TOKYO, Nov. 9, 2015 (GLOBE NEWSWIRE) -- 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, 2016 ("1H15", from April 1, 2015 to September 30, 2015).1

 
Highlights of Financial Results for 1H15
   
Revenues JPY65,334 million (up 14.3% YoY)
Operating Income JPY2,563 million (up 6.1% YoY)
Net Income attributable to IIJ JPY1,652 million (up 14.4% YoY)
 

 Overview of 1H15 Financial Results and Business Outlook

"This fiscal year's first six months revenue exceeded our disclosed target and the operating income increased year over year (YoY) as planned,2" said Eijiro Katsu, President and COO of IIJ. "We achieved 14.3% revenue growth YoY in this first half with an accelerated pace of revenue accumulation3 by which we absorbed an annual operating cost increase along with human resources enhancement and others."

"Mobile services and systems operation and maintenance continued to be leading contributors of our revenues growth. The growth of mobile subscription exceeded our plan and increased to approx. 934 thousand as of September 30, 2015; an increase of approx. 261 thousand in six months. In addition to the growing consumer subscription, the contribution from MVNE4 transactions has become quite visible. We maintain our view that the large shift from traditional mobile carriers to inexpensive MVNOs5 to continue over the next few years. Our strategy is to continuously gather mobile traffic from both consumer and blue-chip corporates, who are gradually becoming interested in M2M6 and IoT7, and to benefit from having a large-scale mobile infrastructure by improving its utilization. Systems operation and maintenance revenues also showed steady and continuous growth, which is supported by the migration of increasing number and volume of constructed systems to the operation and maintenance phase under the favorable market situation," continued Katsu.

"For the remaining half, we'd like to further enhance revenue accumulation by executing our growth strategies which include leveraging new network and cloud services,8 capturing increasing security-related demands and accumulating systems integration projects towards 4Q15," said Katsu.

"We expect our mobile business to certainly become a significant one, together with our current network services for corporates, in the middle to long term. Also, our value of maintaining and operating network business should become more eminent along with the advancement of network usage including more considerable use of cloud systems, distributing high-definition contents such as 4K and 8K9 over Internet. Slow as always, these changes are tailwind for us. We'd like to invest and develop innovative network services continuously to maintain our competitive advantages and achieve sustainable growth," concluded Koichi Suzuki, Founder and CEO 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 2Q15 three months operating income decreased from 2Q14 three months because of a temporary positive impact of approx. JPY0.29 billion in 2Q14 due for applying our supposed annual decrease rate of NTT Docomo's mobile interconnectivity charge. We also had the same positive impact of approx. JPY0.27 billion in 1Q15.

Three-month revenue growth rate year over year: 8.2% in 3Q14, 11.7% in 4Q14, 14.2% in 1Q15 and 14.3% in 2Q15.

4 Mobile Virtual Network Enabler (MVNE) provides business and service infrastructure to MVNOs.

5 Mobile Virtual Network Operator (MVNO) borrows mobile infrastructure from mobile network operators to offer mobile related services.

6 Machine to Machine (M2M) enables devices connected to network to exchange information automatically and perform designed actions.

7 Internet of Things (IoT) enables not only physical objects but any "things" connected to network to exchange information automatically.

Our new network service, "IIJ Omnibus Service," which incorporates SDN and NFV technologies, automatically offers several network elements was released in September 2015. Our new cloud services, "IIJ GIO Infrastructure P2," offering reliable public cloud infrastructure with increased processing performance as well as private cloud infrastructure will be launched in November 2015.

4K and 8K refer to display devices or contents having very high resolution over 4,000 pixels. Ultra-high-definition televisions known as super Hi-Vision and Ultra HD television are becoming popular these days.

 1H15 Financial Results Summary

Operating Results Summary
  1H141H15 YoY %
Change
  JPY millionsJPY millions  
Total revenues 57,17265,334 14.3
Network services 33,69538,000 12.8
Systems integration (SI) 20,86923,725 13.7
Equipment sales 8451,638 93.9
ATM operation business 1,7631,971 11.8
Total costs 46,26753,626 15.9
Network services 26,36930,501 15.7
Systems integration (SI) 17,94020,341 13.4
Equipment sales 7381,480 100.4
ATM operation business 1,2201,304 6.9
SG&A expenses and R&D 8,4899,145 7.7
Operating income 2,4162,563 6.1
Income before income tax expense 2,4912,647 6.2
Net income attributable to IIJ 1,4441,652 14.4

 

Segment Results Summary
  1H141H15
  JPY millionsJPY millions
Total revenues 57,17265,334
Network services and SI business 55,60763,557
ATM operation business 1,7631,971
Elimination (198)(194)
Operating income 2,4162,563
Network service and SI business 2,0212,056
ATM operation business 460576
Elimination (65)(69)

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

1H15 Results of Operation

Revenues

Total revenues were JPY65,334 million, up 14.3% YoY (JPY57,172 million in 1H14).

Network services revenue was JPY38,000 million, up 12.8% YoY.

Revenues for Internet connectivity services for enterprise were JPY8,357 million, up 1.8% YoY from JPY8,208 million for 1H14. There were decrease in IP services revenues including data center connectivity services revenues but there were increase in enterprise mobile service revenues.

