TOKYO & NEW YORK (Business Wire) -- Internet Initiative Japan Inc. (Nasdaq: IIJI) ("IIJ"), one of Japan's leading Internet-access and comprehensive network solutions providers, today announced its financial results for the second quarter of the fiscal year ending March 31, 2005 ("FY2004").(1)
Highlights of Second Quarter FY2004 Results
-- Revenue totaled JPY 10,512 million ($95.4 million), an increase of 14.4% from JPY 9,185 million in 2Q03 and an increase of 21.2% from JPY 8,675 million in 1Q04.
-- Operating income turned positive to JPY 282 million ($2.6 million) from an operating loss of JPY 830 million in 2Q03 and JPY 100 million in 1Q04.
-- Revenue in the first half of FY2004 ("1H04") increased by 9.5% compared to 1H03. Operating and net income turned positive in the first half of the fiscal year, which is usually weaker part of the fiscal year compared to the second half. Operating income in 1H04 was JPY 182 million, and net income in 1H04 was JPY 1,162 million.
Outlook for FY2004
-- We expect that the trend of growing positive operating income will continue into 3Q04.
Overview of 2nd Quarter Financial Results and Business Outlook(2)
"We had a very solid first half of FY2004 and completed a rather significant turnaround compared to 1H03," said Koichi Suzuki, President and CEO of IIJ. "We are confident that our network solutions business is starting to flourish. The demand from corporate customers for more comprehensive and reliable network solutions is growing and the trend of improving corporate IT spending continues. Our strategy is to capture new total network solutions business from existing and new blue-chip customers. We are particularly geared to providing various network solutions that are integrated with corporate business systems, from network design, security consultation and network implementation, to project management and outsourced operations. For example, we acquired contracts of Internet VPN based connectivity for over 1,200 sites in 2Q04 and SEIL Management Framework ("SMF")(3) for over 3,000 sites since 1H03. Additionally, we recently signed agreements with several major telecommunications carriers, such as NTT Communications Corporation ("NTT Communications") and Kyushu Communications Network Co., Inc ("QTNet") for SMF and SEIL to be distributed for their Internet VPN service or managed services for their corporate customers."
"In 2Q04, we also made significant progress in breaking into the financial services industry," continued Koichi Suzuki. "In October 2004, the security system business of Yamatane Co.,Ltd. ("Yamatane") was transferred to IIJ Financial Systems Inc. ("IIJ Financial Systems"), a newly established company that is 100% owned by IIJ Technology Inc. ("IIJ Technology"), our subsidiary that manages IIJ's systems integration business. The finance industry in Japan is expected to expand considerably as the market sees an increase in deregulation, such as the abolishment of laws barring banks from providing their customers with securities trading services. As a result, we are forecasting an increase in network usage and higher demand for network and outsourcing services. This combination of market demand and our focus on a strategy of providing total network solutions, along with continued emphasis on effective cost management, will contribute to continued increases in profitability in the third quarter and beyond."
"As planned, we achieved an increase in revenues in 2Q04 compared to 2Q03 and 1Q04", said Akihisa Watai, CFO of IIJ. "At the same time, we substantially improved profits in 1H04, due to the increase of revenues in value-added services ("VAS") and systems integration ("SI"), as well as successfully reduced fixed costs including backbone costs. We believe that we have successfully positioned ourselves for steady operational profit growth for the foreseeable future. This along with increased stable monthly revenues from outsourced operations as well, and we expect the trend of increasing operating profitability to continue in the second half of fiscal year, which typically has stronger SI revenues compared to the first half."
2nd Quarter FY2004 Financial Results
Operating Result Summary
(JPY in millions)
1H04 1H03 YoY % 2Q04 2Q03 YoY % 1Q04 QoQ %
change change change
----------------------------------------------------------------------
Total
Revenues 19,187 17,529 9.5% 10,512 9,185 14.4% 8,675 21.2%
----------------------------------------------------------------------
Total Costs 16,297 16,206 0.6% 8,854 8,337 6.2% 7,443 18.9%
----------------------------------------------------------------------
SG&A Expenses
/ R&D 2,708 3,359 (19.4%) 1,376 1,678 (18.0%)1,332 3.3%
----------------------------------------------------------------------
Operating
Income
(Loss) 182 (2,035)(108.9%) 282 (830)(134.0%) (100)(380.8%)
----------------------------------------------------------------------
Net Income
(Loss) 1,162 (2,753)(142.2%) (273) (278) (2.1%)1,434 (119.0%)
----------------------------------------------------------------------
Revenues
Revenues in 2Q04 totaled JPY 10,512 million, an increase of 14.4% from JPY 9,185 million in 2Q03 and an increase of 21.2% from JPY 8,675 million in 1Q04.
Revenues
(JPY in millions)
2Q04 2Q03 YoY % 1Q04 QoQ %
change change
----------------------------------------------------------------------
Total Revenues 10,512 9,185 14.4% 8,675 21.2%
----------------------------------------------------------------------
Connectivity & VAS 5,508 5,637 (2.3%) 5,450 1.1%
----------------------------------------------------------------------
SI 3,838 2,549 50.5% 2,695 42.4%
----------------------------------------------------------------------
Equipment Sales 1,167 999 16.8% 531 119.8%
----------------------------------------------------------------------
Connectivity and VAS revenues were JPY 5,508 million in 2Q04, a decrease of 2.3% from JPY 5,637 million in 2Q03 and an increase of 1.1% from JPY 5,450 million in 1Q04.
