TOKYO, May 15, 2018 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. ("IIJ") (NASDAQ:IIJI) (TSE:3774) today announced its full year (“FY2017”) and fourth quarter (“4Q17”) consolidated financial results for the fiscal year ended March 31, 2018 (from April 1, 2017 to March 31, 2018).1

Highlights of Financial Results for FY2017 Revenues JPY176.1 billion (up 11.6% YoY) Operating Income JPY6.8 billion (up 31.7% YoY) Income before Income Tax Expense JPY7.8 billion (up 44.5% YoY) Net Income attributable to IIJ JPY5.1 billion (up 61.3% YoY) Annual Cash Dividend JPY27.00 per common share Financial Targets for FY2018 Revenues JPY190.0 billion (up 7.9% YoY) Operating Income JPY7.0 billion (up 3.5% YoY) Annual Cash Dividend JPY27.00 per common share -------------------------------- -------------------------------

Overview of FY2017 Financial Results and Business Outlook “As a leading comprehensive network service provider, we continued to expand recurring revenue which contributed to revenue and operating income growth for FY2017. Year over year revenue growth of recurring revenue, which amounted to 82.9% of FY2017 total revenue, was 14.0%, especially led by mobile and security. As for mobile, we accumulated subscription mainly through our 137 MVNE clients, despite the ongoing competitive consumer mobile market, as well as accumulation of M2M/IoT type transactions. Security-related services largely grew by 26.2% year over year due to overall strong demand and a particularly large project for a local government. Other recurring revenues such as Internet connectivity, outsourcing, WAN and systems operation and maintenance also grew with continuous accumulation of contracts. Operating income increased year over year mainly because both network and SI gross margin amount grew and a larger than expected NTT Docomo’s mobile interconnectivity unit price revision,” said Eijiro Katsu, COO and President of IIJ.

“As for business developments, we made several progress by leveraging our business assets: We launched full-MVNO services and plan to further accumulate enterprise IoT projects which inquiry number reached over 320 as of March 2018. Such IoT projects include connected homes business with Chubu Electric Power, smart factory business with Hirata, a factory production engineering company to name a few; We decided to build our second module-based data center near Tokyo to integrate our data center racks currently spread out in the metropolitan area for more effective operation; By leveraging IIJ Raptor,2 we established a new equity method investee, DeCurret, with eighteen prominent Japanese companies to launch cryptocurrency exchange and settlement platform business and plan to provide services from the latter half of FY2018; Almost all major Japanese broadcasting companies joined our equity method investee, JOCDN, to provide CDN services best-suited for Japanese Internet contents holders including TVer and others. Its business has kicked off quite fine and currently provide highly reliable CDN services to fifteen clients and expect to expand its customer base. We believe these are critical successful factors for our middle-to-long term growth,” said Katsu.

“For FY2018, we plan to continuously accumulate recurring revenue. As for operating income, we expect the continuous revenue growth of network, cloud and SI to create the total operating income growth while forefront fixed cost related to full-MVNO operations increases,” said Katsu.

“We seek for a significant income growth in FY2019 as the full-MVNO related cost burden should impose much less negative impact on our income as we accumulate revenue growth. For the middle term, we believe we shall be even more well positioned in the coming IoT society by leveraging our full-MVNO operations as well our strong competitive advantage of having wide range of service line-ups including cloud and mobile, SI expertise, and blue-chip customer base,” concluded Koichi Suzuki, Founder, CEO and Chairman of IIJ.

______________________1 Unless otherwise stated, all financial figures discussed in this announcement are prepared in accordance with U.S. GAAP, unaudited and consolidated.2 IIJ Raptor Service was launched in 2010 and its 13 customers include Nomura Securities and Sony Bank.

FY2017 Financial Results Summary

Operating Results Summary FY2016 FY2017 YoY Change -------------------------------- ------------ ------------ ------ JPY millions JPY millions % Total revenues 157,789 176,051 11.6 -------------------------------- ------------ ------------ ---- - Network services 92,996 108,119 16.3 -------------------------------- ------------ ------------ ---- - Systems integration (SI) 57,749 60,431 4.6 -------------------------------- ------------ ------------ ---- - Equipment sales 2,994 3,470 15.9 -------------------------------- ------------ ------------ ---- - ATM operation business 4,050 4,031 (0.5 ) -------------------------------- ------------ ------------ ---- - Total costs 132,542 147,818 11.5 -------------------------------- ------------ ------------ ---- - Network services 76,387 88,698 16.1 -------------------------------- ------------ ------------ ---- - Systems integration (SI) 50,992 53,612 5.1 -------------------------------- ------------ ------------ ---- - Equipment sales 2,735 3,142 14.9 -------------------------------- ------------ ------------ ---- - ATM operation business 2,428 2,366 (2.6 ) -------------------------------- ------------ ------------ ---- - Total gross margin 25,247 28,233 11.8 -------------------------------- ------------ ------------ ---- - Network services 16,609 19,421 16.9 -------------------------------- ------------ ------------ ---- - Systems integration (SI) 6,756 6,819 0.9 -------------------------------- ------------ ------------ ---- - Equipment sales 260 328 26.6 -------------------------------- ------------ ------------ ---- - ATM operation business 1,622 1,665 2.7 -------------------------------- ------------ ------------ ---- - SG&A expenses and R&D 20,113 21,471 6.8 -------------------------------- ------------ ------------ ---- - Operating income 5,134 6,762 31.7 -------------------------------- ------------ ------------ ---- - Income before income tax expense 5,427 7,840 44.5 -------------------------------- ------------ ------------ ---- - Net income attributable to IIJ 3,167 5,109 61.3 -------------------------------- ------------ ------------ ---- -

Segment Results Summary FY2016 FY2017 -------------------------------- --------- --------- JPY JPY millions millions Total revenues 157,789 176,051 -------------------------------- ------- - ------- - Network services and SI business 154,126 172,370 -------------------------------- ------- - ------- - ATM operation business 4,050 4,031 -------------------------------- ------- - ------- - Elimination (387 ) (350 ) -------------------------------- ------- - ------- - Operating income 5,134 6,762 -------------------------------- ------- - ------- - Network service and SI business 3,854 5,430 -------------------------------- ------- - ------- - ATM operation business 1,438 1,510 -------------------------------- ------- - ------- - Elimination (157 ) (178 ) -------------------------------- ------- - ------- -

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

FY2017 Revenues and IncomeRevenues Total revenues were JPY176,051 million, up 11.6% YoY (JPY157,789 million for FY2016).

Network services revenue was JPY108,119 million, up 16.3% YoY (JPY92,996 million for FY2016).

Revenues for Internet connectivity services for enterprise were JPY27,944 million, up 23.5% YoY from JPY22,634 million for FY2016, 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 JPY24,761 million, up 13.9% YoY from JPY21,735 million for FY2016, 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 JPY29,295 million, up 10.7% YoY compared to JPY26,460 million for FY2016, mainly due to the revenue growth along with order accumulation.

Revenues for Outsourcing services were JPY26,119 million, up 17.8% YoY from JPY22,167 million for FY2016, mainly due to an increase in security-related services revenues.

