Internet Initiative Japan Inc. February and March 2013 TSE1:3774 NASDAQ:IIJI
Key Investment Highlights • Top IP Engineering Company in Japan • Shifted from ISP to Total Network Solution Provider • Target Blue-chip & Governmental Organizations • Over 8,200 Japanese Excellent Corporate Customers • Solid Growth Strategy with Proved Revenues & Income Growth • Best Positioned in the Growing Outsourcing & Cloud Computing Market details to follow
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 historically Service initiative with in-house development Operate one of the largest Internet backbone in Japan 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 Known for its engineering & network operation skills High customer satisfaction/long term relationship Over 8,200 clients: mainly large enterprises & governmental organizations At the leading edge of IP R&D Company Profile Established December 1992 Participation in world-wide research Number of Consolidated: 2,086 and organizations Employees (approx. 70% engineers) (as of Dec. 2012) • Member of "FIRST," international organization handling security incidents Listed • Board member of Telecom-ISAC Japan NASDAQ (IIJI), TSE1 (3774) Markets … and many more NTT (24.5%), Koichi Suzuki (6.3%), Large Engaged in software development of SDN Itochu Corp. (5.1%), Shareholders NTTCom (4.9%) (as of Sep. 2012) 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 In-housed development Application US & China Development Cloud IPTV At leading edge of IP R&D Computing Platform Systems “IIJ GIO” Operation IP specialists Large Volume Smart P to P Data Mobile Systems Distribution Integration LaIT RFID Internet GDX iBPS LAN Platform LTE DC M to M Internet Managed VPN Web 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 Consumer Firewall Backbone IPv6 Service ISP IIJmio Home Page IX Service Dial-up SLA service IIJ4U Web Hosting Service “IIJ Group” 1992 1995 1996 1997 1998 2004 2006 2007 2008 2010 2012 4 4
Strategic Shift in Business Model From “ISP” to “Total Network Solution Provider” EMERGE Revenue Cloud Computing (JPY million) Listed on 100,000 TSE One-time revenue ENDURE Tough economic Systems Construction situation BLOOM Monthly recurring revenue Harvesting the Systems 80,000 Systems Operation flower of Integration WAN Services Total Network Solution Provider Outsourcing Services Internet Connectivity Services Transition 60,000 Change in NASDAQ business IPO model 40,000 Network WAN Business Birth Services （ M&A Sep10 ） Earned its enduring 20,000 client base Japanese Rapid Sudden economy at economic down 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 5
Business Structure of Network Services * Network services: Internet IIJ Internet Backbone Revenues connectivity, outsourcing, and WAN services • Multiple cross-selling revenue sources with Internet connectivity for corporate/home and outsourcing services 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) • 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 • Strong bargaining power as one of the Gross Margin largest independent ISPs Ratio • Mainly related to circuit-borrowing, 23.3% 19.8% network equipment, DC-borrowing, 18.3% 16.7% operations, personnel and outsourcing costs Revenue • Not always directly related to the Cost revenue growth • 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 •Broadband Connectivity and many more Optical Fiber/ADSL •Mobile Connectivity (IIJ Mobile) LTE/3G Systems • WAN Services Wide area Ethernet/VPN Construction Global WAN Internet Connectivity & WAN Over 8,200 Client Base Outsourcing & Systems Operation 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) 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 Top Tiers 10/10 10/10 10/10 Precision Electronic Information/ equipment appliances Telecommunications 9/10 9/10 9/10 Machinery Securities Construction 9/10 9/10 9/10 Wholesale Banks Insurance • The number 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 company Retail Construction Government/ 4% Public sector 2% 4% 2% 5% 18.2% Top 501- 5% 18% Machinery/ Manufacturing 30% Top 401-500 14% 3.5% 14% 4% Communication/IT 53% of revenue 31% Top 301-400 4.8% from 5% Top 1-100 Clients Top 201-300 7.4% 25% 7% Media/Service 25% Financial 20% sector Top 101-200 13.2% 19% 13% Source: IIJ’s consolidated data for FY2011 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 • Long and rich experience in server operation • Flat organization structure • Not so huge number of employees Cloud Computing Services Carriers System Integrators Internet Connectivity Services Network Integration WAN Services Systems Operation Mainframe Outsourcing Services Private Cloud Large-sized Application Development Telephone Legacy Systems Operation Legacy Network Services 10 10
Customer Retention Strategy 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
Proven Solid Business Strategy Released IIJ GIO Service April 2010 Expand ATM Operation Business Operating Income Overseas business M&A Systems Integration IIJ-Global Sep 2010 Net Income Attributable to IIJ Network Services Operating Margin Ratio Revenue Growth Income Growth 7.0% Revenues Revenues (JPY million) (JPY million) 6.5% 107,000 8,000 7,500 5.0% 5.0% 97,315 100,000 4.2% 6,353 82,418 6,000 80,000 69,731 68,006 4,141 4,000 60,000 4,000 3,641 3,412 Approx.80% 3,203 2,917 Recurring 40,000 2,234 Revenue 2,000 1,419 20,000 0 0 FY08 FY09 FY10 FY11 FY12 (Target) FY08 FY09 FY10 FY11 FY12 (Target) Over 80% of total revenues are stock-type recurring revenues Stable growth with stock-type recurring revenues Up 19.8% YoY in FY2011 Accumulating additional contracts, not so many cancellations Income grew along with stock revenue growth 12 12
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