IIJIY Internet Initiative Japan Inc (PK)

TOKYO, Aug. 7, 2012 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (Nasdaq:IIJI) (TSE:3774) today announced its consolidated financial results for the first three months of the fiscal year ending March 31, 2013 (1Q12).1

 Overview of 1st Quarter FY2012 Financial Results and Business Outlook

"We had a very encouraging start for FY2012 as we carried out our business developments as planned during this 1st quarter, and our 1Q12 revenues and operating income grew by 6.3% and 50.2% YoY," said Koichi Suzuki, President and CEO of IIJ.

"Demands for broader bandwidth have been rising continuously and our Internet connectivity services for corporate use continued to show good growth. Another good news is that consumer Internet connectivity revenues increased compared to the previous quarter as our new LTE service has been attracting and accumulating many users," continued Suzuki.  

"Regarding IIJ GIO, our cloud computing services, business scale has been expanding consistently. We are focused on elaborating service line-ups and the reliability of our services to accelerate a cloud shift for Japanese entities' internal IT systems. Currently, we are preparing to launch new service line-ups called VWseries in August. VWseries deliver VMware hypervisor functions to users and these services are very much expected to encourage Japanese clients to adopt hybrid cloud usage, a combination of on-premise systems and cloud services."  

"As for our overseas business, we are also making satisfying progress as expected. The overseas business revenue reached around JPY 1.0 billion. We had large server construction projects in the U.S. for a prominent SNS game client. Also, our cloud services in the U.S. are starting up well and we are currently expanding our server facilities in order to meet prospective orders."

"We are now engaged in software development of SDN (Software Defined Network) platform aiming to take initiative over network virtualization technologies. We plan to release our SDN software products in 2H12."

"Lastly, we are pleased to announce that operating income of our ATM operation business turned positive in this quarter. Along with placements of additional ATMs, we anticipate this business to grow continuously and expect high profitability in the future."

1st Quarter FY2012 Financial Results Summary

We have omitted segment analysis because most of our revenues are dominated by Network services and SI business.

1st Quarter FY2012 Results of Operation

Revenues

Our 1Q12 total revenues were JPY24,841 million, up 6.3% YoY.

Network Services revenue were JPY16,091 million, up 3.7% YoY.

Revenues for Internet connectivity services for corporate use were JPY3,865 million, up 7.9% YoY mainly due to demands for broader bandwidth from network operators.

Revenues for Internet connectivity services for home use were JPY1,429 million, down 3.8% YoY. There were effects from the cancellations of old type connectivity services, however, our new LTE mobile data communication service for home use, which was introduced in February 2012, has started to contribute to revenue.

WAN Services revenue were JPY6,312 million, stayed around the same level YoY, while there were some downward effects in revenues due to the renewal of contracts which commonly occur at the beginning of fiscal year.

Outsourcing services revenue were JPY4,485 million, up 8.2% YoY. Data center-related, web security-related and "IIJ GIO hosting package service" continuously grew, respectively.

 SI revenues were JPY7,952 million, up 10.1% YoY.

Systems construction revenue, a one-time revenue, increased by 9.7% to JPY2,760 million mainly due to the accumulation of mid- to small sized construction projects and overseas construction projects. Systems operation and maintenance revenue, a recurring revenue, increased by 10.4% to JPY5,192 million. The increase was mainly due to the continuous accumulation of revenue from our "IIJ GIO component service"

The order backlog for systems construction and equipment sales was JPY4,494 million, down 4.6% YoY. The order backlog for systems operation and maintenance was JPY14,230 million, up 8.7% YoY.

Equipment sales revenues were JPY330 million, down 12.0% YoY.

ATM Operation Business revenues were JPY468 million, up 92.1% YoY, along with the increase in the numbers of ATMs newly placed. As of August 7, 2012, 540 ATMs are placed.

Cost and expense

Cost of revenues was JPY20,022  million, up 6.2% YoY.

Cost of Network Services revenue was JPY12,764 million, up 2.6% YoY mainly due to the increase in outsourcing-related costs, personnel-related costs and network operation-related costs. Gross margin for network services was JPY3,328 million, up 8.0% YoY and gross margin ratio was 20.7%, up 0.8 points YoY.

Cost of SI revenues was JPY6,564 million, up 13.8% YoY. There were the increase in purchasing costs in relation to the increase in systems construction revenues, and the increase in network operation- related costs and outsourcing-related costs mainly for our cloud computing service. Gross margin for SI was JPY1,388 million, down 4.4% YoY and gross margin ratio was 17.5%.