Network Services Revenues Breakdown FY2016 FY2017 YoY Change ------------------------------------------- ------------ ------------ ------- JPY millions JPY millions % Internet connectivity services (Enterprise) 22,634 27,944 23.5 ------------------------------------------- ------------ ------------ ----- - IP service* 9,768 10,105 3.4 ------------------------------------------- ------------ ------------ ----- - IIJ FiberAccess/F and IIJ DSL/F 3,043 2,997 (1.5 ) ------------------------------------------- ------------ ------------ ----- - IIJ Mobile service (Enterprise) 9,595 14,619 52.4 ------------------------------------------- ------------ ------------ ----- - IIJ Mobile MVNO Platform Service 6,441 10,866 68.7 ------------------------------------------- ------------ ------------ ----- - Others 228 223 (2.1 ) ------------------------------------------- ------------ ------------ ----- - Internet connectivity services (Consumer) 21,735 24,761 13.9 ------------------------------------------- ------------ ------------ ----- - IIJ 19,634 23,448 19.4 ------------------------------------------- ------------ ------------ ----- - IIJmio Mobile Service 17,109 20,710 21.0 ------------------------------------------- ------------ ------------ ----- - hi-ho 2,101 1,313 (37.5 ) ------------------------------------------- ------------ ------------ ----- - WAN services 26,460 29,295 10.7 ------------------------------------------- ------------ ------------ ----- - Outsourcing services 22,167 26,119 17.8 ------------------------------------------- ------------ ------------ ----- - Total network services 92,996 108,119 16.3 ------------------------------------------- ------------ ------------ ----- -

* IP service revenues include revenues from the data center connectivity service.

Number of Contracts and Subscription for Connectivity Services*1 as of as of YoY Mar. 31, 2017 Mar. 31, 2018 Change Internet connectivity services (Enterprise) 933,496 1,414,782 481,286 ------------------------------------------- ------------- ------------- -------- - IP service (1Gbps-) 437 468 31 ------------------------------------------- ------------- ------------- -------- - IP service (100Mbps-999Mbps) 591 658 67 ------------------------------------------- ------------- ------------- -------- - IP service (-99Mbps) 658 614 (44 ) ------------------------------------------- ------------- ------------- -------- - IIJ Data center connectivity service 253 241 (12 ) ------------------------------------------- ------------- ------------- -------- - IIJ FiberAccess/F and IIJ DSL/F 72,605 72,630 25 ------------------------------------------- ------------- ------------- -------- - IIJ Mobile service (Enterprise) 857,903 1,339,586 481,683 ------------------------------------------- ------------- ------------- -------- - IIJ Mobile MVNO Platform Service*2 582,250 824,731 242,481 ------------------------------------------- ------------- ------------- -------- - Others 1,049 585 (464 ) ------------------------------------------- ------------- ------------- -------- - Internet connectivity services (Consumer) 1,409,259 1,363,531 (45,728 ) ------------------------------------------- ------------- ------------- -------- - IIJ*2 1,275,875 1,363,531 87,656 ------------------------------------------- ------------- ------------- -------- - IIJmio Mobile Service 951,249 1,005,092 53,843 ------------------------------------------- ------------- ------------- -------- - hi-ho*2 133,384 - (133,384 ) ------------------------------------------- ------------- ------------- -------- - Total contracted bandwidth (Gbps)*3 2,773.3 3,117.7 344.4 ------------------------------------------- ------------- ------------- -------- -

*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 subscription for “Internet connectivity services (Consumer)” in our 3Q17 (from April 1, 2017 to December 31, 2017) financial results.*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 JPY60,431 million, up 4.6% YoY (JPY57,749 million for FY2016).

Systems construction revenue, a one-time revenue, was JPY22,528 million, almost same revenue volume as FY2016 revenue of JPY22,626 million, mainly due to continuous acquisition of system construction projects. Systems operation and maintenance revenue, a recurring revenue, was JPY37,903 million, up 7.9% YoY (JPY35,123 million for FY2016), mainly due to continued accumulation of systems operation orders as well as an increase in private cloud services’ revenues.

Orders received for SI and equipment sales totaled JPY68,988 million, up 0.6% YoY (JPY68,599 million for FY2016); orders received for systems construction and equipment sales were JPY25,810 million, down 3.4% YoY (JPY26,721 million for FY2016) and orders received for systems operation and maintenance were JPY43,178 million, up 3.1% YoY (JPY41,877 million for FY2016).

Order backlog for SI and equipment sales as of March 31, 2018 amounted to JPY46,588 million, up 12.3% YoY (JPY41,501 million as of March 31, 2017); order backlog for systems construction and equipment sales was JPY6,991 million, down 2.6% YoY (JPY7,179 million as of March 31, 2017) and order backlog for systems operation and maintenance was JPY39,597 million, up 15.4% YoY (JPY34,322 million as of March 31, 2017).

Equipment sales revenues were JPY3,470 million, up 15.9% YoY (JPY2,994 million for FY2016).

ATM operation business revenues were JPY4,031 million, down 0.5% YoY (JPY4,050 million for FY2016). As of March 31, 2018, 1,096 ATMs have been placed.

Cost and expense Total cost of revenues was JPY147,818 million, up 11.5% YoY (JPY132,542 million for FY2016).

Cost of network services revenue was JPY88,698 million, up 16.1% YoY (JPY76,387 million for FY2016). There were an increase in outsourcing-related costs due to our mobile services and an increase in circuit-related costs along with our WAN services revenue increase. Regarding NTT Docomo’s interconnectivity charge for MVNO-related services, the charge based on their FY2016 actual cost was revised in March 2018 and it decreased by 18.2% year over year. Gross margin was JPY19,421 million, up 16.9% YoY (JPY16,609 million for FY2016) and gross margin ratio was 18.0%.

Cost of SI revenues was JPY53,612 million, up 5.1% YoY (JPY50,992 million for FY2016). There was an increase in outsourcing-related costs along with our SI revenue increase. Gross margin was JPY6,819 million, up 0.9% YoY (JPY6,756 million for FY2016) and gross margin ratio was 11.3%.

Cost of equipment sales revenues was JPY3,142 million, up 14.9% YoY (JPY2,735 million for FY2016). Gross margin was JPY328 million, up 26.6% YoY (JPY260 million for FY2016) and gross margin ratio was 9.5%.

Cost of ATM operation business revenues was JPY2,366 million, down 2.6% YoY (JPY2,428 million for FY2016). Gross margin was JPY1,665 million, up 2.7% YoY (JPY1,622 million for FY2016) and gross margin ratio was 41.3%.

SG&A and R&D expenses SG&A and R&D expenses in total were JPY21,471 million, up 6.8% YoY (JPY20,113 million for FY2016).

Sales and marketing expenses were JPY12,688 million, up 11.0% YoY (JPY11,432 million for FY2016) mainly due to increases in advertising expenses, personnel-related expenses, and sales commission expenses.

General and administrative expenses were JPY8,296 million, up 1.0% YoY (JPY8,215 million for FY2016) mainly due to increases in personnel-related expenses.

Research and development expenses were JPY487 million, up 4.5% YoY (JPY466 million for FY2016).

Operating income Operating income was JPY6,762 million, up 31.7% YoY (JPY5,134 million for FY2016).

Other income (expenses) Other income (expenses) was an income of JPY1,078 million (an income of JPY293 million for FY2016), mainly because of net gain on sales of other investments, including available-for-sale securities, of JPY1,068 million (JPY217 million for FY2016), distribution from fund investment of JPY270 million (included in other-net of JPY237 million, JPY321 million for FY2016), dividend income of JPY243 million (JPY118 million for FY2016), interest expense of JPY375 million (JPY304 million for FY2016), and foreign exchange losses of JPY16 million (foreign exchange losses of JPY45 million for FY2016).

Income before income tax expenses Income before income tax expenses was JPY7,840 million, up 44.5% YoY (JPY5,427 million for FY2016).

Net income Income tax expense was JPY2,696 million (JPY2,225 million for FY2016).

Equity in net income of equity method investees was JPY135 million (JPY130 million for FY2016) mainly due to net income of Internet Multifeed Co.

