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IIJ Announces Full Year and Fourth Quarter Financial Results for the Fiscal Year Ended March 31, 2019

May 14, 2019

TOKYO, May 14, 2019 (GLOBE NEWSWIRE) -- Internet Initiative Japan Inc. (“IIJ”, TSE:3774) today announced its full year (“FY2018”) and fourth quarter (“4Q18”) consolidated financial results for the fiscal year ended March 31, 2019 (from April 1, 2018 to March 31, 2019).1

Highlights of Financial Results for FY2018 (U.S. GAAP) Revenues JPY192.3 billion (up 9.2% YoY1) Gross Margin JPY29.0 billion (up 2.7% YoY) Operating Income JPY6.2 billion (down 8.2% YoY) Adjusted Income before Income Tax Expense2 JPY6.0 billion (down 7.4% YoY) Adjusted Net Income attributable to IIJ3 JPY3.5 billion (down 17.1% YoY) Financial Targets for FY2019 (IFRS) Revenues JPY204.0 billion (up 6.1% YoY) Operating Income JPY7.0 billion (up 12.8% YoY) Annual Cash Dividend JPY27.00 per common share ------------------------------------------ -------------------------------

Overview of FY2018 Financial Results and Business Outlook

“As a prominent Internet related network services provider as well as a system solutions integrator in Japan, we focused on enhancing our enterprise network services line-ups throughout FY2018 by adding various value-added functions to continuously capture enterprises’ demands and to have further revenue and income accumulation from our already invested business assets. As a result, enterprise recurring revenues4 successfully increased by 9.1% YoY, which exceeded our initial expectation. Actions we took in FY2018 resulted in enhancement of our enterprises’ business foundation and should contribute to accelerate our recurring business hereafter,” said Eijiro Katsu, COO and President of IIJ.

“Security services have been one of the strongest drivers for our revenue growth. In FY2018, we upgraded virtual desktop services to handle a large number of concurrent user connections, introduced new Security Operation Center (SOC) line-up to widen our target customer base to small and medium-sized enterprises from the current blue-chip client base, and added endpoint security services. Security recurring revenue increased by 16.9% YoY to JPY14.1 billion and the total security rerated revenue (sum of recurring and related SI) was JPY16.8 billion. As for mobile, we focused to enhance our full-MVNO service offerings starting with SIM life cycle management, chipSIM, and small data volume-bundled services targeting IoT usage. Our full-MVNO services revenues grew to JPY0.7 billion, exceeded our initial target, along with strong demands for surveillance cameras and pre-paid SIMs for tourists to Japan. Total mobile revenues increased by 18.8% to JPY42.0 billion and total mobile subscription at the end of FY2018 was 2.75 million. As for IoT, by leveraging our advantages of having comprehensive business elements for IoT such as network, mobile, security, cloud and SI, we proceeded many IoT related projects such as transportation, agriculture, manufacturing, factory and smart home. Systems integration revenue grew by 6.6% YoY with favorable IT demands. Cloud recurring revenue, JPY20.1 billion (up 12.2% YoY), was in line with our target as our cloud migration and multi-cloud solutions have met with middle-to-large enterprises’ needs successfully. Our flagship “IIJ Omnibus Services” were upgraded by applying SD-LAN to capture enterprises’ network replacement demands. As for DeCurret, our equity method investee engaged in fintech business, they became a registered virtual currency exchange service provider with the Financial Service Agency this March and have launched exchange services this April. They’re preparing to launch settlement services as their 2nd phase by utilizing partnerships with their prominent shareholders and business partners,” said Katsu.

“As for profitability, stronger than expected enterprise recurring revenue as well as improvement in system integration margin with high utilization of system engineers should have resulted in healthy continuous margin improvement. However, due to much smaller than expected NTT Docomo’s unit price revision for mobile data communication5 with regards to our mobile services offering costs, we had a large margin decrease impact in our network services. As a result, our total operating income decreased YoY. We should recover mobile services profitability as soon as possible and continuously pursue stronger recurring revenue accumulation for FY2019 and hereafter. In our mobile services, we’re seeing many IoT related full-MVNO transactions which should contribute to gather enterprises’ mobile traffic more and more. By having better mixture of enterprises and consumer mobile traffic, our mobile network utilization should improve and that should result in our mobile services profitability improvement,” continued Katsu.

“IIJ’s fundamental business strategy to provide highly reliable and value-added services to Japanese enterprises remain unchanged. Although Japan is said to be behind on adopting IT, it’s inevitable for Japanese companies to utilize IT for their business operation in the long run to improve their efficiency. By leveraging our accumulated business and technology assets, we continuously seek to enhance our corporate value,” 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 YoY is an abbreviation for year over year change.3 “Adjusted income before income tax expense” and “adjusted net income attributable to IIJ” exclude gains/losses on equity securities and funds to which accounting policies were changed due to revision of U.S. GAAP.4 Enterprise recurring revenue is calculated by substractting Internet connectivity services for consumers and IIJ Mobile MVNO Platform Service (MVNE) revenues from recurring revenue, which is the sum of network services and systems operation and maintenance revenues.

FY2018 Financial Results Summary

Operating Results Summary

FY2017 FY2018 YoY Change -------------------------------- ------------ ------------ ---------- JPY millions JPY millions % Total revenues 176,051 192,332 9.2 -------------------------------- ------------ ------------ ---------- Network services 108,119 118,533 9.6 -------------------------------- ------------ ------------ ---------- Systems integration (SI) 60,431 64,432 6.6 -------------------------------- ------------ ------------ ---------- Equipment sales 3,470 5,216 50.3 -------------------------------- ------------ ------------ ---------- ATM operation business 4,031 4,151 3.0 -------------------------------- ------------ ------------ ---------- Total costs 147,818 163,334 10.5 -------------------------------- ------------ ------------ ---------- Network services 88,698 101,206 14.1 -------------------------------- ------------ ------------ ---------- Systems integration (SI) 53,612 55,227 3.0 -------------------------------- ------------ ------------ ---------- Equipment sales 3,142 4,575 45.6 -------------------------------- ------------ ------------ ---------- ATM operation business 2,366 2,326 (1.7) -------------------------------- ------------ ------------ ---------- Total gross margin 28,233 28,998 2.7 -------------------------------- ------------ ------------ ---------- Network services 19,421 17,327 (10.8) -------------------------------- ------------ ------------ ---------- Systems integration (SI) 6,819 9,205 35.0 -------------------------------- ------------ ------------ ---------- Equipment sales 328 641 95.4 -------------------------------- ------------ ------------ ---------- ATM operation business 1,665 1,825 9.6 -------------------------------- ------------ ------------ ---------- SG&A expenses and R&D 21,471 22,790 6.1 -------------------------------- ------------ ------------ ---------- Operating income 6,762 6,208 (8.2) -------------------------------- ------------ ------------ ---------- Income before income tax expense 7,840 4,913 (37.3) -------------------------------- ------------ ------------ ---------- Net income attributable to IIJ 5,109 2,715 (46.9) -------------------------------- ------------ ------------ ----------

___________________5 We estimate a unit price charge every year on our own based on the past revision results (FY17: 18%, FY16: 14%, FY15: 17%) as well as NTT Docomo’s provisional payment by which our FY2018 monthly bills were 15% deducted. The unit price decreased by 5% this time in March 2019. For detail, please refer to our press release “Regarding the Unit Price Revision for Mobile Interconnectivity Charge by NTT Docomo” published on March 25, 2019

Segment Results Summary

FY2017 FY2018 -------------------------------- ------------ ------------ JPY millions JPY millions Total revenues 176,051 192,332 -------------------------------- ------------ ------------ Network services and SI business 172,370 188,536 -------------------------------- ------------ ------------ ATM operation business 4,031 4,151 -------------------------------- ------------ ------------ Elimination (350) (355) -------------------------------- ------------ ------------ Operating income 6,762 6,208 -------------------------------- ------------ ------------ Network service and SI business 5,430 4,785 -------------------------------- ------------ ------------ ATM operation business 1,510 1,622 -------------------------------- ------------ ------------ Elimination (178) (199) -------------------------------- ------------ ------------

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

FY2018 Revenues and Income

RevenuesTotal revenues were JPY192,332 million, up 9.2% YoY (JPY176,051 million for FY2017).

Network services revenue was JPY118,533 million, up 9.6% YoY (JPY108,119 million for FY2017).

