IIJ Announces Nine Months Financial Results for The Fiscal Year Ending March 31, 2018

TOKYO, Feb. 08, 2018 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ")(NASDAQ:IIJI) (TSE:3774) today announced its nine months consolidated financial results for the fiscal year ending March 31, 2018 ("3Q17" from April 1, 2017 to December 31, 2017). 1
Highlights of Financial Results for 3Q17
     
Revenues JPY127.6 billion (up 12.3% YoY)  
Operating Income JPY3.8 billion (up 19.7% YoY)  
Income before Income Tax Expense JPY4.3 billion (up 26.1% YoY)  
Net Income attributable to IIJ JPY2.7 billion (up 40.7% YoY)  
     
Financial Targets for FY2017
     
Revenues JPY176.0 billion (up 11.5% YoY)  
Operating Income JPY6.5 billion (up 26.6% YoY)  
Income before Income Tax Expense  JPY6.5 billion (up 19.8% YoY)    
Net Income attributable to IIJ JPY4.0 billion (up 26.3% YoY)  

Overview of 3Q17 Financial Results and Business Outlook

            "To launch cryptocurrency exchange and settlement business, we established an equity method investee by partnering with prominent Japanese companies from various industries: Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corporation, Daiwa Securities Group, Nomura Holdings, Dai-ichi Life Insurance Company, Nippon Life Insurance Company, Mitsui Sumitomo Insurance Company, Sompo Holdings, Tokio Marine & Nichido Fire Insurance Company, East Japan Railway Company, ITOCHU Corporation, ITOCHU Techno-Solutions Corporation, K-Opticom Corporation, QTnet, Bic Camera, DENTSU, Mitsui Fudosan, and Yamato Holdings. DeCurret, IIJ's 35% equity method investee with capital of JPY5.23 billion, 2 will offer BtoC cryptocurrency exchange services from the latter half of FY2018 and BtoBtoC and BtoC cryptocurrency settlement services from FY2019. Based on our existing ASP FX trading system, which has been used by thirteen major Japanese financial institutions, DeCurret should be able to develop highly reliable and scalable cryptocurrency exchange system and services, incorporating Anti-Money Laundering (AML) and Know Your Customer (KYC) and other necessary and critical security requirements. 3 We see a great growth opportunity in settlement business as conventional financial infrastructure needs to be changed dramatically, especially in Japan where cash is a predominantly major payment method. 4 We're very excited about working together with so many outstanding Japanese companies to create a new standard for cryptocurrency settlements which is thought to be a new social infrastructure," said Koichi Suzuki, Founder, CEO and Chairman of IIJ.            "As for the three months financial results, revenue and operating income increased year over year by 13.0% and 20.9% respectively. Network services, especially security-related services, which was supported by the strong demands, and mobile services, led the revenue growth. Accordingly with our mobile business growth strategy, our enterprise mobile revenue strongly grew by 45.2% year over year as MVNE and IoT/M2M transactions continued to expand. SI revenue increased by 8.6% YoY as we continued to accumulate projects. Operating income grew as gross margin of both network services and SI expanded by 13.6% and 13.0% year over year," said Eijiro Katsu, COO and President of IIJ.             "We decided to build our own data center and we've acquired the land of approximately 40 thousand m 2. 5 The main purpose is to integrate our racks that are currently spread out in the metropolitan area's data centers for more effective operation. The new data center, which ultimately can accommodate up to 6,000 racks, allows gradual expansion of capacity as we'll place system module-based data centers developed from our container-based data center technology accumulated from our Matsue Data Center Park since 2011. We estimate the future data center facility cost should be approximately 20% lower by having our own data center than continuously expanding leasing space. We'll also ensure business expansion scalability for the future by having this new data center," concluded Katsu.            "We continuously enhance our existing business such as cloud, mobile, security and SI, and we're also making further business developments like FinTech project this time. Our invisible yet very essential business assets such as Internet technology, network and system infrastructure, SI expertise, brand of reliability, and long-term relationship with prominent Japanese blue-chips let us develop and expand our business foundation. We shall continue to pursue these strategies going forward," concluded Katsu.

__________________________

1 Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with U.S. GAAP, unaudited and consolidated. 2 The capital is JPY5.23 billion as of the mid-February when all the capital partners make payments. 3 The service, IIJ Raptor Service, was launched in 2010 and its customers include Nomura Scurities and Sony Bank. 4 According to the Ministry of Economy, Trade and Industry who published a report in May 2017, as for 2015, 19% of settlement was through non-cash in Japan compared to 41% in the U.S.A. and 55% in China. 5 The new data center will be located in Chiba prefecture, just east of Tokyo. As of December 2017, there are 21 data centers operated by IIJ in Japan. 20 of them are leased by data center owners and 1 data center owned by IIJ in Shimane prefecture.

3Q17 Financial Results Summary
 
Operating Results Summary
 
  3Q16 3Q17 YoY Change
  JPY millions JPY millions %
Total revenues 113,602 127,612 12.3  
Network services 68,481 80,000 16.8  
Systems integration (SI) 39,858 42,301 6.1  
Equipment sales 2,207 2,275 3.1  
ATM operation business 3,056 3,036 (0.6 )
Total costs 95,772 107,856 12.6  
Network services 56,274 66,109 17.5  
Systems integration (SI) 35,644 37,898 6.3  
Equipment sales 2,024 2,053 1.4  
ATM operation business 1,830 1,796 (1.9 )
Total gross margin 17,830 19,756 10.8  
Network services 12,207 13,891 13.8  
Systems integration (SI) 4,214 4,403 4.5  
Equipment sales 183 222 21.0  
ATM operation business 1,226 1,240 1.2  
SG&A expenses and R&D 14,675 15,980 8.9  
Operating income 3,155 3,776 19.7  
Income before income tax expense 3,433 4,329 26.1  
Net income attributable to IIJ 1,910 2,688 40.7  
         

 
Segment Results Summary
 
  3Q16 3Q17
  JPY millions JPY millions
Total revenues 113,602   127,612  
Network services and SI business 110,831   124,835  
ATM operation business 3,056   3,036  
Elimination (285 ) (259 )
Operating income 3,155   3,776  
Network service and SI business 2,178   2,782  
ATM operation business 1,088   1,123  
Elimination (111 ) (129 )

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

3Q17 Revenues and Income

Revenues

Total revenues were JPY127,612 million, up 12.3% YoY (JPY113,602 million for 3Q16).

