up 7.9% YoY (JPY13,543 million for 1H17) and
orders received for systems operation and maintenance were
JPY20,090 million, up 7.4% YoY (JPY18,703 million for 1H17).
Order backlog for SI and equipment sales as of
September 30, 2018 amounted to JPY50,520 million, up 12.0% YoY
(JPY45,088 million as of September 30, 2017); order backlog for
systems construction and equipment sales was JPY10,964 million, up
6.9% YoY (JPY10,254 million as of September 30, 2017) and order
backlog for systems operation and maintenance was JPY39,556
million, up 13.6% YoY (JPY34,834 million as of September 30,
2017).
Equipment sales revenues were JPY2,143 million, up
29.1% YoY (JPY1,660 million for 1H17) mainly due to the increase in
sales of mobile devices.
ATM operation business revenues were JPY2,071
million, up 1.3% YoY (JPY2,044 million for 1H17). As of September
30, 2018, 1,126 ATMs have been placed.
Cost and expense
Total cost of revenues was JPY76,874 million, up
9.9% YoY (JPY69,962 million for 1H17).
Cost of network services revenue was JPY48,519
million, up 12.7% YoY (JPY43,036 million for 1H17). There were an
increase in outsourcing-related costs along with our mobile-related
revenue increase as well as full-MVNO related fixed-type costs
along with the service launch, an increase in network
operation-related costs, and an increase in circuit-related costs
along with our WAN services revenue increase. Gross margin was
JPY9,599 million, up 3.8% YoY (JPY9,249 million for 1H17) and gross
margin ratio was 16.5% (17.7% for 1H17).
Cost of SI revenues was JPY25,261 million, up 4.3%
YoY (JPY24,221 million for 1H17). There were an increase in license
fees along with increase in cloud-related revenues and network
operation-related costs, and decreases in outsourcing-related costs
along with decrease in our systems construction revenue. Gross
margin was JPY3,370 million, up 21.3% YoY (JPY2,778 million for
1H17) and gross margin ratio was 11.8% (10.3% for 1H17).
Cost of equipment sales revenues was JPY1,927 million, up 28.0%
YoY (JPY1,505 million for 1H17). There was an increase in
purchasing costs of mobile devices. Gross margin was JPY216 million
(JPY155 million for 1H17) and gross margin ratio was 10.1% (9.3%
for 1H17).
Cost of ATM operation business revenues was JPY1,167 million,
down 2.7% YoY (JPY1,200 million for 1H17). Gross margin was JPY904
million (JPY844 million for 1H17) and gross margin ratio was 43.7%
(41.3% for 1H17).
SG&A and R&D expenses
SG&A and R&D expenses in total were
JPY11,177 million, up 4.4% YoY (JPY10,710 million for 1H17).
Sales and marketing expenses were JPY6,489 million,
up 2.6% YoY (JPY6,327 million for 1H17) mainly due to increases in
personnel-related expenses and outsourcing expenses.
General and administrative expenses were JPY4,465
million, up 8.1% YoY (JPY4,132 million for 1H17) mainly due to
increases in personnel-related expenses.
Research and development expenses were JPY223
million, down 11.3% YoY (JPY251 million for 1H17).
Operating income
Operating income was JPY2,912 million, up 25.8% YoY
(JPY2,316 million for 1H17).
Other income (expenses)
Other income (expenses) was an income of JPY405
million (an income of JPY153 million for 1H17). It includes
realized and unrealized gain on other investments of JPY378
million, to which accounting policies were changed under the
revised U.S. GAAP effective from April 1, 2018, compared to
realized gain of JPY122 million for 1H17 included in other-net,
miscellaneous income of JPY109 million (expenses of JPY16 million
for 1H17), dividend income of JPY75 million (JPY197 million for
1H17), and interest expense of JPY197 million (JPY184 million for
1H17).
Income before income tax
expense
Income before income tax expense was JPY3,317
million, up 34.4% YoY (JPY2,469 million for 1H17). When excludes
realized and unrealized gain on other investments of JPY378
million, to which accounting policies were changed under the
revised U.S. GAAP effective from April 1, 2018, compared to
realized gain of JPY122 million for 1H17, adjusted income before
income tax expense was JPY2,939 million, up 25.2% YoY (JPY2,347
million for 1H17).
Net income
Income tax expense was JPY1,226 million (JPY970
million for 1H17).
Equity in net loss of equity method investees was
JPY23 million (an income of JPY78 million for 1H17) mainly due to
equity in net loss of JPY148 million in DeCurret Inc.
As a result of the above, net income was JPY2,068
million, up 31.2% YoY (JPY1,577 million for 1H17). When excludes
net of tax amount of realized and unrealized gain on other
investments of JPY259 million, to which accounting policies were
changed under the revised U.S. GAAP effective from April 1, 2018,
compared to net of tax amount of realized gain of JPY83 million for
1H17, adjusted net income was JPY1,809 million, up 21.2% YoY
(JPY1,493 million for 1H17).
Net income attributable to IIJ
Net income attributable to non-controlling
interests was JPY86 million (JPY89 million for 1H17) related to net
income of Trust Networks Inc.
Net income attributable to IIJ was JPY1,982
million, up 33.2% YoY (JPY1,488 million for 1H17). When excludes
net of tax amount of realized and unrealized gain on other
investments of JPY259 million, to which accounting policies were
changed under the revised U.S. GAAP effective from April 1, 2018,
compared to net of tax amount of realized gain of JPY83 million for
1H17, adjusted net income attributable to IIJ was JPY1,723 million,
up 22.7% YoY (JPY1,405 million for 1H17).
Regarding the change in accounting methods on other
investments
Following the revision of U.S. GAAP, from 1Q18,
gains/losses on other investments due to fluctuations of fair value
of holding marketable equity securities and funds are recorded as
“realized and unrealized gain (loss) on other investments, net” in
“other income (expenses)” on our consolidated statements of income
(“P/L”).
For 1H18, we recorded JPY378 million of “realized
and unrealized gain on other investments, net,” of which unrealized
gain on our holding marketable equity securities was JPY133
million.
Fair value of holding marketable equity securities
as of March 31, 2018 |
JPY9,175 million |
Fair value of holding marketable equity
securities as of September 30, 2018 |
JPY9,308 million |
Difference: 1H18 unrealized gain on P/L |
JPY133 million |
|
|
Acquisition cost of holding available-for-sale
equity securities |
JPY1,650 million |
Fair value of holding marketable equity
securities as of September 30, 2018 |
JPY9,308 million |
Difference: Unrealized gain included in “other
investments” on B/S as of September 30, 2018 |
JPY7,658 million |
Please see below for detailed explanation on revision of U.S.
GAAP related to holding marketable equity securities.
