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IIJ Announces Full Year and Fourth Quarter Financial Results for the Fiscal Year Ended March 31, 2011

TOKYO, May 13, 2011 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (Nasdaq:IIJI) (TSE:3774) today announced its full year ("FY2010") and 4th quarter ("4Q10") consolidated financial results for the fiscal year ended March 31, 2011.1
/ Source: GlobeNewswire

TOKYO, May 13, 2011 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (Nasdaq:IIJI) (TSE:3774) today announced its full year ("FY2010") and 4th quarter ("4Q10") consolidated financial results for the fiscal year ended March 31, 2011.

  • Revenues were up 21.2% YoY. Outsourcing services steadily grew and there were 7 months contribution from IIJ Global Solutions Inc. ("IIJ-GS"). Systems Integration ("SI") was down 2.1% YoY.
  • Operating income was up 21.4% YoY. Gross margin of network services steadily increased and operating loss related to ATM operation business decreased. Gross margin of SI decreased in relation to the scale down of a large contract, downside effect from the earthquake and initial burden related to the commencement of cloud computing services.
  • Net income attributable to IIJ was JPY3,203 million ($39 million), up 43.4% YoY.

Highlights of Fourth Quarter FY2010 Financial Results

  • Revenues were JPY25,622 million ($310 million), up 30.1% YoY.
  • Operating income was JPY1,711 million ($21 million), up 21.8% YoY. Gross margin of SI largely decreased as there was a contract of very low margin.
  • Net income attributable to IIJ was JPY1,206 million ($15 million), up 9.6% YoY.

Financial Targets for FY2011

  • IIJ targets revenues of JPY100 billion, operating income of JPY6.3billion, income before income tax expense (benefit)of JPY5.6 billion and net income attributable to IIJ of JPY3.4 billion for FY2011.
  • IIJ targets cash dividend of JPY3,000 per share of common stock for FY2011 (JPY1,500 cash dividend for interim-period and fiscal year-end, respectively.)

1Unless 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 JPY82.76 per US$1.00, which was the noon buying rate on March 31, 2011.

IIJ's 1 common stock is equivalent to 400 ADSs

Overview of FY2010 Financial Results and Business Outlook

"IIJ ended FY2010 with positive growth expectations for the coming years, amid the tough economic environment," said Koichi Suzuki, President and CEO of IIJ.

"During FY2010, we continued our business strategy to enrich our service line-ups to enhance cross-selling. Among many others, the business development of IIJ GIO, our cloud computing service commenced this fiscal year, was especially encouraging. As of FY2010 end, we are servicing over 430 cloud computing projects to both clients we had prior contact with and whom are new to us. FY2010 revenues of IIJ GIO was approximately JPY0.6 billion and monthly revenue for March 2011 has reached JPY120 million. In FY2011, we expect IIJ GIO to earn over JPY3 billion in revenue."

"Another of our FY2010 achievement was the acquisition of IIJ Global Solutions Inc. from AT&T Japan for JPY9.2 billion. For FY2010, revenues and operating income related to IIJ-GS of 7 month were JPY15,094 million and JPY1,190 million."

"As for our FY2010 financial results, our total revenue and income fell short from target as our SI business suffered due to JPY5 billion of revenue decrease by a single large SI contract, the initial cost burden related to IIJ GIO and downside effect from the earthquake. However, with the acquisition of IIJ-GS and the continuous growth from our outsourcing service revenues, our full year revenue increased by 21.2% YoY and operating income increased by 21.4% YoY, respectively."

"For FY2011 financial targets, we target revenue of JPY100 billion and operating income of JPY6.3 billion. Revenues from our network services will continue to increase, large revenue decrease from SI such we had in FY2010 is not anticipated and there will be a full year contribution from IIJ-GS. Operating income is expected to increase by JPY2.2 billion YoY as we expect continuous increase in network services and SI revenues including IIJ GIO, additional profit contribution from IIJ-GS of around JPY0.5 billion and ATM operation business loss to decrease by around JPY0.6 billion."

"FY2010 was just the beginning year for cloud computing in Japan and FY2011 may be an epidemic year. It may bring further paradigm shift to the communication and SI business community. This situation of accelerating outsourcing trend combined with our 15 years of experience providing outsourcing services, pioneering technological skills to develop network services with our own operated network-facilities throughout Japan and strong relationships with over 6,500 blue chip customers, would be a great business opportunity for us. Under these business environment, we would like to further accelerate our business developments aiming for our business to dramatically scale-up to the level such as doubled in the coming five years, with our every effort."

FY2010 Nine Months Financial Results Summary

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

FY2010 Results of Operation

Revenues

Revenues were JPY82,418 million, up 21.2% YoY. Additional revenue of 7 months related to IIJ-GS was JPY15,094 million.

