Corporate Overview ofInternet Initiative Japan (IIJ)

Internet Initiative Japan Inc. (IIJ)The Prime Market of the Tokyo Stock Exchange (Ticker symbol: 3774)
February and March 2024
Disclaimer

Statements made in this presentation regarding IIJ’s or managements’ intentions, beliefs, expectations, or predictions for the future are forward-looking statements that are based on IIJ’s andmanagements’ current expectations, assumptions, estimates and projections about its business and the industry. These forward-looking statements, such as statements regarding revenues, operating
and net profitability are subject to various risks, uncertainties and other factors that could cause IIJ’s actual results to differ materially from those contained in any forward-looking statement.
© Internet Initiative Japan Inc.

Outline
1. Key Updates
2. About IIJ (From ISP to Total NW Solution Provider, etc.)
3.
4.
5.
6.

P. 2 – 5
P. 7 – 11
P. 12 – 16
P. 17 – 19
P. 20 – 23

Business Model (Monthly recurring revenue accumulation, etc.)
Strength (Service development capabilities, customer base, etc.)
Growth Strategy (Mid-term plan & growth drivers)
Service/Business Function (Enterprise NW, Cloud, Security, Mobile IoT) P. 24 – 40
7. Financials
P. 41 – 59
Financial Performance (FY19 ~ FY22 Results)

P. 42

1Q-3Q23 Financial Results

P. 43 – 57

FY23 Financial Targets

P. 58 – 59

8. Appendix••

P. 60 – 73

FY23 (FY2023) stands for a fiscal year ending March 31, 2024. Others alike
Abbreviation: NW stands for network, SI stands for systems integration, DC stands for data center, ¥ (JPY) bn stands for JPY billion

We changed our accounting principles from the Generally Accepted Accounting Principles in the U.S. (“U.S. GAAP”) to the International Financial Reporting Standards (IFRS) from the filing of FY2018 annual report “Yukashoken-houkokusho” which was filed on June 28, 2019. Because reporting period of foreign consolidated subsidiaries under IFRS is different from that of under U.S. GAAP, some figures disclosed in the past are different.
© Internet Initiative Japan Inc.

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Key Updates
Business domain expanding with Service Integration model Enterprise private network and systems in Japan are finally becoming to change

1 Increasing track record of large-scale projects covering an entire enterprise private NW & systems
 Service Integration (providing in-house developed network services as part of SI) is increasing, covering these demands

Network expertise becoming a very critical differentiator
2 Reliable and stable network operation is indispensable Large number of talented network engineers Wide range of in-house developed network services

Revenue growth to be stronger, which results in economics of scale3

 Leveraging the current royal Internet access services’ client base Accelerated growth of MRR (monthly recurring revenue) through Service Integration
 Margin to improve with an accumulation of MRR whose the cost are mainly network operation’s common ones
© Internet Initiative Japan Inc.

2

Enterprise private NW and systems in Japan becoming to change
30 years ago

Nowadays
Growing demand for NW-based systems
incorporating Internet technologies

Carriers & SIers each covered private NW & systems

Labor shortage require
more ITHigh Speed/Capacity
Network

Network• Dedicated/Closed NW• Narrow bandwidth

SystemCPU/Storage
Performance Improve• On-premise• Mainframe / WS
• Legacy language

robust andcomplexed systems

Network

Internet Usages
Progressed

Zero Trust Concept
Gradual Cloud Shift
Data Analysis and AI
Preliminary IoT
usagesBirth of IIJ

Telecom
Carriers

SIers

Struggling
switch toopen systems

Still slow move inconservative JapanIT adoption at lastforced by Pandemic

SystemEvery CEO says DX(Digital Transformation)

Legacy NW and Systems
to be reformed

Security forvarious incidents

Emergenceof Internet

convergence• Shifting to network-based systems• Required technology to change• Data volume continues to increase

Japan needs morecompetitiveness by IT

Internet Traffic Continue
to Increase

IIJ• Attractive work place for network engineers• Accumulate NW infrastructure & NW Services Asset• Does not own or target legacy NW/systems• Have royal clients with Internet access contracts• Business domains to expand from external network tototal network and Systems

Telecom
Carriers• Consumer businessfocused historically• Lack of network engineers• Infrastructure provider© Internet Initiative Japan Inc.