As a result of the above, net income was JPY5,279 million, up 58.4% YoY (JPY3,332 million for FY2016).

Net income attributable to IIJ Net income attributable to non-controlling interests was JPY170 million (JPY165 million for FY2016) mainly related to net income of Trust Networks Inc.

Net income attributable to IIJ was JPY5,109 million, up 61.3% YoY (JPY3,167 million for FY2016).

FY2017 Balance SheetsBalance sheetsAs of March 31, 2018, the balance of total assets was JPY153,449 million, increased by JPY16,054 million from the balance as of March 31, 2017 of JPY137,395 million.

As of March 31, 2018, the balance of current assets was JPY67,185 million, increased by JPY3,463 million from the balance as of March 31, 2017 of JPY63,722 million. The major breakdown of current assets was: an increase in accounts receivables by JPY4,447 million to JPY31,831 million, a decrease in inventories by JPY1,084 million to JPY1,715 million, an increase in prepaid expenses by JPY832 million to JPY8,443 million and a decrease in cash and cash equivalents by JPY556 million to JPY21,403 million. As of March 31, 2018, the balance of noncurrent assets was JPY86,264 million, increased by JPY12,591 million from the balance as of March 31, 2017 of JPY73,673 million. The major breakdown of noncurrent assets was: property and equipment of JPY46,414 million, increased by JPY6,639 million, including JPY1,205 million by purchase of land, from the balance as of March 31, 2017, other investments of JPY11,374 million, increased by JPY3,450 million mainly due to an increase in the fair value of available-for-sale securities and an increase in prepaid expenses-noncurrent by JPY1,358 million to JPY7,966 million. Other investments as of March 31, 2018, consisted of JPY9,288 million in available-for-sale securities, JPY1,014 million in nonmarketable equity securities and JPY1,072 million in investments in funds, including some through a trust. As of March 31, 2018, the balance of non-amortized intangible assets was JPY6,116 million, decreased by JPY104 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 JPY2,671 million, decreased by JPY365 million from the balance as of March 31, 2017 of JPY3,036 million.

As of March 31, 2018, the balance of current liabilities was JPY42,145 million, increased by JPY2,162 million from the balance as of March 31, 2017 of JPY39,983 million. The major breakdown of current liabilities was: an increase in income taxes payable by JPY852 million to JPY1,928 million, an increase in capital lease obligations-current portion by JPY837 million to JPY5,656 million and a decrease in accounts payable (trade and other) by JPY563 million to JPY16,399 million. As of March 31, 2018, the balance of noncurrent liabilities was JPY37,315 million, increased by JPY7,283 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 JPY536 million to JPY10,921 million.

As of March 31, 2018, the balance of total IIJ shareholders’ equity was JPY73,270 million, increased by JPY6,528 million from the balance as of March 31, 2017 of JPY66,742 million and IIJ shareholders’ equity ratio (total IIJ shareholders’ equity divided by total assets) as of March 31, 2018 was 47.7%.

FY2017 Cash FlowsCash flows Cash and cash equivalents as of March 31, 2018 were JPY21,403 million (JPY21,959 million as of March 31, 2017).

Net cash provided by operating activities for FY2017 was JPY13,262 million (net cash provided by operating activities of JPY7,368 million for FY2016). There were net income of JPY5,279 million, depreciation and amortization of JPY12,365 million, and adjustment of net gain on sales of other investments, which was deducted from proceeds provided by operating activities, of JPY1,068 million. Regarding changes in operating assets and liabilities, it was net cash out of JPY3,526 million mainly due to an increase in accounts receivable along with revenue growth, an increase in prepaid expenses (including prepaid expense-noncurrent) in relation to upfront payment for software licenses and maintenance cost for service facilities.

Net cash used in investing activities for FY2017 was JPY13,037 million (net cash used in investing activities of JPY7,376 million for FY2016), mainly due to payments for purchase of property and equipment of JPY15,771 million (JPY10,624 million for FY2016), including JPY1,205 million for purchase of land, proceeds from sales of property and equipment, which include sales and leaseback transactions, of JPY3,306 million (JPY3,046 million for FY2016), investment in equity method investees, including DeCurret Inc., of JPY2,005 million (JPY99 million for FY2016) and proceeds from sales of available-for-sale securities of JPY1,207 million (JPY5 million for FY2016).

Net cash used in financing activities for FY2017 was JPY748 million (net cash provided by financing activities of JPY2,492 million for FY2016), mainly due to proceeds from long-term borrowings of JPY7,000 million, principal payments under capital leases of JPY5,724 million (JPY4,820 million for FY2016), FY2016 year-end and FY2017 interim dividends payments of JPY1,217 million (JPY1,126 million for FY2016) and payments of long-term accounts payable of JPY571 million (JPY30 million for FY2016).

FY2018 Financial TargetsOur total revenue and operating income targets for the fiscal year ending March 31, 2019 are as follows.

(JPY in billions) --------------------------------------------------- Total Revenue Operating Income ------------------ ------------- ---------------- 1H FY2018 Target 90.0 2.5 ------------------ ------------- ---------------- Full FY2018 Target 190.0 7.0 ------------------ ------------- ----------------

As Japanese economy continues to recover slowly, Japanese enterprises’ IT-related investment as well as spending should continue to grow during FY2018. For the mid-to-long term, market opportunity should expand as mobile-related services growth along with IoT-related projects and further penetration of cloud service as well as demand for outsourcing by Japanese enterprises. For FY2018, with continuous accumulation of network services and SI projects, we seek to increase revenue and operating income by expanding gross margin amount.

We target total revenue of JPY190.0 billion, up 7.9% year over year, mainly by continuously accumulating recurring revenue of network services and systems operation and maintenance. As for operating income, we target JPY7.0 billion, up 3.5% year over year. Gross margin growth, mainly by continuous expansion of network services gross margin as well as SI gross margin ratio improvement, should absorb forefront fixed cost increase related to full-MVNO operations.

Due to the revision of the accounting principles generally accepted in the U.S. (“U.S.GAAP”), fluctuation of unrealized gains or losses on holding available-for-sale equity securities will be recognized in other income (expenses) on our consolidated statements of income from 1Q18* and fluctuations of stock prices may impact our consolidated statements of income. Due to difficulties of forecasting such fluctuation, we do not disclose our FY2018 targets for income before income tax expense, net income attributable to IIJ, basic net income attributable to IIJ per share, and consolidated payout ratio of dividends.

*Unrealized gains or losses on holding available-for-sale equity securities are evaluated based on the closing price of March 30, 2018, FY2017-end, and are reclassed from accumulated other comprehensive income to retained earnings at the beginning of our FY2018. After that, fluctuations of unrealized gains or losses due to fluctuations of stock prices will be recognized in other income (expenses) at every quarter.

Consideration on IFRS AdoptionWe are considering to voluntarily adopt International Financial Reporting Standards (“IFRS”) from the filing of our FY2018 annual report “Yuka-shoken-houkokusho.” Under IFRS, we have an alternative to recognize unrealized gains or losses on holding available-for-sale equity securities as other comprehensive income.

Because of different accounting principles, our FY2018 consolidated financial statements disclosed in “Yuka-shoken-houkokusho” which will be prepared under IFRS might differ from our FY2018 consolidated financial statements disclosed in earnings press release as well as in the Convocation Notice for the 27th Ordinary General Meeting for Shareholders which will be prepared under the U.S. GAAP.