Revenues for Internet connectivity services for consumer were JPY6,596 million, up 87.9% YoY from JPY3,510 million for 1H14, mainly due to the revenue growth of consumer mobile services "IIJmio High-speed Mobile/D service," consumer mobile services which offers inexpensive data communication and voice services with SIM cards.

WAN services revenues were JPY12,558 million, up 5.0% YoY compared to JPY11,956 million for 1H14.

Outsourcing services revenues were JPY10,489 million, up 4.7% YoY from JPY10,021 million for 1H14.

Network Services Revenues Breakdown
  1H141H15 YoY %
Change
  JPY millionsJPY millions  
Internet connectivity services (Enterprise) 8,2088,357 1.8
IP service*1 4,9844,773 (4.2)
IIJ FiberAccess/F and IIJ DSL/F 1,5881,538 (3.2)
IIJ Mobile service (Enterprise) 1,5231,912 25.6
Others 113134 18.4
Internet connectivity services (Consumer) 3,5106,596 87.9
IIJ*2 2,0885,276 152.6
hi-ho 1,4221,320 (7.1)
WAN services 11,95612,558 5.0
Outsourcing services 10,02110,489 4.7
Total network services 33,69538,000 12.8
*1 IP service revenues include revenues from the data center connectivity service.
*2 From 1Q15, what were formerly known as "Under IIJ brand" and "OEM" are now merged under a newly created category "IIJ."
 
 
Number of Contracts and Subscription for Connectivity Services*1
  as of
Sep. 30, 2014
as of
Sep. 30, 2015
YoY
Change
Internet connectivity services (Enterprise) 204,885348,345 143,460
IP service (-99Mbps) 806715 (91)
IP service (100Mbps-999Mbps) 487513 26
IP service (1Gbps-) 305343 38
IIJ Data center connectivity service 289272 (17)
IIJ FiberAccess/F and IIJ DSL/F 58,84570,071 11,226
IIJ Mobile service (Enterprise) *2 142,832275,146 132,314
Others 1,3211,285 (36)
Internet connectivity services (Consumer)*2 697,2431,078,798 381,555
IIJ*2 540,205926,873 386,668
hi-ho*2 157,038151,925 (5,113)
Total contracted bandwidth*3 1,633.0Gbps1,982.4Gbps 349.4Gbps
*1. Numbers in the table show number of contracts except for "IIJ Mobile service (Enterprise)," "IIJ" and "hi-ho" which show number of subscriptions.
*2. The table for "Number of Contracts and Subscription for Connectivity Services" has the following changes from 1Q15:
 (1) Number of subscriptions related to "IIJ Mobile MVNO platform services" are classified under "IIJ Mobile service (Enterprise)" in Internet connectivity services (Enterprise). They were classified under "OEM" in Internet connectivity services (Consumer).
(2) A counting unit of mobile related services has been changed from number of contracts to number of subscriptions.
(3) Under Internet connectivity services (Consumer), what were formerly known as "Under IIJ brand" and "OEM" are merged under a newly created category "IIJ."
(4) Number of subscriptions for prepaid SIM cards are added to "IIJ" in Internet connectivity services (Consumer).
*3. Total contracted bandwidths are calculated by multiplying number of contracts for IP service, data center connectivity service, IIJ FiberAccess/F and IIJ DSL/F of Internet connectivity services (Enterprise) by contracted bandwidths respectively.

SI revenues were JPY23,725 million, up 13.7% YoY.

Systems construction revenue, a one-time revenue, was JPY7,643 million, down 2.9% YoY. Systems operation and maintenance revenue, a recurring revenue, was JPY16,082 million, up 23.7% YoY, mainly due to the accumulation of projects shifted from systems construction to systems operation and maintenance phase.

Orders received for SI and equipment sales totaled JPY28,733 million, up 17.5% YoY; orders received for systems construction and equipment sales were JPY13,267 million, up 33.8% YoY and orders received for systems operation and maintenance were JPY15,446 million, up 6.5% YoY. In 1H15, we received a systems construction order related to a large scale network integration project which amounts to approx. JPY2.1 billion.

Order backlog for SI and equipment sales as of September 30, 2015 amounted to JPY32,422 million, up 19.9% YoY; order backlog for systems construction and equipment sales was JPY8,720 million, up 38.3% YoY and order backlog for systems operation and maintenance was JPY23,702 million, up 14.3% YoY.

Equipment sales revenues were JPY1,638 million, up 93.9% YoY mainly due to an increase in selling mobile devices.

ATM operation business revenues were JPY1,971 million, up 11.8% YoY. The increase was in accordance with the increase in the number of placed ATMs. As of September 30, 2015, 1,097 ATMs have been placed.

Cost and expense

Total cost of revenues was JPY53,626 million, up 15.9% YoY (JPY46,267 million in 1H14).

Cost of network services revenue was JPY30,501 million, up 15.7% YoY. There was an increase in cost related to mobile services along with the increase in mobile services revenue. Gross margin was JPY7,498 million, up 2.3% YoY and gross margin ratio was 19.7%.

Cost of SI revenues was JPY20,341 million, up 13.4% YoY. The increase was mainly due to an increase in outsourcing-related and personnel-related costs. Gross margin was JPY3,385 million, up 15.6% YoY and gross margin ratio was 14.3%.

Cost of equipment sales revenues was JPY1,480 million, up 100.4% YoY. Gross margin was JPY158 million and gross margin ratio was 9.6%.