Network services revenue was JPY80,000 million, up 16.8% YoY (JPY68,481 million for 3Q16).

Revenues for Internet connectivity services for enterprise were JPY20,418 million, up 24.0% YoY from JPY16,461 million for 3Q16, mainly due to an increase in mobile-related services revenues along with an expansion of MVNE business clients' transactions.

Revenues for Internet connectivity services for consumers were JPY18,707 million, up 17.6% YoY from JPY15,903 million for 3Q16, mainly due to the revenue growth of "IIJmio Mobile Service," consumer mobile services which offer inexpensive data communication and voice services with SIM cards.

Revenues for WAN services were JPY21,676 million, up 9.2% YoY compared to JPY19,848 million for 3Q16.

Revenues for Outsourcing services were JPY19,199 million, up 18.0% YoY from JPY16,269 million for 3Q16, mainly due to an increase in security-related services revenues.
 
Network Services Revenues Breakdown
 
  3Q16 3Q17 YoYChange
  JPY millions JPY millions %
Internet connectivity services (Enterprise) 16,461 20,418 24.0  
IP service* 7,331 7,553 3.0  
IIJ FiberAccess/F and IIJ DSL/F 2,279 2,262 (0.8 )
IIJ Mobile service (Enterprise) 6,680 10,436 56.2  
IIJ Mobile MVNO Platform Service 4,358 7,742 77.7  
Others 171 167 (2.7 )
Internet connectivity services (Consumer) 15,903 18,707 17.6  
IIJ 14,290 17,394 21.7  
IIJmio Mobile Service 12,437 15,342 23.4  
hi-ho 1,613 1,313 (18.6 )
WAN services 19,848 21,676 9.2  
Outsourcing services 16,269 19,199 18.0  
Total network services 68,481 80,000 16.8  
* IP service revenues include revenues from the data center connectivity service.
 

 
Number of Contracts and Subscription for Connectivity Services*1
 
  as ofDecember 31, 2016 as of December 31, 2017 YoY Change
Internet connectivity services (Enterprise) 824,546 1,246,898 422,352  
IP service (1Gbps-) 413 461 48  
IP service (100Mbps-999Mbps) 577 643 66  
IP service (-99Mbps) 622 627 5  
IIJ Data center connectivity service 258 243 (15 )
IIJ FiberAccess/F and IIJ DSL/F 72,132 70,778 (1,354 )
IIJ Mobile service (Enterprise) 749,484 1,173,563 424,079  
IIJ Mobile MVNO Platform Service*2 501,374 744,332 242,958  
Others 1,060 583 (477 )
Internet connectivity services (Consumer) 1,377,529 1,349,664 (27,865 )
IIJ*2 1,241,399 1,349,664 108,265  
IIJmio Mobile Service 912,394 986,767 74,373  
hi-ho*2  136,130 - (136,130 )
Total contracted bandwidth*3 2,636.7Gbps 3,085.3Gbps 448.6Gbps
*1. Numbers in the table above show number of contracts except for "IIJ Mobile service (Enterprise)," "IIJ" and "hi-ho" which show number of subscriptions.
*2. On December 31, 2017, IIJ sold all the shares of common stock of hi-ho which was IIJ's wholly owned subsidiary. Accordingly, hi-ho's subscription for "Internet connectivity services (Consumer)" decreased to zero, hi-ho's mobile service subscription of 14,735 was reclassed to "IIJ Mobile MVNO Platform Service" and a part of hi-ho's subscription other than mobile service subscription of 47,683 is included in IIJ's subscrfiption for "Internet connectivity services (Consumer)."
*3. Regarding IP service, data center connectivity service and IIJ FiberAccess/F and IIJ DSL/F of Internet connectivity services (Enterprise), total contracted bandwidths are calculated by multiplying number of contracts by contracted bandwidths respectively.
 

SI revenues were JPY42,301 million, up 6.1% YoY (JPY39,858 million for 3Q16).

Systems construction revenue, a one-time revenue, was JPY14,530 million, up 4.0% YoY (JPY13,973 million for 3Q16). Systems operation and maintenance revenue, a recurring revenue, was JPY27,771 million, up 7.3% YoY (JPY25,885 million for 3Q16), mainly due to continued accumulation of the orders and an increase in private cloud services' revenues.

Orders received for SI and equipment sales totaled JPY48,228 million, down 6.8% YoY (JPY51,730 million for 3Q16); orders received for systems construction and equipment sales were JPY19,201 million, down 8.7% YoY (JPY21,031 million for 3Q16) and orders received for systems operation and maintenance were JPY29,027 million, down 5.4% YoY (JPY30,699 million for 3Q16).

Order backlog for SI and equipment sales as of December 31, 2017 amounted to JPY45,153 million, up 4.3% YoY (JPY43,309 million as of December 31, 2016); order backlog for systems construction and equipment sales was JPY9,574 million, down 12.4% YoY (JPY10,928 million as of December 31, 2016) and order backlog for systems operation and maintenance was JPY35,579 million, up 9.9% YoY (JPY32,381 million as of December 31, 2016).

Equipment sales revenues were JPY2,275 million, up 3.1% YoY (JPY2,207 million for 3Q16).

ATM operation business revenues were JPY3,036 million, down 0.6% YoY (JPY3,056 million for 3Q16). As of December 31, 2017, 1,101 ATMs have been placed.

Cost and expense

Total cost of revenues was JPY107,856 million, up 12.6% YoY (JPY95,772 million for 3Q16).

Cost of network services revenue was JPY66,109 million, up 17.5% YoY (JPY56,274 million for 3Q16). There were an increase in outsourcing-related costs due to our mobile services and an increase in circuit-related costs. Gross margin was JPY13,891 million, up 13.8% YoY (JPY12,207 million for 3Q16) and gross margin ratio was 17.4% compared to 17.8% in 3Q16.

Cost of SI revenues was JPY37,898 million, up 6.3% YoY (JPY35,644 million for 3Q16). There were an increase in outsourcing-related costs along with our SI revenue increase. Gross margin was JPY4,403 million, up 4.5% YoY (JPY4,214 million for 3Q16) and gross margin ratio was 10.4% compared to 10.6% in 3Q16.

Cost of equipment sales revenues was JPY2,053 million, up 1.4% YoY (JPY2,024 million for 3Q16). Gross margin was JPY222 million (JPY183 million for 3Q16) and gross margin ratio was 9.8% compared to 8.3% in 3Q16.