Planned schedule for voluntary adoption of IFRS:

-- Mid-May 2019: FY2018 unaudited consolidated financial statements disclosed in earnings press release (U.S.GAAP) -- Late-May 2019: FY2018 audited consolidated financial statements disclosed in the Convocation Notice for the 27th Ordinary General Meeting for Shareholders (U.S.GAAP) -- Late-June 2019: FY2018 audited consolidated financial statements disclosed in annual report “Yuka-shoken-houkokusho” (IFRS)

FY2018 Dividend ForecastOur FY2018 dividend forecast is as follows:

Interim Year-end Full Year --------------------------- ------------------- -------------------- -------------------- FY2018 Dividend (forecast) JPY13.50 (forecast) JPY13.50 (forecast) JPY27.00 (forecast) --------------------------- ------------------- -------------------- -------------------- FY2017 Dividend (scheduled) JPY13.50 (paid) JPY13.50 (scheduled) JPY27.00 (scheduled) --------------------------- ------------------- -------------------- --------------------

FY2017 Reconciliation of Non-GAAP Financial MeasuresThe 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 FY2016 FY2017 --------------------------------------------------------- --------- --------- JPY JPY millions millions Adjusted EBITDA 16,109 19,127 --------------------------------------------------------- ------- - ------- - Depreciation and Amortization (10,894 ) (12,365 ) --------------------------------------------------------- ------- - ------- - Impairment loss on other intangible assets (81 ) - --------------------------------------------------------- ------- - ------- - Operating Income 5,134 6,762 --------------------------------------------------------- ------- - ------- - Other Income 293 1,078 --------------------------------------------------------- ------- - ------- - Income Tax Expense 2,225 2,696 --------------------------------------------------------- ------- - ------- - Equity in Net Income of Equity Method Investees 130 135 --------------------------------------------------------- ------- - ------- - Net income 3,332 5,279 --------------------------------------------------------- ------- - ------- - Less: Net income attributable to noncontrolling interests (165 ) (170 ) --------------------------------------------------------- ------- - ------- - Net Income attributable to IIJ 3,167 5,109 --------------------------------------------------------- ------- - ------- -

CAPEX FY2016 FY2017 ----------------------------------------------------- ------------ ------------ JPY millions JPY millions CAPEX, including capital leases 16,531 20,828 ----------------------------------------------------- ------------ ------------ Acquisition of Assets by Entering into Capital Leases 8,302 7,109 ----------------------------------------------------- ------------ ------------ Purchase of Property and Equipment 8,229 13,719 ----------------------------------------------------- ------------ ------------

PresentationPresentation materials will be posted on our web site (https://www.iij.ad.jp/en/ir/) on May 15, 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 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 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; fluctuations of equity in net income (loss) of equity method investees; 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 March 31, 2018) As of March As of March 31, 2017 31, 2018 Thousands of Thousands of JPY JPY ------------------------------------------------------------------- ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents 21,958,591 21,402,892 Accounts receivable, net of allowance for doubtful accounts of JPY 107,684 thousand and JPY 123,453 thousand 27,383,692 31,830,882 at March 31, 2017 and March 31, 2018, respectively Inventories 2,798,054 1,714,547 Prepaid expenses—current 7,610,925 8,442,981 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 2,672,008 3,793,449 March 31, 2018, respectively Total current assets 63,721,739 67,184,751 ----------- - ----------- - INVESTMENTS IN EQUITY METHOD INVESTEES 3,150,175 5,246,313 OTHER INVESTMENTS 7,924,914 11,374,442 PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of JPY 50,566,983 thousand and JPY 55,470,955 thousand 39,775,444 46,414,250 at March 31, 2017 and March 31, 2018, respectively GOODWILL 6,169,609 6,082,472 OTHER INTANGIBLE ASSETS—Net 3,087,017 2,704,668 GUARANTEE DEPOSITS 3,060,365 3,422,443 DEFERRED TAX ASSETS—Noncurrent 80,566 183,808 NET INVESTMENT IN SALES-TYPE LEASES—Noncurrent 2,047,682 1,545,293 Prepaid expenses—Noncurrent 6,607,437 7,965,889 OTHER ASSETS, net of allowance for doubtful accounts of JPY 61,877 thousand and JPY 60,929 thousand 1,770,201 1,324,490 at March 31, 2017 and March 31, 2018, respectively TOTAL 137,395,149 153,448,819 ------------------------------------------------------------------- ------------- ------------- As of March As of March 31, 2017 31, 2018 Thousands of Thousands of JPY JPY ------------------------------------------------------------------- ------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings 9,250,000 9,250,000 Capital lease obligations—current portion 4,818,723 5,655,875 Accounts payable—trade 14,653,065 14,950,920 Accounts payable—other 2,308,790 1,448,423 Income taxes payable 1,075,745 1,928,037 Accrued expenses 2,755,581 3,111,385 Deferred income—current 3,750,542 4,237,676 Other current liabilities 1,370,661 1,562,717 Total current liabilities 39,983,107 42,145,033 ----------- - ----------- - LONG-TERM BORROWINGS 8,500,000 15,500,000 CAPITAL LEASE OBLIGATIONS—Noncurrent 10,384,643 10,920,726 ACCRUED RETIREMENT AND PENSION COSTS—Noncurrent 3,532,965 3,724,634 DEFERRED TAX LIABILITIES—Noncurrent 963,845 688,787 DEFERRED INCOME—Noncurrent 3,656,612 3,952,279 OTHER NONCURRENT LIABILITIES 2,993,777 2,528,803 Total Liabilities 70,014,949 79,460,262 ----------- - ----------- - 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 25,509,499 25,511,804 March 31, 2018, respectively Additional paid-in capital 36,117,511 36,175,937 Retained earnings 4,511,945 8,404,228 Accumulated other comprehensive income 2,499,700 5,074,872 Treasury stock—1,650,909 shares held by the company at March 31, (1,896,784 ) (1,896,784 ) 2017 and March 31, 2018, respectively Total Internet Initiative Japan Inc. shareholders' equity 66,741,871 73,270,057 ----------- - ----------- - NONCONTROLLING INTERESTS 638,329 718,500 ----------- - ----------- - Total equity 67,380,200 73,988,557 ----------- - ----------- - TOTAL 137,395,149 153,448,819 ------------------------------------------------------------------- ------------- -------------