Dedicated access service revenues were JPY 2,832 million in 2Q04, a decrease of 12.5% compared to 2Q03 and a decrease of 3.0% compared to 1Q04. The increase in revenue from broadband services did not offset the revenue decrease from IIJ T1 Standard and IIJ Economy. IP Service revenues decreased by 10.6% in 2Q04 compared to 2Q03 and decreased by 2.5% compared to 1Q04 due to the cancellation of the service by certain large customers. However, we see the trend that the customers' shift from IIJ T1 Standard and IIJ Economy to broadband services is being discontinued and with new contracts, we expect the decrease in dedicated access service revenues to bottom out sometime in 2H04.
Dial-up access service revenues were JPY 740 million in 2Q04, a decrease of 5.6% compared to 2Q03 and a decrease of 1.6% compared to 1Q04 due to the decrease in revenues from IIJ4U.
VAS revenues were JPY 1,220 million in 2Q04, an increase of 12.9% compared to 2Q03 and an increase of 2.8% compared to 1Q04, mainly as a result of the steady increase in security-related services.
SI revenues increased 50.5% to JPY 3,838 million in 2Q04 from JPY 2,549 million in 2Q03 and increased 42.4% from JPY 2,695 million in 1Q04. The year-over-year growth was as a result of the solid growth of outsourced operation services, revenue from which increased by 42.8% to JPY 1,737 million from JPY 1,216 million in 2Q03. The quarter-over-quarter increase was due to the increasing contracts of SI development.
Equipment sales revenues were JPY 1,167 million in 2Q04, an increase of 16.8% compared to 2Q03 and an increase of 119.8% compared to 1Q04.
Cost and expense
Cost of revenues was JPY 8,854 million in 2Q04, an increase of 6.2% compared to 2Q03 and an increase of 18.9% compared to 1Q04.
Cost of Revenues
(JPY in millions)
2Q04 2Q03 YoY % 1Q04 QoQ %
change change
----------------------------------------------------------------------
Total Costs 8,854 8,337 6.2% 7,443 18.9%
----------------------------------------------------------------------
Connectivity & VAS 4,780 5,127 (6.8%) 4,811 (0.6%)
----------------------------------------------------------------------
SI 2,983 2,276 31.1% 2,157 38.3%
----------------------------------------------------------------------
Equipment Sales 1,091 935 16.7% 475 129.4%
----------------------------------------------------------------------
Cost of Connectivity and VAS revenues was JPY 4,780 million, a decrease of 6.8% compared to 2Q03 and a decrease of 0.6% compared to 1Q04. The gross-margin ratio for Connectivity and VAS in 2Q04 was 13.2%, compared to 9.1% in 2Q03 and 11.7% in 1Q04 due to a decrease in backbone costs.
Cost of SI revenues was JPY 2,983 million in 2Q04, an increase of 31.1% compared to 2Q03 and an increase of 38.3% compared to 1Q04. The gross margin ratio for SI in 2Q04 was 22.3%, compared to 10.7% in 2Q03 and 20.0% in 1Q04. These improvements were due to the increase in profitable outsourced operation services.
Sales and marketing expenses were JPY 712 million in 2Q04, a decrease of 35.3% compared to 2Q03 and an increase of 7.3% compared to 1Q04. The decrease in 2Q04 compared to 2Q03 was due to a decrease in bad debt expenses. The expenses in 2Q03 were almost regarding Crosswave Communications Inc.
General and administrative expenses were JPY 613 million in 2Q04, an increase of 27.0% compared to 2Q03 and a decrease of 1.3% compared to 1Q04. The increase in year-over-year comparison was due to the increase in personnel expenses and the occurrence of the newly introduced enterprise tax.
Operating income
Operating income was JPY 282 million in 2Q04, compared to an operating loss of JPY 830 million in 2Q03 and operating loss of JPY 100 million in 1Q04 due to improvements in profitability for Connectivity, VAS and SI revenues.
Other expenses for 2Q04 were JPY 10 million, compared to JPY 157 million in 2Q03 and JPY 151 million in 1Q04. The gains on the sale and exchange transaction of equity investments, which amounted JPY 121 million offset the interest expenses.
Income tax expense for 2Q04 was JPY 517 million, compared to a benefit of JPY 572 million in 2Q03 and a benefit of JPY 1,657 million in 1Q04. The decrease compared to 2Q03 and 1Q04 was due to an increase in valuation allowance for deferred tax assets attributable primarily to the income tax effect of decreasing unrealized gain on certain available-for-securities during the quarter.
Equity in net income of equity method investees amounted to JPY 16 million in 2Q04, compared to loss of JPY 50 million in 2Q03 and loss of JPY 11 million in 1Q04.