Network Services revenue were JPY51,662 million, up 39.7% YoY.

Revenues for Internet connectivity services for corporate use were JPY14,005 million, up 1.1% YoY. While IP service revenues were affected by the migration of certain large IP contracts and price down pressure at the beginning of the fiscal year, IIJ mobile service and broadband connectivity services increased, respectively.

Revenues for Internet connectivity services for home use were JPY 6,525 million, down 4.8% YoY due to the continuous cancellation of old network services and the planned service termination of one of our OEM clients. There were also affects from exemption of services fees for those individual users affected by the Tohoku Pacific Earthquake.

WAN Services revenue were JPY16,100 million, up 530.5% YoY. There were additional revenues related to IIJ-GS of 7 months.

Outsourcing services revenue were JPY15,032 million, up 9.6% YoY. Services such as anti-spam email services, web security service, data center related services and contents delivery services increased, respectively.

SI revenues were JPY29,444 million, down 2.1% YoY. As for systems construction, despite the scale-down from a certain large client (decrease in revenues by JPY3 billion YoY) and affects by the Tohoku Pacific Earthquake, mid- to small sized construction projects accumulated and systems construction projects accompanied by the introduction of cloud computing services increased. As a result, systems construction revenues increased to JPY11,937 million, up 5.1% YoY. Systems operation and maintenance revenues, a recurring revenue, was JPY17,507 million, down 6.5% YoY. Revenues in relation to cloud computing services steadily increased, but the scale-down from a certain large client was very large (decrease in revenues by JPY2 billion YoY).

The order backlog for systems construction and equipment sales was JPY3,796 million, up 20.0% YoY. The order backlog for systems operation and maintenance was JPY 11,347 million, up 9.2% YoY.

Equipment sales revenues were JPY796 million, up 5.3% YoY.

ATM Operation Business revenues were JPY516 million (JPY207 million in FY2009). The ATM operation business is operated by Trust Networks Inc., IIJ's consolidated subsidiary, and it receives a commission for each bank withdrawal transaction when a customer uses its serviced ATMs. As of May 13, 2011, 280 ATMs are placed.

Cost and expense

Cost of revenues was JPY65,828 million, up 21.8% YoY. Cost of revenues related to IIJ-GS of 7 months were JPY12,137 million.

Cost of Network Services revenue was JPY41,678 million, up 36.5% YoY due to the increase in circuit related and outsourcing related costs mainly related to IIJ-GS of 7 months. Gross margin for network services was JPY9,984 million, up 55.0% YoY and gross margin ratio was 19.3%, up 1.9% YoY.

Cost of SI revenues was JPY22,467 million, up 2.6% YoY mainly due to the increase in network operation related and personnel related costs. Gross margin for SI was JPY6,977 million, down 14.6% YoY in relation to the scale down of a large contract, downside effect from the earthquake, the increase in network operation related and personnel related costs from the commencement of cloud computing service "IIJ GIO" and a low margin project in 4Q10.Gross margin ratio was 23.7%.

Cost of Equipment Sales revenues was JPY683million, up 5.2% YoY. Gross margin was JPY113 million and gross margin ratio was 14.2%.

Cost of ATM Operation Business revenues was JPY1,000 million. Gross loss of ATM operation business was JPY484 million, compared to JPY757 million of gross loss for FY2009.

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

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

From 2Q10, "WAN services", which were components of "Outsourcing servicesrevenues" were separately disclosed.

SG&A and R&D Expenses

SG&A and R&D expenses were JPY12,449 million, up 18.1% YoY. SG&A expenses related to IIJ-GS of 7 months was JPY1,767million.

Sales and marketing expenses were JPY6,616 million, up 22.4% YoY mainly due to the increase in personnel related expenses and depreciation and amortization increased. Amortization of customer relationship related to IIJ-GS was JPY255 million and loss on disposal of non-amortized intangible assets was JPY120 million.

General and administrative expenses were JPY5,479 million, up 13.5% YoY mainly due to the increase in personnel related expenses and depreciation and amortization. There were expenses of JPY70 million in relation to asset retirement obligations and restoration expenses, to return the leased office space to its original state, of JPY48 million in relation to FY2011 new office plan.

Research and development expenses were JPY354 million, up 13.0% YoY.

Operating income

Operating income was JPY4,141 million, up 21.4% YoY as gross margin for network services increased and operation loss related to ATM operation business decreased, while SI gross margin decreased resulting from the scale-down of a certain large client.

Other income (expenses)

Other income (expenses) was net other expense of JPY307 million (expense of JPY553 million for FY2009) as losses on write-down of other investments decreased, gains on sale of available-for-sale equity securities increased and interest expenses decreased.

Income before income tax expenses

Income before income tax expenses was JPY3,834 million, up 34.1% YoY (JPY2,859 million for FY2009).