Internet Initiative Japan Inc. Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Unaudited) (For the fiscal year ended March 31, 2017 and March 31, 2018) ------------- ------------- Fiscal Year Fiscal Year Ended Ended March 31, March 31, 2017 2018 ------------- Thousands of Thousands of JPY JPY --------------------------------------------------- ------------- ------------- REVENUES: Network services: Internet connectivity services (enterprise) 22,633,739 27,943,656 Internet connectivity services (consumer) 21,734,968 24,761,487 WAN services 26,459,697 29,295,097 Outsourcing services 22,167,432 26,118,657 Total 92,995,836 108,118,897 ----------- - ----------- - Systems integration: Systems construction 22,625,753 22,527,433 Systems operation and maintenance 35,122,940 37,903,235 Total 57,748,693 60,430,668 ----------- - ----------- - Equipment sales 2,994,449 3,470,400 ATM operation business 4,050,081 4,030,684 Total revenues 157,789,059 176,050,649 ----------- - ----------- - COSTS AND EXPENSES: Cost of network services 76,386,849 88,697,639 Cost of systems integration 50,992,480 53,612,063 Cost of equipment sales 2,735,169 3,142,262 Cost of ATM operation business 2,427,870 2,365,403 Total costs 132,542,368 147,817,367 ----------- - ----------- - Sales and marketing 11,431,467 12,688,046 General and administrative 8,214,598 8,295,583 Research and development 466,319 487,451 Total costs and expenses 152,654,752 169,288,447 ----------- - ----------- - OPERATING INCOME 5,134,307 6,762,202 ----------- - ----------- - OTHER INCOME (EXPENSES): Dividend income 117,567 242,576 Interest income 35,259 30,527 Interest expense (303,685 ) (375,202 ) Foreign exchange gain (loss), net (45,116 ) (15,863 ) Net gain on sales of other investments 216,646 1,068,303 Loss on sales of stocks of an affiliate (12,070 ) - Impairment of other investments (30,554 ) (109,840 ) Other —net 314,806 237,420 Other income —net 292,853 1,077,921 ----------- - ----------- - INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 5,427,160 7,840,123 AND EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES INCOME TAX EXPENSE 2,224,880 2,695,839 EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES 129,791 134,656 NET INCOME 3,332,071 5,278,940 LESS: NET INCOME ATTRIBUTABLE TO (165,561 ) (169,991 ) NONCONTROLLING INTERESTS ----------- - ----------- - NET INCOME ATTRIBUTABLE TO INTERNET 3,166,510 5,108,949 INITIATIVE JAPAN INC. --------------------------------------------------- ------------- ------------- Fiscal Year Fiscal Year Ended Ended March 31, March 31, 2017 2018 --------------------------------------------------- ------------- ------------- NET INCOME PER SHARE BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 45,652,981 45,062,878 DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 45,772,470 45,215,686 BASIC WEIGHTED-AVERAGE NUMBER OF 91,305,962 90,125,756 ADS EQUIVALENTS (ADSs) DILUTED WEIGHTED-AVERAGE NUMBER OF 91,544,940 90,431,372 ADS EQUIVALENTS (ADSs) BASIC NET INCOME PER SHARE (JPY) 69.36 113.37 DILUTED NET INCOME PER SHARE (JPY) 69.18 112.99 BASIC NET INCOME PER ADS EQUIVALENT (JPY) 34.68 56.69 DILUTED NET INCOME PER ADS EQUIVALENT (JPY) 34.59 56.50 --------------------------------------------------- ----------- - ----------- - Consolidated Statements of Comprehensive Income (Unaudited) Fiscal Year Fiscal Year Ended Ended March 31, March 31, 2017 2018 ------------- ------------- Thousands of Thousands of JPY JPY --------------------------------------------------- ------------- ------------- NET INCOME 3,332,071 5,278,940 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Foreign currency translation adjustments (181,110 ) (904 ) Unrealized holding gain on securities 1,280,095 2,542,210 Defined benefit pension plans 204,046 33,866 ----------- - ----------- - TOTAL COMPREHENSIVE INCOME 4,635,102 7,854,112 LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO (165,561 ) (169,991 ) NONCONTROLLING INTERESTS ----------- - ----------- - COMPREHENSIVE INCOME ATTRIBUTABLE TO 4,469,541 7,684,121 INTERNET INITIATIVE JAPAN INC. --------------------------------------------------- ------------- -------------

Internet Initiative Japan Inc. Consolidated Statements of Shareholders' Equity (Unaudited) (For the fiscal year ended March 31, 2017 and March 31, 2018) Internet Initiative Japan Inc. shareholders' equity ------------------------------------------------------------------------------ NON Total Retained Accumulated Shares of CONTROLLIN equity earnings other common Common Treasury Additional G (Accumulated comprehensive stock stock stock paid-in INTERESTS deficit) outstanding capital income (loss) --------------- ------------ ------------ ------------- ----------- ---------- ------------ ------------ --------- Thousands Thousands Thousands Shares Thousands Thousands Thousands Thousands of JPY of JPY of JPY of JPY of JPY of JPY of JPY --------------- ------------ ------------ ------------- ----------- ---------- ------------ ------------ --------- BALANCE, MARCH 65,343,975 2,471,276 1,196,669 46,711,400 25,509,499 (392,070 ) 36,059,833 498,768 31, 2016 Dividends paid to (26,000 ) (26,000 ) noncontrolling interests Stock-based 57,678 57,678 compensation  Net Income 3,332,071 3,166,510 165,561  Other Comprehensive 1,303,031 1,303,031 income (loss), net of tax Dividends paid (1,125,841 ) (1,125,841 ) Payments for purchase of (1,504,714 ) (1,504,714 ) treasury stock BALANCE, MARCH 67,380,200 4,511,945 2,499,700 46,711,400 25,509,499 (1,896,784 ) 36,117,511 638,329 31, 2017 ---------- - ---------- - ------------- ----------- ---------- ---------- - ---------- - ------- - Issuance of common stock upon 2 2,400 2,305 (2,303 ) exercise of stock options Dividends paid to (46,800 ) (46,800 ) noncontrolling interests Change in ownership for non-controlling (39,612 ) 3,408 (43,020 ) interests and others Stock-based 57,321 57,321 compensation  Net Income 5,278,940 5,108,949 169,991 Other Comprehensive 2,575,172 2,575,172 income (loss), net of tax Dividends paid (1,216,666 ) (1,216,666 ) BALANCE, MARCH 73,988,557 8,404,228 5,074,872 46,713,800 25,511,804 (1,896,784 ) 36,175,937 718,500 31, 2018 --------------- ------------ ------------ ------------- ----------- ---------- ------------ ------------ ---------

Internet Initiative Japan Inc. Consolidated Statements of Cash Flows (Unaudited) (For the fiscal year ended March 31, 2017 and March 31, 2018) Fiscal Year Fiscal Year Ended Ended March 31, March 31, 2017 2018 ------------- ------------- Thousands of Thousands of JPY JPY --------------------------------------------------------------------------------- ------------- ------------- OPERATING ACTIVITIES: Net income 3,332,071 5,278,940 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,893,657 12,364,873 Impairment loss on other intangible assets 81,000 - Provision for retirement and pension costs, less payments 252,825 241,868 Provision for allowance for doubtful accounts 68,300 94,839 Gain on sales of property and equipment (31,809 ) (12,376 ) Loss on disposal of property and equipment 170,971 112,329 Net gain on sales of other investments (216,646 ) (1,068,303 ) Loss on sales of stocks of an affiliate 12,070 - Impairment of other investments 30,554 113,450 Foreign exchange loss, net 18,152 32,514 Equity in net income of equity method investees, less dividends received (78,709 ) (83,465 ) Deferred income tax benefit (94,343 ) (312,933 ) Other (44,667 ) 25,856 Changes in operating assets and liabilities net of effects from divestitures of a company : Increase in accounts receivable (3,751,392 ) (4,823,584 ) Decrease in net investment in sales-type lease — noncurrent 492,530 502,389 Decrease (increase) in inventories (800,296 ) 1,085,649 Increase in prepaid expenses (2,859,763 ) (842,521 ) Increase in other current and noncurrent assets (3,317,968 ) (2,194,591 ) Increase in accounts payable 827,792 358,299 Increase (decrease) in income taxes payable (2,621 ) 861,899 Increase (decrease) in accrued expenses (167,597 ) 351,710 Increase in deferred income—current 1,257,870 487,931 Increase in deferred income—noncurrent 604,269 332,765 Increase in other current and noncurrent liabilities 691,442 354,226 Net cash provided by operating activities 7,367,692 13,261,764 --------------------------------------------------------------------------------- ----------- - ----------- - INVESTING ACTIVITIES: Purchase of property and equipment (10,623,993 ) (15,770,587 ) Proceeds from sales of property and equipment 3,046,189 3,305,813 Purchase of other investments (410,587 ) (286,695 ) Investment in equity method investees (99,000 ) (2,004,808 ) Proceeds from sales of available-for-sale securities 4,840 1,206,516 Proceeds from sales of other investments 534,549 157,341 Payments of guarantee deposits (50,345 ) (380,343 ) Refund of guarantee deposits 92,002 26,458 Payments for refundable insurance policies (56,476 ) (56,362 ) Proceeds from sale of stock of a subsidiary, net of cash divested - 726,081 Proceeds from subsidies 200,000 48,976 Other (13,000 ) (9,715 ) --------------------------------------------------------------------------------- ----------- - ----------- - Net cash used in investing activities (7,375,821 ) (13,037,325 ) --------------------------------------------------------------------------------- ----------- - ----------- - Fiscal Year Fiscal Year Ended Ended March 31, March 31, 2017 2018 ------------- ------------- Thousands of Thousands of JPY JPY --------------------------------------------------------------------------------- ------------- FINANCING ACTIVITIES: Proceeds from short-term borrowings with initial maturities over three months and 8,550,000 9,550,000 long-term borrowings Net increase in short-term borrowings with initial maturities less than three - (150,000 ) months Repayments of short-term borrowings with initial maturities over three months (50,000 ) (2,550,000 ) Principal payments under capital leases (4,819,530 ) (5,723,729 ) Proceeds from long-term accounts payable 1,498,306 - Payments of long-term accounts payable (30,122 ) (571,373 ) Dividends paid (1,125,841 ) (1,216,666 ) Payments for purchase of treasury stock (1,504,714 ) - Other (26,000 ) (86,410 ) Net cash provided by (used in) financing activities 2,492,099 (748,178 ) --------------------------------------------------------------------------------- ----------- - ----------- - EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (94,474 ) (31,960 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,389,496 (555,699 ) CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 19,569,095 21,958,591 --------------------------------------------------------------------------------- ----------- - ----------- - CASH AND CASH EQUIVALENTS, END OF THE PERIOD 21,958,591 21,402,892 --------------------------------------------------------------------------------- ----------- - ----------- - ADDITIONAL CASH FLOW INFORMATION: Interest paid 302,035 368,413 Income taxes paid 2,462,106 2,063,530 NONCASH INVESTING AND FINANCING ACTIVITIES: Acquisition of assets by entering into capital leases 8,301,695 7,108,629 Facilities purchase liabilities 2,308,790 1,448,423 Asset retirement obligation 31,980 49,609 --------------------------------------------------------------------------------- ------------- -------------