Cost of ATM operation business revenues was JPY1,304 million, up 6.9% YoY in accordance with increase in the number of placed ATMs. Gross margin was JPY666 million and gross margin ratio was 33.8%.                                                                                                                  

SG&A and R&D expenses

SG&A and R&D expenses in total were JPY9,145 million, up 7.7% YoY (JPY8,489 million in 1H14).

Sales and marketing expenses were JPY5,166 million, up 13.2% YoY. The increase was mainly due to the increase in personnel-related expenses and sales commission expenses, especially related to mobile services.

General and administrative expenses were JPY3,747 million, up 2.0% YoY. The increase was mainly due to the increase in personnel-related expenses.

Research and development expenses were JPY232 million, down 7.7% YoY.

Operating income

Operating income was JPY2,563 million, up 6.1% YoY (JPY2,416 million for 1H14).

Other income (expenses)

Other income (expenses) was an income of JPY84 million (an income of JPY75 million for 1H14), mainly due to distribution from fund investment of JPY115 million (included in other-net of JPY124 million) and dividend income of JPY74 million from other investments and interest expense of JPY112 million.

Income before income tax expenses

Income before income tax expenses was JPY2,647 million, up 6.2% YoY (JPY2,491 million for 1H14) .

Net income

Income tax expense was JPY1,040 million (JPY1,074 million for 1H14).

Equity in net income of equity method investees was JPY137 million (JPY69 million for 1H14), mainly due to net income of Internet Multifeed Co.

As a result of the above, net income was JPY1,744 million, up 17.4% YoY (JPY1,486 million for 1H14).

Net income attributable to IIJ

Net income attributable to non-controlling interests was JPY92 million, mainly related to net income of Trust Networks Inc. (JPY42 million for 1H14).

Net income attributable to IIJ was JPY1,652 million, up 14.4% YoY (JPY1,444 million for 1H14).

1H15 Financial Condition

Balance sheets

As of September 30, 2015, the balance of total assets was JPY110,806 million, increased by JPY2,101 million from the balance as of March 31, 2015 of JPY108,705 million.

As for current assets as of September 30, 2015, as compared to the respective balances as of March 31, 2015, accounts receivable decreased by JPY2,184 million, prepaid expenses increased by JPY1,170 million, inventories increased by JPY830 million, and cash and cash equivalents decreased by JPY995 million. As for noncurrent assets as of September 30, 2015, as compared to the respective balance as of March 31, 2015, property and equipment increased by JPY3,281 million. As for current liabilities as of September 30, 2015, as compared to the respective balances as of March 31, 2015, accounts payable increased by JPY533 million and income taxes payable increased by JPY300 million.

As for the balances of capital lease obligations as of September 30, 2015, as compared to the respective balances as of March 31, 2015, capital lease obligations-current portion decreased by JPY33 million to JPY3,489 million and capital lease obligations-noncurrent increased by JPY637 million to JPY4,978 million.

As of September 30, 2015, the balance of other investments decreased by JPY266 million to JPY6,395 million. The breakdown of other investments were JPY4,103 million in available-for-sale securities, JPY1,313 million in investments in funds, including some through a trust, and JPY979 million in nonmarketable equity securities.

As of September 30, 2015, the breakdown of major non-amortized intangible assets were JPY6,170 million in goodwill and JPY107 million in trademark. The balance of amortized intangible assets, which was customer relationships, was JPY3,611 million.

Total IIJ shareholders' equity as of September 30, 2015 compared to the balance as of March 31, 2015, increased by JPY1,015 million to JPY63,519 million. IIJ shareholders' equity ratio (total IIJ shareholders' equity divided by total assets) as of September 30, 2015 was 57.3%.

Cash flows

Cash and cash equivalents as of September 30, 2015 were JPY20,098 million compared to JPY19,049 million as of September 30, 2014.

Net cash provided by operating activities for 1H15 was JPY6,080 million compared to net cash provided by operating activities of JPY5,345 million for 1H14. There were Net income of JPY1,744 million, depreciation and amortization of JPY 4,800 and payments of JPY584 million due to changes in operating assets and liabilities.

Net cash used in investing activities for 1H15 was JPY4,565 million compared to net cash used in investing activities of JPY5,154 million for 1H14, mainly due to payments for purchase of property and equipment of JPY5,321 million (JPY4,010 million for 1H14).

Net cash used in financing activities for 1H15 was JPY2,525 million compared to net cash used in financing activities of JPY3,568 million for 1H14, mainly due to principal payments under capital leases of JPY2,020 million (JPY2,083 million for 1H14) and FY2014 year-end dividends payments of JPY505 million (JPY505 million for 1H14).

Prospects for the Fiscal Year Ending March 31, 2016

Due to seasonal factors, our financial results tend to be strong in the second half and strongest in fourth quarter every fiscal year. 1H15 revenues exceeded our disclosed target and operating income resulted almost as our plan. Our FY2015 financial targets announced on May 15, 2015 remain unchanged.