Cost of ATM o peration b usiness revenues was JPY1,796 million, down 1.9% YoY (JPY1,830 million for 3Q16). Gross margin was JPY1,240 million (JPY1,226 million for 3Q16) and gross margin ratio was 40.8% compared to 40.1% in 16.

SG&A and R&D expenses

SG&A and R&D expenses in total were JPY15,980 million, up 8.9% YoY (JPY14,675 million for 3Q16).

Sales and marketing expenses were JPY9,551 million, up 13.8% YoY (JPY8,392 million for 3Q16) mainly due to increases in advertising expenses, sales commission expenses, and personnel-related expenses.

General and administrative expenses were JPY6,070 million, up 2.4% YoY (JPY5,928 million for 3Q16) mainly due to increases in personnel-related expenses.

Research and development expenses were JPY359 million, up 1.3% YoY (JPY355 million for 3Q16).

Operating income

Operating income was JPY3,776 million, up 19.7% YoY (JPY3,155 million for 3Q16).

Other income (expenses)

Other income (expenses) was an income of JPY553 million (an income of JPY278 million for 3Q16), mainly because of net gain on sales of other investments, including available-for-sale securities, of JPY373 million (JPY214 million for 3Q16), distribution from fund investment of JPY196 million (included in other-net of JPY173 million, JPY208 million for 3Q16), interest expense of JPY276 million (JPY218 million for 3Q16), dividend income of JPY231 million (JP106 million for 3Q16), and foreign exchange gains of JPY29 million (foreign exchange losses of JPY23 million for 3Q16).

Income before income tax expenses

Income before income tax expenses was JPY4,329 million, up 26.1% YoY (JPY3,433 million for 3Q16).

Net income

Income tax expense was JPY1,614 million (JPY1,466 million for 3Q16).

Equity in net income of equity method investees was JPY101 million (JPY69 million for 3Q16) mainly due to net income of Internet Multifeed Co.

As a result of the above, net income was JPY2,816 million, up 38.3% YoY (JPY2,036 million for 3Q16).

Net income attributable to IIJ

Net income attributable to non-controlling interests was JPY128 million (JPY126 million for 3Q16) mainly related to net income of Trust Networks Inc.

Net income attributable to IIJ was JPY2,688 million, up 40.7% YoY (JPY1,910 million for 3Q16).

3Q17 Balance Sheets

Balance sheets

As of December 31, 2017, the balance of total assets was JPY150,273 million, increased by JPY12,877 million from the balance as of March 31, 2017 of JPY137,395 million.

As of December 31, 2017, the balance of current assets was JPY68,061 million, increased by JPY4,340 million from the balance as of March 31, 2017 of JPY63,722 million. The major breakdown of current assets was an increase in inventories by JPY1,531 million to JPY4,329 million, an increase in prepaid expenses by JPY1,343 million to JPY8,954 million and an increase in cash and cash equivalents by JPY1,086 million to JPY23,044 million. As of December 31, 2017, the balance of noncurrent assets was JPY82,211 million, increased by JPY8,538 million from the balance as of March 31, 2017 of JPY73,673 million. The major breakdown of noncurrent assets was property and equipment of JPY45,125 million, increased by JPY5,349 million, including JPY1,205 million by purchase of land, from the balance as of March 31, 2017, and other investments of JPY10,933 million,increased by JPY3,008 million mainly due to an increase in the fair value of available-for-sale securities. Other investments as of December 31, 2017, consisted of JPY8,786 million in available-for-sale securities, JPY1,124 million in nonmarketable equity securities and JPY1,023 million in investments in funds, including some through a trust. As of December 31, 2017, the balance of non-amortized intangible assets was JPY6,118 million, decreased by JPY102 million from the balance as of March 31, 2017 of JPY6,220 million. The major breakdown of non-amortized intangible assets was JPY6,082 million in goodwill. The balance of amortized intangible assets, which was customer relationships, was JPY2,762 million, decreased by JPY274 million from the balance as of March 31, 2017 of JPY3,036 million.

As of December 31, 2017, the balance of current liabilities was JPY41,555 million, increased by JPY1,572 million from the balance as of March 31, 2017 of JPY39,983 million. The major breakdown of current liabilities was an increase in capital lease obligations-current portion by JPY672 million to JPY5,491 million and an increase in accounts payable (trade and other) by JPY462 million to JPY17,424 million. As of December 31, 2017, the balance of noncurrent liabilities was JPY37,672 million, increased by JPY7,640 million from the balance as of March 31, 2017 of JPY30,032 million. The major breakdown of noncurrent liabilities was an increase in long-term borrowings by JPY7,000 million to JPY15,500 million and an increase in capital lease obligations-noncurrent by JPY710 million to JPY11,095 million.

As of December 31, 2017, the balance of total IIJ shareholders' equity was JPY70,381 million, increased by JPY3,639 million from the balance as of March 31, 2017 and IIJ shareholders' equity ratio (total IIJ shareholders' equity divided by total assets) as of December 31, 2017 was 46.8%.

3Q17 Cash Flows

Cash flows

Cash and cash equivalents as of December 31, 2017 were JPY23,044 million (JPY21,266 million as of December 31, 2016).

Net cash provided by operating activities for 3Q17 was JPY8,296 million (net cash provided by operating activities of JPY4,408 million for 3Q16.) There were net income of JPY2,816 million, depreciation and amortization of JPY9,156 million and net cash out flow of JPY3,486 million from changes in operating assets and liabilities. As for changes in operating assets and liabilities, there were an increase in prepaid expenses (including prepaid expense-noncurrent) in relation to up front payment for software licenses and maintenance cost for service facilities, an increase in inventories due to the increase in systems construction projects and an increase in prepaid expenses for seasonal bonus payments to our employees.

Net cash used in investing activities for 3Q17 was JPY8,272 million (net cash used in investing activities of JPY5,389 million for 3Q16), mainly due to payments for purchase of property and equipment of JPY11,785 million (JPY7,940 million for 3Q16), including JPY1,205 million by purchase of land, proceeds from sales of property and equipment, which include sales and leaseback transactions, of JPY2,757 million (JPY2,219 million for 3Q16) and proceeds from sale of stock of hi-ho (net of cash divested) of JPY726 million.

