Internet Initiative Japan : IIJ Announces its First Three Months Results for the Fiscal Year Ending March 31, 2023

For Immediate Release

Internet Initiative Japan Inc.

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IIJ Announces its First Three Months Resultsfor the Fiscal Year Ending March 31, 2023

Tokyo, August 5, 2022 - Internet Initiative Japan Inc. ("IIJ", TSE Prime: 3774) today announced its consolidated financial results for the first three months for the fiscal year ending March 31, 2023 ("1Q22", from April 1, 2022 to June 30, 2022) under International Financial Reporting Standards (IFRS).1

Highlights of Financial Results for 1Q22		FY22 Targets
	First Half	Full Year
Total revenues	JPY 58.2 billion	up	9.8%	YoY2	JPY 117.0 billion	JPY 250.0 billion
Operating profit	JPY 5.0 billion	up	15.3%	YoY	JPY 10.7 billion	JPY 27.2 billion
Profit before tax	JPY 6.6 billion	up	23.8%	YoY	JPY 10.3 billion	JPY 26.3 billion
Net profit3	JPY 4.4 billion	up	25.2%	YoY	JPY 6.8 billion	JPY 17.5 billion

Overview of 1Q22 Financial Results and Business Outlook

"As the second fiscal year of our three-yearmid-term plan, FY2022 started as planned with 1Q22 total revenues and operating profit increased by 9.8% and 15.3% year over year, respectively. Along with further advancement of IT utilization through business activities in Japan, enterprise systems are gradually and continuously transforming to be more network-based. This transition is a tailwind for us, as we have capabilities of offering various and highly reliable network services together with systems integration which are based on our robust Internet infrastructure and Internet technology expertise. In this first quarter, with our network related projects becoming more complex and larger, we continued to acquire these middle scale projects, which would bring us increases in our monthly recurring revenues hereafter. Having seen the continued upward trend in Japanese Internet traffic, we are confident that our enterprise network services revenues would be accumulated continuously, and this would contribute to our structural increase in operating profit," said Eijiro Katsu, President of IIJ.

"In order to sustain our strong growth, we are strengthening the recruitment and development of human resources. For FY2022, we have set approximately 50% higher recruitment targets4 for both new graduates and mid-career hires than we had in previous years, and recruiting activities have made progress in accordance with those policy, while we maintain reasonable management over the number of outsourced personnel. Our continuous network infrastructure enhancement, services development, and stable network operation for about thirty years have been our distinguished competitive advantages. We believe that these technology-oriented business models have been attracting competent Internet-related engineers, which drive us to pursue further technology developments," concluded Koichi Suzuki, Founder and Chairman of IIJ.

• Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with IFRS, unaudited and consolidated.
  2 YoY is an abbreviation for year over year change.
  3 Net profit is "profit for the year attributable to owners of the parent." 4 The recruitment targets are on a non-consolidated basis.

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IIJ 1Q FY2022

1Q22 Financial Results Summary

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

Operating Results Summary

	1Q21	1Q22	YoY Change
	JPY millions	JPY millions	％
Total revenues	52,975	58,190	9.8
Network services	31,475	33,234	5.6
Systems integration (SI)	20,807	24,269	16.6
ATM operation business	693	687	(0.9)
Total costs	(41,548)	(45,490)	9.5
Network services	(23,145)	(24,431)	5.6
Systems integration (SI)	(17,959)	(20,659)	15.0
ATM operation business	(444)	(400)	(9.9)
Total gross profit	11,427	12,700	11.1
Network services	8,330	8,803	5.7
Systems integration (SI)	2,848	3,610	26.8
ATM operation business	249	287	15.3
SG&A, R&D, and other operating income (expenses)	(7,067)	(7,674)	8.6
Operating profit	4,360	5,026	15.3
Profit before tax	5,350	6,623	23.8
Profit for the period attributable to owners of the parent	3,507	4,391	25.2

(Note) Systems integration includes equipment sales.