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
  1H141H15
  JPY millionsJPY millions
Adjusted EBITDA 7,1007,363
Depreciation and Amortization (4,684)(4,800)
Operating Income 2,4162,563
Other Income 75 84
Income Tax Expense 1,0741,040
Equity in Net Income of Equity Method Investees 69137
Net income 1,4861,744
Less: Net income attributable to noncontrolling interests (42)(92)
Net Income attributable to IIJ 1,4441,652
 
CAPEX
  1H141H15
  JPY millionsJPY millions
CAPEX, including capital leases 5,8007,943
Acquisition of Assets by Entering into Capital Leases 1,7902,622
Purchase of Property and Equipment 4,0105,321

Presentation

Presentation materials will be posted on our web site (http://www.iij.ad.jp/en/ir/) on November 9, 2015.

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.

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, 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 but not limited to: a decrease of corporate spending or capital expenditure due to depression in the Japanese economy and.or corporate earnings decreased; an inability to achieve anticipated results and cause negative impact on profitability; a possibility less of reliability for our services and loss of business changes due to interruption or suspension of our services; an excess increase and fluctuation in network related costs, mobile-related costs, outsourcing costs and personnel cost etc.; a possibility to lose business opportunity due to our inadequate resources and personnel and others; an increase in competition and strong pricing pressure; the recording of an impairment loss as a result of an impairment test on the non-amortized intangible assets such as goodwill: a decline in value and trading value of our holding securities. Please refer to IIJ's filings on Form 20-F of its annual report and other filings with the United States Securities and Exchange Commission for other risks.

Internet Initiative Japan Inc.
Consolidated Balance Sheets (Unaudited)
(As of March 31, 2015 and September 30, 2015)
     
 
  As of March 31, 2015 As of September 30, 2015
  Thousands of
JPY
Thousands of
JPY
ASSETS   
CURRENT ASSETS:   
Cash and cash equivalents 21,093,633 20,098,469
Accounts receivable, net of allowance for doubtful accounts of JPY 54,590 thousand and JPY 54,926 thousand at March 31, 2015 and September 30, 2015, respectively 22,251,818 20,067,416
Inventories 1,229,463 2,059,277
Prepaid expenses 3,691,643 4,862,096
Deferred tax assets—current 1,547,474 1,554,586
Other current assets, net of allowance for doubtful accounts of JPY 720 thousand and JPY 14,096 thousand at March 31, 2015 and September 30, 2015, respectively 2,272,605 2,599,874
Total current assets 52,086,636 51,241,718
INVESTMENTS IN EQUITY METHOD INVESTEES 2,560,557 2,657,472
OTHER INVESTMENTS 6,660,706 6,394,974
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of JPY 39,591,769 thousand and JPY 42,300,526 thousand at March 31, 2015 and September 30, 2015, respectively 29,370,054 32,650,992
GOODWILL 6,169,609 6,169,609
OTHER INTANGIBLE ASSETS—Net 3,941,279 3,747,911
GUARANTEE DEPOSITS 2,800,201 2,814,942
DEFERRED TAX ASSETS—Noncurrent 471,087 351,672
NET INVESTMENT IN SALES-TYPE LEASES—Noncurrent 762,159 765,422
Prepaid expenses—Noncurrent 2,914,375 3,157,606
OTHER ASSETS, net of allowance for doubtful accounts of JPY 92,935 thousand and JPY 61,599 thousand  at March 31, 2015 and September 30, 2015, respectively 968,652 853,947
TOTAL 108,705,315 110,806,265
 
     
 
  As of March 31, 2015 As of September 30, 2015
  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 3,522,113 3,489,190
Accounts payable—trade 12,182,908 11,747,564
Accounts payable—other 1,442,810 2,411,321
Income taxes payable 499,104 799,075
Accrued expenses 2,968,139 3,131,491
Deferred income—current 2,143,480 2,341,338
Other current liabilities 1,732,781 909,451
Total current liabilities 33,741,335 34,079,430
CAPITAL LEASE OBLIGATIONS—Noncurrent 4,340,421 4,977,732
ACCRUED RETIREMENT AND PENSION COSTS—Noncurrent 2,792,617 2,863,027
DEFERRED TAX LIABILITIES—Noncurrent 1,097,650 1,029,062
DEFERRED INCOME—Noncurrent 2,943,975 2,847,861
OTHER NONCURRENT LIABILITIES 945,537 1,054,506
Total Liabilities 45,861,535 46,851,618
COMMITMENTS AND CONTINGENCIES    
     
SHAREHOLDERS' EQUITY:    
Common-stock
—authorized, 75,520,000 shares; issued and outstanding, 46,701,000 shares at
 March 31, 2015
25,499,857 25,509,499
—authorized, 75,520,000 shares; issued and outstanding, 46,711,400 shares at
 September 30, 2015
Additional paid-in capital 36,014,128 36,031,959
Retained earnings (Accumulated deficit) (556,162) 590,972
Accumulated other comprehensive income 1,938,649 1,778,977
Treasury stock —758,709 shares held by the company
 at March 31, 2015 and September 30, 2015, respectively
(392,070) (392,070)
Total Internet Initiative Japan Inc. shareholders' equity 62,504,402 63,519,337
NONCONTROLLING INTERESTS 339,378 435,310
Total equity 62,843,780 63,954,647
TOTAL 108,705,315 110,806,265
 

 

Internet Initiative Japan Inc.  
Quarterly Consolidated Statements of Income and
Quarterly Consolidated Statements of Other Comprehensive Income (Unaudited)
 
(For the Six months ended September 30, 2014 and September 30, 2015)  
 