Fourth Quarter FY2017 Consolidated Financial Results (3 months)The following tables are highlight data of fourth Quarter FY2017 (3 months) consolidated financial results (unaudited, for the three months ended March 31, 2018).

Operating Results Summary 4Q16 4Q17 YoY Change -------------------------------- ------------ ------------ ------ JPY millions JPY millions % Total Revenues: 44,187 48,439 9.6 -------------------------------- ------------ ------------ ---- - Network Services 24,515 28,119 14.7 -------------------------------- ------------ ------------ ---- - Systems Integration (SI) 17,891 18,130 1.3 -------------------------------- ------------ ------------ ---- - Equipment Sales 787 1,195 51.9 -------------------------------- ------------ ------------ ---- - ATM Operation Business 994 995 0.0 -------------------------------- ------------ ------------ ---- - Cost of Revenues: 36,770 39,961 8.7 -------------------------------- ------------ ------------ ---- - Network Services 20,113 22,588 12.3 -------------------------------- ------------ ------------ ---- - Systems Integration (SI) 15,348 15,715 2.4 -------------------------------- ------------ ------------ ---- - Equipment Sales 711 1,089 53.2 -------------------------------- ------------ ------------ ---- - ATM Operation Business 598 569 (4.7 ) -------------------------------- ------------ ------------ ---- - SG&A Expenses and R&D 5,438 5,491 1.0 -------------------------------- ------------ ------------ ---- - Operating Income 1,979 2,987 50.9 -------------------------------- ------------ ------------ ---- - Income before Income Tax Expense 1,994 3,512 76.1 -------------------------------- ------------ ------------ ---- - Net Income attributable to IIJ 1,256 2,421 92.7 -------------------------------- ------------ ------------ ---- -

Network Service Revenue Breakdown 4Q16 4Q17 YoY Change ------------------------------------------ ------------ ------------ -------- JPY millions JPY millions % Internet Connectivity Service (Enterprise) 6,173 7,526 21.9 ------------------------------------------ ------------ ------------ ------ - IP Service*1 2,438 2,552 4.7 ------------------------------------------ ------------ ------------ ------ - IIJ FiberAccess/F and IIJ DSL/F 763 735 (3.8 ) ------------------------------------------ ------------ ------------ ------ - IIJ Mobile Service 2,915 4,183 43.5 ------------------------------------------ ------------ ------------ ------ - IIJ Mobile MVNO Platform Service 2,083 3,125 50.0 ------------------------------------------ ------------ ------------ ------ - Others 57 56 (0.3 ) ------------------------------------------ ------------ ------------ ------ - Internet Connectivity Service (Consumer) 5,832 6,054 3.8 ------------------------------------------ ------------ ------------ ------ - IIJ 5,344 6,054 13.3 ------------------------------------------ ------------ ------------ ------ - IIJmio Mobile Service 4,672 5,367 14.9 ------------------------------------------ ------------ ------------ ------ - hi-ho*2 488 - (100.0 ) ------------------------------------------ ------------ ------------ ------ - WAN Services 6,612 7,619 15.2 ------------------------------------------ ------------ ------------ ------ - Outsourcing Services 5,899 6,920 17.3 ------------------------------------------ ------------ ------------ ------ - Network Services Revenues 24,515 28,119 14.7 ------------------------------------------ ------------ ------------ ------ -

*1 IP service revenues include revenues from the data center connectivity service.*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 revenue for “Internet connectivity services (Consumer)” decreased to zero.

Reconciliation of Non-GAAP Financial Measures (Fourth 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 4Q16 4Q17 --------------------------------------------------------- -------- -------- JPY JPY millions millions Adjusted EBITDA 4,948 6,196 --------------------------------------------------------- ------ - ------ - Depreciation and Amortization (2,888 ) (3,209 ) --------------------------------------------------------- ------ - ------ - Impairment loss on other intangible assets (81 ) - --------------------------------------------------------- ------ - ------ - Operating Income 1,979 2,987 --------------------------------------------------------- ------ - ------ - Other Income (Expense) 15 525 --------------------------------------------------------- ------ - ------ - Income Tax Expense (Benefit) 759 1,082 --------------------------------------------------------- ------ - ------ - Equity in Net Income of Equity Method Investees 61 33 --------------------------------------------------------- ------ - ------ - Net income 1,296 2,463 --------------------------------------------------------- ------ - ------ - Less: Net income attributable to noncontrolling interests (39 ) (42 ) --------------------------------------------------------- ------ - ------ - Net Income attributable to IIJ 1,257 2,421 --------------------------------------------------------- ------ - ------ -

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 4Q16 4Q17 ----------------------------------------------------- ------------ ------------ JPY millions JPY millions CAPEX, including capital leases 4,273 5,072 ----------------------------------------------------- ------------ ------------ Acquisition of Assets by Entering into Capital Leases 2,459 1,484 ----------------------------------------------------- ------------ ------------ Purchase of Property and Equipment 1,814 3,588 ----------------------------------------------------- ------------ ------------