- As of March 31, 2018, we had unrealized gains on holding
marketable equity securities of JPY7,525 million. The net of tax
amount of the unrealized gains, JPY5,079 million, was recorded as
“accumulated other comprehensive income” on our consolidated
balance sheet (“B/S”) as of March 31, 2018. Until the last fiscal
year, unrealized gains/losses of holding marketable equity
securities had been recorded as the fluctuation of “accumulated
other comprehensive income” on B/S without being recognized as
profit on P/L.
- On B/S at the beginning of this fiscal year, the net of tax
amount of the unrealized gains of JPY5,079 million as of March 31,
2018 was reclassified to “retained earnings.” The gains were never
recognized as profit on P/L.
- After the above mentioned reclassification, gains/losses due to
fluctuations of stock prices are recognized as “realized and
unrealized gain (loss) on other investments, net” in “other income
(expenses)” in every quarter.
For 1H18, we recorded JPY245 million of realized and unrealized
gain on investments other than marketable equity securities, such
as funds that were available to be measured at fair value.
Please see below for detailed explanation on revision of U.S.
GAAP related to funds that are available to be measured at fair
value.
- As of March 31, 2018, value of such funds was recorded as
assets in “other investments” under cost method. Its unrealized
gain of JPY963 million was not recognized.
- On B/S at the beginning of this fiscal year, “other
investments” was increased by JPY963 million and “retained
earnings” was increased by JPY660 million which is the net of tax
amount of the above mentioned unrealized gain. The gain was never
recognized as profit of P/L.
- From 1H18, fluctuation of fair values of such funds are
recognized as “realized and unrealized gain (loss) on other
investments, net” in “other income (expenses)” in every
quarter.
1H18 Balance Sheets
Balance sheets
As of September 30, 2018, the balance of total
assets was JPY161,694 million, increased by JPY8,245 million from
the balance as of March 31, 2018 of JPY153,449 million.
As of September 30, 2018, the balance of current
assets was JPY75,153 million, increased by JPY7,968 million from
the balance as of March 31, 2018 of JPY67,185 million. The major
breakdown of current assets was: a decrease in accounts receivables
by JPY2,086 million to JPY29,745 million, an increase in prepaid
expenses by JPY2,177 million to JPY10,620 million, an increase in
cash and cash equivalents by JPY6,648 million to JPY28,051 million.
As of September 30, 2018, the balance of noncurrent assets was
JPY86,541 million, increased by JPY277 million from the balance as
of March 31, 2018 of JPY86,264 million. The major breakdown of
noncurrent assets was: property and equipment of JPY46,089 million,
decreased by JPY326 million from the balance as of March 31, 2018
and prepaid expenses-noncurrent of JPY8,351 million, increased by
JPY386 million. The major breakdown of fluctuation in other
investments was: an increase by JPY963 million, which was the
amount of unrealized gains on funds as of March 31, 2018 that
recognized due to revision of U.S. GAAP at the beginning of FY2018,
an increase in marketable equity securities and funds that are
available to be measured at fair value by JPY310 million due to
fluctuation of fair value for 1H18 and a decrease by JPY313 million
due to benefit distribution from funds. As a result, other
investments as of September 30, 2018 amounted to JPY12,456 million,
up JPY1,081 million from the balance as of March 31, 2018. As of
September 30, 2018, the major breakdown of non-amortized intangible
assets was JPY6,082 million in goodwill. The balance of amortized
intangible assets, which was customer relationships, was JPY2,493
million, decreased by JPY178 million from the balance as of March
31, 2018 of JPY2,671 million.
As of September 30, 2018, the balance of current
liabilities was JPY47,711 million, increased by JPY5,566 million
from the balance as of March 31, 2018 of JPY42,145 million. The
major breakdown of current liabilities was: a decrease of income
taxes payable by JPY638 million to JPY1,290 million, an increase in
accounts payable (trade and other) by JPY3,428 million to JPY19,828
million, and an increase in capital lease obligations-current
portion by JPY405 million to JPY6,061 million. As of September 30,
2018, the balance of noncurrent liabilities was JPY37,599 million,
increased by JPY284 million from the balance as of March 31, 2018
of JPY37,315 million. The major breakdown of noncurrent liabilities
was: an increase in deferred income—noncurrent by JPY410 million to
JPY4,362 million, an increase in deferred tax
liabilities—noncurrent by JPY308 million to JPY997 million, an
increase in capital lease obligations-noncurrent by JPY283 million
to JPY11,204 million and a decrease in long-term borrowings by
JPY750 million, which was the amount transferred to current
liabilities, to JPY14,750 million.
As of September 30, 2018, the major breakdown of
IIJ shareholders’ equity was as follows. Accumulated other
comprehensive income (loss) was a loss of JPY91 million as it
decreased by JPY5,165 million (an income of JPY5,075 million as of
March 31, 2018) mainly because of reclassification at the beginning
of FY2018 to retained earnings by JPY5,079 million by revision of
U.S. GAAP related to marketable equity securities; retained
earnings was JPY15,899 million, increased by JPY7,495 million from
March 31, 2018, mainly due to an increase by net income
attributable to IIJ of JPY1,982 million, a decrease by dividend
paid of JPY608 million and an increase at the beginning of FY2018
by JPY6,121 million due to revision of U.S. GAAP related to revenue
recognition and other investments. As a result, the balance of
total IIJ shareholders’ equity as of September 30, 2018 was
JPY75,628 million, increased by JPY2,358 million from the balance
as of March 31, 2018 of JPY73,270 million and IIJ shareholders’
equity ratio (total IIJ shareholders’ equity divided by total
assets) as of September 30, 2018 was 46.8%.
1H18 Cash Flows
Cash flows
Cash and cash equivalents as of September 30, 2018
were JPY28,051 million (JPY19,871 million as of September 30,
2017).
Net cash provided by operating activities for 1H18
was JPY12,855 million (net cash provided by operating activities of
JPY6,102 million for 1H17). There were net income of JPY2,068
million and depreciation and amortization of JPY6,751 million.
Regarding changes in operating assets and liabilities, it was net
cash in of JPY4,220 million (net cash out of JPY1,512 million for
1H17), mainly due to an increase in accounts payable and proceeds
from customers, which resulted in a decrease in accounts receivable
and an increase in deferred revenue, while the cash out increased
due to an increase in prepaid expenses (including prepaid
expense-noncurrent) in relation to upfront payment for software
licenses and maintenance cost for service facilities and an
increase in inventories.
Net cash used in investing activities for 1H18 was
JPY2,324 million (net cash used in investing activities of JPY4,499
million for 1H17), mainly due to payments for purchase of property
and equipment of JPY4,446 million (JPY6,423 million for 1H17) and
proceeds from sales of property and equipment, which include sales
and leaseback transactions, of JPY1,767 million (JPY2,384 million
for 1H17).