  Six Months Ended September
30, 2014
Six Months Ended September
30, 2015
  Thousands of
JPY
Thousands of
JPY
REVENUES:    
Network services:    
Internet connectivity services (enterprise) 8,207,981 8,356,668
Internet connectivity services (consumer) 3,510,389 6,596,559
WAN services 11,956,408 12,557,807
Outsourcing services 10,020,847 10,488,529
Total 33,695,625 37,999,563
Systems integration:    
Systems construction 7,868,714 7,643,200
Systems operation and maintenance 12,999,910 16,082,385
Total 20,868,624 23,725,585
Equipment sales 844,602 1,638,023
ATM operation business 1,763,367 1,970,563
Total revenues 57,172,218 65,333,734
COST AND EXPENSES:    
Cost of network services 26,368,593 30,501,305
Cost of systems integration 17,940,019 20,340,583
Cost of equipment sales 738,497 1,480,124
Cost of ATM operation business 1,220,376 1,304,136
Total cost 46,267,485 53,626,148
Sales and marketing 4,563,106 5,165,482
General and administrative 3,673,931 3,746,825
Research and development 251,460 232,194
Total cost and expenses 54,755,982 62,770,649
OPERATING INCOME 2,416,236 2,563,085
OTHER INCOME (EXPENSE):    
Dividend income 47,539 74,208
Interest income 11,238 11,112
Interest expense (122,524) (111,560)
Foreign exchange losses (9,381) (14,066)
Net gain on sales of other investments 5,317 --
Other —net 142,961 124,178
Other income—net 75,150 83,872
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE
 AND EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES
2,491,386 2,646,957
INCOME TAX EXPENSE  1,074,409 1,039,885
EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES 69,233 137,401
NET INCOME 1,486,210 1,744,473
LESS: NET INCOME ATTRIBUTABLE TO
 NONCONTROLLING INTERESTS
(41,946) (91,974)
NET INCOME ATTRIBUTABLE TO INTERNET
 INITIATIVE JAPAN INC.
1,444,264 1,652,499
 
  Six Months Ended September
30, 2014
Six Months Ended September
30, 2015
NET INCOME PER SHARE    
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 45,942,291 45,947,519
DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 46,008,298 46,035,832
BASIC WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) 91,884,582 91,895,038
DILUTED WEIGHTED-AVERAGE NUMBER OF ADS EQUIVALENTS (ADSs) 92,016,596 92,071,664
BASIC NET INCOME PER SHARE (JPY) 31.44 35.96
DILUTED NET INCOME PER SHARE (JPY) 31.39 35.90
BASIC NET INCOME PER ADS EQUIVALENT (JPY) 15.72 17.98
DILUTED NET INCOME PER ADS EQUIVALENT (JPY) 15.70 17.95
     
 
Quarterly Consolidated Statements of Comprehensive Income (Unaudited)
  Six Months Ended September
30, 2014
Six Months Ended September
30, 2015
  Thousands of
JPY
Thousands of
JPY
NET INCOME 1,486,210 1,744,473
Other comprehensive income (loss), net of tax:    
 Foreign currency translation adjustments (61,286) 20,692
 Unrealized holding loss on securities (844,772) (175,575)
 Defined benefit pension plans 119 (831)
Total comprehensive income  580,271 1,588,759
Less: Comprehensive income attributable to noncontrolling interests (42,334) (95,932)
Comprehensive income attributable to Internet Initiative Japan Inc. 537,937 1,492,827

 

 
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Cash Flows (Unaudited)
(For the Six months ended September 30, 2014 and September 30, 2015)
     
  Six Months Ended
September 30, 2014
Six Months Ended
September 30, 2015
  Thousands of
JPY
Thousands of
JPY
OPERATING ACTIVITIES:    
Net income 1,486,210 1,744,473
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 4,683,596 4,800,290
Provision for retirement and pension costs—less payments 119,586 70,410
Provision for allowance for doubtful accounts 1,749 23,312
Gain on sales of property and equipment (29,197) (20,942)
Loss on disposal of property and equipment 20,618 31,852
Net gain on sales of other investments (5,317) --
Foreign exchange losses (gains)—net (13,497) 984
Equity in net income of equity method investees, less dividends received (36,893) (88,891)
Deferred income tax expense 230,734 117,673
Other 22,868 (15,046)
Changes in operating assets and liabilities:    
Decrease (increase) in accounts receivable (234,475) 2,165,231
Decrease (increase) in net investment in sales-type lease — noncurrent 255,129 (3,263)
Increase in inventories (393,126) (829,251)
Increase in prepaid expenses (719,839) (1,166,908)
Decrease (increase) in other current and noncurrent assets 250,742 (284,569)
Decrease in accounts payable (1,163,029) (352,766)
Increase (decrease) in income taxes payable (327,792) 299,927
Increase in accrued expenses 262,809 160,381
Increase in deferred income—current 402,114 214,092
Increase (decrease) in deferred income—noncurrent 72,070 (63,742)
Increase (decrease) in other current and noncurrent liabilities 459,513 (723,169)
Net cash provided by operating activities 5,344,573 6,080,078
INVESTING ACTIVITIES:    
Purchase of property and equipment (4,010,347) (5,321,194)
Proceeds from sales of property and equipment 426,589 489,963
Purchase of available-for-sale securities -- (59,490)
Purchase of other investments (123,704) (246,982)
Investment in an equity method investee (50,000) (39,974)
Proceeds from sales of available-for-sale securities -- 141,235
Proceeds from sales of other investments 25,502 302,906
Payments of guarantee deposits (1,607,986) (17,062)
Refund of guarantee deposits 33,180 4,318
Payments for refundable insurance policies (22,365) (28,181)
Refund from insurance policies -- 10,108
Proceeds from subsidies 200,000 200,000
Other (25,000) (678)
Net cash used in investing activities (5,154,131) (4,565,031)
     