Segment Results Summary

	1Q21		1Q22
	JPY millions		JPY millions
Total revenues		52,975	58,190
Network services and SI business		52,316	57,531
ATM operation business		693	687
Elimination		(34)	(28)
Operating profit		4,360	5,026
Network services and SI business		4,189	4,809
ATM operation business		195	237
Elimination		(24)	(20)

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IIJ 1Q FY2022

1Q22 Revenues and Income

Revenues

Total revenueswere JPY58,190 million, up 9.8% YoY (JPY52,975 million for 1Q21).

Network services revenuewas JPY33,234 million, up 5.6% YoY (JPY31,475 million for 1Q21).

Revenues for Internet connectivity services for enterprise were JPY9,516 million, up 1.1% YoY from JPY9,410 million for 1Q21. The increase was due to an increase in revenues of IP services and enterprise mobile services, which absorbed a decrease in MVNO Platform service (MVNE) revenue owing to reflecting the annual revision of mobile data interconnectivity charge5 in selling prices.

Revenues for Internet connectivity services for consumers were JPY6,099 million, down 0.1% YoY from JPY6,108 million for 1Q21, mainly due to a decrease in average revenue per user along with continued migration of former plan's customers to "GigaPlans", which launched at the beginning of the previous fiscal year.

Revenues for Outsourcing services were JPY10,944 million, up 15.1% YoY from JPY9,510 million for 1Q21, mainly due to an increase in security-related services revenues.

Revenues for WAN services were JPY6,675 million, up 3.5% YoY from JPY6,447 million for 1Q21.

Network Services Revenues Breakdown

				1Q21		1Q22	YoY Change
				JPY millions		JPY millions	％
Total network services		31,475	33,234	5.6
	Internet connectivity services (enterprise)		9,410	9,516	1.1
		IP services (including data center connectivity services)		3,275	3,446	5.2
		IIJ Mobile Services		5,189	5,060	(2.5)
			Enterprise mobile services (IoT usages etc.)		2,344	2,634	12.4
			IIJ Mobile MVNO Platform service (MVNE)		2,845	2,426	(14.7)
		Others		946	1,010	6.8
	Internet connectivity services (consumer)		6,108	6,099	(0.1)
		IIJmio Mobile Services		5,392	5,310	(1.5)
		Others		716	789	10.2
	Outsourcing services		9,510	10,944	15.1
	WAN services		6,447	6,675	3.5

Number of Contracts and Subscription for Connectivity Services (Note 1)

			As of June 30, 2021	As of June 30, 2022	YoY Change
Internet connectivity services (enterprise)	2,299,032	2,582,448	283,416
	IP service (greater than or equal to 1Gbps) (Note2)	764	787	23
	IP service (less than 1Gbps) (Note2)	1,202	1,247	45
	IIJ Mobile Services	2,205,759	2,489,768	284,009
		Enterprise mobile services (IoT usages etc.)	1,163,312	1,457,464	294,152
		IIJ Mobile MVNO Platform service (MVNE)	1,042,447	1,032,304	(10,143)
	Others	91,307	90,646	(661)
Internet connectivity services (consumer)	1,396,386	1,464,327	67,941
	IIJmio Mobile Services	1,053,173	1,125,756	72,583
	Others	343,213	338,571	(4,642)
Total contracted bandwidth (Gbps) (Note 3)	7,108.2	7,600.9	492.7

(Notes)

1. Numbers in the table above show number of contracts except for "IIJ Mobile Services (enterprise)" and "IIJmio Mobile Services" which show number of subscriptions.
2. The numbers of IP service contracts include the numbers of IIJ data center connectivity service contracts.
3. Total contracted bandwidth is calculated by multiplying number of contracts under "Internet connectivity services (enterprise)" except for "IIJ Mobile Services" and the contracted bandwidths of the services respectively.

• A unit charge for interconnectivity data communications charge between mobile carriers such as NTT DoCoMo and MVNO such as IIJ. The unit price is per Mbps.

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IIJ 1Q FY2022

SI revenues, including equipment sales, were JPY24,269 million, up 16.6% YoY (JPY20,807 million for 1Q21). Systems construction and equipment sales, a one-time revenue, was JPY7,628 million, up 11.7% YoY (JPY6,832 million for 1Q21). Systems operation and maintenance revenue, a recurring revenue, was JPY16,641 million, up 19.1% YoY (JPY13,975 million for 1Q21), mainly due to continued accumulation of systems operation orders as well as an increase in cloud-related services' revenues.