Net income (loss) was a loss of JPY 273 million in 2Q04, compared to a net loss of JPY 278 million in 2Q03 and net income of JPY 1,434 million in 1Q04, in spite of the improvement in operating income, such income was offset by the increase in income tax expense.
2nd Quarter FY2004 Business Review
Analysis by Service
-------------------
Connectivity and Value-added Services
Number of Contracts for Connectivity Services
2Q04 2Q03 1Q04
----------------------------------------------------------------------
Dedicated Access Service Contracts 8,880 6,250 8,076
----------------------------------------------------------------------
IP Service (Low Bandwidth: 64kbps-
768kbps)(4) 71 102 76
----------------------------------------------------------------------
IP Service (Medium Bandwidth: 1Mbps-
99Mbps) 597 505 594
----------------------------------------------------------------------
IP Service (High Bandwidth: 100Mbps-) 93 57 82
----------------------------------------------------------------------
IIJ T1 Standard and IIJ Economy(5) 358 676 421
----------------------------------------------------------------------
IIJ Data Center Connectivity Service 225 184 224
----------------------------------------------------------------------
IIJ FiberAccess/F and IIJ DSL/F
(Broadband Services) 7,536 4,726 6,679
----------------------------------------------------------------------
Dial-up Access Service Contracts 711,637 635,646 708,586
----------------------------------------------------------------------
Dial-up Access Services, under IIJ
Brand 70,629 80,216 73,225
----------------------------------------------------------------------
Dial-up Access Services, OEM(6) 641,008 555,430 635,361
----------------------------------------------------------------------
Total Contracted Bandwidth 104.9Gbps 66.7Gbps 95.6Gbps
----------------------------------------------------------------------
In IP Services, the number of contracts for 100Mbps and over is increasing, since there were customers who shifted to higher bandwidth within IP Service in order to keep more reliable connectivity for critical usage such as main lines for corporate headquarters or upstream for Internet Service Providers. There were 20 customers with contracts for over 1Gbps, and the total contracted bandwidth topped 100Gbps.
Broadband services continued to grow rapidly, mainly due to the new major contracts for multi-site connectivity solutions. A few examples of the new customers that IIJ acquired in the first half of FY2004 were: an information distribution company that broadcasts news to initially approximately 200 sites which might expand to approximately 3,000 sites in the future, a beverage company that has network connections between 15 companies, Weathernews Inc., the world's largest weather information company with branches over 36 cities around the world that broadcasts information via platform built with Internet VPN and SMF, an electronic-powered tool manufacturer that has a combination of network with Wide-area LAN and Internet VPN as backup for connecting approximately 100 sales offices.
OEM contracts for dial-up access services also increased, since our OEM partners continued to increase the number of service contracts in the expanding individual broadband market.
Connectivity and VAS Revenue Breakdown and Cost
(JPY in millions)
2Q04 2Q03 YoY % 1Q04 QoQ %
change change
----------------------------------------------------------------------
Connectivity Service Revenues
----------------------------------------------------------------------
Dedicated Access Service Revenues
----------------------------------------------------------------------
IP Service (7) 2,223 2,485 (10.6%) 2,279 (2.5%)
----------------------------------------------------------------------
IIJ T1 Standard and IIJ Economy 228 451 (49.5%) 275 17.2%)
----------------------------------------------------------------------
IIJ FiberAccess/F and IIJ DSL/F
(Broadband Services) 382 300 27.2% 365 4.8%
----------------------------------------------------------------------
Dial-up Access Service Revenues
----------------------------------------------------------------------
Under IIJ Brand 501 566 (11.5%) 509 (1.5%)
----------------------------------------------------------------------
OEM 239 218 9.8% 243 (1.9%)
----------------------------------------------------------------------
VAS Revenues 1,220 1,081 12.9% 1,187 2.8%
----------------------------------------------------------------------
Other Revenues 716 536 33.4% 592 20.8%
----------------------------------------------------------------------
Total Connectivity and VAS
Revenues 5,508 5,637 (2.3%) 5,450 1.1%
----------------------------------------------------------------------
Cost of Connectivity and VAS 4,780 5,127 (6.8%) 4,811 (0.6%)
----------------------------------------------------------------------
Backbone Cost (included in the cost
of Connectivity and VAS) 877 1,240 (29.3%) 985(10.9%)
----------------------------------------------------------------------
Connectivity and VAS Gross Margin
Ratio 13.2% 9.1% 11.7%
----------------------------------------------------------------------
IP Service revenue declined due to the cancellation of the service by certain large customers. However, we see the trend that the major factor that decreased the IP Service revenues in the past, cancellation of major contracts by a regional electric power company's telecom service arm is being discontinued. We also see the trend that the shift of customers from IIJ T1 Standard and IIJ Economy to broadband services is being discontinued and with newly acquired contracts, we expect the decrease in dedicated access service revenue to bottom out sometime in 2H04.
VAS revenues continued to increase steadily. We had increased revenues from managed security, network operations, hosting and data center services. VAS revenues also increased from revenues from SMF and SEIL rental services due to the acquisition of major contracts for Internet VPN based connectivity. For SMF, we acquired contracts for over 3,000 sites since 1H03.