 
  Six Months Ended
September 30, 2014
Six Months Ended
September 30, 2015
  Thousands of
JPY
Thousands of
JPY
FINANCING ACTIVITIES:    
Proceeds from issuance of short-term borrowings with initial maturities over three months -- 1,500,000
Repayments of short-term borrowings with initial maturities over three months
 and long-term borrowings
(980,000) (1,500,000)
Principal payments under capital leases (2,082,890) (2,019,755)
Dividends paid (505,330) (505,365)
Other 3 10
Net cash used in financing activities (3,568,217) (2,525,110)
     
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 5,385 14,899
     
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,372,390) (995,164)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 22,421,100 21,093,633
CASH AND CASH EQUIVALENTS, END OF THE PERIOD 19,048,710 20,098,469
 
ADDITIONAL CASH FLOW INFORMATION:    
Interest paid 123,414 111,834
Income taxes paid 1,334,786 657,294
     
NONCASH INVESTING AND FINANCING ACTIVITIES:    
Acquisition of assets by entering into capital leases 1,790,481 2,622,120
Facilities purchase liabilities 1,189,035 2,411,321
Asset retirement obligation 176,597 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 September 30, 2014 Six Months Ended September 30, 2015
  Thousands of JPY Thousands of JPY
Network service and systems integration business 55,607,418 63,557,271
Customers 55,408,851 63,363,171
Intersegment 198,567 194,100
ATM operation business 1,763,367 1,970,563
Customers 1,763,367 1,970,563
Intersegment -- --
Elimination (198,567) (194,100)
Consolidated total 57,172,218 65,333,734
   
Segment profit or loss:
  Six Months Ended September 30, 2014 Six Months Ended September 30, 2015
  Thousands of JPY Thousands of JPY
Network service and systems integration business 2,021,020 2,056,041
ATM operation business 459,980 576,450
Elimination (64,764) (69,406)
Consolidated operating income 2,416,236 2,563,085
 
Geographic information is not presented due to immateriality of revenue attributable to international operations.

 Subsequent Events (Unaudited)

Nothing to be reported.

Second Quarter FY2015 Consolidated Financial Results (3 months)

The following tables are highlight data of 2nd Quarter FY2015 (3 months) consolidated financial results (unaudited, for the three months ended September 30, 2015).

Operating Results Summary
  2Q142Q15 YoY %
Change
  JPY millionsJPY millions 
Total Revenues: 29,62033,870 14.3
Network Services 16,89719,519 15.5
Systems Integration (SI) 11,41112,652 10.9
Equipment Sales 378692 82.9
ATM Operation Business 9341,007  7.8
Cost of Revenues: 23,71327,821 17.3
Network Services 13,15515,799 20.1
Systems Integration (SI) 9,61810,750 11.8
Equipment Sales 322622 93.5
ATM Operation Business 618650  5.2
SG&A Expenses and R&D 4,2594,627  8.6
Operating Income 1,6481,422 (13.7)
Income before Income Tax Expense 1,6641,369 (17.7)
Net Income attributable to IIJ 953931 (2.3)
 
 
Network Service Revenue Breakdown
  2Q142Q15 YoY %
Change
 
  JPY millionsJPY millions 
Internet Connectivity Service (Enterprise) 4,1164,289 4.2
IP Service*1 2,4842,432 (2.1)
IIJ FiberAccess/F and IIJ DSL/F 805767 (4.8)
IIJ Mobile Service 7711,023 32.8
Others 5667 19.6
Internet Connectivity Service (Consumer) 1,7973,495 94.5
IIJ*2 1,0942,843 159.8
hi-ho 703652 (7.2)
WAN Services 5,9716,342 6.2
Outsourcing Services 5,0135,393 7.6
Network Services Revenues 16,89719,519 15.5
*1 IP service revenues include revenues from the data center connectivity service.
*2 From 1Q15, what were formerly known as "Under IIJ brand" and "OEM" are now merged under a newly created category "IIJ."
 

Reconciliation of Non-GAAP Financial Measures (2nd Quarter FY2015 (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
  2Q142Q15
  JPY millionsJPY millions
Adjusted EBITDA 4,0203,883
Depreciation and Amortization (2,372)(2,461)
Operating Income 1,6481,422
Other Income (Expense) 16(53)
Income Tax Expense (Benefit) 722479
Equity in Net Income of Equity Method Investees 3576
Net income 977966
Less: Net income attributable to noncontrolling interests (24)(35)
Net Income attributable to IIJ 953931

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
  2Q142Q15
  JPY millionsJPY millions
CAPEX, including capital leases 3,1704,923
Acquisition of Assets by Entering into Capital Leases 1,0961,972
Purchase of Property and Equipment 2,0742,951
   
   
Internet Initiative Japan Inc.  
Quarterly Consolidated Statements of Income (Unaudited)  
(Three Months ended September 30, 2014 and September 30, 2015)  
   