Orders received for SI, including equipment sales, totaled JPY33,889 million, up 56.5% YoY (JPY 21,649 million for 1Q21); orders received for systems construction and equipment sales were JPY10,756 million, up 23.1% YoY (JPY8,737 million for 1Q21), and orders received for systems operation and maintenance were JPY23,133 million, up 79.2% YoY (JPY12,911 million for 1Q21).

Order backlog for SI, including equipment sales, as of June 30, 2022 amounted to JPY82,411 million, up 22.1% YoY (JPY67,496 million as of June 30, 2021); order backlog for systems construction and equipment sales was JPY15,579 million, up 40.7% YoY (JPY11,073 million as of June 30, 2021) and order backlog for systems operation and maintenance was JPY66,832 million, up 18.4% YoY (JPY56,424 million as of June 30, 2021).

ATM operation business revenueswere JPY687 million, down 0.9% YoY (JPY693 million for 1Q21).

Cost of sales

Total cost of saleswas JPY45,490 million, up 9.5% YoY (JPY41,548 million for 1Q21).

Cost of network services revenuewas JPY24,431 million, up 5.6% YoY (JPY23,145 million for 1Q21), mainly due to an increase in purchasing cost of mobile device. Gross profit was JPY8,803 million, up 5.7% YoY (JPY8,330 million for 1Q21), and gross profit ratio was 26.5% (26.5% for 1Q21).

Cost of SI revenues,including equipment sales was JPY20,659 million, up 15.0% YoY (JPY17,959 million for 1Q21), mainly due to increases in license fees along with an increase in multi-cloud related services' revenues and purchasing costs. Gross profit was JPY3,610 million, up 26.8% YoY (JPY2,848 million for 1Q21) and gross profit ratio was 14.9% (13.7% for 1Q21).

Cost of ATM operation business revenueswas JPY400 million, down 9.9% YoY (JPY444 million for 1Q21). Gross profit was JPY287 million (JPY249 million for 1Q21) and gross profit ratio was 41.8% (36.0% for 1Q21).

Selling, general and administrative expenses and other operating income and expenses

Selling, general and administrative expenses, including research and development expenses, totaled JPY7,858 million, up 10.9% YoY (JPY7,083 million for 1Q21), mainly due to increases in advertising expenses, personnel- related expenses and outsourcing expenses.

Other operating incomewas JPY194 million (JPY52 million for 1Q21).

Other operating expenseswas JPY10 million (JPY36 million for 1Q21).

Operating profit

Operating profitwas JPY5,026 million (JPY4,360 million for 1Q21), up 15.3% YoY.

Finance income and expenses, and share of profit (loss) of investments accounted for using equity method Finance incomewas JPY1,747 million, compared to JPY1,361 million for 1Q21. It included gains on financial instruments, mainly related to funds, of JPY1,200 million (JPY1,296 million for 1Q21) and foreign exchange gain of JPY474 million (loss of JPY17 million for 1Q21).

Finance expensewas JPY136 million, compared to JPY154 million for 1Q21. It included interest expenses of JPY133 million (JPY137 million for 1Q21).

Share of loss of investments accounted for using equity methodwas JPY14 million (compared to loss of JPY217 million for 1Q21), mainly due to loss of DeCurret Holdings, Inc. of JPY78 million

Profit before tax

Profit before taxwas JPY6,623 million (JPY5,350 million for 1Q21), up 23.8% YoY.

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IIJ 1Q FY2022

Profit for the period

Income tax expensewas JPY2,136 million (JPY1,807 million for 1Q21). As a result, profit for the period was JPY4,487 million (JPY3,543 million for 1Q21), up 26.6% YoY.

Profit for the period attributable to non-controllinginterestswas JPY96 million (JPY36 million for 1Q21), mainly related to net income of Trust Networks Inc.

Profit for the period attributable to owners of parentwas JPY4,391 million (JPY3,507 million for 1Q21), up 25.2% YoY.

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IIJ 1Q FY2022