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  6. 1Q FY22 Financial Results Briefing (Online)

QAs from earnings release meetings and others

August 5, 2022:1Q FY22 Financial Results Briefing (Online)

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

Question: Following 4Q21, you continued to acquire multi-year-fixed contracts related to network (NW) in 1Q22. Please tell us why you think you have been able to increase order-received for these kinds of projects. I'd also like to know how these projects' revenues are to be recognized as well as the outlook for these projects' contribution for your earnings.
Answer: In the recent years, both private and public sector clients are shifting from closed and intranet type systems to more open type and comprehensive systems by connecting Internet, Cloud, Security and others to internal network. This trend has led us to propose and acquire these kind of complex and advance projects that require both various NW services and systems integration (SI) remarkably in the recent years. Please refer to page 18 of our presentation materialPDF to see details of these projects. Revenue recognition of these projects differs project by project, yet regarding the large scale projects announced in 4Q21 earnings (total-contracted revenue: over 10 billion yen, 5 projects) we assume that approximately 70% to 80% are to be recognized in NW services and the rest in SI. As for the middle scale projects announced in 1Q22 earnings (total contracted revenue: approximately 3.5 billion yen, 9 projects) are to be recognized mostly in NW services. We expect monthly recurring service revenues within these middle-to-large scale comprehensive projects are to be added from a little bit before the latter half of FY22 gradually along with completion of NW preparation etc.
Question: 1Q22 NW services' gross profit growth of 0.47 billion yen year over year (YoY) seems slow progress compared to FY22 outlook which targets an increase of 4.3 billion yen YoY. Could you give us your explanation?
Answer: The YoY increase of NW services' gross profit was in line with our expectation. The NW services' gross profit could be divided into Mobile and others. As for Mobile, because 1Q22 is the comparison with 1Q21 which is right after our new "GigaPlans" was launched in Apr. 2021 and there were a lot of consumer mobile subscribers using our old plan, higher ARPU (Average Revenue Per User), YoY gross profit decrease should be the largest in 1Q22 in which the migration to "GigaPlans" made progress. As for NW services gross profit excluding Mobile, we had cost increase at a constant level from year to year. Also, its gross margin should increase quarter by quarter along with revenue increase. Given these two factors, we expect gross profit volume of NW services should expand quarter by quarter.
Question: Please explain why enterprise monthly recurring revenue of IP, enterprise mobile and WAN services decreased in 1Q22 from 4Q21.
Answer: Generally speaking, monthly recurring revenue services do not largely increase in 1Q from 4Q mainly due to seasonal factors such as new fiscal year's budget and renewal of contracts. In 1Q22, IP and WAN services revenues decreased due to a certain large NW replacement project in which NW opening of multiple location was concentrated in 4Q21. As for enterprise mobile, its revenue decreased in 1Q22 because we recorded revenues of a large mobile project which has several phases for demonstration experiment in 4Q21. While these revenues decreased quarter over quarter as expected by the certain projects, we recognize that favorable demand situation still continues as the overall Internet traffic is expected to continuously increase and IT usages is to advance.
Question: Are you impacted by semi-conductor shortage?
Answer: We cannot say we are not affected by it at all. As for NW business, because the delivery of network equipment needed for our service facility etc. takes longer time, we place orders in advance to cope with it. As for SI, the revenue recognition is delayed as it takes time for equipment needed for SI to be delivered. Due to that, FY21 SI construction revenues were not fully recognized which led to relatively high order-backlog. Given that, we expect positive effect from those revenues that did not realize in FY21 as well as negative effect of not being able to recognize revenues entirely at the end of the fiscal-year-end for FY22.
Question: IIJ announced to offer compensation of 200 yen per IIJ mobile user who was impacted by the significant communication failure of KDDI Corporation (KDDI) that happened in July 2022. Could you explain the thinking behind it and any impact on your earnings?
Answer: Although KDDI announced that MVNOs are not to be covered by their compensation, we decided to offer offer compensation to our consumer mobile users contracted with our KDDI service as soon as possible. We shall discuss with KDDI about this compensation. As for the impact on our earnings, it is not material as the majority of our consumer mobile users are contracted with our NTT DOCOMO, INC. service.
Question: Please tell us if you see any impact onto your enterprise IoT service from KDDI's significant communication failure.
Answer: As communication failure could impose serious risks onto businesses, it is reasonable to assume that demands for multi-carrier network should increase. Since we procure our mobile infrastructure from NTT Docomo and KDDI, we expect our competitive advantage of being able to offer network redundancy through multi-carrier is going to be stronger.

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