  Three Months Ended
September 30, 2014
Three Months Ended
September 30, 2015
  Thousands of
JPY
Thousands of
JPY
REVENUES:    
Network services:    
Internet connectivity services (enterprise) 4,115,551 4,289,227
Internet connectivity services (consumer) 1,796,647 3,494,511
WAN services 5,971,196 6,341,720
Outsourcing services 5,012,956 5,393,370
Total 16,896,350 19,518,828
Systems integration:    
Systems Construction 4,784,395 4,440,655
Systems Operation and Maintenance 6,626,747 8,211,211
Total 11,411,142 12,651,866
Equipment sales 378,381 692,133
ATM operation business 934,118 1,007,306
Total revenues 29,619,991 33,870,133
COST AND EXPENSES:    
Cost of network services 13,155,152 15,799,290
Cost of systems integration 9,618,186 10,749,482
Cost of equipment sales 321,256 621,549
Cost of ATM operation business 618,131 650,459
Total cost 23,712,725 27,820,780
Sales and marketing 2,287,063 2,658,398
General and administrative 1,844,582 1,843,154
Research and development 127,445 125,493
Total cost and expenses 27,971,815 32,447,825
OPERATING INCOME 1,648,176 1,422,308
OTHER INCOME (EXPENSE):    
Dividend income 22,189 11,165
Interest income 6,321 6,540
Interest expense (61,122) (54,457)
Foreign exchange gains (losses) 6,118 (41,359)
Net gain on sales of other investments 5,317 --
Other—net 37,029 24,489
Other income (expense) — net 15,852 (53,622)
INCOME FROM OPERATIONS BEFORE INCOME
 TAX EXPENSE AND EQUITY IN NET INCOME
 OF EQUITY METHOD INVESTEES
1,664,028 1,368,686
     
INCOME TAX EXPENSE 722,156 478,584
EQUITY IN NET INCOME OF EQUITY
 METHOD INVESTEES
35,329 75,932
NET INCOME 977,201 966,034
LESS: NET INCOME ATTRIBUTABLE TO
 NONCONTROLLING INTERESTS
(24,008) (34,574)
NET INCOME ATTRIBUTABLE TO
 INTERNET INITIATIVE JAPAN INC.
953,193 931,460
 
  Three Months Ended
September 30, 2014
Three Months Ended
September 30, 2015
NET INCOME PER SHARE    
BASIC WEIGHTED-AVERAGE NUMBER OF
 SHARES (shares)
45,942,291 45,952,691
DILUTED WEIGHTED-AVERAGE NUMBER
 OF SHARES (shares)
46,011,812 46,041,718
BASIC WEIGHTED-AVERAGE NUMBER OF
 ADS EQUIVALENTS (ADSs)
91,884,582 91,905,382
DILUTED WEIGHTED-AVERAGE NUMBER
 OF ADS EQUIVALENTS (ADSs)
92,023,624 92,083,436
BASIC NET INCOME PER SHARE (JPY) 20.75 20.27
DILUTED NET INCOME PER SHARE (JPY) 20.72 20.23
BASIC NET INCOME PER ADS
 EQUIVALENT (JPY)
10.37 10.13
DILUTED NET INCOME PER ADS
 EQUIVALENT (JPY)
10.36 10.12
     
     
Quarterly Consolidated Statements of Comprehensive Income (Unaudited)  
  Three Months Ended
September 30, 2014
Three Months Ended
September 30, 2015
  Thousands of
JPY
Thousands of
JPY
NET INCOME 977,201 966,034
Other comprehensive income (loss), net of tax:    
 Foreign currency translation adjustments (20,298) 71,961
 Unrealized holding loss on securities (348,824) (297,361)
 Defined benefit pension plans 60 (415)
Total comprehensive income  608,139 740,219
Less: Comprehensive income attributable to noncontrolling interests (24,278) (34,574)
Comprehensive income attributable to Internet Initiative Japan Inc. 583,861 705,645
 
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Cash Flows (Unaudited)
(Three Months ended September 30, 2014 and September 30, 2015)
 
  Three Months Ended
September 30, 2014
Three Months Ended
September 30, 2015
  Thousands of
JPY
Thousands of
JPY
OPERATING ACTIVITIES:    
Net income 977,201 966,034
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 2,371,510 2,460,903
Provision for retirement and pension costs, less payments 58,356 44,247
Provision for allowance for doubtful accounts 254 8,397
Gain on sales of property and equipment -- (12)
Loss on disposal of property and equipment 14,916 1,246
Net gain on sales of other investments (5,317) --
Foreign exchange losses (gains), net (16,152) 24,947
Equity in net income of equity method investees, less dividends received (2,989) (27,422)
Deferred income tax benefit 98,332 6,275
Other 17,000 (6,751)
Changes in operating assets and liabilities:    
Increase in accounts receivable (2,145,722) (876,520)
Decrease (increase) in net investment in sales-type lease―noncurrent 106,234 (102,666)
Increase in inventories (125,328) (380,874)
Decrease in prepaid expenses 689,105 586,539
Decrease (increase) in other current and noncurrent assets (199,792) 106,878
Increase in accounts payable 471,094 1,228,380
Increase in income taxes payable 585,207 593,540
Increase (decrease) in accrued expenses 262,809 (41,136)
Decrease in deferred income― current (104,421) (266,265)
Increase (decrease) in deferred income― noncurrent 151,579 (8,939)
Decrease in other current and noncurrent liabilities (714,305) (734,523)
Net cash provided by operating activities 2,489,571 3,582,278
INVESTING ACTIVITIES:    
Purchase of property and equipment (2,074,430) (2,951,180)
Proceeds from sales of property and equipment 155,942 271,363
Purchase of available-for-sale securities -- (47,312)
Purchase of other investments (32,301) (18,603)
Investment in an equity method investee -- (39,974)
Proceeds from sales of other investments 17,615 298,906
Payments of guarantee deposits (71,218) (14,442)
Refund of guarantee deposits 25,822 2,884
Payments for refundable insurance policies (11,189) (14,090)
Proceeds from subsidies 200,000 --
Other (25,000) (12)
Net cash used in investing activities (1,814,759) (2,512,460)
 
