Internet Initiative Japan Inc. Corporate Overview IR Roadshow in Abu Dhabi, London, Edinburgh, and Paris June and July 2014 TSE1:3774 NASDAQ:IIJI
Key Investment Highlights Pioneer and Top IP Engineering Company in Japan Shifted from ISP to Total Network Solution Provider Target Blue-chip & Governmental Organizations Approx. 8,500 Excellent Japanese Customers Growth Strategy with Recurring Revenues & Income Growth Best Positioned in the Growing Outsourcing & Cloud Computing Market details to follow 2
TOP IP Engineering Company in Japan The first established full-scale ISP in Japan Introduced many prototype internet-related network services and led the market A group of highly motivated and skilled top level IP engineers Pioneer of network technologies in Japan Service initiative with in-house development Operate one of the largest Internet backbone networks in Japan Self-develop services and back office facilities Established “IIJ” brand among the Japanese IT market Known for its engineering & network operation skills High customer satisfaction & long term relationship Approx. 8,500 clients: mainly large enterprises & governmental organizations At the leading edge of IP R&D Company Profile Engaged in software development of SDN Established December 1992 Founding member of JEAG Number of Consolidated: 2,353 Employees Co-work with Ministry of Internal Affairs and (approx. 70% engineers) (as of Mar. 2014) Communications Listed Markets NASDAQ (IIJI), TSE1 (3774) Participation in world-wide research Large NTT (21.6%), Koichi Suzuki (5.8%*), Shareholders and organizations NTTCom(4.4%) (as of Mar. 2014) … and many more *Jointly owned by Mr. Suzuki’s wholly owned private company 3 3
Entrepreneur of Network Technologies Business and Service Development to Initiate the Market Overseas SI Projects SDN The first full-scale ISP in Japan FX Container Cloud Service In DC Application In-housed development US & China & Development UK & Singapore IPTV At leading edge of IP R&D Platform Cloud Systems Computing Operation “IIJ GIO” Smart IP specialists P to P Large Volume Mobile Systems Data Integration Distribution LaIT RFID SIM Card GDX iBPS Internet offerings Platform DC LAN LTE M to M Internet Managed Service VPN Web Gateway Anti-spam CDN Global IP Multicast Solution WAN DDoS SEIL MVNE IIJ ISP SMF Mobile in U.S. Wide hi-ho Asia LAN Consumer Firewall Backbone Service ISP IPv6 IIJmio Home Page IX Service Dial-up SLA service IIJ4U Web Hosting Service 1992 1996 1997 1998 2006 2007 2008 2010 2012 2013 2014 IIJ Group 4
Strategic Shift in Business Model From “ISP” to “Total Network Solution Provider” EMERGE Cloud Computing Revenue (JPY million) One time Systems Integration revenue ENDURE Systems Construction Tough economic Systems Operation and Maintenance situation BLOOM Network Services Harvesting the flower of Total Network Solution WAN Services Provider Outsourcing Services Internet Connectivity Services Transition Change in Listed on NASDAQ business model TSE Monthly IPO recurring revenue WAN Business (M&A Sep. 2010) Birth Earned its enduring client base Japanese Rapid Sudden economy at economic down turn in bottom recovery economy Rise in needs for Increase in number Heavy price CWC filed for Merger of corporate Cloud /Outsourcing of ISPs competition Chapter 7 ISPs 5 5
Business Structure of Network Services Revenues and Costs are not in linear relation • Costs do not increase along with revenue growth • If revenues are accumulated continuously, the gross margin should continuously improve • Multiple cross-selling revenue sources with Internet connectivity for corporate/home and outsourcing services on the Internet backbone • Contracts are per bandwidth, Monthly recurring revenue Revenues • Blue-chip clients with mission-critical business, network operator clients (Carriers, ISPs, CATVs, etc) • Tough competition ended, only few high-end ISPs survived • Revenues increase along with bandwidth migration & accumulation of service orders • Enjoying scale merit along with increasing traffic • Strong bargaining power as one of the largest independent ISPs leasing fibers • Mainly related to circuit-borrowing, network equipment, DC-borrowing, operations, personnel and Costs outsourcing costs • While constantly expanding the network, costs barely increase * Network services include Internet connectivity, outsourcing, and WAN services Gross margin ratio 23.9% 23.3% 21.8% 19.8% 18.3% 16.7% 18.3% Revenue Cost IIJ Internet Backbone FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 6 6
Business Model: Cross-selling of Network Solutions • Dedicated line connectivity IP service (cover over Gbps) Mainly network-related integration IPv6 service E-commerce/Web-shopping System • Broadband connectivity Disaster Recovery System Optical Fiber/ADSL Private Cloud Computing Platform • Mobile connectivity (IIJ Mobile) and many more LTE/3G • WAN services Wide area Ethernet/VPN Global WAN Systems Construction Internet Connectivity & WAN Approx. 8,500 Client Base Outsourcing & Systems Operation Outsourcing services include: • Security-related services (managed-firewall and IPS, DDoS protection, URL filtering, anti-spam etc.) • Data center-related services (housing, facility management and operation) • Server-related services (E-mail services, web hosting, online storage, CDN etc.) • Network-related services (network management and monitoring, VPN, SEIL, SMF etc.) • IIJ GIO Hosting Package Services (approx. 21% of 4Q13 IIJ GIO revenues) Systems Operation includes: • Operation and maintenance of a system constructed in Systems Construction • IIJ GIO Component Services (approx. 79% of 4Q13 IIJ GIO revenues) 7 7
Excellent Blue-chip Client Base High Market Penetration Enduring Relationship with towards Top Tiers Leading Entities 10/10 10/10 10/10 Precision Electronic Information/ equipment appliances Telecommunications 8/10 10/10 10/10 Construction Securities Banks 9/10 8/10 9/10 Insurance Machinery Wholesale Imperial National Police Ministry of The number of clients among the top 10 companies in each industry. Household Agency Agency Justice Ministry of Ministry of the Finance Environment and many more… 8 8
Revenue Composition by Clients Source: IIJ’s FY2013 financial results Revenue Distribution by Revenue Distribution by Industry Clients Largest customer’s revenue is less than 3% of the total Certain customers’ revenue growing faster than the others along with their increasing needs for more network usage While the growth in recent years was primarily led by those large accounts, their slowing down impacted in FY13 Our growth strategy is to increase large customers by growing general customers’ network usage 9
Competitive Advantages Cloud Computing Services Carriers Systems Integrators Internet Connectivity Services Network Integration Outsourcing Services Systems Operation WAN Services Private Cloud Telephone Mainframe Legacy Network Services Legacy Systems Operation IIJ… IIJ… has many highly skilled network engineers operates its own backbone network rapidly corresponds to the Internet market develops network services in-housed focuses on enterprises targets new IT market, not legacy SI has an established brand among blue-chips has long and rich experience in server operation has flat organization structure has moderate number of employees 10 10
Strategy to Increase Large Customers Cross-selling of Services Revenues by Customer Solid Growth Strategy Provide high quality and reliable services Increase revenues Develop and introduce new technologies and per customer solution continuously Leverage and strengthen client base Seizing business opportunities in the transitional phase of companies internal network system Maximize IIJ’s potential as a total network service provider Focus on cloud computing services Number of Customers ・ Increased demands of outsourcing and cloud computing ・ Indispensable IT investment in the mid-to-long-term 11 11
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