Backbone costs decreased by 29.3% compared to 2Q03 and by 10.9% compared to 1Q04. We expect that this trend will continue in 3Q04.
Cross-selling Ratios
2Q04 1Q04
-------------------------------------------
VAS Cross-selling Ratio 86.9% 86.8%
-------------------------------------------
SI Cross-selling Ratio 80.0% 66.0%
-------------------------------------------
The cross-selling ratio between Connectivity and VAS, as the percentage of the largest 1,000 Connectivity service customers that use VAS was 86.9%.
The cross-selling ratio between Connectivity and SI, as the percentage of SI customers that use Connectivity services among the largest 100 SI customers was 80.0%.
Systems Integration
Revenue Breakdown and Cost
(JPY in millions)
2Q04 2Q03 YoY % 1Q04 QoQ %
change change
----------------------------------------------------------------------
Systems Integration Revenues 3,838 2,549 50.5%2,695 42.4%
----------------------------------------------------------------------
Systems Integration 2,101 1,333 57.5%1,040 102.0%
----------------------------------------------------------------------
Outsourced Operation 1,737 1,216 42.8%1,655 5.0%
----------------------------------------------------------------------
Cost of Systems Integration 2,983 2,276 31.1%2,157 38.3%
----------------------------------------------------------------------
Systems Integration Gross Margin Ratio 22.3% 10.7% 20.0%
----------------------------------------------------------------------
In 1H04, revenues increased primarily in network design and, configuration and installation of equipment to build multi-site connectivity with Internet VPN or Wide-area LAN technology to replace existing Frame Relay network. Revenues also increased in network planning, security consultation, project management and assistance for implementation. These services contributed to increase profits, since we use relatively more internal resources. Stable monthly revenues from outsourced operation increased as well. We expect the transfer of security system business of Yamatame by IIJ Technology will effect positively on our revenue and profits after 3Q04.
Equipment Sales
Equipment Sales Revenue and Cost
(JPY in millions)
2Q04 2Q03 YoY % 1Q04 QoQ %
change change
----------------------------------------------------------------------
Equipment Sales Revenues 1,167 999 16.8% 531 119.8%
----------------------------------------------------------------------
Cost of Equipment Sales 1,091 935 16.7% 475 129.4%
----------------------------------------------------------------------
Equipment Sales Gross Margin Ratio 6.5% 6.4% 10.4%
----------------------------------------------------------------------
Other Financial Statistics
(JPY in millions)
2Q04 2Q03 YoY % 1Q04 QoQ %
change change
----------------------------------------------------------------------
Adjusted EBITDA(8) 1,275 126 909.0% 884 44.3%
----------------------------------------------------------------------
CAPEX, including capital leases(9) 1,345 579 132.2% 1,300 3.5%
----------------------------------------------------------------------
Depreciation and amortization(10) 1,012 984 2.8% 1,004 0.7%
----------------------------------------------------------------------
Key Service Developments
Transfer of security system business of Yamatane to IIJ Financial Systems:
On September 17, 2004, IIJ Technology, our subsidiary that manages IIJ's systems integration services, signed a definitive agreement for the transfer of security system business of Yamatame. The business was transferred to IIJ Financial Systems, a newly established company that is 100% owned by IIJ Technology. The transfer was successfully completed on October 1, 2004. We believe that the financial services industry is one area in which we will see particularly strong growth. The finance industry in Japan is an area in which considerable expansion is expected as the market sees an increase in deregulation, such as the abolishment of laws barring banks from providing their customers with securities trading services. As a result, we are forecasting an increase in network usage and higher demand for network and outsourced operating services.
Addition of anti-spam features to our secure e-mail outsourcing service:
In 2Q04, IIJ continued to take the initiative to help fight against spam in Japan to capture the demands for more secure corporate information system environment. We started to provide the anti-spam solutions as an additional feature for our corporate e-mail hosting services in October 2004.
Introduction of SMF and SEIL routers to major telecommunication carriers:
After 2Q04, IIJ came to agreements with several major telecommunication carriers for SMF and SEIL to be distributed for their Internet VPN or managed network services. The carriers include NTT Communications, QTNet and KVH Telecom Co., Ltd.
Waive of service fees for victims of natural disasters:
Since 2Q03 as a company to provide public telecommunication services, IIJ has waived the service fees for individual dial-up services for individuals in areas where the Disaster Relief Law was invoked due to the natural disasters that occurred during this period. The financial impact by the waive was or will be small since the unit price for our individual customers is relatively low compared to the unit price for our corporate customers.