Net Income

Income tax expense was JPY956 million (JPY 1,132million for FY2009). Deferred income tax expenses was JPY607 million (JPY756 million for FY2009).

Equity in net income of equity method investees was JPY123 million (JPY159 million for FY2009).

Net income was JPY 3,001million, up 59.1% YoY (JPY1,886 million for FY2009).

Net income attributable to IIJ

Net loss attributable to noncontrolling interests was JPY202 million (JPY348 million for FY2009), related to Trust Networks Inc. and GDX Japan Inc.

Net income attributable to IIJ was JPY3,203 million, up 43.4% YoY (JPY2,234 million for FY2009).

FY2010 Financial Condition

Balance Sheets

As of March 31, 2011, the balance of total assets was JPY71,497 million, increased by JPY19,377 million from the balance as of March 31, 2010 as a result of the acquisition of IIJ-GS.

For current assets, as compared to each of the respective balances as of March 31, 2010, accounts receivable increased by JPY5,035 million and cash and cash equivalents increased by JPY4,549 million. As for noncurrent assets, property and equipments increased by JPY3,511 million, other intangible assets (net) increased by JPY3,043 million and goodwill increased by JPY2,360 million. As for current liabilities, as compared to each of the respective balances as of March 31, 2010, short-term borrowings increased by JPY8,980 million mainly for the acquisition of IIJ-GS and accounts payable increased by JPY6,606 million. As for noncurrent liabilities, as compared to each of the respective balances as of March 31, 2010, deferred income-noncurrent increased by JPY710 million.

As of March 31, 2011, the balance of other investments was JPY2,794 million, an increased of JPY212 million from the balance as of March 31, 2010. The breakdown of other investments were JPY1,893 million in nonmarketable equity securities, JPY741 million in available-for-sale securities and JPY160 million in other.

As of March 31, 2011, the balance of non-amortized intangible assets (excluding telephone rights) such as goodwill was JPY5,980 million, and the breakdown of non-amortized intangible assets were JPY5,788 million in goodwill and JPY192 in trademark. As of March 31, 2011, the balance of amortized intangible assets, which was customer relationships, was JPY5,844 million.

Total IIJ shareholders' equity as of March 31, 2011 was JPY29,652 million, an increase of JPY2,333 million from the balance as of March 31, 2010. IIJ Shareholders' equity ratio (total IIJ shareholders' equity/total assets) as of March 31, 2011 was 41.5%.

Cash Flows

Cash and cash equivalents as of March 31, 2011 were JPY13,314 million compared to JPY8,764 million as of March 31, 2010.

Net cash provided by operating activities for FY2010 was JPY12,564 million compared to net cash provided by operating activities of JPY9,621 million for FY2009. Operating income increased YoY mainly due to the increase in gross margin for network services. In addition, there were changes in operating assets and liabilities during FY2010, mainly from the Increase in inventories, prepaid expenses and other current and noncurrent assets of JPY1,021 million, increase in accounts payable of JPY1,995 million and the decrease in account receivable of JPY430 million.

Net cash used in investing activities for FY2010 was JPY13,493 million compared to net cash used in investing activities of JPY3,788 million for FY2009, mainly due to the acquisition of IIJ-GS for JPY9,170 million, the purchase of property and equipments of JPY 3,839million and payment of guarantee deposits of JPY 687 million.

Net cash provided by financing activities for FY2010 was JPY5,521 million compared to net cash used in financing activities of JPY7,238 million for FY2009, mainly due to the net increase in short-term borrowings of JPY8,980 million, principal payments under capital leases of JPY2,989 million and JPY507million for FY2009 year-end and FY2010 interim dividends payments.

FY2011 Financial Targets

Our targets for the fiscal year ending March 31, 2012 are as follows:

Revenue is expected to increase to JPY100 billion as we expect revenues from our network services will continue to increase, large revenue decrease from SI such we had in FY2010 is not anticipated and there will be a full year contribution from IIJ-GS.

Operating income is expected to increase by JPY2.2 billion YoY as we expect continuous increase in network services and SI revenues including IIJ GIO, additional profit contribution from IIJ-GS of around JPY0.5 billion and ATM operation business loss to decrease by around JPY0.6 billion.

Tax rate will be back to normal from FY11.

FY2011 Dividend Forecast

Our FY2011 dividend forecasts are as follows:

Other Information

From the second quarter of FY2010, to reflect the acquisition of IIJ Global Solutions Inc. on September 1, 2010, "WAN services", which were components of "Outsourcing services revenues" were separately disclosed to clarify the contents of WAN services revenues. In addition, "Connectivity Services" was renamed to "Internet Connectivity Services".

"Deferred income —Noncurrent" which were in "other noncurrent liabilities" has been reclassified and shown in a separate line due to materiality.