SIers
• Seeking monthly recurring

revenue business• Legacy systems todecrease• Not own network andnetwork services

Cyber Security Demands
Importance for
Data governance
Cloud Systems
Penetration
5G SA adoption andadvanced IoT projects
Importance of stable
operation of large-scale
NW remains unchanged3

Large-scale Service Integration Transactions
Educational Information NW for Chiba city

Services provided by IIJ
SI provided by IIJ

Integrated information system for public safety org.
Internet

 SASE案件(多数)
Large-scale
SASE project for a global company
IIJ GIO Managed

1Gbps

IP

Virtualization
infrastructure

support systems

SASE

GIO remote access

1Gbps

External
environment B

Base RT

Base RT

NW in DC

Existing
DC
•

1Gbps

External
environment A

100Gbps×3 lines

Carrier B Carrier A

Private accessBase L3SW

BaseL3SW

Base L3SW

Base NW

Base NW

Base NW

LAN

LAN

LAN

Approx. 7,000

Cloud
service

Cloud exchange

NGFW

NGFW

HQ

BranchBranchWAN

Overseas
officeOther DCIIJ DC

IP

WAN

Overseas
officeWAN
Domestic
officeDomestic
officeFlex

Private access

Mobility

WAN

WAN

MPLS

MPLS

Overseas
officeOverseas
officeDomestic
officeDomestic
officeOverseas
officeOverseas
officeDomestic
officeDomestic
officeOverseas
officeOverseas
officeInternet

Cloud

Managed VPN pro

WAN
Main

Carrier B

Overseas
officeDC

IIJ DCPrivate access
Carrier A

Overseas
officeLarge-scale NW renewal for a financial institution

IIJ Private backbone

NW in DC

Existing
DC

NGFW

BranchOverseas
officeOperation
vendorTotal NW project for a prominent company group

Carrier A

WAN

UOM

Remote access users

NGFW

BranchOverseas
officeManaged FW

Managed VPN pro

NGFW

BranchManaged FW

1Gbps

Managed VPN pro

Various VDI

NGFW

Cloud Proxy

WAN

Application
vendorLearning systems

Other systems

GIO P2 Gen.2

Private accessApprox.
20 thousand

School affairs

NW in center

Cloud exchange
IIJ Private backbone

100Gbps × 3 lines (backup)

Internet connecting SW

Web Security
Equipment

1Gbps

Managed FW

100Gbps × 3 lines (main)

Cloud center

Prisma AccessInternet accessInternet

UOM

Prisma AccessofficeMenlo

Prisma SaaS

Security

Security Inline

Prisma Access
Branches(approx. 2,000)

Mobile access(over
50 thousand users)

Public Schools in Chiba(168 as of March 31, 2023)

Managed VPN pro
Main officeGroup companies

Approx. 20

BranchGroup companies

Group companies

Approx. 700

Approx. 20

Approx. 200

UOM: Unified Operation Management, NGFW: Next Generation FireWall, MPLS: MultiProtocol Label Switching© Internet Initiative Japan Inc.

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Track record of large-scale Service Integration projects
Project overview

Project size
(approx.)Main revenue recognition

AcquiredTiming of revenue
recognition (plan)

Nationwide NW replacement for a prominent financial institution¥5.0 bn, 5 years

NW service, SI O/M

Jan. 2021

From Mar. 2022

Nationwide WAN connection NW infrastructure for all tax offices¥2.0 bn, 4 years

NW service

May 2022

From Jan. 2023

Internet connection environment for Tokyo public schools¥2.0 bn, 3 years

NW service

Apr. 2022

From Oct. 2022

Core information system for governmental administrative operation¥5.0 bn, 4 years

NW service, SI construction, SI O/M

May 2022

From Oct. 2022

NW system upgrade for a central government agency¥2.6 bn, 4 years

NW service, SI construction, SI O/M

Jan. 2023

From Jan. 2023

Large scale NW upgrade for a prominent manufacturing company¥5.0 bn, 5 years

NW service

Feb. 2023

From Mar. 2023

Foreign exchange trading platform for a prominent financial group¥3.0 bn, 5 years