Revenues for Internet connectivity services for enterprise were JPY33,172 million, up 18.7% YoY from JPY27,944 million for FY2017, 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 JPY25,234 million, up 1.9% YoY from JPY24,761 million for FY2017. The revenue growth was mainly due to “IIJmio Mobile Service,” consumer mobile services which offer inexpensive data communication and voice services with SIMs, offset revenue decrease due to divesture of a former subsidiary, hi-ho in December 2017.

Revenues for WAN services were JPY30,990 million, up 5.8% YoY compared to JPY29,295 million for FY2017, mainly due to the revenue growth along with order accumulation.

Revenues for Outsourcing services were JPY29,137 million, up 11.6% YoY from JPY26,119 million for FY2017, mainly due to an increase in security-related services revenues.

Network Services Revenues Breakdown (*)

FY2017 FY2018 YoY Change ------------ ------------ ------ JPY millions JPY millions % ----------------------------------- ------------ ------------ ------ Total network services 108,119 118,533 9.6 ------------ ------------ ------ Internet connectivity services 27,944 33,172 18.7 (enterprise) ------------ ------------ ------ IP services (including data 10,105 10,558 4.5 center connectivity services) --------------------------------- ------------ ------------ ------ IIJ Mobile services 14,619 19,420 32.8 ------------ ------------ ------ IIJ Mobile MVNO Platform Service 10,866 14,555 33.9 -------------------------------- ------------ ------------ ------ Others 3,220 3,194 (0.8) --------------------------------- ------------ ------------ ------ Internet connectivity services 24,761 25,234 1.9 (consumer) ------------ ------------ ------ IIJ 23,448 25,234 7.6 ------------ ------------ ------ IIJmio Mobile Service 20,710 22,538 8.8 ------------ ------------ ------ hi-ho 1,313 - - --------------------------------- ------------ ------------ ------ WAN services 29,295 30,990 5.8 ---------------------------------- ------------ ------------ ------ Outsourcing services 26,119 29,137 11.6 ---------------------------------- ------------ ------------ ------

(*) From 1Q18, “IIJ FiberAccess/F and IIJ DSL/F” which was formerly classified under “Internet connectivity services (enterprise)” is now added to “Others.”

Number of Contracts and Subscription for Connectivity Services*1,*2

as of as of YoY Mar. 31, 2018 Mar. 31, 2019 Change ---------------------------------- ------------- ------------- ------- Internet connectivity services 1,414,782 1,757,772 342,990 (enterprise) ------------- ------------- ------- IP service (greater than or equal to 1Gbps, including data center 709 743 34 connectivity) --------------------------------- ------------- ------------- ------- IP service (less than 1Gbps) 1,272 1,276 4 --------------------------------- ------------- ------------- ------- IIJ Mobile Services 1,339,586 1,675,123 335,537 ------------- ------------- ------- IIJ Mobile MVNO Platform Service 824,731 1,047,856 223,125 -------------------------------- ------------- ------------- ------- Others 73,215 80,630 7,415 --------------------------------- ------------- ------------- ------- Internet connectivity services 1,363,531 1,400,928 37,397 (consumer) ------------- ------------- ------- IIJ 1,363,531 1,400,928 37,397 ------------- ------------- ------- IIJmio Mobile Service 1,005,092 1,062,921 57,829 ------------- ------------- ------- Total contracted bandwidth 3,117.7 3,896.7 779.0 (Gbps)*3 ---------------------------------- ------------- ------------- -------

*1) Numbers in the table above show number of contracts except for “IIJ Mobile Services (enterprise),” “IIJ” and “hi-ho” which show number of subscriptions.*2) From 1Q18, following changes are made to the breakdown of “Internet connectivity services (enterprise).” i. “Data center connectivity services” is added to “IP services (1Gbps-)” and labeled it as “IP services (greater than or equal to 1Gbps, including data center connectivity services).” ii. “IP services (100Mbps-999Mbps)” and “IP services (-99Mbps)” are now combined and labeled as “IP services (less than 1Gbps).” iii. “IIJ FiberAccess/F and IIJ DSL/F” is added to “Others.”*3) Total contracted bandwidth is calculated by multiplying number of contracts under “Internet connectivity services (enterprise), excluding mobile services” and the contracted bandwidths of the services respectively.

SI revenues were JPY64,432 million, up 6.6% YoY (JPY60,431 million for FY2017).

Systems construction revenue, a one-time revenue, was JPY22,759 million, up 1.0% YoY (JPY22,528 million for FY2017). Systems operation and maintenance revenue, a recurring revenue, was JPY41,673 million, up 9.9% YoY (JPY37,903 million for FY2017), 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 JPY74,304 million, up 7.7% YoY (JPY68,988 million for FY2017); orders received for systems construction and equipment sales were JPY 28,957 million, up 12.2% YoY (JPY25,810 million for FY2017) and orders received for systems operation and maintenance were JPY45,347 million, up 5.0% YoY (JPY43,178 million for FY2017).

Order backlog for SI and equipment sales as of March 31, 2019 amounted to JPY51,117 million, up 9.7% YoY (JPY46,588 million as of March 31, 2018); order backlog for systems construction and equipment sales was JPY7,846 million, up 12.2% YoY (JPY6,991 million as of March 31, 2018) and order backlog for systems operation and maintenance was JPY43,271 million, up 9.3% YoY (JPY39,597 million as of March 31, 2018).

Equipment sales revenues were JPY5,216 million, up 50.3% YoY (JPY3,470 million for FY2017) mainly due to the increase in sales of mobile devices.

ATM operation business revenues were JPY4,151 million, up 3.0% YoY (JPY4,031 million for FY2017). As of March 31, 2019, 1,138 ATMs have been placed.

Cost and expenseTotal cost of revenues was JPY163,334 million, up 10.5% YoY (JPY147,818 million for FY2017).

Cost of network services revenue was JPY101,206 million, up 14.1% YoY (JPY88,698 million for FY2017). There were an increase in outsourcing-related costs along with our mobile-related revenue increase as well as full-MVNO related fixed costs along with the service launch, an increase in network operation-related costs, and an increase in circuit-related costs along with our WAN services revenue increase. Regarding NTT Docomo’s interconnectivity charge (unit charge) for MVNO-related services, it was revised in March 2019 and it decreased by 5.0% year over year. The rate of decrease was small compared to the past several years. Gross margin was JPY17,327 million, down 10.8% YoY (JPY19,421 million for FY2017) and gross margin ratio was 14.6%.

Cost of SI revenues was JPY55,227 million, up 3.0% YoY (JPY53,612 million for FY2017). There were an increase in license fees and network operation-related costs along with increase in cloud-related revenues, and a decrease in outsourcing-related costs due to the effective reorganization of system engineers unit and stricter management on system engineers’ utilization. Gross margin was JPY9,205 million, up 35.0% YoY (JPY6,819 million for FY2017) and gross margin ratio was 14.3%.

Cost of equipment sales revenues was JPY4,575 million, up 45.6% YoY (JPY3,142 million for FY2017). There was an increase in purchasing costs of mobile devices. Gross margin was JPY641 million, up 95.4% YoY (JPY328 million for FY2017) and gross margin ratio was 12.3%.

Cost of ATM operation business revenues was JPY2,326 million, down 1.7% YoY (JPY2,366 million for FY2017). Gross margin was JPY1,825 million, up 9.6% YoY (JPY1,665 million for FY2017) and gross margin ratio was 44.0%.

SG&A and R&D expensesSG&A and R&D expenses in total were JPY22,790 million, up 6.1% YoY (JPY21,471 million for FY2017).

Sales and marketing expenses were JPY13,184 million, up 3.9% YoY (JPY12,688 million for FY2017) mainly due to increases in sales commission expenses and personnel-related expenses.

General and administrative expenses were JPY9,160 million, up 10.4% YoY (JPY8,296 million for FY2017) mainly due to increases in personnel-related expenses.

Research and development expenses were JPY446 million, down 8.4% YoY (JPY487 million for FY2017).

Operating incomeOperating income was JPY6,208 million, down 8.2% YoY (JPY6,762 million for FY2017).

Other income (expenses)Other income (expenses) was an expense of JPY1,295 million (an income of JPY1,078 million for FY2017). It includes realized and unrealized loss on other investments of JPY1,110 million, to which accounting policies were changed under the revised U.S. GAAP effective from April 1, 2018, compared to realized gain of JPY1,338 million for FY2017, miscellaneous income of JPY96 million (miscellaneous expenses of JPY33 million for FY2017), dividend income of JPY87 million (JPY243 million for FY2017), and interest expense of JPY402 million (JPY375 million for FY2017).

