Results of Operation

Q1 Where can I find IIJ's results of operations?

Yearly and quarterly results of operations can be found in Consolidated Financial Results.

Q2 What accounting principle does IIJ adopt?

IIJ adopted International Financial Reporting Standards (IFRS) from the filing of FY2018 annual securities report (filed June 28, 2019).

• (*)IIJ had been listed on the U.S. NASDAQ Sotck Market ("NASDAQ") until April 22, 2019 and its consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). As announced on April 22, 2019, the voluntary delisting of IIJ's ADSs from NASDAQ became effective on April 22 and as announced on February 7, 2019 starting from an annual report "Yuka-shoken-houkokusho" filed under the Financial Instruments and Exchange Act of Japan for the fiscal year ended March 31, 2019, IIJ voluntarily adopted for its consolidated financial statements

Q3 Please tell me the differences between IFRS and U.S. GAAP.

There are not so significant difference for revenue recognition and goodwill. As for differences, please refer to below.

Holding marketable equity securities

• IFRS：Have an option to recognize unrealized gains/losses on holding marketable equity securities as "Other Comprehensive Income" on B/S. If choose this method, P/L impact due to gains/losses on marketable equity securities are not expected under IFRS
• US GAAP：Recognize unrealized gains/losses on holding marketable equity securities as "other investments" on P/L quaterly.

Consolidated subsidiaries' fiscal year cycle

• IFRS：Require the same fiscal year cycle
• US GAAP：Allow difference in fiscal year cycle as long as it is within 3 months.

Presentation of equity in net income (loss) of equity method investees

• IFRS：Included in profit before tax
• US GAAP：Not included in income before income tax expense

Recognition of assets and depreciation and amortization expenses (small-amount equipment etc.)

• IFRS：Recognize as assets and record under depreciation and amortization expenses
• US GAAP：Recognize as supplies/prepaid expenses and record under expenses other than depreciation and amortization expenses

Recognition of software

• IFRS：Recognize as goodwill and intangible assets
• US GAAP：Recognize as tangible assets

Q4 Please explain what impact does the adoption of IFRS 16 "Leases" have on you.

Along with the adoption of IFRS 16 "Leases," from 1st quarter FY2019, there are following changes.

• Certain operating leases are recognized as "right-of-use assets" and "other financial liabilities" on Statement of Financial Position.
• Finance lease which used to be recognized as tangible and intangible assets were reclassified to "right-of-use assets."
• In the statement of cash flows, payments for operating leases which are classified as "other financial liabilities" have been reclassified from operating activities to financing activities.
• Depreciation and amortization is increased as operating leases are recognized as assets/liabilities.

• (*)"CAPEX-related depreciation and amortization," which is calculated by excluding depreciation and amortization assets that do not have the nature of capital investment, such as right-of-use assets related to operating leases, small-amount equipment and customer relationship, is disclosed in presentation material for earnings release.

For this matter, please refer to our 4Q19 earnings (page 17) as well as our presentation material for 4Q19 (page 15).

Q5 I'd like to know about revenue recognition.

Network service revenues are billed and recognized monthly on a straight-line basis. Initial set up fees received in connection with network services are deferred and recognized over the estimated average period of the subscription for each service. Systems construction (equipment sales included) are recognized when related performance obligations are satisfied, but under some conditions, revenue and related costs are recognized over the periods during which the performance obligations are fulfilled. Monitoring, operating, and hardware and software maintenance services generally commence once our customers have accepted the system and their contract periods are generally one to five years. Our contracts include a stated annual fee for these services.

Q6 Is there a certain cycle for quarterly revenue and operating profit?

Corporate spending in Japan has the tendency to become the largest in the fourth quarter and the lowest in the first quarter as many Japanese companies have fiscal years ending March 31. Our systems integration revenues and operating profit are most likely to be the largest in the fourth quarter as most of our customers has fiscal years ending March 31.

Q7 When is the next earning release scheduled?

IR schedule is frequently updated on the IR Calendar.

Q8 Where can I find the latest financial statements?

IR documents can be found in IR Library.

Q9 What is your financial target for FY2024?