Net cash used in financing activities for 1H18 was
JPY3,913 million (net cash used in financing activities of JPY3,673
million for 1H17), mainly due to principal payments under capital
leases of JPY3,145 million (JPY2,764 million for 1H17) and FY2017
year-end dividends payments of JPY608 million (JPY608 million for
1H17).
FY2018 Financial Targets
Due to seasonal factors, our financial results tend
to be small in first quarter and large in fourth quarter every
fiscal year. Although 1H18 total revenue and operating income
exceeded our initial expectation, because our fourth quarter
contribution to the full year results is large, our financial
targets for the fiscal year ending March 31, 2019 (FY2018)
announced on May 15, 2018 remain unchanged.
FY2018 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
|
1H17 |
1H18 |
|
JPY millions |
JPY
millions |
Adjusted EBITDA |
8,338 |
|
9,663 |
|
Depreciation and
Amortization |
(6,022 |
) |
(6,751 |
) |
Operating Income |
2,316 |
|
2,912 |
|
Other Income
(expenses) |
153 |
|
405 |
|
Income Tax Expense |
970 |
|
1,226 |
|
Equity in Net Income (loss) of
Equity Method Investees |
78 |
|
(23 |
) |
Net income |
1,577 |
|
2,068 |
|
Less: Net income attributable to
noncontrolling interests |
(89 |
) |
(86 |
) |
Net Income attributable to
IIJ |
1,488 |
|
1,982 |
|
CAPEX
|
1H17 |
1H18 |
|
JPY millions |
JPY millions |
CAPEX, including capital
leases |
9,346 |
7,880 |
Acquisition of Assets by Entering
into Capital Leases |
4,407 |
3,835 |
Purchase of Property and
Equipment |
4,939 |
4,045 |
Presentation
Presentation materials will be posted on our web
site (https://www.iij.ad.jp/en/ir/) on November 6, 2018.
Presentation materials are also available in these
file archives:
http://resource.globenewswire.com/Resource/Download/2ab79fc9-c3c4-4948-9ffe-facd8d3596d4
About Internet Initiative Japan
Inc.
Founded in 1992, IIJ is one of Japan's leading
Internet-access and comprehensive network solutions providers. IIJ
and its group companies provide total network solutions that mainly
cater to high-end corporate customers. IIJ's services include
high-quality Internet connectivity services, mobile services,
security services, cloud computing services, and systems
integration. Moreover, IIJ operates one of the largest Internet
backbone networks in Japan that is connected to the United States,
the United Kingdom and Asia. IIJ listed on the U.S. NASDAQ Stock
Market in 1999 and on the First Section of the Tokyo Stock Exchange
in 2006.
For inquiries, contact:
IIJ Investor Relations Tel: +81-3-5205-6500 E-mail:
ir@iij.ad.jp URL: https://www.iij.ad.jp/en/ir
Statements made in this press release regarding
IIJ’s or management’s intentions, beliefs, expectations, or
predictions for the future are forward-looking statements that are
based on IIJ’s and managements’ current expectations, assumptions,
estimates and projections about its business and the industry.
These forward-looking statements, such as statements regarding
revenues and operating and net profitability, are subject to
various risks, uncertainties and other factors that could cause
IIJ’s actual results to differ materially from those contained in
any forward-looking statement. These risks, uncertainties and other
factors include: IIJ’s ability to maintain and increase revenues
from higher-margin services such as outsourcing services; the
possibility that revenues from connectivity services may decline
substantially as a result of competition and other factors; the
ability to compete in a rapidly evolving and competitive
marketplace; the impact on IIJ's profits of fluctuations in costs
such as backbone costs and subcontractor costs; the impact on IIJ's
profits of fluctuations in the price of available-for-sale equity
securities; fluctuations of equity in net income (loss) of equity
method investees; the impact of technological changes in its
industry; IIJ’s ability to raise additional capital to cover its
indebtedness; the possibility that NTT, IIJ’s largest shareholder,
may decide to exercise substantial influence over IIJ; and other
risks referred to from time to time in IIJ’s filings on Form 20-F
of its annual report and other filings with the United States
Securities and Exchange Commission.
Internet Initiative Japan
Inc. |
Consolidated Balance Sheets
(Unaudited) |
(As of March 31, 2018 and September 30,
2018) |
|
|
|
|
As of March 31, 2018 |
As of September 30, 2018 |
|
Thousands of JPY |
Thousands of JPY |
ASSETS |
|
|
CURRENT ASSETS: |
|
|
Cash and cash equivalents |
21,402,892 |
|
28,050,992 |
|
Accounts receivable, net of allowance for
doubtful accounts of JPY 123,453 thousand and JPY 126,770
thousand at March 31, 2018 and September 30, 2018,
respectively |
31,830,882 |
|
29,744,657 |
|
Inventories |
1,714,547 |
|
3,560,161 |
|
Prepaid expenses—current |
8,442,981 |
|
10,619,903 |
|
Other current assets, net of allowance for
doubtful accounts of JPY 720 thousand at March 31, 2018 and
September 30, 2018, respectively |
3,793,449 |
|
3,177,222 |
|
Total current assets |
67,184,751 |
|
75,152,935 |
|
INVESTMENTS IN EQUITY METHOD INVESTEES |
5,246,313 |
|
5,143,082 |
|
OTHER INVESTMENTS |
11,374,442 |
|
12,455,896 |
|
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of JPY 55,470,955 thousand and
JPY 59,670,254 thousand at March 31, 2018 and September 30,
2018, respectively |
46,414,250 |
|
46,088,514 |
|
GOODWILL |
6,082,472 |
|
6,082,472 |
|
OTHER INTANGIBLE ASSETS—Net |
2,704,668 |
|
2,525,720 |
|
GUARANTEE DEPOSITS |
3,422,443 |
|
3,384,852 |
|
DEFERRED TAX ASSETS—Noncurrent |
183,808 |
|
144,667 |
|
NET INVESTMENT IN SALES-TYPE
LEASES—Noncurrent |
1,545,293 |
|
1,269,199 |
|
Prepaid expenses—Noncurrent |
7,965,889 |
|
8,351,428 |
|
OTHER ASSETS, net of allowance for doubtful
accounts of JPY 60,929 thousand and JPY 63,828 thousand
at March 31, 2018 and September 30, 2018, respectively |
1,324,490 |
|
1,095,496 |
|
TOTAL |
153,448,819 |
|
161,694,261 |
|
|
|
|
|
|
|
|
As of March 31, 2018 |
As of September 30, 2018 |
|
Thousands of JPY |
Thousands of JPY |
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
CURRENT LIABILITIES: |
|
|
Short-term borrowings |
9,250,000 |
|
9,250,000 |
|
Long-term borrowings—current portion |
- |
|
750,000 |
|
Capital lease obligations—current portion |
5,655,875 |
|
6,060,613 |
|
Accounts payable—trade |
14,950,920 |
|
18,688,097 |
|
Accounts payable—other |
1,448,423 |
|
1,139,443 |
|
Income taxes payable |
1,928,037 |
|
1,289,691 |
|
Accrued expenses |
3,111,385 |
|
3,175,125 |
|
Deferred income—current |
4,237,676 |
|
5,838,007 |
|
Other current liabilities |
1,562,717 |
|
1,520,501 |
|
Total current liabilities |
42,145,033 |
|
47,711,477 |
|
LONG-TERM BORROWINGS |
15,500,000 |
|
14,750,000 |
|
CAPITAL LEASE OBLIGATIONS—Noncurrent |
10,920,726 |
|
11,203,864 |
|
ACCRUED RETIREMENT AND PENSION
COSTS—Noncurrent |
3,724,634 |
|
3,905,516 |
|
DEFERRED TAX LIABILITIES—Noncurrent |
688,787 |
|
996,887 |
|
DEFERRED INCOME—Noncurrent |
3,952,279 |
|
4,362,257 |
|
OTHER NONCURRENT LIABILITIES |
2,528,803 |
|
2,380,443 |
|
Total Liabilities |
79,460,262 |
|
85,310,444 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
SHAREHOLDERS' EQUITY: |
|
|
Common-stock—authorized, 75,520,000 shares;
issued and outstanding, 46,713,800 and 46,721,400 shares at March
31, 2018 and September 30, 2018, respectively |
25,511,804 |
|
25,518,712 |
|
Additional paid-in capital |
36,175,937 |
|
36,197,447 |
|
Retained earnings |
8,404,228 |
|
15,899,122 |
|
Accumulated other comprehensive income
(loss) |
5,074,872 |
|
(90,587 |
) |
Treasury stock—1,650,909 shares held by the
company at March 31, 2018 and September 30, 2018, respectively |
(1,896,784 |
) |
(1,896,784 |
) |
Total Internet Initiative Japan Inc.
