QAs from earnings release meetings and others

February 7, 2024：3Q23 Financial Results Briefing (Online)

(*) This is a summary of questions and answers took place at the Briefing.

Question: Compared to FY23 financial targets announced in May 2023, 1Q-3Q23 financial results seem weak, yet you did not revise the full year targets. Please comment on the full year forecast.

Answer: As disclosed in page 8 of our earning release, 1Q-3Q23 total revenue and profit fell short of the initial expectation for 1Q-3Q23 at the beginning of this fiscal year. It was mainly because systems integration (SI) revenues were weaker than expected due to longer project duration which is a result of an increase in the number of large-scale projects. The allocation of human resources to large-scale Service Integration projects has been one of the factors behind the short-term deviation from the initial expectation; however, these projects with multi-year contracts should contribute to the accumulation of network (NW) services revenues. Therefore, we are focusing on accumulating such projects to accelerate business expansion over the mid-to-long term. Although this trend imposes an impact on the progress toward the full-year forecasts, the full-year results largely depend on 4Q due to seasonality, and the variable factors associated with recording of large-scale NW renewal projects on a percentage-of-completion method have increased. Considering these factors, targets for FY23 financial performance and dividends remain unchanged.

Question: How much are you behind on your financial targets?

Answer: We would like to refrain from mentioning the assumed numbers. As a seasonal factor every year, 4Q is generally the time of the year when SI construction projects are most likely to be delivered and recognized as revenue which makes fluctuation in the revenue volume. Additionally, in this fiscal year, as the number of large-scale service integration projects which include SI construction is increasing, the full year results shall depend on the degree to which the percentage-of-completion method is applied. Please kindly note that in page 9 of our presentation material, we disclose that among SI construction 3Q23-end order backlog of JPY23.6 billion, approximately JPY14.0 billion are to be recognized as revenue in or after FY24.

Question: Profit for the year attributable to owners of the parent (net profit) may also fall short of the target. If that is the case, would you change the dividend per share (DPS)?

Answer: We would like to refrain from mentioning the assumption about future. As of now, what we have disclosed is that the 1Q-3Q23 financial results fell short of the expectation and no mention about changing DPS.

Question: Please comment on SI demands.

Answer: We have continuously been seeing strong demands from various industries such as public sector and general enterprises including financial institutions. In 3Q23, we acquired a large-scale NW renewal project for a financial institution (approximately JPY4.0 billion, 8 years), a services-infrastructure construction and operation project for an enterprise (approximately JPY4.0 billion, 5 years), and a large-scale server construction for AI infrastructure overseas project (approximately JPY3.0 billion, 3 years).

Question: The Telecommunications Business Law was revised at the end of December 2023. IIJ has become exempt from the regulation (1: separation of communication fees and device costs, 2: prohibition of excessive bundling). Has this revision had any impact on IIJ? Please comment on IIJ's future measures.

Answer: As of now, no significant impact has occurred. We welcome the fact that we are no longer subject to this regulation; however, we are not considering implementing any extreme measures at this time.