Net cash provided by financing activities for 3Q17 was JPY1,049 million (net cash provided by financing activities of JPY2,831 million for 3Q16), mainly due to procceds from long-term borrowings of JPY7,000 million, principal payments under capital leases of JPY4,230 million (JPY3,535 million for 3Q16) and FY2016 year-end and FY2017 interim dividends payments of JPY1,217 million (JPY1,126 million for 3Q16).

FY2017 Financial Targets

Due to seasonal factors, our financial results tend to be small in a first quarter and strong in strong in a fourth quarter every fiscal year. 3Q17 financial results resulted almost as planed. Our financial targets for the fiscal year ending March 31, 2018 (FY2017) announced on May 15, 2017 remain unchanged.

3Q17 Reconciliation of Non-GAAP Financial Measures

The following table summarizes the reconciliation of adjusted EBITDA to net income attributable to IIJ in our consolidated statements of income that are prepared in accordance with U.S. GAAP.
 
Adjusted EBITDA
 
  3Q16 3Q17
  JPY millions JPY millions
Adjusted EBITDA 11,161   12,932  
Depreciation and Amortization (8,006 ) (9,156 )
Operating Income 3,155   3,776  
Other Income 278   553  
Income Tax Expense 1,466   1,614  
Equity in Net Income of Equity Method Investees 69   101  
Net income 2,036   2,816  
Less: Net income attributable to noncontrolling interests (126 ) (128 )
Net Income attributable to IIJ 1,910   2,688  
 

 
CAPEX
 
  3Q16 3Q17
  JPY millions JPY millions
CAPEX, including capital leases 12,258 15,756
Acquisition of Assets by Entering into Capital Leases 5,843 5,625
Purchase of Property and Equipment 6,415 10,131
 

Presentation

Presentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on February 8, 2018.

About Internet Initiative Japan Inc.

Founded in 1992, IIJ is one of Japan's leading Internet-access and comprehensive network solutions providers. IIJ and its group companies provide total network solutions that mainly cater to high-end corporate customers. IIJ's services include high-quality Internet connectivity services, mobile services, security services, cloud computing services, and systems integration. Moreover, IIJ operates one of the largest Internet backbone networks in Japan that is connected to the United States, the United Kingdom and Asia. IIJ listed on the U.S. NASDAQ Stock Market in 1999 and on the First Section of the Tokyo Stock Exchange in 2006.

For inquiries, contact:

IIJ Investor RelationsTel: +81-3-5205-6500 E-mail: ir@iij.ad.jp URL: https://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 FY2017 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.
 
Internet Initiative Japan Inc.
Consolidated Balance Sheets (Unaudited)
(As of March 31, 2017 and December 31, 2017)
         
  As of March 31, 2017   As of December 31, 2017  
  Thousands of JPY   Thousands of JPY  
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents 21,958,591     23,044,148    
Accounts receivable, net of allowance for doubtful accounts of   JPY 107,684 thousand and JPY 118,034 thousand    at March 31, 2017 and December 31, 2017, respectively 27,383,692     27,615,182    
Inventories 2,798,054     4,329,210    
Prepaid expenses—current 7,610,925     8,953,946    
Deferred tax assets—current 1,298,469     -    
Other current assets, net of allowance for doubtful accounts of    JPY 15,192 thousand and JPY 720 thousand at March 31, 2017 and December 31, 2017, respectively 2,672,008     4,118,959    
Total current assets 63,721,739     68,061,445    
INVESTMENTS IN EQUITY METHOD INVESTEES 3,150,175     3,382,804    
OTHER INVESTMENTS 7,924,914     10,932,942    
PROPERTY AND EQUIPMENT, net of accumulated depreciation and    amortization of JPY 50,566,983 thousand and JPY 53,092,388 thousand    at March 31, 2017 and December 31, 2017, respectively 39,775,444     45,124,889    
GOODWILL 6,169,609     6,082,472    
OTHER INTANGIBLE ASSETS—Net 3,087,017     2,797,659    
GUARANTEE DEPOSITS 3,060,365     3,345,893    
DEFERRED TAX ASSETS—Noncurrent 80,566     145,141    
NET INVESTMENT IN SALES-TYPE LEASES—Noncurrent 2,047,682     1,676,234    
Prepaid expenses—Noncurrent 6,607,437     7,342,288    
OTHER ASSETS, net of allowance for doubtful accounts of   JPY 61,877 thousand and JPY 60,749 thousand   at March 31, 2017 and December 31, 2017, respectively 1,770,201     1,380,815    
TOTAL 137,395,149     150,272,582    
         
         
  As of March 31, 2017   As of December 31, 2017  
  Thousands of JPY   Thousands of JPY  
LIABILITIES AND SHAREHOLDERS' EQUITY        
CURRENT LIABILITIES:        
Short-term borrowings 9,250,000     9,400,000    
Capital lease obligations—current portion 4,818,723     5,490,906    
Accounts payable—trade 14,653,065     15,450,618    
Accounts payable—other 2,308,790     1,973,532    
Income taxes payable 1,075,745     530,746    
Accrued expenses 2,755,581     3,000,449    
Deferred income—current 3,750,542     4,169,086    
Other current liabilities 1,370,661     1,539,525    
Total current liabilities 39,983,107     41,554,862    
LONG-TERM BORROWINGS 8,500,000     15,500,000    
CAPITAL LEASE OBLIGATIONS—Noncurrent 10,384,643     11,094,802    
ACCRUED RETIREMENT AND PENSION COSTS—Noncurrent 3,532,965     3,724,948    
DEFERRED TAX LIABILITIES—Noncurrent 963,845     780,689    
DEFERRED INCOME—Noncurrent 3,656,612     3,865,199    
OTHER NONCURRENT LIABILITIES 2,993,777     2,706,064    
Total Liabilities 70,014,949     79,226,564    
COMMITMENTS AND CONTINGENCIES        
         
SHAREHOLDERS' EQUITY:        
Common-stock—authorized, 75,520,000 shares; issued and outstanding, 46,711,400 and 46,713,800 shares at March 31, 2017 and December 31, 2017, respectively 25,509,499     25,511,804    
Additional paid-in capital 36,117,511     36,161,451    
Retained earnings 4,511,945     5,983,175    
Accumulated other comprehensive income 2,499,700     4,620,983    
Treasury stock—1,650,909 shares held by the company at March 31, 2017 and December 31, 2017, respectively (1,896,784 )   (1,896,784 )  
Total Internet Initiative Japan Inc. shareholders' equity 66,741,871     70,380,629    
NONCONTROLLING INTERESTS 638,329     665,389    
Total equity 67,380,200     71,046,018    
TOTAL 137,395,149     150,272,582    
         
