Internet Initiative Japan Inc. Nomura Investment Forum 2012 December 3, 2012 TSE1:3774 NASDAQ:IIJI
Key Investment Highlights y g g • Top IP Engineering Company in Japan • Shifted from ISP to Total Network Solution Provider • Target Blue-chip & Governmental Organizations • Over 6 500 Japanese Excellent Corporate Customers Over 6,500 Japanese Excellent Corporate Customers & Added 1,300 Customer Base through M&A • Solid Growth Strategy with Proved Revenues and Income Growth • Best Positioned in the Growing Outsourcing & Cloud Computing Market Co put g a et details to follow
TOP IP Engineering Company in Japan The first established full-scale ISP in Japan A group of highly motivated and skilled TOP level IP engineers Pioneer of network technologies in Japan historically Pioneer of network technologies in Japan historically Service initiative with in-house development Operate one of the largest Internet backbone in Japan p g p Self-develop its service and back office facilities • Internet Connectivity & Security Services, IPv6 Services, Cloud IaaS Services, develop own routers, etc. 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 Approx 6 500 clients: mainly large enterprises & governmental organizations Approx. 6,500 clients: mainly large enterprises & governmental organizations At the leading edge of IP R&D Company Profile (as of Sep. 2012) Participation in world-wide research Established December 1992 and organizations Number of Consolidated: 2,081 Employees (approx. 70% engineers) • Member of "FIRST," international organization handling security & incidents Listed NASDAQ (IIJI), TSE1 (3774) Markets • Board member of Telecom-ISAC Japan and many more Engaged in software development of SDN NTT (24.4%), Koichi Suzuki (6.3%), Large Itochu Corp. (5.1%), Shareholders NTTCom (4.9%) 3
Entrepreneur of Network Technologies Business and Service Development to Initiate the Market Overseas SI Projects SDN The first full-scale ISP in Japan p FX Cloud Container Container Service In DC In-housed development Application US & China Development Cloud IPTV Computing At leading edge of IP R&D Platform Systems “IIJ GIO” Operation Smart Large Volume IP specialists P to P Data Data Mobile Mobile Systems S t Distribution Integration LaIT RFID Internet GDX iBPS LAN LTE Platform DC M to M Internet Managed Managed VPN VPN Web Service Gateway Anti-spam CDN Solution Global IP Multicast DDoS WAN SEIL MVNE SMF IIJ ISP Wide Mobile hi-ho hi-ho in U.S. in U S LAN Asia Consumer Firewall Backbone IPv6 Service ISP IIJmio Home Page IX Service Dial-up SLA service service IIJ4U IIJ4U Web Hosting Service “IIJ Group” 2008 2010 2012 1992 1995 1996 1997 1998 2004 2006 2007 4
Strategic Shift in Business Model From “ISP” to “Total Network Solution Provider” EMERGE Revenue Cloud Computing (JPY million) Listed on 100,000 , TSE S One-time revenue ENDURE Tough economic Systems Construction BLOOM situation Monthly recurring revenue Harvesting the Systems 80,000 Systems Operation Syste s Ope at o Integration Integration flower of flower of WAN Service Total Network Solution Provider Outsourcing Service Internet Connectivity Services Transition 60,000 Change in Change in NASDAQ business IPO model 40,000 Network Birth WAN Business Services （ M&A Sep10 ） Earned its enduring 20,000 client base Japanese Rapid Sudden down economy at economic turn in bottom recovery economy 0 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Rise in needs for CWC filed for Merger of Increase in Heavy price Cloud corporate corporate ISPs number of ISPs competition /Outsourcing reorganization 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 services orders Enjoying scale merit along with increasing traffic Costs Constant expansion of Internet backbone Strong bargaining power as one of Gross Margin the largest independent ISPs Ratio Mainly related to circuit-borrowing, 23.3% network equipments, DC-borrowing, 19.8% 18.3% 16.7% 16 7% operations, personnel and ti l d outsourcing costs Revenue Not always directly related to the Cost revenues growth While constantly expanding the While constantly expanding the network, costs barely increase 6
Recurring Business Model Cross-selling of Network Solutions Mainly network-related Integration Ecommerce/Web-shopping System Disaster Recovery Private Cloud Computing Platform Private Cloud Computing Platform •Dedicated Line Connectivity •Dedicated Line Connectivity and many more IP Service (cover over Gbps) IPv6 Service •Broadband Connectivity Systems Optical Fiber/ADSL •Mobile Connectivity (IIJ Mobile) y ( ) Construction Internet LTE/3G Connectivity & WAN ＆ WAN Over 6 500 Over 6,500 Client Base Outsourcing & Systems Syste s 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 (public cloud/approx. 20% of IIJ GIO revenues) g g (p pp ) Systems Operation includes: 1.Operation and maintenance of a system constructed in Systems Construction 2. IIJ GIO Component Services (private cloud/approx. 80% of IIJ GIO revenues) 7
Excellent Blue-chip Client Base • The number of clients among the TOP 10 companies Top Tiers in each industry. 10/10 10/10 10/10 Precision Electronic Information/ equipment equipment appliances Telecommunications 9/10 9/10 9/10 Machinery Machinery Securities Securities Construction Construction 9/10 9/10 9/10 Wh l Wholesale l B Banks k Insurance I 8
Revenue Composition by Clients Revenue Distribution by Revenue Distribution by Industry Clients Approx. 500 companies out of 6,500 Approx. 500 companies out of 6,500 Not dependent on specific industry Not dependent on specific industry client base make up the ¾ of the Retail Construction Government/ total revenue 4% Public sector 4% 2% 2% 5% 18.2% Top 501- Top 501- 5% % 18% Machinery/ Manufacturing Top 401 500 Top 401-500 30% 30% 14% 14% 3 5% 3.5% 14% 14% 4% Communication/IT 53% of revenue 31% Top 301-400 4.8% from from 5% 5% Top 1-100 Clients Top 201-300 7.4% 7% 25% M di /S Media/Service i 25% Financial 20% sector Top 101-200 19% 19% 13 2% 13.2% 13% 13% Source: IIJ’s consolidated data for FY2011 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
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 revenue 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
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