QAs from earnings release meetings and others

February 7, 2025：3Q24 Financial Results Briefing (Online)

(*)This is a summary of questions and answers took place at the Briefing.
FY24 stands for a fiscal year ending March 31, 2025, 1H24 stands for the first half of FY24, 2H24 stands for the latter half of FY24, 3Q24 stands for the third quarter of FY24.

Question: The ratio of purchasing costs to SI construction revenues for 3Q24 (3 months) was at a high level. Do you expect this trend to continue in the future?

Answer: In 3Q24 (3 months), the ratio of purchasing costs to revenues was high mainly due to the strong SI construction revenues, including the recognition of revenues for large-scale projects. This ratio fluctuates quarterly depending on the content of the projects, but tends to be high when large-scale projects’ revenues are recorded. After the recognition of SI construction revenues, monthly systems operation & maintenance revenues would accumulate, which generally have a higher profit margin than SI construction, so we think that the overall profit margin of SI would gradually increase.

Question: Although the operating profit for 1Q-3Q24 is slightly behind our expectations of the full-year forecast, could you provide your outlook for the full year?

Answer: While SI revenues exceeded our expectations, NW service revenues fell short due to the allocation of resources to respond to the substantial price increase of VMware products. As a result, operating profit is below our expectations, but we are focusing on accumulating revenues through cross-selling in NW services and steadily increasing monthly recurring revenues from large-scale projects. The full-year forecasts are largely dependent on the fourth quarter results due to seasonality every year in general, therefore, FY24 consolidated financial targets remain unchanged.

Question: You have secured the second project approx. JPY11.0 billion, 8 years of the new shared banking system platform for Japanese regional banks. Please comment on the possibility of expanding to other regional bank groups?

Answer: Although we are receiving inquiries and promoting sales activities, there are no concrete projects at this time.

Question: The subscription of IIJmio has slightly decreased QoQ. Has there been a change in the competitive environment? Also, please comment on your outlook for the future?

Answer: We think that the slight decrease in the subscription of IIJmio is due to the restraint of campaigns. On the other hand, the subscription of MVNE is steadily increasing, so we do not think that there has been a significant change in the competitive environment. IIJmio plans to revise its pricing from March, which is expected to promote acquisition.

Question: Please explain the progress of price pass-through and revision to respond to the substantial price increase of VMware products, and what are the related cost and profit impact for 1Q-3Q24?

Answer: Price pass-through for SI (cloud services) started from April 2024 and progressed mostly in 1H24. As for NW services, price revisions for major services have been applied since October 2024. The cost increases for 1Q-3Q24 were approximately JPY0.8 billion for NW services and JPY2.2 billion for SI, of which, approximately JPY0.7 billion is one-time cost in 1Q24), and the profit impacts were approximately JPY-0.4 billion for NW services (1Q: JPY-0.3 billion, 2Q: JPY-0.3 billion, 3Q: JPY+0.2 billion) and approximately JPY-1.2 billion for SI (1Q: JPY-0.9 billion, 2Q: JPY-0.1 billion, 3Q: JPY-0.2 billion).

Question: Although the price revision effect for NW services in 3Q24 was JPY+0.4 billion in sales, could you provide your outlook for 4Q24?

Answer: Since October 2024, we have applied the price increase of several percent for major NW services, and the price revision effect for 4Q24 is expected to slightly increase compared to 3Q24.

Question: Are there any factors expected to significantly increase costs in or after the next fiscal year?

Answer: While there are price revisions for individual products and services, at present we do not recognize any cost fluctuation factors, which would be the similar scale to the VMware products.