Income before income tax expenseIncome before income tax expense was JPY4,913 million, down 37.3% YoY (JPY7,840 million for FY2017). When excludes realized and unrealized loss on other investments of JPY1,110 million, to which accounting policies were changed under the revised U.S. GAAP effective from April 1, 2018, compared to realized gain of JPY1,338 million for FY2017, adjusted income before income tax expense was JPY6,023 million, down 7.4% YoY (JPY6,502 million for FY2017).

Net incomeIncome tax expense was JPY1,700 million (JPY2,696 million for FY2017).

Equity in net loss of equity method investees was JPY318 million (an income of JPY135 million for FY2017) mainly due to equity in net loss of JPY503 million in DeCurret Inc.

As a result of the above, net income was JPY2,893 million, down 45.2% YoY (JPY5,279 million for FY2017). When excludes net of tax amount of realized and unrealized loss on other investments of JPY761 million, to which accounting policies were changed under the revised U.S. GAAP effective from April 1, 2018, compared to net of tax amount of realized gain of JPY914 million for FY2017, adjusted net income was JPY3,654 million, down 16.3% YoY (JPY4,365 million for FY2017).

Net income attributable to IIJNet income attributable to non-controlling interests was JPY178 million (JPY170 million for FY2017) related to net income of Trust Networks Inc.

Net income attributable to IIJ was JPY2,715 million, down 46.9% YoY (JPY5,109 million for FY2017). When excludes net of tax amount of realized and unrealized loss on other investments of JPY761 million, to which accounting policies were changed under the revised U.S. GAAP effective from April 1, 2018, compared to net of tax amount of realized gain of JPY914 million for FY2017, adjusted net income attributable to IIJ was JPY3,476 million, down 17.1% YoY (JPY4,195 million for FY2017).

Regarding the change in accounting methods on other investmentsFollowing the revision of U.S. GAAP, from 1Q18, gains/losses on other investments due to fluctuations of fair value of holding marketable equity securities and funds are recorded as “realized and unrealized gain (loss) on other investments, net” in “other income (expenses)” on our consolidated statements of income (“P/L”).

For FY2018, we recorded JPY1,110 million of “realized and unrealized loss on other investments, net,” of which unrealized loss on our holding marketable equity securities was JPY1,542 million.

Fair value of holding marketable equity securities as of March 31, 2018 JPY9,175 million Decrease due to the sale of marketable equity securities in FY2018 JPY14 million Fair value of holding marketable equity securities as of March 31, 2019 JPY7,619 million --------------------------------------------------------------------------------------- ---------------- Difference: FY2018 unrealized loss on P/L JPY1,542 million Acquisition cost of holding marketable equity securities JPY1,636 million Fair value of holding marketable equity securities as of March 31, 2019 JPY7,619 million --------------------------------------------------------------------------------------- ---------------- Difference: Unrealized gain included in “other investments” on B/S as of March 31, 2019 JPY5,983 million

Please see below for detailed explanation on revision of U.S. GAAP related to holding marketable equity securities.

-- As of March 31, 2018, we had balance of accumulated unrealized gains on holding marketable equity securities of JPY7,525 million. The net of tax amount of the unrealized gains, JPY5,079 million, was recorded as “accumulated other comprehensive income” on our consolidated balance sheet (“B/S”) as of March 31, 2018. Until the previous fiscal year, unrealized gains/losses of holding marketable equity securities had been recorded as the fluctuation of “accumulated other comprehensive income” on B/S without being recognized as profit on P/L. -- On B/S at the beginning of this fiscal year, the net of tax amount of the unrealized gains of JPY5,079 million as of March 31, 2018 was reclassified to “retained earnings.” The gains were never recognized as profit on P/L. -- After the above mentioned reclassification, gains/losses due to fluctuations of stock prices are recognized as “realized and unrealized gain (loss) on other investments, net” in “other income (expenses)” in every quarter.

For FY2018, we recorded JPY432 million of realized and unrealized gain on investments other than marketable equity securities, such as funds that were available to be measured at fair value.

Please see below for detailed explanation on revision of U.S. GAAP related to funds that are available to be measured at fair value.

-- As of March 31, 2018, value of such funds was recorded as assets in “other investments” under cost method. Its unrealized gain of JPY963 million was not recognized. -- On B/S at the beginning of this fiscal year, “other investments” was increased by JPY963 million and “retained earnings” was increased by JPY660 million which is the net of tax amount of the above mentioned unrealized gain. The gain was never recognized as profit of P/L. -- From 1Q18, fluctuation of fair values of such funds are recognized as “realized and unrealized gain (loss) on other investments, net” in “other income (expenses)” in every quarter.

Balance Sheets as of March 31, 2019Balance sheetsAs of March 31, 2019, the balance of total assets was JPY166,852 million, increased by JPY13,403 million from the balance as of March 31, 2018 of JPY153,449 million.

As of March 31, 2019, the balance of current assets was JPY80,721 million, increased by JPY13,536 million from the balance as of March 31, 2018 of JPY67,185 million. The major breakdown of current assets was: an increase in cash and cash equivalents by JPY10,673 million to JPY32,076 million, an increase in accounts receivables by JPY1,751 million to JPY33,582 million, an increase in inventories by JPY2,092 million to JPY3,807 million, an increase in prepaid expenses by JPY1,120 million to JPY9,563 million and. As of March 31, 2019, the balance of noncurrent assets was JPY86,131 million, decreased by JPY133 million from the balance as of March 31, 2018 of JPY86,264 million. The major breakdown of noncurrent assets was: a decrease in other investment by JPY567 million to JPY10,808 million, and an increase in property and equipment by JPY519 million to JPY46,933 million. The major breakdown of fluctuation in other investments was: (1) an increase by JPY963 million, unrealized gains on funds that were recognized due to revision of U.S. GAAP at the beginning of FY2018, (2) a decrease in fair value of marketable equity securities and funds by JPY1,211 million, and (3) a decrease by JPY505 million due to benefit distribution from funds. As of March 31, 2019, 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 JPY2,316 million, decreased by JPY355 million from the balance as of March 31, 2018 of JPY2,671 million.

As of March 31, 2019, the balance of current liabilities was JPY52,658 million, increased by JPY10,513 million from the balance as of March 31, 2018 of JPY42,145 million. The major breakdown of current liabilities was: an increase in accounts payable (trade and other) by JPY5,528 million to JPY21,927 million, an increase in short-term borrowings by JPY2,000 million to JPY11,250 million, an increase in long-term borrowings—current portion by JPY1,500 million, which was reclassified from noncurrent, to JPY1,500 million, an increase in deferred income—current by JPY1,174 million to JPY5,411 million and an increase in capital lease obligations-current portion by JPY863 million to JPY6,519 million. As of March 31, 2019, the balance of noncurrent liabilities was JPY37,941 million, increased by JPY626 million from the balance as of March 31, 2018 of JPY37,315 million. The major breakdown of noncurrent liabilities was: a decrease in long-term borrowings by JPY1,500 million, which was the amount reclassified to current liabilities, to JPY14,000 million, an increase in capital lease obligations-noncurrent by JPY595 million to JPY11,515 million and an increase in deferred income—noncurrent by JPY1,543 million to JPY5,496 million.

As of March 31, 2019, the major breakdown of IIJ shareholders’ equity was as follows. Accumulated other comprehensive income (loss) was a loss of JPY467 million as it decreased by JPY5,542 million (an income of JPY5,075 million as of March 31, 2018) mainly because of reclassification at the beginning of FY2018 to retained earnings by JPY5,079 million by revision of U.S. GAAP related to marketable equity securities; retained earnings was JPY16,023 million, increased by JPY7,619 million from March 31, 2018, mainly due to an increase by net income attributable to IIJ of JPY2,715 million, a decrease by dividend paid of JPY1,217 million and an increase at the beginning of FY2018 by JPY6,121 million due to revision of U.S. GAAP related to revenue recognition and other investments. As a result, the balance of total IIJ shareholders’ equity as of March 31, 2019 was JPY75,404 million, increased by JPY2,134 million from the balance as of March 31, 2018 of JPY73,270 million and IIJ shareholders’ equity ratio (total IIJ shareholders’ equity divided by total assets) as of March 31, 2019 was 45.2%.