shareholders' equity |
73,270,057 |
|
75,627,910 |
|
NONCONTROLLING INTERESTS |
718,500 |
|
755,907 |
|
Total equity |
73,988,557 |
|
76,383,817 |
|
TOTAL |
153,448,819 |
|
161,694,261 |
|
|
|
|
|
|
|
Internet Initiative Japan
Inc. |
Consolidated Statements of
Income and Consolidated Statements of
Comprehensive Income (Unaudited) |
(For the six months ended September 30, 2017
and September 30, 2018) |
|
|
|
|
|
|
|
Six Months Ended |
Six Months Ended |
|
September 30, 2017 |
September 30, 2018 |
|
Thousands of JPY |
Thousands of JPY |
REVENUES: |
|
|
Network services: |
|
|
Internet connectivity services
(enterprise) |
13,265,963 |
|
15,943,638 |
|
Internet connectivity services (consumer) |
12,351,654 |
|
12,585,190 |
|
WAN services |
14,083,378 |
|
15,471,039 |
|
Outsourcing services |
12,584,446 |
|
14,117,829 |
|
Total |
52,285,441 |
|
58,117,696 |
|
Systems integration: |
|
|
Systems construction |
8,807,948 |
|
8,498,811 |
|
Systems operation and maintenance |
18,191,065 |
|
20,132,026 |
|
Total |
26,999,013 |
|
28,630,837 |
|
Equipment sales |
1,659,919 |
|
2,143,107 |
|
ATM operation business |
2,043,912 |
|
2,071,290 |
|
Total revenues |
82,988,285 |
|
90,962,930 |
|
COSTS AND EXPENSES: |
|
|
Cost of network services |
43,036,356 |
|
48,518,870 |
|
Cost of systems integration |
24,221,215 |
|
25,260,577 |
|
Cost of equipment sales |
1,505,161 |
|
1,927,184 |
|
Cost of ATM operation business |
1,199,748 |
|
1,167,007 |
|
Total costs |
69,962,480 |
|
76,873,638 |
|
Sales and marketing |
6,327,165 |
|
6,489,491 |
|
General and administrative |
4,131,984 |
|
4,464,901 |
|
Research and development |
251,127 |
|
222,764 |
|
Total costs and expenses |
80,672,756 |
|
88,050,794 |
|
OPERATING INCOME |
2,315,529 |
|
2,912,136 |
|
OTHER INCOME (EXPENSES): |
|
|
Dividend income |
197,063 |
|
75,096 |
|
Interest income |
15,776 |
|
12,623 |
|
Interest expense |
(184,365 |
) |
(196,922 |
) |
Foreign exchange gain, net |
18,708 |
|
27,188 |
|
Realized and unrealized gain on other
investments, net |
- |
|
378,295 |
|
Other —net |
106,088 |
|
108,943 |
|
Other income (expenses) —net |
153,270 |
|
405,223 |
|
INCOME FROM OPERATIONS BEFORE INCOME TAX
EXPENSE AND EQUITY IN NET INCOME OF EQUITY METHOD
INVESTEES |
2,468,799 |
|
3,317,359 |
|
INCOME TAX EXPENSE |
969,527 |
|
1,225,769 |
|
EQUITY IN NET INCOME (LOSS) OF EQUITY METHOD
INVESTEES |
77,339 |
|
(23,234 |
) |
NET INCOME |
1,576,611 |
|
2,068,356 |
|
LESS: NET INCOME ATTRIBUTABLE TO
NONCONTROLLING INTERESTS |
(88,642 |
) |
(85,957 |
) |
NET INCOME ATTRIBUTABLE TO INTERNET
INITIATIVE JAPAN INC. |
1,487,969 |
|
1,982,399 |
|
|
|
|
|
|
|
|
Six Months Ended |
Six Months Ended |
|
September 30, 2017 |
September 30, 2018 |
NET INCOME PER SHARE |
|
|
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES
(shares) |
45,062,865 |
|
45,070,449 |
|
DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES
(shares) |
45,207,332 |
|
45,240,779 |
|
BASIC WEIGHTED-AVERAGE NUMBER OF ADS
EQUIVALENTS (ADSs) |
90,125,730 |
|
90,140,898 |
|
DILUTED WEIGHTED-AVERAGE NUMBER OF
ADS EQUIVALENTS (ADSs) |
90,414,664 |
|
90,481,558 |
|
BASIC NET INCOME PER SHARE (JPY) |
33.02 |
|
43.98 |
|
DILUTED NET INCOME PER SHARE (JPY) |
32.91 |
|
43.82 |
|
BASIC NET INCOME PER ADS
EQUIVALENT (JPY) |
16.51 |
|
21.99 |
|
DILUTED NET INCOME PER ADS
EQUIVALENT (JPY) |
16.46 |
|
21.91 |
|
|
|
|
|
Quarterly Consolidated Statements of Comprehensive
Income (Unaudited) |
|
|
Six Months Ended |
Six Months Ended |
|
September 30, 2017 |
September 30, 2018 |
|
Thousands of JPY |
Thousands of JPY |
NET INCOME |
1,576,611 |
|
2,068,356 |
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF
TAX: |
|
|
Foreign currency translation
adjustments |
(55,208 |
) |
(79,486 |
) |
Unrealized holding gain (loss) on
securities |
1,176,581 |
|
(5,767 |
) |
Defined benefit pension plans |
1,688 |
|
(845 |
) |
TOTAL COMPREHENSIVE INCOME |
2,699,672 |
|
1,982,258 |
|
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO
NONCONTROLLING INTERESTS |
(88,642 |
) |
(85,957 |
) |
COMPREHENSIVE INCOME ATTRIBUTABLE TO
INTERNET INITIATIVE JAPAN INC. |
2,611,030 |
|
1,896,301 |
|
|
|
|
|
|
|
|
|
Internet Initiative Japan Inc. |
Consolidated Statements of Cash Flows
(Unaudited) |
(For the six months ended September 30, 2017
and September 30, 2018) |
|
|
|
|
|
|
Six Months Ended |
|
Six Months Ended |
|
|
September 30, 2017 |
|
September 30, 2018 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
OPERATING ACTIVITIES: |
|
|
|
|
Net income |
1,576,611 |
|
|
2,068,356 |
|
|
Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
6,021,880 |
|
|
6,750,884 |
|
|
Provision for retirement and pension costs,
less payments |
126,779 |
|
|
179,652 |
|
|
Provision for allowance for doubtful
accounts |
45,236 |
|
|
32,859 |
|
|
Loss (gain) on sales of property and
equipment |
(14,504 |
) |
|
3,652 |
|
|
Loss on disposal of property and
equipment |
37,154 |
|
|
26,638 |
|
|
Realized and unrealized gain on other
investments, net |
- |
|
|
(378,295 |