Internet Initiative Japan Inc. Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive Income (Unaudited) (Three Months ended March 31, 2017 and March 31, 2018) Three Months Three Months Ended Ended March 31, March 31, 2017 2018 ------------ ------------ Thousands of Thousands of JPY JPY ---------------------------------------------- ------------ ------------ REVENUES: Network services: Internet connectivity services (enterprise) 6,172,534 7,525,693 Internet connectivity services (consumer) 5,832,016 6,054,155 WAN services 6,611,961 7,619,194 Outsourcing services 5,898,789 6,920,258 ---------- - ---------- - Total 24,515,300 28,119,300 ---------- - ---------- - Systems integration: Systems construction 8,652,946 7,996,955 Systems operation and maintenance 9,237,719 10,132,656 Total 17,890,665 18,129,611 ---------- - ---------- - Equipment sales 786,800 1,195,037 ATM operation business 994,342 994,727 ---------- - Total revenues 44,187,107 48,438,675 ---------- - ---------- - COST AND EXPENSES: Cost of network services 20,113,321 22,588,521 Cost of systems integration 15,348,322 15,714,175 Cost of equipment sales 710,907 1,088,830 Cost of ATM operation business 597,775 569,491 ---------- - ---------- - Total costs 36,770,325 39,961,017 ---------- - ---------- - Sales and marketing 3,039,453 3,137,162 General and administrative 2,286,433 2,225,575 Research and development 111,908 128,326 ---------- - ---------- - Total costs and expenses 42,208,119 45,452,080 ---------- - ---------- - OPERATING INCOME 1,978,988 2,986,595 ---------- - ---------- - OTHER INCOME (EXPENSE): Dividend income 11,231 11,792 Interest income 8,478 7,397 Interest expense (85,481 ) (98,828 ) Foreign exchange gain (loss), net (22,044 ) (44,394 ) Net gain on sales of other investments 2,708 694,804 Loss on sales of stocks of an affiliate (12,070 ) - Impairment of other investments - (109,840 ) Other—net 112,320 64,024 ---------- - Other income —net 15,142 524,955 ---------- - ---------- - INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET INCOME 1,994,130 3,511,550 OF EQUITY METHOD INVESTEES INCOME TAX EXPENSE 759,028 1,081,884 EQUITY IN NET INCOME OF EQUITY 60,547 33,487 METHOD INVESTEES ---------- - NET INCOME 1,295,649 2,463,153 LESS: NET INCOME ATTRIBUTABLE TO (39,400 ) (42,100 ) NONCONTROLLING INTERESTS ---------- - ---------- - NET INCOME ATTRIBUTABLE TO 1,256,249 2,421,053 INTERNET INITIATIVE JAPAN INC. ---------------------------------------------- ---------- - ---------- - Three Months Three Months Ended Ended March 31, March 31, 2017 2018 ---------------------------------------------- ------------ ------------ NET INCOME PER SHARE BASIC WEIGHTED-AVERAGE NUMBER OF 45,652,981 45,062,891 SHARES (shares) DILUTED WEIGHTED-AVERAGE NUMBER 45,772,470 45,227,668 OF SHARES (shares) BASIC WEIGHTED-AVERAGE NUMBER OF 91,305,962 90,125,782 ADS EQUIVALENTS (ADSs) DILUTED WEIGHTED-AVERAGE NUMBER 91,544,940 90,455,336 OF ADS EQUIVALENTS (ADSs) BASIC NET INCOME PER SHARE (JPY) 27.52 53.73 DILUTED NET INCOME PER SHARE (JPY) 27.45 53.53 BASIC NET INCOME PER ADS 13.76 26.86 EQUIVALENT (JPY) DILUTED NET INCOME PER ADS 13.72 26.77 EQUIVALENT (JPY) ---------------------------------------------- ---------- - ---------- - Quarterly Consolidated Statements of Comprehensive Income (Unaudited) Three Months Three Months Ended Ended March 31, March 31, 2017 2018 ------------ ------------ Thousands of Thousands of JPY JPY ---------------------------------------------- ------------ ------------ NET INCOME 1,295,649 2,463,153 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Foreign currency translation adjustments 274,048 12,497 Unrealized holding gain on securities 359,360 410,023 Defined benefit pension plans 193,168 31,369 ---------- - ---------- - TOTAL COMPREHENSIVE INCOME 2,122,225 2,917,042 LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO (39,400 ) (42,100 ) NONCONTROLLING INTERESTS ---------- - ---------- - COMPREHENSIVE INCOME ATTRIBUTABLE TO 2,082,825 2,874,942 INTERNET INITIATIVE JAPAN INC. ---------------------------------------------- ---------- - ---------- -

Internet Initiative Japan Inc. Consolidated Statements of Cash Flows (Unaudited) (Three Months ended March 31, 2017 and March 31, 2018) Three Months Three Months Ended Ended March 31, March 31, 2017 2018 ------------ ------------ Thousands of Thousands of JPY JPY ------------------------------------------------------------------------------------ ------------ ------------ OPERATING ACTIVITIES: Net income 1,295,649 2,463,153 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,887,608 3,209,013 Impairment loss on other intangible assets 81,000 - Provision for retirement and pension costs, less payments 63,902 45,669 Provision for allowance for doubtful accounts 48,311 26,908 Loss (gain) on sales of property and equipment (16,399 ) 1,260 Loss on disposal of property and equipment 116,490 49,938 Net gain on sales of other investments (2,708 ) (694,804 ) Loss on sales of stocks of an affiliate 12,070 - Impairment of other investments - 113,450 Foreign exchange loss, net 18,429 43,525 Equity in net income of equity method investees, less dividends received (60,547 ) (33,487 ) Deferred income tax benefit (444,078 ) (289,924 ) Other 7,049 71,165 Changes in operating assets and liabilities net of effects from divestitures of a company : Increase in accounts receivable (3,687,105 ) (4,233,708 ) Decrease in net investment in sales-type lease — noncurrent 92,140 130,941 Decrease in inventories 786,260 2,614,446 Decrease (increase) in prepaid expenses (405,326 ) 512,885 Decrease (increase) in other current and noncurrent assets 1,216,437 (202,209 ) Increase (decrease) in accounts payable 667,465 (540,684 ) Increase in income taxes payable 764,551 1,397,103 Increase (decrease) in accrued expenses (186,236 ) 110,343 Increase in deferred income—current 1,117,832 67,994 Increase in deferred income—noncurrent 302,112 96,280 Increase (decrease) in other current and noncurrent liabilities (1,714,893 ) 6,504 Net cash provided by operating activities 2,960,013 4,965,761 ------------------------------------------------------------------------------------ ---------- - ---------- - INVESTING ACTIVITIES: Purchase of property and equipment (2,683,903 ) (3,985,425 ) Proceeds from sales of property and equipment 827,010 549,094 Purchase of other investments (94,416 ) (155,577 ) Investment in an equity method investee - (1,830,000 ) Proceeds from sales of available-for-sale securities 4,840 746,499 Proceeds from sales of other investments 300 1,075 Payments of guarantee deposits (33,243 ) (82,198 ) Refund of guarantee deposits 4,298 5,625 Payments for refundable insurance policies (14,091 ) (14,090 ) Other 2,000 (5 ) ---------- - ---------- - Net cash used in investing activities (1,987,205 ) (4,765,002 ) ------------------------------------------------------------------------------------ ---------- - ---------- - Three Months Three Months Ended Ended March 31, March 31, 2017 2018 ------------ ------------ Thousands of Thousands of JPY JPY ------------------------------------------------------------------------------------ ------------ FINANCING ACTIVITIES: Net increase in short-term borrowings with initial maturities less than three months - (150,000 ) Principal payments under capital leases (1,284,643 ) (1,493,754 ) Proceeds from long-term accounts payable 1,498,306 - Payments of long-term accounts payable (30,122 ) (165,122 ) Payments for purchase of treasury stock (522,607 ) - Other - 11,250 Net cash used in financing activities (339,066 ) (1,797,626 ) ------------------------------------------------------------------------------------ ---------- - ---------- - EFFECT OF EXCHANGE RATE CHANGES ON 58,631 (44,389 ) CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 692,373 (1,641,256 ) CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 21,266,218 23,044,148 ------------------------------------------------------------------------------------ ---------- - ---------- - CASH AND CASH EQUIVALENTS, END OF THE PERIOD 21,958,591 21,402,892 ------------------------------------------------------------------------------------ ---------- - ---------- -