     

 
Internet Initiative Japan Inc.
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Unaudited)
(For the nine months ended December 31, 2016 and December 31, 2017)
         
         
  Nine Months Ended   Nine Months Ended  
  December 31, 2016   December 31, 2017  
  Thousands of JPY   Thousands of JPY  
REVENUES:        
Network services:        
Internet connectivity services (enterprise) 16,461,205     20,417,963    
Internet connectivity services (consumer) 15,902,952     18,707,332    
WAN services 19,847,736     21,675,903    
Outsourcing services 16,268,643     19,198,399    
Total 68,480,536     79,999,597    
Systems integration:        
Systems construction 13,972,807     14,530,478    
Systems operation and maintenance 25,885,221     27,770,579    
Total 39,858,028     42,301,057    
Equipment sales 2,207,649     2,275,363    
ATM operation business 3,055,739     3,035,957    
Total revenues 113,601,952     127,611,974    
COSTS AND EXPENSES:        
Cost of network services 56,273,528     66,109,118    
Cost of systems integration 35,644,158     37,897,888    
Cost of equipment sales 2,024,262     2,053,432    
Cost of ATM operation business 1,830,095     1,795,912    
Total costs 95,772,043     107,856,350    
Sales and marketing 8,392,014     9,550,884    
General and administrative 5,928,165     6,070,008    
Research and development 354,411     359,125    
Total costs and expenses 110,446,633     123,836,367    
OPERATING INCOME 3,155,319     3,775,607    
OTHER INCOME (EXPENSES):        
Dividend income 106,336     230,784    
Interest income 26,781     23,130    
Interest expense (218,204 )   (276,374 )  
Foreign exchange gain (loss), net (23,072 )   28,531    
Net gain on sales of other investments 213,938     373,499    
Impairment of other investments (30,554 )   -    
Other —net 202,486     173,396    
Other income —net 277,711     552,966    
INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE   AND EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES 3,433,030     4,328,573    
INCOME TAX EXPENSE 1,465,852     1,613,955    
EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES 69,244     101,169    
NET INCOME 2,036,422     2,815,787    
LESS: NET INCOME ATTRIBUTABLE TO   NONCONTROLLING INTERESTS (126,161 )   (127,891 )  
NET INCOME ATTRIBUTABLE TO INTERNET   INITIATIVE JAPAN INC. 1,910,261     2,687,896    
         
         
  Nine Months Ended   Nine Months Ended  
  December 31, 2016   December 31, 2017  
NET INCOME PER SHARE        
BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 45,846,887     45,062,874    
DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 45,962,442     45,211,765    
BASIC WEIGHTED-AVERAGE NUMBER OF   ADS EQUIVALENTS (ADSs) 91,693,774     90,125,748    
DILUTED WEIGHTED-AVERAGE NUMBER  OF   ADS EQUIVALENTS (ADSs) 91,924,884     90,423,530    
BASIC NET INCOME PER SHARE  (JPY) 41.67     59.65    
DILUTED NET INCOME PER SHARE  (JPY) 41.56     59.45    
BASIC NET INCOME PER ADS  EQUIVALENT  (JPY) 20.83     29.82    
DILUTED NET INCOME PER ADS  EQUIVALENT  (JPY) 20.78     29.73    
         
 
Quarterly Consolidated Statements of Comprehensive Income (Unaudited)      
  Nine Months Ended   Nine Months Ended  
  December 31, 2016   December 31, 2017  
  Thousands of JPY   Thousands of JPY  
NET INCOME 2,036,422     2,815,787    
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:        
  Foreign currency translation adjustments (455,158 )   (13,401 )  
  Unrealized holding gain on securities 920,735     2,132,187    
  Defined benefit pension plans 10,878     2,497    
TOTAL COMPREHENSIVE INCOME 2,512,877     4,937,070    
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO  NONCONTROLLING INTERESTS (126,161 )   (127,891 )  
COMPREHENSIVE INCOME ATTRIBUTABLE TO   INTERNET INITIATIVE JAPAN INC. 2,386,716     4,809,179    
         
         

 
Internet Initiative Japan Inc.
Consolidated Statements of Cash Flows (Unaudited)
(For the nine months ended December 31, 2016 and December 31, 2017)
         
  Nine Months Ended   Nine Months Ended  
  December 31, 2016   December 31, 2017  
  Thousands of JPY   Thousands of JPY  
OPERATING ACTIVITIES:        
Net income 2,036,422     2,815,787    
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization 8,006,049     9,155,860    
Provision for retirement and pension costs, less payments 188,923     196,199    
Provision for allowance for doubtful accounts 19,989     67,931    
Gain on sales of property and equipment (15,410 )   (13,636 )  
Loss on disposal of property and equipment 54,481     62,391    
Net gain on sales of other investments (213,938 )   (373,499 )  
Impairment of other investments 30,554     -    
Foreign exchange gain, net (277 )   (11,011 )  
Equity in net income of equity method investees, less dividends received (18,162 )   (49,978 )  
Deferred income tax expense (benefit) 349,735     (23,009 )  
Others (51,716 )   (45,309 )  
Changes in operating assets and liabilities net of effects from divestitures of a company :        
Increase in accounts receivable (64,287 )   (589,876 )  
Decrease in net investment in sales-type lease — noncurrent 400,390     371,448    
Increase in inventories (1,586,556 )   (1,528,797 )  
Increase in prepaid expenses (2,454,437 )   (1,355,406 )  
Increase in other current and noncurrent assets (4,534,405 )   (1,992,382 )  
Increase in accounts payable 160,327     898,983    
Decrease in income taxes payable (767,172 )   (535,204 )  
Increase in accrued expenses 18,639     241,367    
Increase in deferred income—current 140,038     419,937    
Increase in deferred income—noncurrent 302,157     236,485    
Increase in other current and noncurrent liabilities 2,406,335     347,722    
Net cash provided by operating activities 4,407,679     8,296,003    
INVESTING ACTIVITIES:        
Purchase of property and equipment (7,940,090 )   (11,785,162 )  
Proceeds from sales of property and equipment 2,219,179     2,756,719    
Purchase of other investments (316,171 )   (131,118 )  
Investment in an equity method investee (99,000 )   (174,808 )  
Proceeds from sales of available-for-sale securities -     460,017    
Proceeds from sales of other investments 534,249     156,266    
Payments of guarantee deposits (17,102 )   (298,145 )  
Refund of guarantee deposits 87,704     20,833    
Payments for refundable insurance policies (42,385 )   (42,272 )  
Proceeds from sale of stock of a subsidiary, net of cash divested -     726,081    
Proceeds from subsidies 200,000     48,976    
Other (15,000 )   (9,710 )  
Net cash used in investing activities (5,388,616 )   (8,272,323 )  
         