) |
|
Foreign exchange gain, net |
(8,458 |
) |
|
(40,165 |
) |
|
Equity in net loss (gain) of equity method
investees, less dividends received |
(26,148 |
) |
|
90,976 |
|
|
Deferred income tax expense |
(135,948 |
) |
|
(130,367 |
) |
|
Other |
(8,029 |
) |
|
31,028 |
|
|
Changes in operating assets and
liabilities: |
|
|
|
|
Decrease in accounts receivable |
1,101,059 |
|
|
2,019,680 |
|
|
Decrease in net investment in sales-type lease
— noncurrent |
388,590 |
|
|
276,094 |
|
|
Increase in inventories |
(1,363,001 |
) |
|
(1,851,015 |
) |
|
Increase in prepaid expenses |
(1,147,128 |
) |
|
(2,077,023 |
) |
|
Decrease (increase) in other current and
noncurrent assets |
(1,064,686 |
) |
|
428,042 |
|
|
Increase in accounts payable |
212,392 |
|
|
3,721,802 |
|
|
Decrease in income taxes payable |
(62,145 |
) |
|
(637,477 |
) |
|
Increase in accrued expenses |
224,914 |
|
|
67,428 |
|
|
Increase in deferred income—current |
425,608 |
|
|
1,740,635 |
|
|
Increase (decrease) in deferred
income—noncurrent |
(211,511 |
) |
|
629,418 |
|
|
Decrease in other current and noncurrent
liabilities |
(16,384 |
) |
|
(97,713 |
) |
|
Net cash provided by operating activities |
6,102,281 |
|
|
12,855,089 |
|
|
INVESTING ACTIVITIES: |
|
|
|
|
Purchase of property and equipment |
(6,423,288 |
) |
|
(4,445,936 |
) |
|
Proceeds from sales of property and
equipment |
2,383,761 |
|
|
1,767,490 |
|
|
Purchase of other investments |
(57,489 |
) |
|
- |
|
|
Investment in equity method investees |
(174,808 |
) |
|
- |
|
|
Proceeds from sales of other investments |
33,456 |
|
|
358,251 |
|
|
Payments of guarantee deposits |
(294,033 |
) |
|
(8,169 |
) |
|
Refund of guarantee deposits |
15,276 |
|
|
42,660 |
|
|
Payments for refundable insurance
policies |
(28,181 |
) |
|
(28,181 |
) |
|
Proceeds from subsidies |
48,976 |
|
|
- |
|
|
Other |
(3,000 |
) |
|
(9,698 |
) |
|
Net cash used in investing activities |
(4,499,330 |
) |
|
(2,323,583 |
) |
|
|
Six Months Ended |
|
Six Months Ended |
|
|
September 30, 2017 |
|
September 30, 2018 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
FINANCING ACTIVITIES: |
|
|
|
|
Proceeds from short-term borrowings with
initial maturities over three months |
2,500,000 |
|
|
- |
|
|
Net decrease in short-term borrowings with
initial maturities less than three months |
(2,500,000 |
) |
|
- |
|
|
Principal payments under capital leases |
(2,764,221 |
) |
|
(3,145,203 |
) |
|
Proceeds from long-term accounts payable |
- |
|
|
256,608 |
|
|
Payments of long-term accounts payable |
(203,272 |
) |
|
(367,110 |
) |
|
Dividends paid |
(608,317 |
) |
|
(608,349 |
) |
|
Other |
(97,660 |
) |
|
(48,556 |
) |
|
Net cash used in financing activities |
(3,673,470 |
) |
|
(3,912,610 |
) |
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS |
(17,041 |
) |
|
29,204 |
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS |
(2,087,560 |
) |
|
6,648,100 |
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF THE
PERIOD |
21,958,591 |
|
|
21,402,892 |
|
|
CASH AND CASH EQUIVALENTS, END OF THE
PERIOD |
19,871,031 |
|
|
28,050,992 |
|
|
|
|
|
|
|
ADDITIONAL CASH FLOW INFORMATION: |
|
|
|
|
Interest paid |
180,466 |
|
|
195,093 |
|
|
Income taxes paid |
1,115,207 |
|
|
1,997,661 |
|
|
|
|
|
|
|
NONCASH INVESTING AND FINANCING
ACTIVITIES: |
|
|
|
|
Acquisition of assets by entering into capital
leases |
4,407,216 |
|
|
3,835,069 |
|
|
Facilities purchase liabilities |
1,892,484 |
|
|
1,139,443 |
|
|
Asset retirement obligation |
- |
|
|
24,385 |
|
|
|
|
|
|
|
|
|
|
|
|
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, 2017 |
September 30, 2018 |
|
|
|
|
|
|
Thousands of JPY |
Thousands of JPY |
|
|
|
Network service and systems
integration business |
81,120,647 |
|
89,087,839 |
|
|
|
|
|
Customers |
80,944,373 |
|
88,891,640 |
|
|
|
|
|
Intersegment |
176,274 |
|
196,199 |
|
|
|
|
ATM operation business |
2,043,912 |
|
2,071,290 |
|
|
|
|
|
Customers |
|
2,043,912 |
|
2,071,290 |
|
|
|
|
|
Intersegment |
- |
|
- |
|
|
|
|
Elimination |
(176,274 |
) |
(196,199 |
) |
|
|
|
Consolidated total |
82,988,285 |
|
90,962,930 |
|
|
|
|
Segment profit or loss: |
|
|
|
|
|
|
Six Months Ended |
Six Months Ended |
|
|
|
|
|
|
September 30, 2017 |
September 30, 2018 |
|
|
|
|
|
|
Thousands of JPY |
Thousands of JPY |
|
|
|
Network service and systems
integration business |
1,640,053 |
|
2,219,756 |
|
|
|
|
ATM operation business |
763,799 |
|
806,493 |
|
|
|
|
Elimination |
(88,323 |
) |
(114,113 |
) |
|
|
|
Consolidated operating income |
2,315,529 |
|
2,912,136 |
|
|
|
|
|
|
|
|
|
|
|
|
Geographic information is not presented
due to immateriality of revenue attributable to international
operations. |
|
|
|
|
|
|
|
|
Subsequent Events (Unaudited) |
|
|
|
|
Nothing to
be reported. |
|
|
|
|
|
|
|
|
|
|
Second Quarter FY2018 Consolidated
Financial Results (3 months)
The following tables are highlight data of 2nd
Quarter FY2018 (3 months) consolidated financial results
(unaudited, for the three months ended September 30, 2018).