We have revised FY2024 financial targets and interim and annual dividend forecasts, which were announced on May 10, 2024, mainly considering the progress in price pass-through due to our revised service prices in response to the revision of VMware products(*)’ pricing structure. For details, please refer to “Notice regarding the Revisions of Consolidated Financial Targets and Dividend Forecasts” which was announced on August 7, 2024.

(*) A lineup of software mainly for server virtualization, provided by a U.S. company called VMware which has been acquired by another U.S. company called Broadcom.

Q10 Please tell me about the risk factors for growth.

Our business is principally conducted in Japan and most of our revenues are from customers operating in Japan. If the Japanese economy deteriorates or does not improve, and it results in significantly lower levels of network-related investment, especially in network systems construction which may have significant influence on our corporate customers' investment, or if corporate customers respond to conditions by prioritizing low price over quality, it may become difficult to maintain our current level of revenues or achieve our expected revenues and profits. If we experience cancellation of large accounts, it may also become difficult to maintain our current level of revenues and margins or achieve our expected revenues and profits.
For details, please refer to Risk Factors.

Q11 What are IIJ's major tangible assets?

Majority of our tangible assets are data communications equipment, office and other equipment. Along with the adoption of IFRS 16, leased assets are accounted for as right-of-use assets from the fiscal year ended March 31, 2020. As of March 31, 2024, we recorded JPY29.07 billion of tangible assets and JPY41.24 billion of right-of-use assets (tangible).
For details, please refer to FY2023 Annual Securities Report Note 11 (page 117-118) and Note 16 (page 127).

Q12 What are IIJ's major goodwill and intangible assets?

Majority of our intangible assets are software necessary for our business. Along with the adoption of IFRS 16, leased assets are accounted for as right-of-use assets from the fiscal year ended March 31, 2020. As of March 31, 2024, we recorded JPY18.36 billion of intangible assets, of which JPY16.43 billion were software, and JPY1.51 billion of right-of-use assets (software).

For details, please refer to FY2023 Annual Securities Report Note 12 (page 119-120) and Note 16 (page 127).

Q13 Where should I look for borrowings?

As of March 31, 2024, the total balance of our borrowings was JPY30.2 billion（JPY20.43 billion as of March 31, 2023).

FY2023 Annual Securities Report ”Risks regarding future funding needs” (page 40) .

Q14 (ref. QA) Please tell me the differences between Japanese GAAP and U.S. GAAP.

• (*)Starting from the filing of FY2018 annual securities report (filed on June 28, 2019), IIJ adopted International Financial Reporting Standards (IFRS) for accounting principles. Before, IIJ adopted U.S. GAAP; therefore, this question is prepared for a mere reference purpose.

There are differences such as,

• Under U.S. GAAP, expenses and losses related to operation are recorded in "expense" whereas under Japanese GAAP, they are recorded in "Non-operating expense" and "Extraordinary loss."
• "Ordinary Income/Expense" in the statement of income under Japanese GAAP does not exist under U.S. GAAP.
• Differences in accounting policies such as, income taxes, stock issuance cost, retirement and pension cost, accumulated income, additional-paid in capital and common stock and goodwill.

Q15 (ref. QA) I'd like to know about how you now record changes in unrealized gains/losses on holding available-for-sale equity securities following the revision of U.S. GAAP.

• (*)Starting from the filing of FY2018 annual securities report (filed on June 28, 2019), IIJ adopted International Financial Reporting Standards (IFRS) for accounting principles. Before, IIJ adopted U.S. GAAP for its accounting principles; therefore, this QA is prepared for a mere reference purpose.

Following 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.

"Realized and unrealized gain/loss on other investments, net," for FY18 was JPY1,110 million of loss. The breakdown of which were loss of JPY1,542 million on marketable equity securities and gains of JPY432 million on funds that were available to be measured at fair value.

For details, please refer to page 6 of our FY18 earnings release titled "IIJ Announces Full Year and Fourth Quarter Financial Results for the Fiscal year Ended March 31, 2019" published on May 14, 2019 and page 22 of our 4Q18 presentation material for the earnings.

When excludes gains/losses on marketable equity securities and funds to which accounting policies were changed, our FY18 income before income tax expense and net income attributable to IIJ would have been as follows:

• FY18 Adjusted Income before Income Tax Expense : JPY6,023 million Down 7.4％ YoY
• FY18 Adjusted Net Income attributable to IIJ : JPY3,476 million Down 17.1% YoY