  Nine Months Ended   Nine Months Ended  
  December 31, 2016   December 31, 2017  
  Thousands of JPY   Thousands of JPY  
FINANCING ACTIVITIES:        
Proceeds from short-term borrowings with initial maturities over three months and long-term borrowings 8,550,000     9,550,000    
Repayments of short-term borrowings with initial maturities over three months (50,000 )   (2,550,000 )  
Principal payments under capital leases (3,534,887 )   (4,229,975 )  
Repayments of long-term accounts payable -     (406,251 )  
Payments for purchase of treasury stock (982,107 )   -    
Dividends paid (1,125,841 )   (1,216,666 )  
Other (26,000 )   (97,660 )  
Net cash provided by financing activities 2,831,165     1,049,448    
         
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (153,105 )   12,429    
         
NET INCREASE IN CASH AND CASH EQUIVALENTS. 1,697,123     1,085,557    
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 19,569,095     21,958,591    
CASH AND CASH EQUIVALENTS, END OF THE PERIOD 21,266,218     23,044,148    
         
ADDITIONAL CASH FLOW INFORMATION:        
Interest paid 217,414     270,664    
Income taxes paid 1,961,521     1,914,600    
         
NONCASH INVESTING AND FINANCING ACTIVITIES:        
Acquisition of assets by entering into capital leases 5,842,869     5,625,021    
Facilities purchase liabilities 899,852     1,973,532    
Asset retirement obligation -     49,609    
         
         

Going Concern Assumption (Unaudited)    
    Nothing to be reported.    
             
Material Changes In Shareholders' Equity  (Unaudited)  
    Nothing to be reported.
             
Segment Information (Unaudited)    
    Business Segments:    
      Revenues:    
        Nine Months Ended Nine Months Ended
           December 31, 2016 December 31, 2017
           Thousands of JPY Thousands of JPY
      Network service and systems integration business 110,830,849   124,834,793  
        Customers 110,546,213   124,576,017  
        Intersegment 284,636   258,776  
      ATM operation business 3,055,739   3,035,957  
        Customers 3,055,739   3,035,957  
        Intersegment -   -  
      Elimination (284,636 ) (258,776 )
      Consolidated total 113,601,952   127,611,974  
      Segment profit or loss:    
        Nine Months Ended Nine Months Ended
          December 31, 2016 December 31, 2017
          Thousands of JPY Thousands of JPY
      Network service and systems integration business 2,177,784   2,781,424  
      ATM operation business 1,088,056   1,123,290  
      Elimination (110,521 ) (129,107 )
      Consolidated operating income 3,155,319   3,775,607  
             
      Geographic information is not presented due to immateriality of revenue attributable to international operations.
             
Subsequent Events (Unaudited)    
    Nothing to be reported.    
         

Third Quarter FY2017 Consolidated Financial Results (3 months) The following tables are highlight data of 3rd Quarter FY2017 (3 months) consolidated financial results (unaudited, for the three months ended December 31, 2017).
Operating Results Summary
 
  3Q16 3Q17 YoY Change
  JPY millions JPY millions %
Total Revenues: 39,479 44,624 13.0  
Network Services 23,645 27,714 17.2  
Systems Integration (SI) 14,090 15,302 8.6  
Equipment Sales 741 616 (16.9 )
ATM Operation Business 1,003 992 (1.1 )
Cost of Revenues: 33,497 37,894 13.1  
Network Services 19,558 23,073 18.0  
Systems Integration (SI) 12,651 13,677 8.1  
Equipment Sales 681 548 (19.5 )
ATM Operation Business 607 596 (1.7 )
SG&A Expenses and R&D 4,774 5,270 10.4  
Operating Income 1,208 1,460 20.9  
Income before Income Tax Expense 1,328 1,860 40.1  
Net Income attributable to IIJ 802 1,200 49.6  
         

Network Service Revenue Breakdown
 
  3Q16 3Q17 YoY Change
  JPY millions JPY millions %
Internet Connectivity Service (Enterprise) 5,884 7,152 21.5  
  IP Service* 2,457 2,557 4.0  
  IIJ FiberAccess/F and IIJ DSL/F 762 752 (1.2 )
  IIJ Mobile Service 2,608 3,787 45.2  
IIJ Mobile MVNO Platform Service 1,784 2,822 58.2  
Others 57 56 (2.1 )
Internet Connectivity Service (Consumer) 5,575 6,356 14.0  
IIJ 5,064 5,936 17.2  
IIJmio Mobile Service 4,402 5,255 19.4  
hi-ho 511 420 (17.9 )
WAN Services 6,559 7,593 15.8  
Outsourcing Services 5,627 6,613 17.5  
Network Services Revenues 23,645 27,714 17.2  
* IP service revenues include revenues from the data center connectivity service.        
         

Reconciliation of Non-GAAP Financial Measures (3rd Quarter FY2017 (3 months)) The following table summarizes the reconciliation of adjusted EBITDA to net income in our consolidated statements of income that are prepared in accordance with U.S. GAAP.
 
Adjusted EBITDA
 
  3Q16 3Q17
  JPY millions JPY millions
Adjusted EBITDA 3,930   4,594  
Depreciation and Amortization (2,722 ) (3,134 )
Operating Income 1,208   1,460  
Other Income (Expense) 120   400  
Income Tax Expense (Benefit) 512   645  
Equity in Net Income of Equity Method Investees 27   24  
Net income 843   1,239  
Less: Net income attributable to noncontrolling interests (41 ) (39 )
Net Income attributable to IIJ 802   1,200  

The following table summarizes the reconciliation of capital expenditures to the purchase of property and equipment in our consolidated statements of cash flows that are prepared and presented in accordance with U.S. GAAP.
 