FY2018 Cash FlowsCash flowsCash and cash equivalents as of March 31, 2019 were JPY32,076 million (JPY21,403 million as of March 31, 2018).

Net cash provided by operating activities for FY2018 was JPY23,445 million (net cash provided by operating activities of JPY13,262 million for FY2017). There were net income of JPY2,893 million, depreciation and amortization of JPY14,211 million, adjustment of realized and unrealized loss on other investments, net of JPY1,110 million, which was mainly due to fluctuations in holding marketable equity securities, and adjustment of deferred income benefit, net of JPY1,112 million. Regarding changes in operating assets and liabilities, it was net cash in of JPY5,404 million (net cash out of JPY3,526 million for FY2017) mainly due to an increase in accounts payable and an increase in deferred revenue (current and noncurrent), while the cash out increased due to an increase in inventories along with an increase in systems construction projects, and accounts receivable increased.

Net cash used in investing activities for FY2018 was JPY6,869 million (net cash used in investing activities of JPY13,037 million for FY2017), mainly due to payments for purchase of property and equipment of JPY10,670 million (JPY15,771 million for FY2017), proceeds from sales of property and equipment, which include sales and leaseback transactions, of JPY3,079 million (JPY3,306 million for FY2017) and proceeds from sales of other investments, such as funds and equity securities, of JPY565 million (JPY1,364 million for FY2017).

Net cash used in financing activities for FY2018 was JPY5,899 million (net cash used in financing activities of JPY748 million for FY2017), mainly due to net increase in short-term borrowings of JPY2,000 million, principal payments under capital leases of JPY6,524 million (JPY5,724 million for FY2017), FY2017 year-end and FY2018 interim dividends payments of JPY1,217 million (JPY1,217 million for FY2017) and payments of long-term accounts payable of JPY807 million (JPY571 million for FY2017).

Future Prospects including FY2019 Financial TargetsAs Japanese economy continues to improve slowly, Japanese enterprises’ IT-related investment as well as spending should continue to grow during FY2019. We target total revenue of JPY204.0 billion (up 6.1% YoY) as enterprise recurring revenue and systems integration revenue should continue to grow. As for operating income, we target JPY7.0 billion (up 12.8% YoY) as both network services and systems integration gross margin should expand. As for income before income tax expense, we target JPY6.3 billion, by considering equity in net income/loss of equity method investees and others. As for net income attributable for IIJ, we target JPY3.5 billion, by considering income tax expenses.

As for mobile services, we seek to improve profitability by accumulating full-MVNO services revenues which fixed cost had been added from FY2018 along with the service launch. We expect stronger accumulation of enterprise traffic and enterprise mobile revenue by leveraging our competitive enterprise IoT solutions as well as our capability of incorporating mobile to offer comprehensive solutions and execution of MVNE strategy to gather consumer mobile and we aim to improve our mobile infrastructure utilization rate by achieving more balanced traffic mixture between enterprise and consumer whose traffic patterns differ.

We are scheduled to adopt International Financial Reporting Standards (IFRS) from the filing of our FY2018 annual report “Yuka-shoken-houkokusho” and the above mentioned FY2019 financial targets are in accordance with IFRS. Regarding revenue and operating income, we expect there are not significant difference between U.S. GAAP, currently adopted accounting principles, and IFRS. Regarding income before income tax expense and net income attributable to IIJ, we expect following differences: (1) realized and unrealized gains/losses on marketable equity securities which were recognized on P/L under U.S. GAAP are to be recognized as “accumulated other comprehensive income” and “retained earnings” on B/S, (2) reclassification of equity in net income/loss of equity method investees, which is to be included in income before income tax expense in P/L under IFRS while under U.S.GAAP, it is included in net income. Planned schedule for IFRS adoption:

-- May 28, 2019: FY2018 consolidated financial statements disclosed in the Convocation Notice for the 27th Ordinary General Meeting for Shareholders (U.S.GAAP) -- June 28, 2019: FY2018 consolidated financial statements disclosed in annual report “Yuka-shoken-houkokusho” (IFRS) and FY2018 earnings press release (IFRS)

FY2018 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

FY2017 FY2018 --------------------------------------------------------- ------------ ------------ JPY millions JPY millions Adjusted EBITDA 19,127 20,419 --------------------------------------------------------- ------------ ------------ Depreciation and Amortization (12,365) (14,211) --------------------------------------------------------- ------------ ------------ Operating Income 6,762 6,208 --------------------------------------------------------- ------------ ------------ Other Income (expenses) 1,078 (1,295) --------------------------------------------------------- ------------ ------------ Income Tax Expense 2,696 1,700 --------------------------------------------------------- ------------ ------------ Equity in Net Income (loss) of Equity Method Investees 135 (318) --------------------------------------------------------- ------------ ------------ Net income 5,279 2,893 --------------------------------------------------------- ------------ ------------ Less: Net income attributable to noncontrolling interests (170) (178) --------------------------------------------------------- ------------ ------------ Net Income attributable to IIJ 5,109 2,715 --------------------------------------------------------- ------------ ------------

CAPEX

FY2017 FY2018 ----------------------------------------------------- ------------ ------------ JPY millions JPY millions CAPEX, including capital leases 20,828 14,989 ----------------------------------------------------- ------------ ------------ Acquisition of Assets by Entering into Capital Leases 7,109 7,175 ----------------------------------------------------- ------------ ------------ Purchase of Property and Equipment 13,719 7,814 ----------------------------------------------------- ------------ ------------

PresentationPresentation materials will be posted on our web site ( https://www.iij.ad.jp/en/ir/ ) on May 14, 2019.Presentation materials are also available in these file archives: http://ml.globenewswire.com/Resource/Download/b4383a3b-88cb-478d-a7f6-a86000c1c481

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. on the First Section of the Tokyo Stock Exchange in 2006.

For inquiries, contact:IIJ Investor Relations Tel: +81-3-5205-6500 E-mail: ir@iij.ad.jp URL: https://www.iij.ad.jp/en/ir

Disclaimer: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.

Internet Initiative Japan Inc. Consolidated Balance Sheets (Unaudited) (As of March 31, 2018 and March 31, 2019) As of March 31, 2018 As of March 31, 2019 Thousands of Thousands of JPY JPY -------------------------------------------------------------------- -------------------- -------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents 21,402,892 32,076,232 Accounts receivable, net of allowance for doubtful accounts of JPY 123,453 thousand and JPY 116,031 thousand 31,830,882 33,581,935 at March 31, 2018 and March 31, 2019, respectively Inventories 1,714,547 3,806,563 Prepaid expenses—current 8,442,981 9,562,556 Other current assets, net of allowance for doubtful accounts of JPY 720 thousand and JPY 719thousand at March 31, 2018 and March 31, 3,793,449 1,693,655 2019, respectively Total current assets 67,184,751 80,720,941 -------------------- -------------------- INVESTMENTS IN EQUITY METHOD INVESTEES 5,246,313 4,837,867 OTHER INVESTMENTS 11,374,442 10,807,626 PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of JPY 55,470,955 thousand and JPY 63,506,648 thousand 46,414,250 46,932,770 at March 31, 2018 and March 31, 2019, respectively GOODWILL 6,082,472 6,082,472 OTHER INTANGIBLE ASSETS—Net 2,704,668 2,340,437 GUARANTEE DEPOSITS 3,422,443 3,380,728 DEFERRED TAX ASSETS 183,808 486,310 NET INVESTMENT IN SALES-TYPE LEASES—Noncurrent 1,545,293 2,080,564 Prepaid expenses—Noncurrent 7,965,889 8,472,664 OTHER ASSETS, net of allowance for doubtful accounts of JPY 60,929 thousand and JPY 58,071 thousand 1,324,490 709,259 at March 31, 2018 and March 31, 2019, respectively TOTAL 153,448,819 166,851,638 -------------------------------------------------------------------- -------------------- -------------------- As of March 31, 2018 As of March 31, 2019 Thousands of Thousands of JPY JPY -------------------------------------------------------------------- -------------------- -------------------- LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Short-term borrowings 9,250,000 11,250,000 Long-term borrowings—current portion - 1,500,000 Capital lease obligations—current portion 5,655,875 6,519,181 Accounts payable—trade 14,950,920 20,631,835 Accounts payable—other 1,448,423 1,295,229 Income taxes payable 1,928,037 1,290,471 Accrued expenses 3,111,385 3,145,000 Deferred income—current 4,237,676 5,411,239 Other current liabilities 1,562,717 1,615,353 Total current liabilities 42,145,033 52,658,308 -------------------- -------------------- LONG-TERM BORROWINGS 15,500,000 14,000,000 CAPITAL LEASE OBLIGATIONS—Noncurrent 10,920,726 11,515,459 ACCRUED RETIREMENT AND PENSION COSTS—Noncurrent 3,724,634 4,423,252 DEFERRED TAX LIABILITIES 688,787 188,536 DEFERRED INCOME—Noncurrent 3,952,279 5,495,600 OTHER NONCURRENT LIABILITIES 2,528,803 2,317,996 Total Liabilities 79,460,262 90,599,151 -------------------- -------------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Common-stock—authorized, 75,520,000 shares; issued and outstanding, 46,713,800 and 46,721,400 shares at March 31, 2018 and March 31, 25,511,804 25,518,712 2019, respectively Additional paid-in capital 36,175,937 36,225,776 Retained earnings 8,404,228 16,023,450 Accumulated other comprehensive income (loss) 5,074,872 (466,835) Treasury stock—1,650,909 and 1,650,911 shares held by the company at (1,896,784) (1,896,788) March 31, 2018 and March 31, 2019, respectively Total Internet Initiative Japan Inc. shareholders’ equity 73,270,057 75,404,315 -------------------- -------------------- NONCONTROLLING INTERESTS 718,500 848,172 -------------------- -------------------- Total equity 73,988,557 76,252,487 -------------------- -------------------- TOTAL 153,448,819 166,851,638 -------------------------------------------------------------------- -------------------- --------------------