SI O/M

Dec. 2022

3Q24

Core information NW infrastructure for a broadcaster¥6.0 bn, from FY24

NW service, SI construction, SI O/M

Dec. 2022 &Jan. 2023

4Q24

Overseas DC project¥2.8 bn in 3Q23

SI construction

Nov. 2022

Dec. 2023

Subsequent projects of the overseas DC project¥1.2 bn in FY24
¥2.0 bn in or after FY25

SI construction

2H22

1Q24 and in or after FY25
From Nov. 2023

Next generation NW renewal for a major system integrator¥1.0 bn, 5 years

NW service

Apr. 2023

Enhancement of security for a prominent carrier¥1.5 bn, 5 years

SI construction, SI O/M

Apr. 2023

From Aug. 2023

Integrated operation system for a public sector organization¥3.0 bn, 5 years

NW service, SI construction, SI O/M

Apr. 2023

4Q23

Next generation research platform for a private university¥1.0 bn, 5 years

SI construction, SI O/M

May. 2023

4Q23

Educational information network for Chiba City

¥12.3 bn, 5 years

NW service, SI construction, SI O/M

Sep. 2023

4Q24 (approx. ¥5.0 bn in FY24)

Acquired this time

Construction & operation for service infrastructure for an enterprise¥4.0 bn, 5 years

NW service, SI construction, SI O/M

Dec. 2023

2Q24

Large-scale server construction for AI infrastructure(Acquired by PTC, Singaporean SIer subsidiary)¥3.0 bn, 3 years

SI construction, SI O/M

Dec. 2023

4Q23

Large-scale NW renewal for a prominent financial institution¥4.0 bn, 8 years

NW service, SI construction, SI O/M

4Q23

1Q25

•

The timing of revenue recognition is based on the assumption as of Feb. 2024. It could change due to the progress of project and other factors•

SI O/M = systems operation and maintenance© Internet Initiative Japan Inc.

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About IIJ (From ISP to Total NW Solution Provider, etc.)

P. 7 – 11Business Model (Monthly recurring revenue accumulation, etc.) P. 12 – 16
Strength (Service development capabilities, customer base, etc.)

P. 17 – 19

Growth Strategy (Mid-term plan & growth drivers)

P. 20 – 23

© Internet Initiative Japan Inc.

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Company Profile

About IIJ
Strength

BusinessModel
GrowthStrategy

IIJ has been taking initiatives in Internet Infrastructure field in Japan
Established

December 1992 (The first established full-scale ISP in Japan)

Number of Employees

4,791 (approx. 70% engineers)

Large Shareholders

NTT Group, KDDI, ITOCHU Techno-Solutions (CTC), Koichi Suzuki, Global Alpha Capital Management

 The first established full-scale ISP (Internet Service Provider) in Japan

Introduce many in-house developed Internet-related network services

Highly skilled IP (Internet Protocol) engineers from the inception

Operate one of the largest Internet backbone networks in Japan Well recognized “IIJ” brand among Japanese blue-chip companies’ IT division

Differentiate by reliability and quality of network and systems operation

Long-term (almost 30 years) client relationship since the establishment of IIJ

 Development of innovative Internet-related services

Differentiate by continuous network service developments and business investments



Focus on Cloud, mobile, security, solutions related to Big Data, IoT and data governance

Always ahead of telecom carriers and systems integrators (SIers) with regards to services development and operationand many more••

Number of employees is on the consolidated basis and as of Dec. 31, 2023
Large shareholders are as of Sep. 30, 2023, except for Global Alpha whose holding is based on their Large Volume Holding Report filing as of Oct. 2023
© Internet Initiative Japan Inc.

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About IIJ

From ISP to Total NW Solution Provider

Strength

BusinessModel
GrowthStrategy

Systems Integration (SI) revenue:
One timerevenue

Systems construction(including equipment sales)

EMERGE

Systems operation and maintenance(including private Cloud)Network enhancement,
Cloud, consumer mobile,
IoT ….