Reconciliation of Non-GAAP Financial Measures
The following table summarizes the reconciliation of adjusted EBITDA to net income according to the consolidated statements of operations that are prepared in accordance with U.S. generally accepted accounting principles and presented in Appendix 1:
Adjusted EBITDA
(JPY in millions)
2Q04 2Q03 1Q04
----------------------------------------------------------------------
Adjusted EBITDA 1,275 126 884
----------------------------------------------------------------------
Depreciation and Amortization(11) (993)(956) (984)
----------------------------------------------------------------------
Operating Income (Loss) 282 (830) (100)
----------------------------------------------------------------------
Other Expenses (10)(157) (151)
----------------------------------------------------------------------
Income Tax Expense (Benefit) 518 (572)(1,657)
----------------------------------------------------------------------
Minority Interests in Consolidated Subsidiaries (43) 187 39
----------------------------------------------------------------------
Equity in Net Loss of Equity Method Investees 16 (50) (11)
----------------------------------------------------------------------
Net Income (Loss) (273)(278) 1,434
----------------------------------------------------------------------
The following table summarizes the reconciliation of capital expenditures to the purchase of property and equipment according to the consolidated statements of cash flows that are prepared and presented in accordance with U.S. generally accepted accounting principles in Appendix 3:
CAPEX
(JPY in millions)
2Q04 2Q03 1Q04
----------------------------------------------------------------------
Capital Expenditures 1,345 579 1,300
----------------------------------------------------------------------
Acquisition of Assets by Entering into
Capital Leases 1,294 431 977
----------------------------------------------------------------------
Purchase of Property and Equipment 51 148 323
----------------------------------------------------------------------
Management Message/Webcast
On November 12, IIJ will present its management message and the Company's results and outlook by webcast. For details, please access the following URL: http://www.iij.ad.jp/en/IR/
About Internet Initiative Japan Inc.
Founded in 1992, Internet Initiative Japan Inc. (IIJ, NASDAQ: IIJI) is one of Japan's leading Internet-access and comprehensive network solutions providers. The company has built one of the largest Internet backbone networks in Japan, and between Japan and the United States. IIJ and its group of companies provide total network solutions that mainly cater to high-end corporate customers. Services range from the delivery of new generation network services over an optical-fiber infrastructure that is optimized for data communications, to the construction of pan-Asian IP backbone networks. The company also offers high-quality systems integration and security services, Internet access, hosting/housing, and content design.
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 FY2004 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 expectation that net losses will continue or may increase; 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; IIJ's ability to generate significant revenues from its other services such as systems integration; the ability to compete in a rapidly evolving and competitive marketplace; the impact of technological changes in its industry; 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. For all 2Q04 and
1H04 results, translations of Japanese yen amounts into US dollars
are solely for the convenience of readers outside of Japan and
have been made at the rate of JPY 110.20 = US$1.00, the
approximate exchange rate on September 30, 2004.
(2)This Overview and Business Outlook contains forward-looking
statements and projections such as statements regarding FY2004
operating and net profitability that are subject to known and
unknown risks and uncertainties that could cause actual results to
differ materially from those expressed or implied by these
statements. These risks and uncertainties include, but are not
limited to, the factors noted at the end of this release and to
the risk factors and other information contained in IIJ's filings
on Form 20-F and Form 6-K, as well as other filings and documents
furnished to the Securities and Exchange Commission. IIJ plans to
keep this press release publicly available on its Web site
(www.iij.ad.jp), but may discontinue this practice at any time.
IIJ intends to publish its next Overview and Business Outlook in
its 3Q04 earnings release, presently scheduled for February 2005.
(3)SMF is a network operating system developed by IIJ to provide
features of automatic configuration and monitoring of IIJ
developed SEIL routers at customer sites.
(4)Including IPv6 Services.
(5)Quoted as "Limited Functionality Services" in 1Q04 for the services
with local access not shared, limited on several functionality
compared to IP service such as number of IP address allocated and
fixed speed of 64kbps, 128kbps and 1.5Mbps.
(6)OEM stands for Original Equipment Manufacturer.
(7)IP Service revenues includes revenues from Data Center Connectivity
Service.
(8)Please refer to the Reconciliation of Non-GAAP Financial Measures
on the next page.
(9)Please refer to the Reconciliation of Non-GAAP Financial Measures
on the next page.
(10)Depreciation and amortization includes amortization of issuance
cost of convertible notes.
(11)Depreciation and amortization excludes amortization of issuance
cost of convertible notes that was presented as other expenses.
Appendix 1
INTERNET INITIATIVE JAPAN INC.