Internet Initiative Japan Inc. Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Unaudited) (For the fiscal year ended March 31, 2018 and March 31, 2019) ----------------- ----------------- Fiscal Year Ended Fiscal Year Ended March 31, 2018 March 31, 2019 ----------------- Thousands of Thousands of JPY JPY ------------------------------------------------------------- ----------------- ----------------- REVENUES: Network services: Internet connectivity services (enterprise) 27,943,656 33,171,505 Internet connectivity services (consumer) 24,761,487 25,234,295 WAN services 29,295,097 30,989,645 Outsourcing services 26,118,657 29,137,247 Total 108,118,897 118,532,692 ----------------- ----------------- Systems integration: Systems construction 22,527,433 22,758,595 Systems operation and maintenance 37,903,235 41,673,471 Total 60,430,668 64,432,066 ----------------- ----------------- Equipment sales 3,470,400 5,216,057 ATM operation business 4,030,684 4,151,525 Total revenues 176,050,649 192,332,340 ----------------- ----------------- COSTS AND EXPENSES: Cost of network services 88,697,639 101,205,702 Cost of systems integration 53,612,063 55,226,943 Cost of equipment sales 3,142,262 4,574,945 Cost of ATM operation business 2,365,403 2,326,133 Total costs 147,817,367 163,333,723 ----------------- ----------------- Sales and marketing 12,688,046 13,183,732 General and administrative 8,295,583 9,160,210 Research and development 487,451 446,283 Total costs and expenses 169,288,447 186,123,948 ----------------- ----------------- OPERATING INCOME 6,762,202 6,208,392 ----------------- ----------------- OTHER INCOME (EXPENSES): Dividend income 242,576 86,596 Interest income 30,527 27,632 Interest expense (375,202) (401,668) Foreign exchange gain (loss), net (15,863) 5,774 Net gain on sales of other investments 1,068,303 - Impairment of other investments (109,840) - Realized and unrealized gain (loss) on other investments, net - (1,110,156) Other —net 237,420 96,041 Other income (expenses) —net 1,077,921 (1,295,781) ----------------- ----------------- INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 7,840,123 4,912,611 AND EQUITY IN NET INCOME OF EQUITY METHOD INVESTEES INCOME TAX EXPENSE 2,695,839 1,700,966 EQUITY IN NET INCOME (LOSS) OF EQUITY METHOD INVESTEES 134,656 (318,244) NET INCOME 5,278,940 2,893,401 LESS: NET INCOME ATTRIBUTABLE TO (169,991) (178,222) NONCONTROLLING INTERESTS ----------------- ----------------- NET INCOME ATTRIBUTABLE TO INTERNET 5,108,949 2,715,179 INITIATIVE JAPAN INC. ------------------------------------------------------------- ----------------- ----------------- Fiscal Year Ended Fiscal Year Ended March 31, 2018 March 31, 2019 ------------------------------------------------------------- ----------------- ----------------- NET INCOME PER SHARE BASIC WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 45,062,878 45,070,469 DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES (shares) 45,215,686 45,249,384 BASIC WEIGHTED-AVERAGE NUMBER OF 90,125,756 90,140,938 ADS EQUIVALENTS (ADSs) DILUTED WEIGHTED-AVERAGE NUMBER OF 90,431,372 90,498,768 ADS EQUIVALENTS (ADSs) BASIC NET INCOME PER SHARE (JPY) 113.37 60.24 DILUTED NET INCOME PER SHARE (JPY) 112.99 60.00 BASIC NET INCOME PER ADS EQUIVALENT (JPY) 56.69 30.12 DILUTED NET INCOME PER ADS EQUIVALENT (JPY) 56.50 30.00 ------------------------------------------------------------- ----------------- ----------------- Consolidated Statements of Comprehensive Income (Unaudited) Fiscal Year Ended Fiscal Year Ended March 31, 2018 March 31, 2019 ----------------- ----------------- Thousands of Thousands of JPY JPY ------------------------------------------------------------- ----------------- ----------------- NET INCOME 5,278,940 2,893,401 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Foreign currency translation adjustments (904) (107,054) Unrealized holding gain (loss) on securities 2,542,210 (3,464) Defined benefit pension plans 33,866 (351,828) ----------------- ----------------- TOTAL COMPREHENSIVE INCOME 7,854,112 2,431,055 LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO (169,991) (178,222) NONCONTROLLING INTERESTS ----------------- ----------------- COMPREHENSIVE INCOME ATTRIBUTABLE TO 7,684,121 2,252,833 INTERNET INITIATIVE JAPAN INC. ------------------------------------------------------------- ----------------- -----------------

Internet Initiative Japan Inc. Consolidated Statements of Shareholders’ Equity (Unaudited) (For the fiscal year ended March 31, 2018 and March 31, 2019) Internet Initiative Japan Inc. shareholders’ equity ------------------------------------------------------------------------ Total Retained Accumulated Shares of NON equity earnings other common Common Treasury Additional CONTROLLING (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 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 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 ----------- ------------ ------------- ----------- ---------- ----------- ---------- ----------- Cumulative effects of accounting standard 381,678 381,678 update-adoption of ASU 2014-09 Cumulative effects of accounting standard 659,805 5,739,166 (5,079,361) update-adoption of ASU 2016-01 Issuance of common stock upon 7 7,600 6,908 (6,901) exercise of stock options Dividends paid to (48,550) (48,550) noncontrolling interests Stock-based 56,740 56,740 compensation  Net Income 2,893,401 2,715,179 178,222 Other Comprehensive (462,346) (462,346) income (loss), net of tax Dividends paid (1,216,801) (1,216,801) Payments for purchase (4) (4) of treasury stock BALANCE, MARCH 76,252,487 16,023,450 (466,835) 46,721,400 25,518,712 (1,896,788) 36,225,776 848,172 31, 2019 --------------- ----------- ------------ ------------- ----------- ---------- ----------- ---------- -----------