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 May 13, 2011.

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

For inquiries, contact:

YUKO KAZAMA

IIJ Investor Relations Office

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 FY2008 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.

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

4th Quarter FY2010 Consolidated Financial Results (3 months)

The following tables are highlight data of 4th Quarter FY2010 consolidated financial results (unaudited, from January 1, 2011 to March 31, 2011).

Reconciliation of Non-GAAP Financial Measures

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.

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.

Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the Fiscal Year Ended March 31, 2011("FY2010") in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Fiscal Year Ended March 31, 2011
[Under accounting principles generally accepted in the United States ("U.S. GAAP")]

May 13, 2011

Company name: Internet Initiative Japan Inc.       Exchange listed: Tokyo Stock Exchange First Section

Stock code number: 3774                                  URL: http://www.iij.ad.jp/

Representative: Koichi Suzuki, President and Representative Director

Contact: Akihisa Watai, Managing Director and CFO       TEL: (03) 5259-6500

Annual general shareholder's meeting: scheduled on June 28, 2011

Payment of dividend: Scheduled to be started on June 29, 2011

Filing of annual report (Yuka-shoken-houkokusho) to the regulatory organization in Japan: Scheduled on June 30, 2011

Supplemental material on Fiscal year results: Yes

Presentation on Fiscal year results: Yes (for institutional investors and analysts)

 (Amounts of less than JPY one million are rounded)

1. Consolidated Financial Results for the Fiscal Year Ended March 31, 2011
(April 1, 2010 to March 31, 2011)

 

2. Dividends

3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2012
(April 1, 2011 through March 31, 2012)

4. Others

(1) Changes in significant subsidiaries for the Fiscal Year ended March 31, 2011

     (Changes in significant subsidiaries for the Fiscal year ended March 31, 2011 which resulted in changes in scope of consolidation): yes

     Newly Consolidated (Name: IIJ Global Solutions Inc.) Excluded: (Name: IIJ Technology Inc.)

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

      1) Changes due to the revision of accounting standards: No

      2) Others: Yes

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

      1) The number of shares outstanding (inclusive of treasury stock):

      As of March 31, 2011:            206,478 shares

      As of March 31, 2010:            206,478 shares

2) The number of treasury stock:

      As of March 31, 2011:            3,794 shares

      As of March 31, 2010:            3,934 shares

3) The weighted average number of shares outstanding:

      For the Fiscal Year ended March 31, 2011:       202,644 shares

      For the Fiscal Year ended March 31, 2010:       202,544 shares

[English Translation]

May 13, 2011

Company name: 1-105 Kanda Jimbo-cho, Chiyoda-ku, Tokyo
Internet Initiative Japan Inc.

Company representative: Koichi Suzuki, President and Representative Director
(Stock Code Number: 3774 The First Section of the Tokyo Stock Exchange)

Contact: Akihisa Watai, Managing Director and CFO
TEL: 03-5259-6500

 

Information Pertaining to Controlling Shareholders

1. Name of Controlling Shareholders
 (as of March 31, 2010)

 

2. Position of the Listed Company (IIJ) within Parent Company's Corporate Group and other Parent Company Relationships

a. Position of the Listed Company (IIJ) within the Group of the Parent Company

The ownership percentage by NTT, which is IIJ's largest shareholder, was 29.9% as of March 31, 2011, including its indirect ownership. However, IIJ's sales activities are not affected by NTT's ownership in IIJ and IIJ is maintaining its management independence.

b. Personal Relationships with the Parent Company, other Related Company and their Group Companies

IIJ's board of directors consists of 14 members including 4 outside directors. Takashi Hiroi, an outside director (part-time director) of IIJ, is an employee of NTT (Senior Manager, Strategic Business Development Division of NTT). However, he is monitoring IIJ's business operations as an outside director and does not have any personal relationships, such as family relationships, with IIJ's other directors and auditors. He did not acquire any interest such as capital or business relationships upon becoming an outside director.

3. Business Relationship with NTT Group

IIJ uses services provided by Nippon Telegraph and Telephone East Corporation ("NTT East") and Nippon Telegraph and Telephone West Corporation ("NTT West") for a significant portion of its access circuits, and services provided by NTT Communications Corporation ("NTT Communications") for a significant portion of its domestic and international backbones. The amount paid to NTT East and West, and to NTT Communications for their telecommunication circuits was JPY1,324 million and JPY3,219 million, respectively for the fiscal year ended March 31, 2011.

IIJ leases a part of Internet data center facilities from NTT Group companies to provide our Internet data center services to our customers and the amount paid to NTT Group related to the lease of Internet data center facilities are JPY1,524 million.

Business transactions with the NTT Group are within the scope of normal business practices, and there is no special contract made in relation to the investment by NTT Group.

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