Internet Initiative Japan Inc. Nomura Investment Forum Asia June 2013 TSE1:3774 NASDAQ:IIJI
Key Investment Highlights Key Investment Highlights Top IP Engineering Company in Japan Shifted from ISP to Total Network Solution Provider Target Blue-chip & Governmental Organizations Target Blue chip & Governmental Organizations Over 8,200 Japanese Excellent Customers Solid Growth Strategy with Proved Revenues & Income Growth Income Growth Best Positioned in the Growing Outsourcing & Cl Cloud Computing Market d C ti M k t 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 g p g y p g Pioneer of network technologies in Japan historically Service initiative with in-house development Operate one of the largest Internet backbone networks in Japan O t f th l t I t t b kb t k i J Self-develop services and back office facilities Established “IIJ” brand among the Japanese IT market Established IIJ brand among the Japanese IT market Known for its engineering & network operation skills High customer satisfaction/long term relationship Over 8,200 clients: mainly large enterprises & governmental organizations , y g p g g At the leading edge of IP R&D Company Profile Established December 1992 Engaged in software development of SDN Number of Number of F Founding member of JEAG Consolidated: 2,116 C lid t d 2 116 di b f JEAG Employees (approx. 70% engineers) (as of Mar. 2013) Co-work with Ministry of Internal Affairs and Listed NASDAQ (IIJI), TSE1 (3774) Communications Markets Participation in world-wide research P ti i ti i ld id h NTT (24.5%), Koichi Suzuki (6.3%*), Large Itochu Corp. (5.1%), Shareholders and organizations NTTCom (4.9%) (as of Mar. 2013) … 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 Cloud Container Service In DC DC I In-housed development h d d l Application US & China Development Cloud IPTV Computing At leading edge of IP R&D Platform Systems “IIJ GIO” Operation Large Volume Smart IP specialists P to P Data Mobile Systems Distribution Distribution Integration I t ti LaIT RFID Internet GDX iBPS LAN LTE Platform DC M to M Internet Managed VPN Web Service Service Gateway Anti-spam CDN Solution Global IP Multicast DDoS WAN SEIL MVNE SMF IIJ ISP Wide Mobile hi-ho in U.S. LAN Asia Asia Consumer Consumer Firewall Fi ll Backbone IPv6 Service ISP IIJmio Home Page IX Service Dial-up SLA service IIJ4U Web Hosting Service 1992 1996 1997 1998 2006 2007 2008 2010 2012 2013 IIJ Group 4
Strategic Shift in Business Model From “ISP” to “Total Network Solution Provider” EMERGE Revenue Cloud Computing (JPY million) One-time revenue ENDURE Tough economic Systems Construction BLOOM situation Monthly recurring revenue Harvesting the Sy Systems Systems Operation Syste s Ope at o flower of flower of Integration WAN Services Total Network Solution Provider Outsourcing Services Internet Connectivity Services Transition Change in Change in Listed on NASDAQ business TSE IPO model Network Birth Services WAN Business Earned its （ M&A Sep10 ） enduring client base Japanese Rapid Sudden economy at economic down turn in bottom recovery economy Rise in needs for CWC filed for Increase in Merger of Heavy price Cloud corporate number of ISPs corporate ISPs competition /Outsourcing reorganization 5 5
Business Structure of Network Services IIJ Internet Backbone IIJ I t t B kb * Network services: Internet * N t k i I t t Revenues connectivity, outsourcing, and WAN services • Multiple cross-selling revenue sources with Internet connectivity for corporate/home and outsourcing services on the Internet backbone on the Internet backbone • Internet connectivity contract is per bandwidth • A monthly recurring-type revenue • Blue-chip with mission-critical business & network operators clients (Carriers, ISPs, CATVs, etc) p ( ) • Tough competition ended, only few high-end ISPs left • Revenues increase along with migration of bandwidth and accumulation of outsourcing service orders • Enjoying scale merit along with increasing traffic Costs • Constant expansion of Internet backbone Gross Gross 23 9% 23.9% • Strong bargaining power as one of the Margin Ratio largest independent ISPs 23.3% • Mainly related to circuit-borrowing, 19.8% 18.3% network equipment, DC-borrowing, 16.7% operations, personnel and outsourcing ti l d t i Revenue costs Cost • Not always directly related to the revenue growth • While constantly expanding the network • While constantly expanding the network, costs barely increase 6 6
Recurring Business Model Cross-selling of Network Solutions Mainly network-related Integration •Dedicated Line Connectivity E-commerce/Web-shopping System IP Service (cover over Gbps) Disaster Recovery IPv6 Service Private Cloud Computing Platform Private Cloud Computing Platform •Broadband Connectivity B db d C ti it and many more Optical Fiber/ADSL •Mobile Connectivity (IIJ Mobile) LTE/3G Systems • WAN Services Wide area Ethernet/VPN Wide area Ethernet/VPN Construction Global WAN Internet Connectivity & WAN Over 8,200 Client Base Outsourcing & Systems Systems Operation O tso rcing ser ices incl de Outsourcing services include: 1. Security-related services (managed-firewall and IPS, DDoS protection, URL filtering, anti-spam etc.) 2. Data center-related services (housing, facility management and operation) 3. Server-related services (E-mail services, web hosting, online storage, CDN etc.) 4. Network-related services (network management and monitoring, VPN, SEIL, SMF etc.) 5. IIJ GIO Hosting Package Services (more than 20% of IIJ GIO revenues) g g ( ) Systems Operation includes: 1.Operation and maintenance of a system constructed in Systems Construction 2. IIJ GIO Component Services (less than 80% of IIJ GIO revenues) 7 7
Excellent Blue-chip Client Base Excellent Blue-chip Client Base Top Tiers 10/10 10/10 10/10 Precision Electronic Electronic Information/ 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 The n mber of clients among the TOP 10 companies in each industry. 8 8
Revenue Composition by Clients Revenue Distribution by Revenue Distribution by Industry Clients Not dependent on specific industry Not dependent on specific industry Not dependent on specific company Not dependent on specific company Government/ Retail Construction Public sector 4% 2% Top 501- 5% 17% 17% Machinery/ Manufacturing Top 401-500 12% 12% 3% 3% Communication/IT 55% of revenue Top 301-400 35% 5% from from Top 1-100 Clients Top 201-300 7% Media/Service Financial sector 26% 16% Top 101-200 13% Source: IIJ’s consolidated data for FY2012 9 9
Competitive Advantages • Many highly skilled network engineers • Operate own backbone network • Rapidly correspond to the Internet market • In-house developed network services • Focus on enterprises • Target new IT market, not legacy SI • Established brand among blue-chips s ab s ed b a d a o g b ue c ps • Long and rich experience in server operation o g a d c e pe e ce se e ope a o • Flat organization structure • Not so huge number of employees Cloud Computing Services Carriers C i System Integrators S t I t t Mainframe Internet Connectivity Services Network Integration Telephone Large-sized Application WAN Services Systems Operation Legacy Network Services g y Development Development O t Outsourcing Services i S i Private Cloud P i t Cl d Legacy Systems Operation 10 10
Customer Retention Strategy Cross-selling of Services Revenues by Customer Solid Growth Strategy Provide high quality and reliable services 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 Seizing business opportunities in the transitional phase of companies internal network system Maximize IIJ’s potential as a total network 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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