Internet Initiative Japan Inc. Consolidated Statements of Cash Flows (Unaudited) (For the fiscal year ended March 31, 2018 and March 31, 2019) Fiscal Year Ended Fiscal Year Ended March 31, 2018 March 31, 2019 ----------------- ----------------- Thousands of Thousands of JPY JPY ------------------------------------------------------------------------ ----------------- ----------------- OPERATING ACTIVITIES: Net income 5,278,940 2,893,401 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,364,873 14,211,083 Provision for retirement and pension costs, less payments 241,868 185,006 Provision for allowance for doubtful accounts 94,839 58,835 Loss (gain) on sales of property and equipment (12,376) 1,981 Loss on disposal of property and equipment 112,329 300,429 Net gain on sales of other investments (1,068,303) - Impairment of other investments 109,840 - Realized and unrealized loss (gain) on other investments, net - 1,110,156 Foreign exchange loss (gain), net 32,514 (37,080) Equity in net loss (gain) of equity method investees, less dividends (83,465) 385,986 received Deferred income tax expense (312,933) (1,112,355) Other 29,466 43,624 Changes in operating assets and liabilities: Increase in accounts receivable (4,823,584) (1,851,492) Decrease (increase) in net investment in sales-type lease — noncurrent 502,389 (535,271) Decrease (increase) in inventories 1,085,649 (2,095,902) Increase in prepaid expenses (842,521) (1,022,211) Decrease (increase) in other current and noncurrent assets (2,194,591) 3,020,684 Increase in accounts payable 358,299 5,691,488 Increase (decrease) in income taxes payable 861,899 (636,428) Increase in accrued expenses 351,710 37,405 Increase in deferred income—current 487,931 1,286,783 Increase in deferred income—noncurrent 332,765 1,579,582 Increase (decrease) in other current and noncurrent liabilities 354,226 (71,013) Net cash provided by operating activities 13,261,764 23,444,691 ------------------------------------------------------------------------ ----------------- ----------------- INVESTING ACTIVITIES: Purchase of property and equipment (15,770,587) (10,669,513) Proceeds from sales of property and equipment 3,305,813 3,079,006 Purchase of other investments (286,695) (44,012) Investment in equity method investees (2,004,808) - Proceeds from sales of available-for-sale securities 1,206,516 - Proceeds from sales of other investments 157,341 565,378 Payments of guarantee deposits (380,343) (20,933) Refund of guarantee deposits 26,458 57,095 Payments for refundable insurance policies (56,362) (56,355) Proceeds from sale of stock of a subsidiary, net of cash divested 726,081 - Proceeds from subsidies 48,976 230,000 Other (9,715) (9,913) ------------------------------------------------------------------------ ----------------- ----------------- Net cash used in investing activities (13,037,325) (6,869,247) ------------------------------------------------------------------------ ----------------- ----------------- Fiscal Year Ended Fiscal Year Ended March 31, 2018 March 31, 2019 ----------------- ----------------- Thousands of Thousands of JPY JPY ------------------------------------------------------------------------ ----------------- FINANCING ACTIVITIES: Proceeds from short-term borrowings with initial maturities over three 9,550,000 50,000 months and long-term borrowings Net increase (decrease) in short-term borrowings with initial maturities (150,000) 2,000,000 less than three months Repayments of short-term borrowings with initial maturities over three (2,550,000) (50,000) months Principal payments under capital leases (5,723,729) (6,524,104) Proceeds from long-term accounts payable - 697,863 Payments of long-term accounts payable (571,373) (807,039) Dividends paid (1,216,666) (1,216,801) Other (86,410) (48,560) Net cash used in financing activities (748,178) (5,898,641) ------------------------------------------------------------------------ ----------------- ----------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (31,960) (3,463) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (555,699) 10,673,340 CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 21,958,591 21,402,892 ------------------------------------------------------------------------ ----------------- ----------------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD 21,402,892 32,076,232 ------------------------------------------------------------------------ ----------------- ----------------- ADDITIONAL CASH FLOW INFORMATION: Interest paid 368,413 396,473 Income taxes paid 2,063,530 3,445,485 NONCASH INVESTING AND FINANCING ACTIVITIES: Acquisition of assets by entering into capital leases 7,108,629 7,985,782 Facilities purchase liabilities 1,448,423 1,295,229 Asset retirement obligation 49,609 24,385 ------------------------------------------------------------------------ ----------------- -----------------

Fourth Quarter FY2018 Consolidated Financial Results (3 months)The following tables are highlight data of 4th Quarter FY2018 (3 months) consolidated financial results (unaudited, for the three months ended March 31, 2019).

Operating Results Summary

4Q17 4Q18 YoY Change -------------------------------- ------------ ------------ ------ JPY millions JPY millions % Total Revenues: 48,439 52,951 9.3 -------------------------------- ------------ ------------ ------ Network Services 28,119 30,489 8.4 -------------------------------- ------------ ------------ ------ Systems Integration (SI) 18,130 19,671 8.5 -------------------------------- ------------ ------------ ------ Equipment Sales 1,195 1,731 44.9 -------------------------------- ------------ ------------ ------ ATM Operation Business 995 1,060 6.5 -------------------------------- ------------ ------------ ------ Cost of Revenues: 39,961 45,967 15.0 -------------------------------- ------------ ------------ ------ Network Services 22,588 27,434 21.5 -------------------------------- ------------ ------------ ------ Systems Integration (SI) 15,715 16,427 4.5 -------------------------------- ------------ ------------ ------ Equipment Sales 1,089 1,518 39.5 -------------------------------- ------------ ------------ ------ ATM Operation Business 569 588 3.2 -------------------------------- ------------ ------------ ------ SG&A Expenses and R&D 5,491 5,912 7.7 -------------------------------- ------------ ------------ ------ Operating Income 2,987 1,072 (64.1) -------------------------------- ------------ ------------ ------ Income before Income Tax Expense 3,512 2,453 (30.2) -------------------------------- ------------ ------------ ------ Net Income attributable to IIJ 2,421 1,416 (41.5) -------------------------------- ------------ ------------ ------

Network Service Revenue Breakdown

4Q17 4Q18 YoY Change ------------------------------------------ ------------ ------------ ------ JPY millions JPY millions % Internet Connectivity Service (Enterprise) 7,526 8,766 16.5 ------------------------------------------ ------------ ------------ ------ IP Service*1 2,552 2,668 4.5 ------------------------------------------ ------------ ------------ ------ IIJ Mobile Service 4,183 5,291 26.5 ------------------------------------------ ------------ ------------ ------ IIJ Mobile MVNO Platform Service 3,125 3,904 24.9 ------------------------------------------ ------------ ------------ ------ Others*2 791 807 1.9 ------------------------------------------ ------------ ------------ ------ Internet Connectivity Service (Consumer) 6,054 6,330 4.6 ------------------------------------------ ------------ ------------ ------ IIJ 6,054 6,330 4.6 ------------------------------------------ ------------ ------------ ------ IIJmio Mobile Service 5,367 5,676 5.7 ------------------------------------------ ------------ ------------ ------ hi-ho*3 - - - ------------------------------------------ ------------ ------------ ------ WAN Services 7,619 7,750 1.7 ------------------------------------------ ------------ ------------ ------ Outsourcing Services 6,920 7,643 10.4 ------------------------------------------ ------------ ------------ ------ Total Network Services Revenues 28,119 30,489 8.4 ------------------------------------------ ------------ ------------ ------

*1 IP service revenues include revenues from the data center connectivity service.*2 From 1Q18, “IIJ FiberAccess/F and IIJ DSL/F” which was formerly classified under “Internet connectivity services (enterprise)” is now added to “Others.”*3 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 from 4Q17.

Reconciliation of Non-GAAP Financial Measures (4th Quarter FY2018 (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

4Q17 4Q18 --------------------------------------------------------- ------------ ------------ JPY millions JPY millions Adjusted EBITDA 6,196 4,995 --------------------------------------------------------- ------------ ------------ Depreciation and Amortization (3,209) (3,923) --------------------------------------------------------- ------------ ------------ Operating Income 2,987 1,072 --------------------------------------------------------- ------------ ------------ Other Income (Expense) 525 1,381 --------------------------------------------------------- ------------ ------------ Income Tax Expense (Benefit) 1,082 739 --------------------------------------------------------- ------------ ------------ Equity in Net Income (loss) of Equity Method Investees 33 (249) --------------------------------------------------------- ------------ ------------ Net income (loss) 2,463 1,463 --------------------------------------------------------- ------------ ------------ Less: Net income attributable to noncontrolling interests (42) (47) --------------------------------------------------------- ------------ ------------ Net Income (loss) attributable to IIJ 2,421 1,416 --------------------------------------------------------- ------------ ------------

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

4Q17 4Q18 ----------------------------------------------------- ------------ ------------ JPY millions JPY millions CAPEX, including capital leases 5,072 2,989 ----------------------------------------------------- ------------ ------------ Acquisition of Assets by Entering into Capital Leases 1,484 1,057 ----------------------------------------------------- ------------ ------------ Purchase of Property and Equipment 3,588 1,932 ----------------------------------------------------- ------------ ------------