Operating Results Summary
|
2Q17 |
2Q18 |
YoY Change |
|
JPY millions |
JPY millions |
% |
Total Revenues: |
42,024 |
46,258 |
10.1 |
|
Network Services |
26,600 |
29,455 |
10.7 |
|
Systems Integration
(SI) |
13,399 |
14,826 |
10.6 |
|
Equipment Sales |
984 |
901 |
(8.4 |
) |
ATM Operation Business |
1,041 |
1,076 |
3.4 |
|
Cost of Revenues: |
35,528 |
38,951 |
9.6 |
|
Network Services |
21,970 |
24,674 |
12.3 |
|
Systems Integration
(SI) |
12,058 |
12,902 |
7.0 |
|
Equipment Sales |
901 |
791 |
(12.3 |
) |
ATM Operation Business |
599 |
584 |
(2.5 |
) |
SG&A Expenses and
R&D |
5,305 |
5,575 |
5.1 |
|
Operating Income |
1,191 |
1,732 |
45.4 |
|
Income before Income Tax
Expense |
1,306 |
2,833 |
116.9 |
|
Net Income attributable to
IIJ |
782 |
1,732 |
121.5 |
|
Network Service Revenue
Breakdown
|
2Q17 |
2Q18 |
YoY Change |
|
JPY millions |
JPY millions |
% |
Internet Connectivity Service
(Enterprise) |
6,742 |
8,154 |
20.9 |
|
IP Service*1 |
2,506 |
2,662 |
6.2 |
|
IIJ Mobile
Service |
3,424 |
4,694 |
37.1 |
|
IIJ Mobile MVNO Platform
Service |
2,560 |
3,544 |
38.4 |
|
Others*2 |
812 |
798 |
(1.7 |
) |
Internet Connectivity Service
(Consumer) |
6,197 |
6,435 |
3.8 |
|
IIJ |
5,761 |
6,435 |
11.7 |
|
IIJmio Mobile Service |
5,074 |
5,754 |
13.4 |
|
hi-ho |
436 |
- |
(100.0 |
) |
WAN Services |
7,113 |
7,744 |
8.9 |
|
Outsourcing Services |
6,548 |
7,122 |
8.8 |
|
Network Services
Revenues |
26,600 |
29,455 |
10.7 |
|
*1 IP service revenues include revenues from the
data center connectivity service.*2 From 1Q18, “IIJ FiberAccess/F
and IIJ DSL/F” which was formerly classified under “Internet
connectivity services (enterprise)” is now added to “Others.”
Reconciliation of Non-GAAP Financial
Measures (2nd Quarter FY2018 (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
|
2Q17 |
2Q18 |
|
JPY millions |
JPY
millions |
Adjusted EBITDA |
4,234 |
|
5,186 |
|
Depreciation and
Amortization |
(3,043 |
) |
(3,454 |
) |
Operating Income |
1,191 |
|
1,732 |
|
Other Income (Expense) |
115 |
|
1,101 |
|
Income Tax Expense
(Benefit) |
518 |
|
1,063 |
|
Equity in Net Income of Equity
Method Investees |
41 |
|
7 |
|
Net income |
829 |
|
1,777 |
|
Less: Net income attributable to
noncontrolling interests |
(47 |
) |
(45 |
) |
Net Income attributable to
IIJ |
782 |
|
1,732 |
|
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
|
2Q17 |
2Q18 |
|
JPY millions |
JPY millions |
CAPEX, including capital
leases |
4,006 |
3,699 |
Acquisition of Assets by Entering
into Capital Leases |
2,139 |
2,139 |
Purchase of Property and
Equipment |
1,867 |
1,560 |
|
|
|
Internet Initiative Japan Inc. |
Quarterly Consolidated
Statements of Income and Quarterly Consolidated
Statements of Comprehensive Income (Unaudited) |
(Three Months ended September 30, 2017 and
September 30, 2018) |
|
|
|
|
Three Months Ended |
Three Months Ended |
|
September 30, 2017 |
September 30, 2018 |
|
Thousands of JPY |
Thousands of JPY |
REVENUES: |
|
|
Network services: |
|
|
Internet connectivity services
(enterprise) |
6,742,117 |
|
8,153,715 |
|
Internet connectivity services (consumer) |
6,196,941 |
|
6,434,894 |
|
WAN services |
7,113,474 |
|
7,743,768 |
|
Outsourcing services |
6,547,225 |
|
7,122,189 |
|
Total |
26,599,757 |
|
29,454,566 |
|
Systems integration: |
|
|
Systems construction |
4,367,954 |
|
4,853,346 |
|
Systems operation and maintenance |
9,031,752 |
|
9,973,048 |
|
Total |
13,399,706 |
|
14,826,394 |
|
Equipment sales |
983,997 |
|
900,962 |
|
ATM operation business |
1,040,920 |
|
1,076,090 |
|
Total revenues |
42,024,380 |
|
46,258,012 |
|
COST AND EXPENSES: |
|
|
Cost of network services |
21,970,060 |
|
24,673,715 |
|
Cost of systems integration |
12,058,378 |
|
12,902,806 |
|
Cost of equipment sales |
901,185 |
|
790,690 |
|
Cost of ATM operation business |
599,106 |
|
584,102 |
|
Total costs |
35,528,729 |
|
38,951,313 |
|
Sales and marketing |
3,178,455 |
|
3,247,156 |
|
General and administrative |
2,002,202 |
|
2,222,964 |
|
Research and development |
123,856 |
|
104,310 |
|
Total costs and expenses |
40,833,242 |
|
44,525,743 |
|
OPERATING INCOME |
1,191,138 |
|
1,732,269 |
|
OTHER INCOME (EXPENSE): |
|
|
Dividend income |
124,791 |
|
23,047 |
|
Interest income |
7,798 |
|
6,413 |
|
Interest expense |
(95,433 |
) |
(99,737 |
) |
Foreign exchange gain, net |
13,621 |
|
17,950 |
|
Realized and unrealized gain on other
investments, net |
- |
|
1,124,998 |
|
Other—net |
64,277 |
|
27,954 |
|
Other income —net |
115,054 |
|
1,100,625 |
|
INCOME FROM OPERATIONS BEFORE INCOME
TAX EXPENSE AND EQUITY IN NET INCOME OF EQUITY METHOD
INVESTEES |
1,306,192 |
|
2,832,894 |
|
INCOME TAX EXPENSE |
518,886 |
|
1,062,860 |
|
EQUITY IN NET INCOME OF EQUITY METHOD
INVESTEES |
41,480 |
|
7,379 |
|
NET INCOME |
828,786 |
|
1,777,413 |
|
LESS: NET INCOME ATTRIBUTABLE TO
NONCONTROLLING INTERESTS |
(46,861 |
) |
(45,396 |
) |
NET INCOME ATTRIBUTABLE TO INTERNET
INITIATIVE JAPAN INC. |
781,925 |
|
1,732,017 |
|
|
|
|
|
Three Months Ended |
Three Months Ended |
|
September 30, 2017 |
September 30, 2018 |
NET INCOME PER SHARE |
|
|
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES
(shares) |
