Internet Initiative Japan Inc. Nomura Investment Forum Nomura - PowerPoint PPT Presentation

Internet Initiative Japan Inc. Nomura Investment Forum Nomura Investment Forum December 2013 TSE1:3774 TSE1:3774 NASDAQ:IIJI NASDAQ:IIJI

Key Investment Highlights Key Investment Highlights  Pi  Pioneer and Top IP Engineering Company in Japan d T IP E i i C i J  Shifted from ISP to Total Network Solution Provider  Target Blue-chip & Governmental Organizations g g  Approx. 8,500 Excellent Japanese Customers  Solid Growth Strategy with Proved Revenues & Income Growth Income Growth  Best Positioned in the Growing Outsourcing & Cloud Computing Market 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  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  g p  Known for its engineering & network operation skills  High customer satisfaction & long term relationship  Approx. 8,500 clients: mainly large enterprises & governmental organizations pp , y g p g g  At the leading edge of IP R&D Company Profile  Engaged in software development of SDN Established December 1992  F  Founding member of JEAG di b f JEAG Number of Consolidated: 2,311 Employees  Co-work with Ministry of Internal Affairs and (approx. 70% engineers) (as of Sep. 2013) Communications Listed Markets NASDAQ (IIJI), TSE1 (3774)  Participation in world wide research  Participation in world-wide research Large NTT (21.6%), Koichi Suzuki (5.8%*), Shareholders and organizations Itochu Corp. (4.5%), NTTCom(4.4%) (as of Sep. 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 Container Cloud DC DC   S Service In i I I In-housed development h d d l Application US & China & UK Development 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 I t ti Distribution LaIT RFID GDX iBPS Internet LTE Platform DC LAN M to M Internet Managed Web Service Service VPN VPN 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 One-time revenue Systems Construction ENDURE Monthly recurring revenue Tough economic situation BLOOM Systems Operation and Maintenance Systems y H Harvesting the flower of ti th fl f WAN Services Integration Total Network Solution Outsourcing Services Provider Internet Connectivity Services Transition Transition Change in Listed on NASDAQ business model TSE IPO Network Services 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 Costs • Multiple cross-selling revenue sources with Internet • Constant expansion of Internet backbone connectivity for corporate/home and outsourcing services • Strong bargaining power as one of the largest on the Internet backbone independent ISPs independent ISPs • Contracts are per bandwidth • Mainly related to circuit-borrowing, network • Monthly recurring-type revenue equipment, DC-borrowing, operations, personnel • Blue-chip clients with mission-critical business and and outsourcing costs network operators clients (Carriers, ISPs, CATVs, etc) • Not always directly related to the revenue growth • Tough competition ended, only few high-end ISPs survived T h titi d d l f hi h d ISP i d • While constantly expanding the network, costs • Revenues increase along with migration of bandwidth and barely increase accumulation of outsourcing service orders • Enjoying scale merit along with increasing traffic * Network services include IIJ Internet Backbone Internet connectivity, • 1Q tends to decrease QoQ due to seasonal factor of price 1Q tends to decrease QoQ due to seasonal factor of price outsourcing, and WAN services down pressure from certain large users Gross Margin Ratio 23.9% 23.3% 19.8% 18.3% 16.7% Revenue Cost 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  Private Cloud Computing Platform • Mobile connectivity (IIJ Mobile) and many more  LTE/3G • WAN services  Wide area Ethernet/VPN  Global WAN Systems y Construction Internet Connectivity & WAN Approx. 8,500 Client Base Outsourcing & Systems Systems Operation O tso rcing ser ices incl de 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. 23% of 2Q13 IIJ GIO revenues) g g ( pp ) Systems Operation includes: • Operation and maintenance of a system constructed in Systems Construction • IIJ GIO Component Services (approx. 77% of 2Q13 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 pp Telecommunications 8/10 8/10 10/10 10/10 10/10 10/10 Construction Securities Banks 9/10 8/10 9/10 Insurance Machinery y Wholesale The number of clients among the top 10 companies in each industry. 8

Revenue Composition by Clients Revenue Distribution by Revenue Distribution by Industry Clients Not dependent on any specific industry Not dependent on any specific industry Not dependent on any specific company Not dependent on any specific company * largest client revenue is less than 5% of the total Retail Construction Government/ 4% 4% 2% Public sector 2% 4% Top 501- 5% 5% 17% Machinery/ Manufacturing Top 401-500 14% 30% 3% 14% Communication/IT 55% of revenue 55% of revenue Top 301-400 Top 301-400 31% 31% 5% from Top 1-100 Clients Top 201-300 7% 7% 25% Media/Service 25% Financial 20% Top 101-200 Top 101 200 sector sector 13% 19% Source: IIJ’s FY2012 consolidated financial results 9

Competitive Advantages Cl Cloud Computing d C ti Services Carriers System 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 focuses on enterprises targets new IT market not legacy SI 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

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