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)
------------------------------------------------
For the Three Months Ended Sept 30, 2004,
Sept 30, 2003 and Jun 30, 2004
(Expressed in Thousands of Japanese Yen (JPY) and U.S. Dollars (USD)
Except for Per Share and ADS Data) (1)
Year-over-year Comparison
Sept 30, 2004
-----------------------------
% of
Total
USD (1) JPY Revenues
-------- ----------- --------
Revenues:
Connectivity and value-added services:
Dedicated access services 25,702 2,832,355 27.0%
Dial-up access services 6,714 739,957 7.0
Value-added services 11,072 1,220,119 11.6
Other 6,494 715,617 6.8
-------- ----------- --------
Total connectivity and value-added
services 49,982 5,508,048 52.4
Systems integration revenues 34,825 3,837,711 36.5
Equipment sales 10,586 1,166,569 11.1
-------- ----------- --------
Total revenues 95,393 10,512,328 100.0
-------- ----------- --------
Costs and expenses:
Cost of connectivity and value-added
services 43,378 4,780,268 45.5
Cost of systems integration revenues 27,065 2,982,577 28.3
Cost of equipment sales 9,899 1,090,870 10.4
-------- ----------- --------
Total costs 80,342 8,853,715 84.2
Sales and marketing 6,458 711,661 6.8
General and administrative 5,558 612,526 5.8
Research and development 474 52,237 0.5
-------- ----------- --------
Total costs and expenses 92,832 10,230,139 97.3
-------- ----------- --------
Operating income(loss) 2,561 282,189 2.7
-------- ----------- --------
Other expenses (93) (10,188) (0.1)
-------- ----------- --------
Income(Loss) before income tax
expense(benefit) 2,468 272,001 2.6
-------- ----------- --------
Income tax expense(benefit) 4,695 517,379 4.9
Minority interests in consolidated
subsidiaries (388) (42,837) (0.4)
Equity in net income(loss) of equity
method investees 141 15,548 0.1
-------- ----------- --------
Net income(loss) (2,474) (272,667) (2.6%)
======== =========== ========
Basic Net Income(Loss) Per Share (7,117)
Basic Net Income(Loss) Per ADS Equivalent (3.56)
Weighted Average Number of Shares 38,312
Weighted Average Number of ADS Equivalents 76,623,702
Year-over-year Comparison
Sept 30, 2003
-----------------------------
% of
Total YOY
JPY Revenues Chg %
----------- -------- --------
Revenues:
Connectivity and value-added services:
Dedicated access services 3,236,405 35.2% (12.5%)
Dial-up access services 783,589 8.5 (5.6)
Value-added services 1,080,876 11.8 12.9
Other 536,389 5.9 33.4
----------- -------- --------
Total connectivity and value-added
services 5,637,259 61.4 (2.3)
Systems integration revenues 2,549,379 27.7 50.5
Equipment sales 998,621 10.9 16.8
----------- -------- --------
Total revenues 9,185,259 100.0 14.4
----------- -------- --------
Costs and expenses:
Cost of connectivity and value-added
services 5,126,708 55.8 (6.8)
Cost of systems integration revenues 2,275,704 24.8 31.1
Cost of equipment sales 934,711 10.2 16.7
----------- -------- --------
Total costs 8,337,123 90.8 6.2
Sales and marketing 1,099,560 12.0 (35.3)
General and administrative 482,218 5.2 27.0
Research and development 96,118 1.0 (45.7)
----------- -------- --------
Total costs and expenses 10,015,019 109.0 2.1
----------- -------- --------
Operating income(loss) (829,760) (9.0) (134.0)
----------- -------- --------
Other expenses (157,294) (1.7) (93.5)
----------- -------- --------
Income(Loss) before income tax
expense(benefit) (987,054) (10.7) (127.6)
----------- -------- --------
Income tax expense(benefit) (571,642) (6.2) (190.5)
Minority interests in consolidated
subsidiaries 186,931 2.0 (122.9)
Equity in net income(loss) of equity
method investees (49,945) (0.5) (131.1)
----------- -------- --------
Net income(loss) (278,426) (3.0%) (2.1%)
=========== ======== ========
Basic Net Income(Loss) Per Share (10,082)
Basic Net Income(Loss) Per ADS Equivalent (5.04)
Weighted Average Number of Shares 27,617
Weighted Average Number of ADS
Equivalents 55,233,050
Sequential Comparison
Jun 30, 2004
-----------------------------
% of
Total QOQ
JPY Revenues Chg %
----------- -------- --------
Revenues:
Connectivity and value-added services:
Dedicated access services 2,918,488 33.6% (3.0%)
Dial-up access services 751,933 8.7 (1.6)
Value-added services 1,186,837 13.7 2.8
Other 592,390 6.8 20.8
----------- -------- --------
Total connectivity and value-
added services 5,449,648 62.8 1.1
Systems integration revenues 2,694,638 31.1 42.4
Equipment sales 530,621 6.1 119.8
----------- -------- --------
Total revenues 8,674,907 100.0 21.2
----------- -------- --------
Costs and expenses:
Cost of connectivity and value-added
services 4,811,341 55.5 (0.6)
Cost of systems integration revenues 2,156,620 24.8 38.3
Cost of equipment sales 475,466 5.5 129.4
----------- -------- --------
Total costs 7,443,427 85.8 18.9
Sales and marketing 662,950 7.6 7.3
General and administrative 620,651 7.2 (1.3)
Research and development 48,368 0.6 8.0
----------- -------- --------
Total costs and expenses 8,775,396 101.2 16.6
----------- -------- --------
Operating income(loss) (100,489) (1.2) (380.8)
----------- -------- --------
Other expenses (150,700) (1.7) (93.2)
----------- -------- --------
Income(Loss) before income tax
expense(benefit) (251,189) (2.9) (208.3)
----------- -------- --------
Income tax expense(benefit) (1,657,335) (19.1) (131.2)
Minority interests in consolidated
subsidiaries 39,184 0.4 (209.3)
Equity in net income(loss) of equity
method investees (10,995) (0.1) (241.4)
----------- -------- --------
Net income(loss) 1,434,335 16.5% (119.0%)
=========== ======== ========
Basic Net Income(Loss) Per Share 37,438
Basic Net Income(Loss) Per ADS Equivalent 18.72
Weighted Average Number of Shares 38,312
Weighted Average Number of ADS
Equivalents 76,623,702
Note (1):The translation of Japanese yen amounts into US dollar
amounts with respect to the three months ended Sept 30, 2004 are
included solely for the convenience of readers outside Japan and have
been made at the rate of JPY 110.20 =$1, the approximate rate of
exchange on Sept 30, 2004.