45,062,891 |
|
45,070,491 |
|
DILUTED WEIGHTED-AVERAGE NUMBER OF
SHARES (shares) |
45,212,382 |
|
45,247,533 |
|
BASIC WEIGHTED-AVERAGE NUMBER OF ADS
EQUIVALENTS (ADSs) |
90,125,782 |
|
90,140,982 |
|
DILUTED WEIGHTED-AVERAGE NUMBER OF ADS
EQUIVALENTS (ADSs) |
90,424,764 |
|
90,495,066 |
|
BASIC NET INCOME PER SHARE (JPY) |
17.35 |
|
38.43 |
|
DILUTED NET INCOME PER SHARE (JPY) |
17.29 |
|
38.28 |
|
BASIC NET INCOME PER ADS EQUIVALENT
(JPY) |
8.68 |
|
19.21 |
|
DILUTED NET INCOME PER ADS EQUIVALENT
(JPY) |
8.65 |
|
19.14 |
|
|
|
|
|
|
|
Quarterly Consolidated Statements of Comprehensive
Income (Unaudited) |
|
|
Three Months Ended |
Three Months Ended |
|
September 30, 2017 |
September 30, 2018 |
|
Thousands of JPY |
Thousands of JPY |
NET INCOME |
828,786 |
|
1,777,413 |
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF
TAX: |
|
|
Foreign currency translation
adjustments |
20,501 |
|
53,347 |
|
Unrealized holding gain (loss) on
securities |
567,208 |
|
(1,284 |
) |
Defined benefit pension plans |
810 |
|
(423 |
) |
TOTAL COMPREHENSIVE INCOME |
1,417,305 |
|
1,829,053 |
|
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO
NONCONTROLLING INTERESTS |
(46,861 |
) |
(45,396 |
) |
COMPREHENSIVE INCOME ATTRIBUTABLE TO
INTERNET INITIATIVE JAPAN INC. |
1,370,444 |
|
1,783,657 |
|
|
|
|
|
|
Internet Initiative Japan Inc. |
Consolidated Statements of Cash Flows
(Unaudited) |
(Three Months ended September 30, 2017 and
September 30, 2018) |
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
September 30, 2017 |
|
September 30, 2018 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
OPERATING ACTIVITIES: |
|
|
|
|
Net income |
828,786 |
|
|
1,777,413 |
|
|
Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
3,042,538 |
|
|
3,454,179 |
|
|
Provision for retirement and pension costs,
less payments |
64,476 |
|
|
135,419 |
|
|
Provision for allowance for doubtful
accounts |
21,575 |
|
|
13,810 |
|
|
Loss on sales of property and equipment |
(635 |
) |
|
(28 |
) |
|
Loss on disposal of property and
equipment |
15,515 |
|
|
14,262 |
|
|
Realized and unrealized gain on other
investments, net |
- |
|
|
(1,124,998 |
) |
|
Foreign exchange gain, net |
(5,869 |
) |
|
(18,358 |
) |
|
Equity in net loss of equity method investees,
less dividends received |
(41,480 |
) |
|
(7,379 |
) |
|
Deferred income tax expense (benefit) |
(244,864 |
) |
|
131,061 |
|
|
Other |
7,080 |
|
|
13,159 |
|
|
Changes in operating assets and liabilities
net of effects from divestitures of a company : |
|
|
|
|
Increase in accounts receivable |
(2,187,027 |
) |
|
(1,623,903 |
) |
|
Decrease in net investment in sales-type lease
— noncurrent |
186,802 |
|
|
132,336 |
|
|
Increase in inventories |
(1,042,227 |
) |
|
(1,049,194 |
) |
|
Decrease in prepaid expenses |
966,103 |
|
|
819,079 |
|
|
Increase in other current and noncurrent
assets |
(617,509 |
) |
|
(274,392 |
) |
|
Increase in accounts payable |
1,931,313 |
|
|
3,634,690 |
|
|
Increase in income taxes payable |
695,340 |
|
|
897,247 |
|
|
Increase in accrued expenses |
264,588 |
|
|
74,220 |
|
|
Increase (decrease) in deferred
income—current |
(289,109 |
) |
|
626,159 |
|
|
Increase (decrease) in deferred
income—noncurrent |
(35,655 |
) |
|
134,102 |
|
|
Decrease in other current and noncurrent
liabilities |
(694,845 |
) |
|
(1,244,162 |
) |
|
Net cash provided by operating activities |
2,864,896 |
|
|
6,514,722 |
|
|
INVESTING ACTIVITIES: |
|
|
|
|
Purchase of property and equipment |
(2,583,973 |
) |
|
(1,857,768 |
) |
|
Proceeds from sales of property and
equipment |
1,107,995 |
|
|
1,418,439 |
|
|
Purchase of other investments |
(29,833 |
) |
|
- |
|
|
Investment in an equity method investee |
(131,808 |
) |
|
- |
|
|
Proceeds from sales of other investments |
257 |
|
|
358,251 |
|
|
Payments of guarantee deposits |
(281,474 |
) |
|
(4,513 |
) |
|
Refund of guarantee deposits |
5,199 |
|
|
3,720 |
|
|
Payments for refundable insurance
policies |
(14,090 |
) |
|
(14,090 |
) |
|
Net cash used in investing activities |
(1,927,727 |
) |
|
(95,961 |
) |
|
|
Three Months Ended |
|
Three Months Ended |
|
|
September 30, 2017 |
|
September 30, 2018 |
|
|
Thousands of JPY |
|
Thousands of JPY |
|
FINANCING ACTIVITIES: |
|
|
|
|
Principal payments under capital leases |
(1,429,267 |
) |
|
(1,618,048 |
) |
|
Proceeds from long-term accounts payable |
- |
|
|
256,608 |
|
|
Payments of long-term accounts payable |
(95,137 |
) |
|
(190,956 |
) |
|
Other |
(50,863 |
) |
|
- |
|
|
Net cash used in financing activities |
(1,575,267 |
) |
|
(1,552,396 |
) |
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS |
904 |
|
|
58,438 |
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS |
(637,194 |
) |
|
4,924,803 |
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF THE
PERIOD |
20,508,225 |
|
|
23,126,189 |
|
|
CASH AND CASH EQUIVALENTS, END OF THE
PERIOD |
19,871,031 |
|
|
28,050,992 |
|
|
|
|
|
|
|
Note: The following information is provided to
disclose Internet Initiative Japan Inc. ("IIJ") financial results
(unaudited) for the six months ended September 30, 2018 (“1H18”) in
the form defined by the Tokyo Stock Exchange.