Network (NW) services revenue:
WAN services
Outsourcing services(including Security services)

Monthly Recurring Revenue

BLOOM
Harvesting the flower of
Total Network Solution
ProviderMobile services
Internet connectivity services

Transition
Change in business model

Birth
Earned enduring client base

FY1994

M&A (Sep. 2010)

FY2000

Increase in number of ISPs
in JapanNTT launched Internet
connectivity service in 1996

FY2005

Price war and market
consolidation for ISPs in Japan
IIJ shifted its focus to large
corporates, survived the toughcompetition, and establishedmarket position

FY2010Became MVNO in2008 andlaunched Cloud
services in 2009
© Internet Initiative Japan Inc.

FY2015

Launched
consumer
mobileservices in2012

FY2022

BecamefullMVNO
in 2018

DX
triggeredby thePandemic

Advancement ofDX in
postpandemicera8About IIJ

IIJ as a Total NW Solution Provider

Strength

BusinessModel
GrowthStrategy

Offers various network services and systems integration together in many projects
Approx.

14,000 customers(as of Mar. 31, 2023)(Japanese companies, central government agencies, local governments, consumer ISPs universities and more)

NW Services
Outsourcing
services

SI

Internet connectivity
services

WAN services
Private Cloud

Security

VPN

Internet AccessPrivate connectivity

Systems construction

Public Cloud

Email gateway

MobileGlobal WAN

Systems Operation and
Maintenance

SASE

etc.

etc.

etc.

etc.

Major cost components of Network services (mostly non-revenue linked cost)• Fiber leasing cost for Internet backbone and WAN access line
• Depreciation cost and maintenance cost of NW equipment• Personnel cost for NW service development and operation and outsourcing cost
• Data center operation cost, etc.
• Mobile data interconnectivity and voice service purchasing cost for mobile services© Internet Initiative Japan Inc.

IIJ’s Backbone Network

9

PDF download link for Integrated Report Portal can be here
https://www.iij.ad.jp/en/ir/integrated-report/archives/pdf/integrated-repot2023_en.pdf

Initiatives for Sustainability

About IIJ
Strength

BusinessModel
GrowthStrategy

IIJ’s Material Issues
Lead NW infrastructure advancement withtechnological innovations and contribute tosolving various social issues

Provide an arena for people with diverse talents& values, where they can exercise their skills &actively and boldly take on challenges

Provide safe and robust Internet services that
support social infrastructure Bringing innovation with IP

 Provide stable and safe Internet connectivity

services, construct and operate Internet
backbone that cover the world Corporate culture of taking initiatives andchallenging new things since the inception

Onlinebanking/brokerage

CDN

Smart
Government

Online shopping

Telehealth

Remote work

Adoption of CloudIoT Solution

FY19

FY20

FY21

FY22

Digital Currency

Metaverse

4.6%

3.6%

4.2%

3.8%

From now on

 Human resources culture of sincerely striving tomeet the demands of clients
 Lower than the industry average turnover Target for diversity: the ratio of female managers

 Information disclosures based on the TCFD

Recommendations•

 Support privacy protection regulations. Had

Reduce greenhouse gas emissions at its own data
centers which consume about 80% of all electricity
consumption by ”usage of renewable energy” and“improvement of energy conservation”
Targets

FY22
results

Usage ofrenewableenergyTo increase the renewableenergy usage rate of data
centers (Scope 1 and 2) to
85% in FY2030

46.1%

Improvementof energy
conservation

To keep the PUE of the data
center at or below theindustry's highest level (1.4)
until FY2030 throughcontinuous technologicalinnovation

Measures

Matsue:1.33
Shiroi:1.31

acquired EU BCR and APEC CBPR

Apr. 2022

Apr. 2023

FY24 target

FY27 target

5.7%

6.3%

6% or more

8% or more

(Achieved in Apr. 2023)

IIJ’s MSCI ESG rating: A
More information on IIJ’s corporate governance: https://www.iij.ad.jp/en/ir/integrated-report/governance/