CAPEX
 
  3Q16 3Q17
  JPY millions JPY millions
CAPEX, including capital leases 3,886 6,410
Acquisition of Assets by Entering into Capital Leases 2,051 1,218
Purchase of Property and Equipment 1,835 5,192
     

 
Internet Initiative Japan Inc.
Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive Income (Unaudited)
(Three Months ended December 31, 2016 and December 31, 2017)
         
  Three Months Ended   Three Months Ended  
  December 31, 2016   December 31, 2017  
  Thousands of JPY   Thousands of JPY  
REVENUES:        
Network services:        
Internet connectivity services (enterprise) 5,884,331     7,152,000    
Internet connectivity services (consumer) 5,574,632     6,355,678    
WAN services 6,559,024     7,592,525    
Outsourcing services 5,626,783     6,613,953    
Total 23,644,770     27,714,156    
Systems integration:        
Systems construction 5,389,388     5,722,530    
Systems operation and maintenance 8,700,314     9,579,514    
Total 14,089,702     15,302,044    
Equipment sales 740,991     615,444    
ATM operation business 1,003,219     992,045    
Total revenues 39,478,682     44,623,689    
COST AND EXPENSES:        
Cost of network services 19,558,238     23,072,762    
Cost of systems integration 12,651,235     13,676,673    
Cost of equipment sales 681,145     548,271    
Cost of ATM operation business 606,601     596,164    
Total costs 33,497,219     37,893,870    
Sales and marketing 2,756,066     3,223,719    
General and administrative 1,907,809     1,938,024    
Research and development 109,971     107,998    
Total costs and expenses 38,271,065     43,163,611    
OPERATING INCOME 1,207,617     1,460,078    
OTHER INCOME (EXPENSE):        
Dividend income 14,929     33,721    
Interest income 8,263     7,354    
Interest expense (75,859 )   (92,009 )  
Foreign exchange gain, net 82,844     9,823    
Net gain on sales of other investments -     373,499    
Other—net 89,881     67,308    
Other income —net 120,058     399,696    
INCOME FROM OPERATIONS BEFORE INCOME   TAX EXPENSE AND EQUITY IN NET INCOME   OF EQUITY METHOD INVESTEES 1,327,675     1,859,774    
INCOME TAX EXPENSE 512,174     644,428    
EQUITY IN NET INCOME OF EQUITY   METHOD INVESTEES 27,598     23,830    
NET INCOME 843,099     1,239,176    
LESS: NET INCOME ATTRIBUTABLE TO   NONCONTROLLING INTERESTS (40,772 )   (39,249 )  
NET INCOME ATTRIBUTABLE TO   INTERNET INITIATIVE JAPAN INC. 802,327     1,199,927    
         
  Three Months Ended   Three Months Ended  
  December 31, 2016   December 31, 2017  
NET INCOME PER SHARE      
BASIC WEIGHTED-AVERAGE NUMBER OF   SHARES (shares) 45,636,429     45,062,891    
DILUTED WEIGHTED-AVERAGE NUMBER   OF SHARES (shares) 45,758,296     45,220,584    
BASIC WEIGHTED-AVERAGE NUMBER OF   ADS EQUIVALENTS (ADSs) 91,272,858     90,125,782    
DILUTED WEIGHTED-AVERAGE NUMBER   OF ADS EQUIVALENTS (ADSs) 91,516,592     90,441,168    
BASIC NET INCOME PER SHARE  (JPY) 17.58     26.63    
DILUTED NET INCOME PER SHARE  (JPY) 17.53     26.53    
BASIC NET INCOME PER ADS   EQUIVALENT (JPY) 8.79     13.31    
DILUTED NET INCOME PER ADS   EQUIVALENT (JPY) 8.77     13.27    
         
         
Quarterly Consolidated Statements of Comprehensive Income (Unaudited)      
  Three Months Ended   Three Months Ended  
  December 31, 2016   December 31, 2017  
  Thousands of JPY   Thousands of JPY  
NET INCOME 843,099     1,239,176    
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:        
  Foreign currency translation adjustments (45,068 )   41,807    
  Unrealized holding gain on securities 469,974     955,606    
  Defined benefit pension plans 3,626     809    
TOTAL COMPREHENSIVE INCOME 1,271,631     2,237,398    
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO  NONCONTROLLING INTERESTS (40,772 )   (39,249 )  
COMPREHENSIVE INCOME ATTRIBUTABLE TO   INTERNET INITIATIVE JAPAN INC. 1,230,859     2,198,149    
             

 
Internet Initiative Japan Inc.
Consolidated Statements of Cash Flows (Unaudited)
(Three Months ended December 31, 2016 and December 31, 2017)
         
  Three Months Ended   Three Months Ended  
  December 31, 2016   December 31, 2017  
  Thousands of JPY   Thousands of JPY  
OPERATING ACTIVITIES:        
Net income 843,099     1,239,176    
Adjustments to reconcile net income to net cash   provided by operating activities:        
Depreciation and amortization 2,722,545     3,133,980    
Provision for retirement and pension costs, less payments 66,477     69,420    
Provision for allowance for doubtful accounts 14,856     22,695    
Loss (gain) on sales of property and equipment (7,706 )   868    
Loss on disposal of property and equipment 18,825     25,237    
Net gain on sales of other investments -     (373,499 )  
Foreign exchange gain, net (83,375 )   (2,553 )  
Equity in net income of equity method investees, less dividends received (27,598 )   (23,830 )  
Deferred income tax expense 66,553     112,939    
Other (46,536 )   (37,280 )  
Changes in operating assets and liabilities net of effects from divestitures of a company :        
Increase in accounts receivable (560,123 )   (1,690,935 )  
Decrease (increase) in net investment in sales-type lease — noncurrent 101,218     (17,142 )  
Increase in inventories (874,042 )   (165,796 )  
Increase in prepaid expenses (1,046,904 )   (208,278 )  
Increase in other current and noncurrent assets (2,849,833 )   (927,696 )  
Increase (decrease) in accounts payable (357,834 )   686,591    
Decrease in income taxes payable (174,286 )   (473,059 )  
Increase in accrued expenses 65,056     16,453    
Increase (decrease) in deferred income—current 92,031     (5,671 )  
Increase in deferred income—noncurrent 178,857     447,996    
Increase in other current and noncurrent liabilities 2,193,546     364,106    
Net cash provided by operating activities 334,826     2,193,722    
INVESTING ACTIVITIES:        
Purchase of property and equipment (2,581,985 )   (5,361,874 )  
Proceeds from sales of property and equipment 1,009,711     372,958    
Purchase of other investments (29,113 )   (73,629 )  
Investment in an equity method investee (99,000 )   -    
Proceeds from sales of available-for-sale securities -     460,017    
Proceeds from sales of other investments 229,707     122,810    
Payments of guarantee deposits (2,699 )   (4,112 )  
Refund of guarantee deposits 10,228     5,557    
Payments for refundable insurance policies (14,204 )   (14,091 )  
Proceeds from sale of stock of a subsidiary, net of cash divested -     726,081    
Other (15,000 )   (6,710 )  
Net cash used in investing activities (1,492,355 )   (3,772,993 )  
         