Internet Initiative Japan Inc. Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of Comprehensive Income (Unaudited) (Three Months ended March 31, 2018 and March 31, 2019) Three Months Ended Three Months Ended March 31, 2018 March 31, 2019 ------------------ ------------------ Thousands of Thousands of JPY JPY ------------------------------------------------------------- ------------------ ------------------ REVENUES: Network services: Internet connectivity services (enterprise) 7,525,693 8,765,507 Internet connectivity services (consumer) 6,054,155 6,330,006 WAN services 7,619,194 7,750,328 Outsourcing services 6,920,258 7,643,269 ------------------ ------------------ Total 28,119,300 30,489,110 ------------------ ------------------ Systems integration: Systems construction 7,996,955 8,733,563 Systems operation and maintenance 10,132,656 10,937,111 Total 18,129,611 19,670,674 ------------------ ------------------ Equipment sales 1,195,037 1,731,172 ATM operation business 994,727 1,059,697 ------------------ Total revenues 48,438,675 52,950,653 ------------------ ------------------ COST AND EXPENSES: Cost of network services 22,588,521 27,433,817 Cost of systems integration 15,714,175 16,426,358 Cost of equipment sales 1,088,830 1,518,427 Cost of ATM operation business 569,491 587,757 ------------------ ------------------ Total costs 39,961,017 45,966,359 ------------------ ------------------ Sales and marketing 3,137,162 3,376,052 General and administrative 2,225,575 2,443,385 Research and development 128,326 92,766 ------------------ ------------------ Total costs and expenses 45,452,080 51,878,562 ------------------ ------------------ OPERATING INCOME 2,986,595 1,072,091 ------------------ ------------------ OTHER INCOME (EXPENSE): Dividend income 11,792 (8,993) Interest income 7,397 9,618 Interest expense (98,828) (103,359) Foreign exchange loss, net (44,394) (1,866) Net gain on sales of other investments 694,804 - Impairment of other investments (109,840) - Realized and unrealized gain (loss) on other investments, net - 1,531,807 Other—net 64,024 (46,696) ------------------ Other income —net 524,955 1,380,511 ------------------ ------------------ INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAX EXPENSE AND EQUITY IN NET INCOME 3,511,550 2,452,602 OF EQUITY METHOD INVESTEES INCOME TAX EXPENSE (BENEFIT) 1,081,884 740,286 EQUITY IN NET INCOME (LOSS) OF EQUITY 33,487 (249,406) METHOD INVESTEES ------------------ NET INCOME (LOSS) 2,463,153 1,462,910 LESS: NET INCOME ATTRIBUTABLE TO (42,100) (46,964) NONCONTROLLING INTERESTS ------------------ ------------------ NET INCOME (LOSS) ATTRIBUTABLE TO 2,421,053 1,415,946 INTERNET INITIATIVE JAPAN INC. ------------------------------------------------------------- ------------------ ------------------ Three Months Ended Three Months Ended March 31, 2018 March 31, 2019 ------------------------------------------------------------- ------------------ ------------------ NET INCOME (LOSS) PER SHARE BASIC WEIGHTED-AVERAGE NUMBER OF 45,062,891 45,070,489 SHARES (shares) DILUTED WEIGHTED-AVERAGE NUMBER 45,227,668 45,261,253 OF SHARES (shares) BASIC WEIGHTED-AVERAGE NUMBER OF 90,125,782 90,140,978 ADS EQUIVALENTS (ADSs) DILUTED WEIGHTED-AVERAGE NUMBER 90,455,336 90,522,506 OF ADS EQUIVALENTS (ADSs) BASIC NET INCOME (LOSS) PER SHARE (JPY) 53.73 31.42 DILUTED NET INCOME PER SHARE (JPY) 53.53 31.28 BASIC NET INCOME (LOSS) PER ADS 26.86 15.71 EQUIVALENT (JPY) DILUTED NET INCOME PER ADS 26.77 15.64 EQUIVALENT (JPY) ------------------------------------------------------------- ------------------ ------------------ Quarterly Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended Three Months Ended March 31, 2018 March 31, 2019 ------------------ ------------------ Thousands of Thousands of JPY JPY ------------------------------------------------------------- ------------------ ------------------ NET INCOME (LOSS) 2,463,153 1,462,910 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Foreign currency translation adjustments 12,497 (76,113) Unrealized holding gain (loss) on securities 410,023 968 Defined benefit pension plans 31,369 (350,562) ------------------ ------------------ TOTAL COMPREHENSIVE INCOME (LOSS) 2,917,042 1,037,203 LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO (42,100) (46,964) NONCONTROLLING INTERESTS ------------------ ------------------ COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO 2,874,942 990,239 INTERNET INITIATIVE JAPAN INC. ------------------------------------------------------------- ------------------ ------------------

Internet Initiative Japan Inc. Consolidated Statements of Cash Flows (Unaudited) (Three Months ended March 31, 2018 and March 31, 2019) Three Months Ended Three Months Ended March 31, 2018 March 31, 2019 ------------------ ------------------ Thousands of Thousands of JPY JPY ----------------------------------------------------------------------- ------------------ ------------------ OPERATING ACTIVITIES: Net income (loss) 2,463,153 1,462,910 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,209,013 3,923,168 Provision for retirement and pension costs, less payments 45,669 2,063 Provision for allowance for doubtful accounts 26,908 7,399 Loss (gain) on sales of property and equipment 1,260 (1,585) Loss on disposal of property and equipment 49,938 178,640 Net gain on sales of other investments (694,804) - Impairment of other investments 109,840 - Realized and unrealized gain (loss) on other investments, net - (1,531,807) Foreign exchange loss (gain), net 43,525 (41,199) Equity in net loss (income) of equity method investees, less dividends (33,487) 249,406 received Deferred income tax expense (benefit) (289,924) 26,194 Other 74,775 6,965 Changes in operating assets and liabilities net of effects from divestitures of a company : Increase in accounts receivable (4,233,708) (2,996,176) Decrease (increase) in net investment in sales-type lease — noncurrent 130,941 (754,195) Decrease in inventories 2,614,446 938,440 Decrease in prepaid expenses 512,885 1,188,917 Decrease (increase) in other current and noncurrent assets (202,209) 3,258,922 Decrease in accounts payable (540,684) (194,599) Increase in income taxes payable 1,397,103 696,134 Increase in accrued expenses 110,343 130,266 Increase (decrease) in deferred income—current 67,994 (545,770) Increase in deferred income—noncurrent 96,280 760,439 Increase (decrease) in other current and noncurrent liabilities 6,504 (434,000) Net cash provided by operating activities 4,965,761 6,330,532 ----------------------------------------------------------------------- ------------------ ------------------ INVESTING ACTIVITIES: Purchase of property and equipment (3,985,425) (2,314,492) Proceeds from sales of property and equipment 549,094 490,616 Purchase of other investments (155,577) (18,638) Investment in an equity method investee (1,830,000) - Proceeds from sales of available-for-sale securities 746,499 - Proceeds from sales of other investments 1,075 51,380 Payments of guarantee deposits (82,198) (9,147) Refund of guarantee deposits 5,625 10,543 Payments for refundable insurance policies (14,090) (14,085) Proceeds from subsidies - 230,000 Other (5) (215) ------------------ ------------------ Net cash used in investing activities (4,765,002) (1,574,038) ----------------------------------------------------------------------- ------------------ ------------------ Three Months Ended Three Months Ended March 31, 2018 March 31, 2019 ------------------ ------------------ Thousands of Thousands of JPY JPY ----------------------------------------------------------------------- ------------------ FINANCING ACTIVITIES: Net increase in short-term borrowings with initial maturities less than (150,000) - three months Principal payments under capital leases (1,493,754) (1,729,296) Proceeds from long-term accounts payable - 441,255 Payments of long-term accounts payable (165,122) (236,389) Other 11,250 - Net cash used in financing activities (1,797,626) (1,524,430) ----------------------------------------------------------------------- ------------------ ------------------ EFFECT OF EXCHANGE RATE CHANGES ON (44,389) (34,088) CASH AND CASH EQUIVALENTS NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,641,256) 3,197,976 CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 23,044,148 28,878,256 ----------------------------------------------------------------------- ------------------ ------------------ CASH AND CASH EQUIVALENTS, END OF THE PERIOD 21,402,892 32,076,232 ----------------------------------------------------------------------- ------------------ ------------------

The following information is provided to disclose Internet Initiative Japan Inc. (“IIJ”) financial Note: results (unaudited) for the fiscal year ended March 31, 2019 (“FY2018”) in the form defined by the Tokyo Stock Exchange.