Appendix 2
INTERNET INITIATIVE JAPAN INC.
------------------------------
CONSOLIDATED BALANCE SHEETS(UNAUDITED)
--------------------------------------
As of Sept 30, 2004, Sept 30, 2003 and Jun 30, 2004
(Expressed in Thousands of Japanese Yen (JPY)
and U.S. Dollars (USD)) (1)
Sept 30, 2004
-----------------------------
USD (1) JPY %
--------- ------------ ------
ASSETS
------
Current Assets:
Cash and cash equivalent 107,098 11,802,165 27.4%
Accounts receivable, net 61,152 6,739,000 15.6
Inventories 2,379 262,180 0.6
Prepaid expenses 5,917 652,061 1.5
Other current assets 965 106,364 0.3
--------- ------------ ------
Total current assets 177,511 19,561,770 45.4
Investments in and Advances to Equity
Method Investees 7,114 783,933 1.8
Other Investments 96,707 10,657,082 24.7
Property and Equipment, net 82,081 9,045,349 21.0
Guarantee Deposits 18,878 2,080,345 4.8
Other Assets 8,747 963,895 2.3
--------- ------------ ------
Total assets 391,038 43,092,374 100.0%
========= ============ ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term borrowings 52,016 5,732,204 13.3%
Payable under securities loan agreement 7,412 816,800 1.9
Accounts payable 40,856 4,502,356 10.5
Accrued expenses 4,071 448,585 1.0
Other current liabilities 5,489 604,868 1.4
Long-term borrowings-current portion 14,974 1,650,139 3.8
Convertible notes 100,617 11,088,000 25.7
Capital lease obligations-current
portion 22,605 2,491,070 5.8
--------- ------------ ------
Total current liabilities 248,040 27,334,022 63.4
Long-term Borrowings 15,721 1,732,473 4.0
Convertible Notes
Capital Lease Obligations-Noncurrent 32,855 3,620,613 8.4
Accrued Retirement and Pension Costs 928 102,224 0.3
Other Noncurrent Liabilities 2,724 300,190 0.7
--------- ------------ ------
Total liabilities 300,268 33,089,522 76.8
--------- ------------ ------
Minority Interest 8,581 945,572 2.2
--------- ------------ ------
Shareholders' Equity:
Common stock 124,912 13,765,372 31.9
Additional paid-in capital 214,497 23,637,628 54.8
Accumulated deficit (305,161) (33,628,762) (78.0)
Accumulated other comprehensive income 48,340 5,327,042 12.4
Treasury stock (399) (44,000) (0.1)
--------- ------------ ------
Total shareholders' equity 82,189 9,057,280 21.0
--------- ------------ ------
Total liabilities and shareholders'
equity 391,038 43,092,374 100.0%
========= ============ ======
Sept 30, 2003 Jun 30, 2004
------------------- ---------------------
JPY % JPY %
------------ ------ ------------ --------
ASSETS
------
Current Assets:
Cash and cash equivalent 11,782,935 30.7% 10,627,203 25.3%
Accounts receivable, net 6,726,563 17.5 5,377,230 12.8
Inventories 268,519 0.7 413,477 1.0
Prepaid expenses 654,269 1.7 932,097 2.2
Other current assets 464,418 1.2 457,325 1.1
------------ ------ ------------ --------
Total current assets 19,896,704 51.8 17,807,332 42.4
Investments in and Advances
to Equity Method Investees 1,106,062 2.9 769,363 1.8
Other Investments 5,513,137 14.3 11,919,229 28.3
Property and Equipment, net 9,108,783 23.7 8,567,329 20.4
Guarantee Deposits 2,080,764 5.4 2,059,980 4.9
Other Assets 728,580 1.9 915,548 2.2
------------ ------ ------------ --------
Total assets 38,434,030 100.0% 42,038,781 100.0%
============ ====== ============ ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term borrowings 4,304,906 11.2% 5,363,001 12.8%
Accounts payable 4,856,325 12.6 3,754,214 8.9
Accrued expenses 489,568 1.3 480,824 1.1
Other current liabilities 410,577 1.1 728,386 1.7
Long-term borrowings-current
portion 2,946,377 7.7 1,549,189 3.7
Convertible notes 11,088,000 26.4
Capital lease obligations-
current portion 2,588,505 6.7 2,403,477 5.7
------------ ------ ------------ --------
Total current liabilities 15,596,258 40.6 25,367,091 60.3
Long-term Borrowings 1,982,612 5.2 2,270,366 5.4
Convertible Notes 15,000,000 39.0
Capital Lease Obligations-
Noncurrent 3,198,073 8.3 3,123,878 7.4
Accrued Retirement and
Pension Costs 69,794 0.2 89,037 0.2
Other Noncurrent Liabilities 193,043 0.5 233,046 0.6
------------ ------ ------------ --------
Total liabilities 36,039,780 93.8 31,083,418 73.9
------------ ------ ------------ --------
Minority Interest 437,678 1.1 901,088 2.2
------------ ------ ------------ --------
Shareholders' Equity:
Common stock 13,765,372 35.8 13,765,372 32.7
Additional paid-in capital 23,637,628 61.5 23,637,628 56.2
Accumulated deficit (37,438,265) (97.4) (33,356,095) (79.3)
Accumulated other
comprehensive income 1,991,900 5.2 6,051,370 14.4
Treasury stock (63) 0.0 (44,000) (0.1)
------------ ------ ------------ --------
Total shareholders' equity 1,956,572 5.1 10,054,275 23.9
------------ ------ ------------ --------
Total liabilities and
shareholders' equity 38,434,030 100.0% 42,038,781 100.0%
============ ====== ============ ========
Note (1): The translation of Japanese yen amounts into US dollar
amounts with respect to Sept 30, 2004 are included solely for the
convenience of readers outside Japan and have been made at the rate
of JPY110.20 =$1, the approximate rate of exchange on Sept 30, 2004.