Cost of Equipment Sales revenues was JPY273 million, down 19.5% YoY. Gross margin was JPY58 million and gross margin ratio was 17.4%.

Cost of ATM Operation Business revenues was JPY421 million, up 35.2% YoY mainly due to the increase in the number of newly placed ATMs. Gross margin for ATM operation business was JPY46 million compared to gross loss of JPY68 million for 1Q11 due to the increase in revenues.

SG&A and R&D Expenses

SG&A and R&D expenses were JPY3,445 million, down 4.0% YoY.

Sales and marketing expenses were JPY1,930 million, down 1.3% YoY. While there were many advertising and marketing activities such as seminars in 1Q11, we had less of such activities in 1Q12. Amortization expenses of customer relationship related to IIJ Global Solutions Inc. ("IIJ-Global") slightly decreased to JPY92 million from JPY106 million in 1Q11.

General and administrative expenses were JPY1,411 million, down 9.1% YoY. There were one-time relocation-related expenses in 1Q11 as IIJ-Global and some departments of IIJ moved its offices into the same building as IIJ.

Research and development expenses were JPY104 million, up 32.3% YoY.

Operating income

Operating income was JPY1,374 million, up 50.2% YoY mainly due to the increase in gross margin of network services and ATM operation business and the decrease in SG&A expenses.

Other income (expenses)

Other income (expenses) was an expense of JPY1 million (An expense of JPY49 million for 1Q11).

Income before income tax expenses

Income before income tax expenses was JPY1,373 million, up 58.7% YoY (JPY865 million for 1Q11).

Net Income

Income tax expense was JPY515 million (JPY425 million for 1Q11).  Deferred income tax expenses was JPY152 million (JPY306 million in 1Q11).

Equity in net income of equity method investees was JPY33 million (JPY40 million for 1Q11) mainly due to net income of Internet Revolution, Inc. and Internet Multifeed Co.

As a result of the above, net income was JPY891 million, up 85.4% YoY (JPY481 million for 1Q11).

Net income attributable to IIJ

Net loss attributable to noncontrolling interests was JPY6 million (JPY31 million for 1Q11) mainly related to Trust Networks Inc.

Net income attributable to IIJ was JPY897 million, up 75.0% YoY (JPY512million for 1Q11).

1st Quarter FY2012 Financial Condition

Balance Sheets

As of June 30, 2012, the balance of total assets was JPY73,507 million, increased by JPY14 million from the balance as of March 31, 2012.

For current assets as of June 30, 2012, as compared to the respective balances as of March 31, 2012, cash and cash equivalents decreased by JPY2,067 million mainly due to the payment of income tax, prepaid expenses increased by JPY1,571 million and accounts receivable decreased by JPY1,318 million. As for noncurrent assets, as compared to the respective balances as of March 31, 2012, property and equipment increased by JPY1,093 million, resulting from the investment in servers and network equipments for cloud computing service and others. As for current liabilities, as compared to the respective balance as of March 31, 2012, income tax payable decreased by JPY2,039 million. As for the balances of capital lease obligations, as compared to the respective balances as of March 31, 2012, capital lease obligations-current portion increased by JPY228 million to JPY3,225 million and capital lease obligations-noncurrent increased by JPY535 million to JPY5,276 million, respectively.

As of June 30, 2012, the balance of other investments was JPY3,234 million. The breakdown of other investments were JPY2,053 million in nonmarketable equity securities, JPY828 million in available-for-sale securities and JPY353 million in other.

As of June 30, 2012, the balance of non-amortized intangible assets (excluding telephone rights) such as goodwill was JPY6,128 million, and the breakdown of non-amortized intangible assets were JPY5,973 million in goodwill and JPY155 million in trademark. As of June 30, 2012, the balance of amortized intangible assets, which was customer relationships, was JPY5,083 million.

Total IIJ shareholders' equity as of June 30, 2012 was JPY33,247 million, an increase of JPY559 million from the balance as of March 31, 2012. IIJ Shareholders' equity ratio (total IIJ shareholders' equity/total assets) as of June 30, 2012 was 45.2%.

Cash Flows

Cash and cash equivalents as of June 30, 2012 were JPY11,471 million compared to JPY11,435 million as of June 30, 2011.

Net cash provided by operating activities for 1Q12 was JPY1,424 million compared to net cash provided by operating activities of JPY1,323 million for 1Q11. While operating income increased YoY mainly due to the increase in gross margin for network services and ATM operation business, there were payments for income taxes, operation and maintenance services and purchased equipments for systems integration projects.