  Three Months Ended
September 30, 2014
Three Months Ended
September 30, 2015
  Thousands of
JPY
Thousands of
JPY
FINANCING ACTIVITIES:    
Repayments of short-term borrowings with initial maturities over three months and long-term borrowings (980,000) (1,500,000)
Principal payments under capital leases (1,079,066) (985,700)
Net decrease in short-term borrowings with initial maturities less than three months -- 1,500,000
Other -- 10
Net cash used in financing activities (2,059,066) (985,690)
     
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 11,917 9,938
     
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,372,337) 94,066
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 20,421,047 20,004,403
CASH AND CASH EQUIVALENTS, END OF THE PERIOD 19,048,710 20,098,469

Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the six months ended September 30, 2015 ("1H15") in the form defined by the Tokyo Stock Exchange.

 

Consolidated Financial Results for the Six Months ended September 30, 2015
[Under accounting principles generally accepted in the United States ("U.S. GAAP")]

Company name: Internet Initiative Japan Inc. 
Exchange listed: Tokyo Stock Exchange First Section
Stock code number: 3774 
URL: http://www.iij.ad.jp/
Representative: Eijiro Katsu, President and Representative Director
Contact: Akihisa Watai, Managing Director and CFO 
TEL: (03) 5205-6500
Scheduled date for filing of quarterly report (Shihanki -houkokusho) to Japan's regulatory organization: November 16, 2015
Scheduled date for interim dividend payment: December 7, 2015
Supplemental material on annual results: Yes
Presentation on quarterly report: Yes (for institutional investors and analysts)
 
 
(Amounts of less than JPY one million are rounded) 
1. Consolidated Financial Results for the Six Months Ended September 30, 2015
(April 1, 2015 to September 30, 2015)
(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 Ended September 30, 2015 65,334 14.3 2,563 6.1 2,647 6.2 1,652 14.4
Six Months Ended September 30, 2014 57,172 5.1 2,416 (19.7) 2,491 (25.6) 1,444 (34.5)
(Note1) Total comprehensive income attributable to IIJ 
For the six months ended September 30, 2015: JPY1,493 million (up 177.5% YoY)
For the six months ended September 30, 2014: JPY538 million (down 79.7% YoY)
(Note2) Income before income tax expense represents income from operations before income tax expense and equity in net income in equity method investees, respectively, in IIJ's consolidated financial statements.
 
 
  Basic net income attributable
to IIJ per share
Diluted net income
attributable to IIJ per share
  JPY JPY
Six Months Ended September 30, 2015 35.96 35.90
Six Months Ended September 30, 2014 31.44 31.39
 
(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, 2015 110,806 63,955 63,519 57.3
As of March 31, 2015 108,705 62,844 62,504 57.5
 
2. Dividends
  Dividend per share
  1Q-end 2Q-end 3Q-end Year-end Total
  JPY JPY JPY JPY JPY
Fiscal Year Ended March 31, 2015 -- 11.00 -- 11.00 22.00
Fiscal Year Ended March 31, 2016 -- 11.00      
Fiscal Year Ending March 31, 2016
(forecast)
    -- 11.00 22.00
(Note) Change from the latest released dividend forecasts: No.
 
 
 
3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2016
(April 1, 2015 through March 31, 2016)

 (% shown is YoY change)
  Total revenues Operating income Income before
income tax expense
(benefit)
Net income
attributable to IIJ
Basic net income
attributable to IIJ
per share
  JPY millions % JPY millions % JPY millions % JPY millions % JPY
Fiscal Year Ending
March 31, 2016
139,000 13.0 6,500 28.1 6,400 24.5 4,000 20.4 87.07
(Note1) Changes to the latest forecasts released: No
 
* Notes
(1) Changes in significant subsidiaries for the three months ended September 30, 2015
 (Changes in significant subsidiaries for the three months ended September 30, 2015 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, 2015: 46,711,400 shares
As of March 31, 2015:   46,701,000 shares
2) The number of treasury stock:
As of September 30, 2015: 758,709 shares
As of March 31, 2015:  758,709 shares
3) The weighted average number of shares outstanding:
For the six months ended September 30, 2015: 45,947,519 shares
For the six months ended September 30, 2014: 45,942,291 shares
CONTACT: IIJ Investor Relations
         Tel: +81-3-5205-6500
         E-mail: ir@iij.ad.jp
         URL: http://www.iij.ad.jp/en/ir

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