Appendix 3
INTERNET INITIATIVE JAPAN INC.
------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------
For the Three Months Ended Sept 30, 2004,
Sept 30, 2003 and Jun 30, 2004
(Expressed in Thousands of Japanese Yen (JPY)
and U.S. Dollars (USD))(1)
Sept 30, 2004 Sept 30, Jun 30,
2003 2004
-------------------- ----------- -----------
USD (1) JPY JPY JPY
-------- ----------- ----------- -----------
Operating Activities:
Net income (loss) (2,474) (272,667) (278,426) 1,434,335
Depreciation and
amortization 9,179 1,011,532 983,736 1,004,170
Provision for doubtful
accounts 181 19,968 313,968 (12,936)
Equity method net loss
(income) (141) (15,548) 49,945 10,995
Minority interests in net
income (loss) of
consolidated
subsidiaries 389 42,837 (186,931) (39,184)
Foreign exchange losses
(gains) (129) (14,152) 3,282 (7,585)
Loss on retirement of
convertible notes - - - 5,195
Net (gains) losses on
other investments (890) (98,103) 97,530 2,749
Decrease (increase) in
accounts receivable (12,673) (1,396,506) (1,100,671) 3,627,399
Increase (decrease) in
accounts payable 5,144 566,837 216,306 (3,094,772)
Decrease in inventories 1,361 149,969 72,432 24,958
Deferred income taxes 4,554 501,873 (577,444) (1,672,424)
Other 4,927 542,953 (120,151) (255,036)
-------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities 9,428 1,038,993 (526,424) 1,027,864
-------- ----------- ----------- -----------
Investing Activities:
Purchase of property and
equipment (467) (51,435) (148,007) (323,210)
Proceeds from sales of
other investment 1,137 125,281 122,650 91,286
Purchase of other
investments (28) (3,083) (304,517) (2,290)
Refund (payment) of
guarantee deposits-net (174) (19,193) 1,199 14,528
Other 8 904 9,875 (4,851)
-------- ----------- ----------- -----------
Net cash provided by
(used in) investing
activities 476 52,474 (318,800) (224,537)
-------- ----------- ----------- -----------
Financing Activities:
Proceeds from long-term
borrowings 9,074 1,000,000 - -
Repayments of long-term
borrowings (13,039) (1,436,943) (36,017) (36,710)
Proceeds from securities
loan agreement 7,412 816,800 - -
Repurchase of convertible
notes - - - (745,488)
Principal payments under
capital leases (6,247) (688,418) (671,376) (669,047)
Net increase (decrease)
in short-term borrowings 3,350 369,203 (1,370,436) (1,201,093)
Proceeds from issuance of
common stock of a
subsidiary - - - 188,632
Proceeds from issuance of
common stock - - 11,886,887 -
-------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities 550 60,642 9,809,058 (2,463,706)
-------- ----------- ----------- -----------
Effect of Exchange Rate
Changes on Cash 208 22,853 94 3,343
-------- ----------- ----------- -----------
Net Increase (Decrease) in
Cash and Cash Equivalents 10,662 1,174,962 8,963,928 (1,657,036)
-------- ----------- ----------- -----------
Cash and Cash Equivalents,
Beginning of Period 96,436 10,627,203 2,819,007 12,284,239
-------- ----------- ----------- -----------
Cash and Cash Equivalents,
End of Period 107,098 11,802,165 11,782,935 10,627,203
======== =========== =========== ===========
Note (1): The translations of Japanese yen amounts into US dollar
amounts with respect to the three months ended Sept 30, 2004 are
included solely for the convenience of readers outside Japan and have
been made at the rate of JPY110.20 =$1, the approximate rate of
exchange on Sept 30, 2004.
IIJ Investor/Media Relations Office
Taisuke Ono/Naoshi Yoneyama, +81-3-5259-6500
ir@iij.ad.jp
http://www.iij.ad.jp/en/