Consolidated Financial Results for the Fiscal Year Ended March 31, 2019[Under accounting principles generally accepted in the United States (“U.S. GAAP”)]

May 14, 2019

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 27, 2019Scheduled date for dividend payment: June 28, 2019Scheduled date for filing of annual report (Yuka-shoken-houkokusho) to Japan’s regulatory organization: June 28, 2019Supplemental 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, 2019 (April 1, 2018 to March 31, 2019

(1) Consolidated Results of Operations (% shown is YoY change) Income before Net income Total revenues Operating income income tax expense*3 attributable to IIJ*3 --------------------------- ----------------- ------------------- -------------------- -------------------- JPY millions % JPY millions % JPY millions % JPY millions % Fiscal year ended March 31, 192,332 9.2 6,208 (8.2 ) 4,913 (37.3 ) 2,715 (46.9 ) 2019 Fiscal year ended March 31, 176,051 11.6 6,762 31.7 7,840 44.5 5,109 61.3 2018 --------------------------- ------------ ---- ------------ ---- - ------------ ----- - ------------ ----- -

(Note 1) Total comprehensive income attributable to IIJ For the fiscal year ended March 31, 2019: JPY2,253 million (down 70.7% YoY) For the fiscal year ended March 31, 2018: JPY7,684 million (up 71.9% YoY) Income before income tax expense represents income from operations before income tax expense and (Note 2) equity in net income in equity method investees, respectively, in IIJ’s consolidated financial statements. Following the revision of U.S. GAAP, from 1Q18, accounting policies related to gains/losses on equity (Note 3) securities and funds were changed. When excludes gains/losses on equity securities and funds to which accounting policies were changed, our FY2018 income before income tax expense was JPY6,023 million (down 7.4%) and net income attributable to IIJ was JPY3,476 million (down 17.1%).

Net income Basic net income Diluted net income attributable to IIJ Income before attributable to attributable to IIJ to total income tax expense Total revenues IIJ per share* per share* shareholders’ to total assets equity ----------------- ---------------- ------------------- ------------------- ------------------ -------------- JPY JPY % % % Fiscal year ended 60.24 60.00 3.7 3.1 3.2 March 31, 2019 Fiscal year ended 113.37 112.99 7.3 5.4 3.8 March 31, 2018 ----------------- ---------------- ------------------- ------------------- ------------------ --------------

Following the revision of U.S. GAAP, from 1Q18, accounting policies related to gains/losses on equity (Note) securities and funds were changed. When excludes gains/losses on equity securities and funds to which accounting policies were changed, our FY2018 basic net income attributable to IIJ per share was JPY77.12 and diluted net income attributable to IIJ per share was JPY76.81.

(2) Consolidated Financial Position ------------------------------------------------------------------------------------------------------------- Total IIJ Total IIJ Total IIJ Total assets Total equity shareholders’ equity shareholders’ equity shareholders’ equity to total assets per share -------------------- ------------ ------------ -------------------- -------------------- -------------------- JPY millions JPY millions JPY millions % JPY As of March 31, 2019 166,852 76,252 75,404 45.2 1,673.03 As of March 31, 2018 153,449 73,989 73,270 47.7 1,625.95 -------------------- ------------ ------------ -------------------- -------------------- --------------------

(3) Consolidated Cash Flow -------------------------------------------------------------------------------------------------- Investing FinancingCash and cash equivalents Operating activities activitiesactivitie(end of the period) s -------------------------------- -------------------- --------- -------- ------------------------- JPY millions JPY JPY % millions millions Fiscal year ended March 31, 2019 23,445 (6,869 ) (5,899 ) 32,076 Fiscal year ended March 31, 2018 13,262 (13,037 ) (748 ) 21,403 -------------------------------- -------------------- ------- - ------ - -------------------------

2. Dividends

Dividend per Shares ----------------------------------- Payout Ratio of Dividends Total cash dividends Ratio to Shareholder’s 1Q-end 2Q-end 3Q-end Year-end Total for the year (consolidated) Equity (consolidated) ------------------ ------ ------ ------ -------- ----- -------------------- -------------- ------------------ JPY JPY JPY JPY JPY JPY millions % % Fiscal Year Ended - 13.50 - 13.50 27.00 1,217 23.8 1.7 March 31, 2018 Fiscal Year Ended - 13.50 - 13.50 27.00 1,217 44.8 1.6 March 31, 2019 -------------- Fiscal Year Ending - 13.50 - 13.50 27.00 34.8 March 31, 2020 (forecast) ------------------ ------ ------ ------ -------- ----- -------------------- -------------- ------------------

(Note 1) Change from the latest released dividend forecasts: No As IIJ will adopts International Financial Reporting Standards (IFRS) beginning with the filing of (Note 2) annual report (Yuka-shoken-houkokusho) for the fiscal year ended March 31, 2019, the payout ratio (consolidated) for the fiscal year ending March 31, 2020 (forecast) has been calculated in accordance with IFRS.

3. Targets of Consolidated Financial Results for the Fiscal Year Ending March 31, 2020

(April 1, 2019 through March 31, 2020) (% shown is YoY change) ------------------------------------------------------------------ ------------------------------------------ Basic Total Operating Income before Net Income Net Income Revenues Income Income Tax attributable Attributable Expense to IIJ to IIJ per Share ---------------------------- ---------------- -------------------- -------------- -------------- ------------ JPY millions % JPY millions % JPY millions % JPY millions % JPY Interim Period Ending 97,700 7.4 2,200 (24.5 ) 1,500 - 550 - 12.20 September 30, 2019 ---------------------------- ------------ --- ------------ ----- - ------------ - ------------ - ------------ Fiscal Year Ending March 31, 204,000 6.1 7,000 12.8 6,300 - 3,500 - 77.66 2020 ---------------------------- ------------ --- ------------ ----- - ------------ - ------------ - ------------

As IIJ will adopt IFRS beginning with the filing of annual report (Yuka-shoken-houkokusho) for the fiscal year ended March 31, 2019, the targets of consolidated financial results for the fiscal year ending March 31, 2020 has been prepared in accordance with IFRS. YoY changes shown in percentage for (Note) total revenue and operating income are calculated in comparison with FY2018 results under U.S. GAAP. As for income before income tax expense and net income attributable to IIJ, such YoY changes are not disclosed because of significant difference between U.S. GAAP and IFRS. For details about the targets, please refer to “Future Prospects including FY2019 Financial Targets” written on page 8 of this earnings release.

* Notes

1. Changes in significant subsidiaries for the fiscal year ended March 31, 2019 (Changes in significant subsidiaries for the fiscal year ended March 31, 2019 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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” IIJ adopted this ASU in the first quarter beginning April 1, 2018, using the “modified retrospective method” and recognized in beginning retained earnings an adjustment for the cumulative effect of the change. The adoption of this ASU resulted in the increase in beginning retained earnings of JPY381,678 thousand. The adoption of this ASU did not have a material impact on IIJ’s consolidated financial position or consolidated results of operations. In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the guidance primarily affected the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. This ASU requires equity investments (except those that are in consolidated subsidiaries or in equity method investees) to be measured principally at fair value and with changes in fair value recognized in net income. IIJ adopted this ASU in the first quarter beginning April 1, 2018 and recognized in beginning retained earnings an adjustment for the cumulative effect of the change. The adoption of this ASU resulted in the increase in beginning retained earnings of JPY5,739,166 thousand, net of tax amount of unrealized gains on holding investments. 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, 2019: 46,721,400 shares As of March 31, 2018: 46,713,800 shares 2) The number of treasury stock: As of March 31, 2019: 1,650,911 shares As of March 31, 2018: 1,650,909 shares 3) The weighted average number of shares outstanding: For the fiscal year ended March 31, 2019: 45,070,469 shares For the fiscal year ended March 31, 2018: 45,062,878 shares

[English Translation]

May 14, 2019

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, 2019)

Its Ownership Percentage (%) Securities Exchanges Name Relationship Direct ownership Indirect ownership Total where its Shares are Listed --------------------- ---------------------- ---------------- ------------------ ----- -------------------- Nippon Telegraph and IIJ is NTT’s affiliate Tokyo Stock Exchange Telephone Corporation company 22.4 4.5 26.9 (First Section) (“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, 2019, 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 JPY34,082 million for the fiscal year ended March 31, 2019.

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.