Note: The following information is provided to disclose Internet Initiative Japan Inc. ("IIJ") financial results (unaudited) for the fiscal year ended March 31, 2018 (“FY2017”) in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Fiscal Year Ended March 31, 2018 [Under accounting principles generally accepted in the United States ("U.S. GAAP")]

May 15, 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 annual general shareholder’s meeting: June 28, 2018Scheduled date for dividend payment: June 29, 2018Scheduled date for filing of annual report (Yuka-shoken-houkokusho) to Japan’s regulatory organization: June 29, 2018Supplemental material on annual 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 Fiscal Year Ended March 31, 2018 (April 1, 2017 to March 31, 2018)

(1) Consolidated Results of Operations (% shown is YoY change) Total revenues Operating income Income before Net income income tax expense attributable to IIJ --------------------------- ------------------ -------------------- -------------------- -------------------- JPY millions % JPY millions % JPY millions % JPY millions % Fiscal year ended March 31, 176,051 11.6 6,762 31.7 7,840 44.5 5,109 61.3 2018 Fiscal year ended March 31, 157,789 12.2 5,134 (16.4 ) 5,427 (12.4 ) 3,167 (21.6 ) 2017 --------------------------- ------------ ---- ------------ ----- - ------------ ----- - ------------ ----- -

Total comprehensive income attributable to IIJ (Note1) Fiscal year ended March 31, 2018: JPY7,684 million (up 71.9% YoY) Fiscal year ended March 31, 2017: JPY4,470 million (up 35.6% YoY) Income before income tax expense represents income from operations before income tax expense and (Note2) equity in net income in equity method investees, respectively, in IIJ's consolidated financial statements.

Diluted net income Net income Basic net income attributable to Income before Total revenues attributable to attributable to IIJ income tax operating margin IIJ IIJ to total expense to total ratio per share per share shareholders' assets equity ----------------- ---------------- ------------------ --------------- ---------------- ---------------- JPY JPY % % % Fiscal year ended 113.37 112.99 7.3 5.4 3.8 March 31, 2018 Fiscal year ended 69.36 69.18 4.8 4.3 3.3 March 31, 2017 ----------------- ---------------- ------------------ --------------- ---------------- ----------------

Equity in net income of equity method investees (Reference) Fiscal year ended March 31, 2018: JPY135 million Fiscal year ended March 31, 2017: JPY130 million

(2) Consolidated Financial Position -------------------------------------------------------------------------------------------------- Total IIJ Total IIJ Total IIJ Total assets Total equity shareholders' shareholders' shareholders’ equity equity to total equity per share assets -------------------- ------------ ------------ ------------- --------------- ---------------- JPY millions JPY millions JPY millions % JPY As of March 31, 2018 153,449 73,989 73,270 47.7 1,625.95 As of March 31, 2017 137,395 67,380 66,742 48.6 1,481.16 -------------------- ------------ ------------ ------------- --------------- ----------------

(3) Consolidated Cash Flow ------------------------------------------------------------------------------------ Cash and cash Operating activities Investing Financing equivalents activities activities (end of the period) ----------------- -------------------- -------------- -------------- ------------- JPY millions JPY millions JPY millions JPY millions Fiscal year ended 13,262 (13,037 ) (748 ) 21,403 March 31, 2018 Fiscal year ended 7,368 (7,376 ) 2,492 21,959 March 31, 2017 ----------------- -------------------- ------------ - ------------ - -------------

2. Dividends ---------------------------------------------------------------------------------------------------------- Dividend per Shares ---------------------------------------- Ratio of Total cash Payout Dividends to dividends for Ratio Shareholder's 1Q-end 2Q-end 3Q-end Year-end Total the year (consolidated) Equity (consolidated) ------------------ ------ ------ ------ -------- ----- ------------- -------------- -------------- JPY JPY JPY JPY JPY JPY millions % % Fiscal Year Ended - 13.50 - 13.50 27.00 1,229 38.9 1.9 March 31, 2017 Fiscal Year Ended - 13.50 - 13.50 27.00 1,217 23.8 1.7 March 31, 2018 Fiscal Year Ending - 13.50 - 13.50 27.00 March 31, 2019 (forecast) ------------------ ------ ------ ------ -------- ----- ------------- -------------- --------------

(Note) Change from the latest released dividend forecasts: No.

3. Target of Consolidated Financial Results for the Fiscal Year Ending March 31, 2019

(April 1, 2018 through March 31, 2019) (% shown is YoY change) -------------------------------------- ------------------ ----------------------- Total Operating Revenues Income -------------------------------------- ------------------ ----------------------- JPY millions  %  JPY millions  %  Interim Period Ending 90,000 8.4 2,500 8.0 September 30, 2018 -------------------------------------- ------------- --- ------------- --- ----- Fiscal Year Ending 190,000 7.9 7,000 3.5 March 31, 2019 -------------------------------------- ------------- --- ------------- --- -----

* Notes

1. Changes in significant subsidiaries for the fiscal year ended March 31, 2018 (Changes in significant subsidiaries for the fiscal year ended March 31, 2018 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 March 31, 2018: 46,713,800 shares As of March 31, 2017: 46,711,400 shares 2. The number of treasury stock: As of March 31, 2018: 1,650,909 shares As of March 31, 2017: 1,650,909 shares 3. The weighted average number of shares outstanding: For the fiscal year ended March 31, 2018: 45,062,878 shares For the fiscal year ended March 31, 2017: 45,652,981 shares

[English Translation]

May 15, 2018

Company name: Internet Initiative Japan Inc.

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

Contact: Akihisa Watai, Managing Director and CFOTEL: 81-3-5205-6500

Information Pertaining to Our Largest Shareholder

1. About Our Largest Shareholder (As of March 31, 2018)

Its Ownership Percentage (%) Securities Exchanges Name Relationship where its Shares are Listed Direct Indirect Total ownership ownership Nippon Telegraph and IIJ is NTT's Telephone affiliate 22.4 4.5 26.9 Tokyo Stock Exchange (First Section) Corporation company (“NTT”) ------------- ------------ --------- --------- ----- ------------------------------------

2. Position of the Listed Company (IIJ) within NTT Group and other relationships

The ownership percentage by NTT, which is IIJ's largest shareholder, was 26.9% as of March 31, 2018, including its indirect ownership. However, IIJ's business activities are not affected by NTT's ownership in IIJ and IIJ is maintaining its management independence.

3. Business Relationship with NTT Group

IIJ uses services provided by Nippon Telegraph and Telephone East Corporation and Nippon Telegraph and Telephone West Corporation for a significant portion of IIJ’s access circuits, services provided by NTT Communications Corporation for a significant portion of IIJ’s domestic and international backbone circuits, and services provided by NTT DOCOMO, INC for a significant portion of IIJ’s mobile infrastructure, to provide Internet connectivity and other services to IIJ’s customers. IIJ also leases a part of Internet data center facilities from NTT Group companies to provide Internet data center services. The aggregate amount paid to for these services was JPY27,545 million for the fiscal year ended March 31, 2018.

4. Policy Concerning Measures to Protect Minority Shareholders in Transactions with NTT Group

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

End