Consolidated Financial Results for the Six
Months ended September 30, 2018 [Under accounting principles
generally accepted in the United States ("U.S. GAAP")]
November 6, 2018Company name: Internet Initiative
Japan Inc.Exchange listed: Tokyo Stock Exchange First SectionStock
code number: 3774URL: https://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, 2018Scheduled date for
dividend payment: December 7, 2018Supplemental 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, 2018 (April 1, 2018 to September 30,
2018)
(1) Consolidated Results of Operations
(% shown is YoY change)
|
Total revenues |
Operating income |
Income before income tax
expense*3 |
Net income attributable to
IIJ*3 |
|
JPY millions |
% |
JPY millions |
% |
JPY millions |
% |
JPY millions |
% |
Six months ended September 30, 2018 |
90,963 |
9.6 |
2,912 |
25.8 |
3,317 |
34.4 |
1,982 |
33.2 |
Six months ended September 30, 2017 |
82,988 |
12.0 |
2,316 |
18.9 |
2,469 |
17.3 |
1,488 |
34.3 |
(Note1) Total comprehensive income attributable
to
IIJ
For the six months ended September 30, 2018:
JPY1,896 million (down 27.4% YoY) For the six
months ended September 30, 2017: JPY2,611 million (up 125.9%
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.(Note3) Following the revision of U.S. GAAP,
from 1Q18, accounting policies related to gains/losses on equity
securities and funds were changed. When excludes gains/losses on
equity securities and funds to which accounting policies were
changed, our 1H18 income before income tax expense was JPY2,939
million (up 25.2%) and net income attributable to IIJ was JPY1,723
million (up 22.7%).
|
Basic net income attributable to IIJ per
share* |
Diluted net income attributable to IIJ per
share* |
|
JPY |
JPY |
Six months ended September 30, 2018 |
43.98 |
43.82 |
Six months ended September 30, 2017 |
33.02 |
32.91 |
(Note) Following the revision of U.S. GAAP, from
1Q18, accounting policies related to gains/losses on equity
securities and funds were changed. When excludes gains/losses on
equity securities and funds to which accounting policies were
changed, our 1H18 basic net income attributable to IIJ per share
was JPY38.23 and diluted net income attributable to IIJ per share
was JPY38.09.
(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, 2018 |
161,694 |
76,384 |
75,628 |
46.8 |
As of March 31, 2018 |
153,449 |
73,989 |
73,270 |
47.7 |
2. Dividends
|
Dividend per Shares |
1Q-end |
2Q-end |
3Q-end |
Year-end |
Total |
|
JPY |
JPY |
JPY |
JPY |
JPY |
Fiscal Year Ended March 31, 2018 |
- |
13.50 |
- |
13.50 |
27.00 |
Fiscal Year EndingMarch 31, 2019 |
- |
13.50 |
|
|
|
Fiscal Year Ending March 31, 2019
(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, 2019 (April 1, 2018 through
March 31,
2019)
(% shown is YoY
change)
|
Total Revenues |
Operating Income |
|
JPY millions |
% |
JPY millions |
% |
Fiscal Year Ending March 31, 2019 |
190,000 |
7.9 |
7,000 |
3.5 |
(Note1) Changes from the latest forecasts released:
No(Note2) For details, please refer to “FY2018 Financial Targets”
written on page 9 of this earnings release.
* Notes
(1) Changes in significant subsidiaries for the
six months ended September 30, 2018(Changes in significant
subsidiaries for the six months ended September 30, 2018 which
resulted in changes in scope of consolidation): None
(2) Application of simplified or exceptional
accounting for quarterly consolidated financial statements:
None
(3) Changes in significant accounting and reporting
policies for the consolidated financial statements
1) Changes due to the revision of accounting standards:
Yes In May 2014, the
Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) 2014-09, “Revenue from Contracts with
Customers (Topic 606).” IIJ adopted this ASU in the first quarter
beginning April 1, 2018, using the “modified retrospective method”
and recognized in beginning retained earnings an adjustment for the
cumulative effect of the change. The adoption of this ASU resulted
in the increase in beginning retained earnings of JPY381,678
thousand. The adoption of this ASU did not have a material impact
on IIJ’s consolidated financial position or consolidated results of
operations.
In
January 2016, the FASB issued ASU 2016-01, "Financial Instruments -
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities," which amends the guidance in
U.S. GAAP on the classification and measurement of financial
instruments. Changes to the guidance primarily affected the
accounting for equity investments, financial liabilities under the
fair value option, and the presentation and disclosure requirements
for financial instruments. This ASU requires equity investments
(except those that are in consolidated subsidiaries or in equity
method investees) to be measured principally at fair value and with
changes in fair value recognized in net income. IIJ adopted this
ASU in the first quarter beginning April 1, 2018 and recognized in
beginning retained earnings an adjustment for the cumulative effect
of the change. The adoption of this ASU resulted in the increase in
beginning retained earnings of JPY5,739,166 thousand, net of tax
amount of unrealized gains on holding investments.
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, 2018: 46,721,400
shares As of March 31,
2018: 46,713,800 shares
2) The number of treasury
stock: As of September 30,
2018: 1,650,909 shares As
of March 31, 2018: 1,650,909 shares
3) The weighted average number of shares
outstanding: For the Six
months ended September 30,
2018:
45,070,449 shares For the
Six months ended September 30,
2017:
45,062,865 shares
Internet Initiative Japan (PK) (USOTC:IIJIY)
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