Internet Initiative Japan Inc. Corporate Overview September 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 Over 8,500 Excellent Japanese Customers Growth Strategy with Recurring Revenues & Income Growth Hot Topics Best Positioned in the Growing Outsourcing & Cloud Computing Market MVNO Business Rapidly Growing by Capturing both Corporate and Consumer needs 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 Highly motivated and skilled top level IP engineers Pioneer of network technologies in Japan Operates one of the largest Internet backbone networks in Japan Self-develop services and the related 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 Co-working with MIC* Consolidated: 2,523 Employees (approx. 70% engineers) Participation in world-wide research (as of June 2014) and organizations … and many more Listed Markets NASDAQ (IIJI), TSE1 (3774) Large NTT (21.6%), Koichi Suzuki (5.8%*), Shareholders NTTCom (4.4%) (as of Mar. 2014) *MIC: Ministry of Internal Affairs and Communications *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/NFV 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 GDX SIM Card iBPS Internet Platform offerings DC LAN LTE Internet M to M Managed Service VPN Web CDN Gateway Anti-spam Global IP Multicast Solution WAN SEIL DDoS MVNE IIJ ISP Mobile SMF in U.S. hi-ho Wide Asia Consumer Firewall LAN Backbone Service ISP IIJmio IPv6 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 Revenue Cloud Computing (JPY million) Systems Integration: One-time Systems Construction Revenue Systems Operation and Maintenance BLOOM Network Services: Harvesting the flower of Total Network Solution WAN Services Provider Outsourcing Services Internet Connectivity Services Transition Change in business model Monthly Recurring Revenue NASDAQ Listed on IPO TSE WAN Business Birth (M&A Sep. 2010) Earned its enduring client base 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 *Network services: Internet connectivity, outsourcing, and WAN services • Multiple cross-selling revenue sources* provided from the Internet backbone • Monthly recurring revenue , contract periods are usually 1 year (contracts per network bandwidth) • Blue-chip clients with mission-critical business, network operator clients (Carriers, ISPs, CATVs, etc) Revenues • Tough competition ended, only a few high-end ISPs survived • Revenues increase along with bandwidth migration and accumulation of service orders • Enjoying scale merit along with increasing traffic • Strong bargaining power as one of the largest independent ISPs leasing fibers Costs • Mainly related to circuit-borrowing, network equipment, DC-borrowing, operations, personnel & outsourcing • While constantly expanding the network, costs barely increase Network services costs don’t increase along with network services revenues • If revenues are accumulated continuously, the gross margin should continuously improve Gross margin ratio 21.8% 23.9% 23.3% 19.8% 18.3% 16.7% 18.3% Revenue Cost FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 IIJ Internet Backbone 6 6
Business Model: Cross-selling of Network Solutions Revenues by Customer Increase revenues Systems per customer Construction e.g. Large scale EC system, Internet Disaster recovery system, Security gateway system etc. Connectivity & WAN Over 8,500 Number of Customers Client Base Outsourcing & Systems Operation • Dedicated line connectivity Outsourcing services include: IP service (cover over Gbps) • Security-related services (managed-FW and IPS, DDoS protection, URL filtering, anti-spam etc.) IPv6 service • Data center-related services (housing, facility management and operation) • Broadband connectivity • Server-related services (E-mail services, web hosting, online storage, CDN etc.) Optical Fiber/ADSL • Network-related services (network management and monitoring, VPN, SEIL, SMF etc.) • Mobile connectivity (IIJ Mobile) • IIJ GIO Hosting Package Services (approx. 20% of 1Q14 IIJ GIO revenues) LTE/3G Systems Operation includes: • WAN services • Operation and maintenance of a system constructed in Systems Construction Wide area Ethernet/VPN Global WAN • IIJ GIO Component Services (approx. 80% of 1Q14 IIJ GIO revenues) 7 7
Excellent Blue-chip Client Base High Market Penetration towards Top Tiers 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 The number of clients among the top 10 companies in each industry. 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 Our growth strategy is to increase the number of large revenue 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 corresponds to the Internet market rapidly 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
Best Positioned in Cloud Market Service Features Growth Strategy Launched in 2009 (one of the first cloud providers) Target blue-chips’ internal IT systems , which Offering public cloud services (forefront investment are traditionally covered by legacy SIers Leverage blue-chip customer base: in servers, storages, datacenters etc.) Cloud-related CAPEX: JPY1.6 billion (FY10) , JPY4.3 billion IIJ GIO user: 1,200, IIJ group customer: 8,500 (FY11) , JPY2.3 billion (FY12) , JPY3.7 billion (FY13) Chosen for reliable connectivity and rich Top revenue share for 2 consecutive years* experience in NW and system operation Promoting Cloud Shift of blue-chi ps by Cloud: combination of NW and system continuously expanding service lineups: Acquiring flagship projects (SI +Cloud + MVNO) Microsoft Azure, VMware Hypervisor, SAP Basic, IBM Some advanced integrated cloud usages AS400, Oracle Database and many more among primitive and simple system purposes Aggressively investing in new service and solution Construction of online security controls for one of development (BigData, M2M etc.) the largest Japanese financial institutions etc, Container Module Type Datacenter First in Japan to commercialize (Apr. 2011-) Doubled the capacity in Nov. 2013 (48 modules) (JPY billion) PUE* 1.2 - applying outside air cooling system Patent for the unique alignment of racks: keeping necessary working space while reducing the overall container size Construction projects in Laos and Russia 1 st Source: IDC Japan, Apr. 2013, Public Cloud Market 2 nd *Fuji Chimera Report (2012 and 2013) PUE:Power Usage Effectiveness, a terminology created by the members of by Green Grid as a metric used to determine the energy efficiency for a datacenter 11 11
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