Net cash used in investing activities for 1Q12 was JPY2,131 million compared to net cash used in investing activities of JPY2,069 million for 1Q11, mainly due to payments for purchase of property and equipments of JPY1,658 million (JPY2,078 million for 1Q11).

Net cash used in financing activities for 1Q12 was JPY1,332 million compared to net cash used in financing activities of JPY1,107 million for 1Q11, mainly due to principal payments under capital leases of JPY877 million (JPY803 million for 1Q11) and payments for FY2011 year-end dividends of JPY355 million (JPY304 million for 1Q11).

FY2012 Financial Targets (announced on May 15, 2012)

Our financial targets for FY2012 are as follows: 

Our quarter financial results tend to be weak in the first quarter and strong in the fourth quarter of every fiscal year due to seasonal factors. 1Q12 income was slightly higher than we expected, however, first quarter contribution to full year results are not very large. Therefore, we have not changed our FY2012 financial targets announced on May 15, 2012.

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.

Presentation

Presentation Materials will be posted on our web site (http://www.iij.ad.jp/en/ir/) on August 7, 2012.

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 of companies provide total network solutions that mainly cater to high-end corporate customers. IIJ's services include high-quality systems integration and security services, Internet access, hosting/housing, and content design. Moreover, IIJ has built one of the largest Internet backbone networks in Japan, and between Japan and the United States. IIJ listed on the U.S. NASDAQ Stock Market in 1999 and on the First Section of the Tokyo Stock Exchange in 2006.

The Internet Initiative Japan Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4613

For inquiries, contact:

IIJ Investor Relations

Tel: +81-3-5259-6500 E-mail: ir@iij.ad.jp URL: http://www.iij.ad.jp/en/ir

Statements made in this press release regarding IIJ's or management's intentions, beliefs, expectations, or predictions for the future are forward-looking statements that are based on IIJ's and managements' current expectations, assumptions, estimates and projections about its business and the industry. These forward-looking statements, such as statements regarding FY2012 revenues and operating and net profitability, are subject to various risks, uncertainties and other factors that could cause IIJ's actual results to differ materially from those contained in any forward-looking statement. These risks, uncertainties and other factors include: IIJ's ability to maintain and increase revenues from higher-margin services such as systems integration and outsourcing services; the possibility that revenues from connectivity services may decline substantially as a result of competition and other factors; the ability to compete in a rapidly evolving and competitive marketplace; the impact on IIJ's profits of fluctuations in costs such as backbone costs and subcontractor costs; the impact on IIJ's profits of fluctuations in the price of available-for-sale securities; the impact of technological changes in its industry; IIJ's ability to raise additional capital to cover its indebtedness; the possibility that NTT, IIJ's largest shareholder, may decide to exercise substantial influence over IIJ; and other risks referred to from time to time in IIJ's filings on Form 20-F of its annual report and other filings with the United States Securities and Exchange Commission.

1 Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with U.S. GAAP. All financial figures are unaudited and consolidated. The translation of Japanese yen into U.S. dollars is solely for the convenience of readers outside of Japan. The rate used for the translation was JPY79.81 per US$1.00, which was the noon buying rate on June 29, 2012.

2 Contracts of IIJ Mobile Service are of mobile data communication service for corporate use.

3 IP Service revenues include revenues from the Data Center Connectivity Service.

4 Revenue from mobile data communication service for home use is included in Internet Connectivity service (home use).

5 Depreciation and amortization includes impairment loss on other intangible assets. (See IIJ's consolidated financial statements for details).

Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the Three Months Ended June 30, 2012 ("FY2012 1Q") in the form defined by the Tokyo Stock Exchange.

(Note1) Total comprehensive income attributable to IIJ

              Three Months Ended June 30, 2012: JPY904 million (up 75.5% YoY)

              Three Months Ended June 30, 2011: JPY515 million (up 132.2% 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.

4. Others

(1) Changes in Significant Subsidiaries for the Three Months Ended June 30, 2012

(Changes in significant subsidiaries for the Three Months Ended June 30, 2012 which resulted in changes in scope of consolidation): None

(2) Changes in Significant Accounting and Reporting Policies for the Quarterly Consolidated Financial Statements

1. Changes due to the revision of accounting standards: Yes
2. Others: No

(3) Number of Shares Outstanding (Shares of Common Stock)

CONTACT: Internet Initiative Japan Inc.
         E-mail: ir@iij.ad.jp 
         Tel: +81-3-5259-6500
         URL: http://www.iij.ad.jp/en/ir

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