  Three Months Ended   Three Months Ended  
  December 31, 2016   December 31, 2017  
  Thousands of JPY   Thousands of JPY  
FINANCING ACTIVITIES:        
Proceeds from short-term borrowings with initial maturities over three months and long-term borrowings 5,550,000     7,050,000    
Net increase in short-term borrowings with initial maturities less than three months -     2,500,000    
Repayments of short-term borrowings with initial maturities over three months (50,000 )   (2,550,000 )  
Principal payments under capital leases (1,221,124 )   (1,465,754 )  
Repayments of long-term accounts payable -     (202,979 )  
Payments for purchase of treasury stock (982,107 )   -    
Dividends paid (620,361 )   (608,349 )  
Net cash provided by financing activities 2,676,408     4,722,918    
         
EFFECT OF EXCHANGE RATE CHANGES ON   CASH AND CASH EQUIVALENTS 79,517     29,470    
         
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,598,396     3,173,117    
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 19,667,822     19,871,031    
CASH AND CASH EQUIVALENTS, END OF THE PERIOD 21,266,218     23,044,148    

Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the nine months ended December 31, 2017 ("3Q17") in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Nine Months ended December 31, 2017 [Under accounting principles generally accepted in the United States ("U.S. GAAP")]

February 8, 2018

Company name: Internet Initiative Japan Inc.Exchange listed: Tokyo Stock Exchange First SectionStock code number: 3774URL: https://www.iij.ad.jp/Representative: Eijiro Katsu, President and Representative DirectorContact: Akihisa Watai, Managing Director and CFOTEL: (03) 5205-6500Scheduled date for filing of quarterly report ( Shihanki-houkokusho) to Japan's regulatory organization: February 14, 2018Scheduled date for dividend payment: -Supplemental material on quarterly results: YesPresentation on quarterly report: Yes (for institutional investors and analysts)

(Amounts of less than JPY one million are rounded)

1. Consolidated Financial Results for the Nine Months Ended December 31, 2017 (April 1, 2017 to December 31, 2017)                                                                                         
(1) Consolidated Results of Operations        (% shown is YoY change)
  Total revenues Operating income Income before income tax expense Net income attributable to IIJ
  JPY millions % JPY millions % JPY millions % JPY millions %
Nine months ended December 31, 2017 127,612 12.3 3,776 19.7   4,329 26.1   2,688 40.7  
Nine months ended December 31, 2016 113,602 14.3 3,155 (22.5 ) 3,433 (17.8 ) 1,910 (25.8 )
                       

 
(Note1) Total comprehensive income attributable to IIJ
  For the nine months ended December 31, 2017: JPY4,809 million (up 101.5% YoY)
  For the nine months ended December 31, 2016: JPY2,387 million (down 0.9% YoY)
(Note2) Income before income tax expense represents income from operations before income tax expense and equity in net income in equity method investees, respectively, in IIJ's consolidated financial statements.

     
  Basic net income attributable to IIJ per share Diluted net income attributable to IIJ per share
  JPY JPY
Nine months ended December 31, 2017 59.65 59.45
Nine months ended December 31, 2016 41.67 41.56

 (2) Consolidated Financial Position
  Total assets Total equity Total IIJ shareholders' equity Total IIJ shareholders' equity to total assets
  JPY millions JPY millions JPY millions %
As of December 31, 2017 150,273 71,046 70,381 46.8
As of March 31, 2017 137,395 67,380 66,742 48.6

2. Dividends
   
  Dividend per Shares
1Q-end 2Q-end 3Q-end Year-end Total
  JPY JPY JPY JPY JPY
Fiscal Year Ended March 31, 2017 - 13.50 - 13.50 27.00
Fiscal Year EndingMarch 31, 2018 - 13.50 -    
Fiscal Year Ending March 31, 2018 (forecast)       13.50 27.00
(Note) Change from the latest released dividend forecasts: No.

3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2018
(April 1, 2017 through March 31, 2018) (% shown is YoY change)
  Total Revenues Operating Income Income before Income Tax Expense (Benefit) Net Income attributable to IIJ Basic Net Income attributable to IIJ per Share
  JPY millions % JPY millions % JPY millions % JPY millions % JPY
Fiscal Year Ending March 31, 2018 176,000 11.5 6,500 26.6 6,500 19.8 4,000 26.3 88.77
(Note1) Changes from the latest forecasts released: No

* Notes
(1) Changes in significant subsidiaries for the nine months ended December 31, 2017
  (Changes in significant subsidiaries for the nine months ended December 31, 2017 which resulted in changes in scope of consolidation): None
   
(2) Changes in significant accounting and reporting policies for the consolidated financial statements
  1 ) Changes due to the revision of accounting standards: Yes
    In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-17 "Balance Sheet Classification of Deferred Taxes." This ASU requires that deferred tax assets and liabilities be classified as noncurrent on the consolidated balance sheet. IIJ adopted this ASU from the first quarter beginning April 1, 2017, on a prospective basis, and did not retrospectively adjust the consolidated balance sheet as of March 31, 2017. As of March 31, 2017, the balance of current deferred tax assets and liabilities amounted to JPY1,298,469 thousand and JPY108,994 thousand, respectively.
     
  2 ) Others: No
     
(3) Number of shares outstanding (shares of common stock)
 
  1 ) The number of shares outstanding (inclusive of treasury stock):
    As of December 31, 2017: 46,713,800 shares
    As of March 31, 2017: 46,711,400 shares
     
  2 ) The number of treasury stock:
    As of December 31, 2017: 1,650,909 shares
    As of March 31, 2017: 1,650,909 shares
     
  3 ) The weighted average number of shares outstanding:
    For the nine months ended December 31, 2017: 45,062,874 shares
    For the nine months ended December 31, 2016: 45,846,887 shares

Internet Initiative Japan Inc. E-mail: ir@iij.ad.jp Tel: +81-3-5205-6500 URL: https://www.iij.ad.jp/en/ir

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