•
•
•
•

Overview of corporate governanceOperation of the Board of Directors

Design of Remuneration for Directors

Operation of the Nomination andRemuneration Committee

Business Operation

Operation of
the Board of Company Auditors

Operation of Internal Audit

Initiatives for Information Security

Related Party Transactions

PUE(Power Usage Effectiveness) is a metric that shows how efficiently electricity is used at a data center. The closer to 1.0 is considered to be good
TCFD: Task Force on Climate-related Financial Disclosures
Scope 1 and 2 (Greenhouse gas emissions by a company): Direct emissions from the use of fuels and industrial processes at the company and indirect emissions from theuse of electricity and heat purchased by the company (as defined by the GHG Protocol)
The turnover rate of IIJ (non-consolidated basis) is calculated by dividing leavers for the fiscal year by the number of full-time employees at the beginning of that fiscal year.
The industry average turnover rate of approx. 10% is announced by the Ministry of Health, Labor, and Welfare© Internet Initiative Japan Inc.

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https://www.iij.ad.jp/en/ir/integrated-report/directors/
Holdings of IIJ shares are as of Sep. 30, 2023
Suzuki’s share includes his wholly owned private company portion

Management Structure

About IIJ
Strength

BusinessModel
GrowthStrategy

Satoshi Murabayashi

Koichi Suzuki

 Executive Vice President and Director (since June 2021)

 Founder of IIJ

 Career: CIO at MUFG Financial Group, Inc.

 Chairman, Representative Director and co-CEO President and Representative Director of DeCurret Holdings, IIJ’s affiliated Holdings of IIJ share: 10,641,389 shares (6.0%)

company, as a concurrent position

 Date of birth: September 1946 Holdings of IIJ shares: 5,819 shares (0.0%)
 Date of birth: November 1958

Eijiro Katsu

Yasuhiko Taniwaki

 President, Representative Director and co-CEO & COO

 Executive Vice President and Director (since June 2022)

 Career: Vice Minister of Finance Career: Vice-Minister for Policy Coordination of Posts and Telecommunications at

 Holdings of IIJ shares: 208,495 shares (0.1%)

the Ministry of Internal Affairs and Communications (MIC) Date of birth: June 1950

 Holdings of IIJ shares: 2,417 shares (0.0%)
 Date of birth: September 1960

Full-time Directors
Senior Managing Directors
 K. Kitamura A. Watai (CFO)Managing Directors
 T. Kawashima J. Shimagami (CTO) N. Yoneyama (CIO)

Outside Independent Directors: (of which, 1 female. Outside independent director is 35.7% to the total directors)

Company Auditors(of which, 3 outside, 1 female) T. Tsukamoto

Senior Advisor of Mizuho Financial Group, Inc.

 K. Tsukuda

Former Chairman and Representative Director of Mitsubishi Heavy Industries, Ltd.

 K. Ohira Y. Iwama

Outside Director and Chairman of the Board of Nikko Asset Management Co., Ltd.
Former Chairman of Japan Securities Investment Advisers Association

 M. Tanaka (Ms.)

 A. Okamoto

Former President and CEO of Iwanami Shoten, Publishers (one of the best publishing houses in Japan)

 K. Tonosu (Ms.)

Outside Director of JAPAN POST INSURANCE Co., Ltd.
Former Board member of Deloitte Touche Tohmatsu LLC

Remuneration for full-time directors
Fixed monthly remuneration

Cash

Substitution for retirement allowance

Fixed remuneration

Stock-option

6% - 11%

Performance-linked remuneration

Variable remuneration

Restricted stock

22% - 24%

Annual salary K. Uchiyama (CPA)

Interview with outside director,
Mr. Tsukamoto, can be found here

67% - 71%
https://www.iij.ad.jp/en/ir/integrated-report/outside_director/(Note) Above percentages are in the case of full paid performance-linked remuneration. Performance-linked remuneration varies (0 - 4 months) along with financial performance© Internet Initiative Japan Inc.

 T. Michishita (attorney)

11About IIJ

SWOT of IIJ

Strength

Strength

BusinessModel
GrowthStrategy

Weakness

High technological capabilities

 Business domain mostly in Japan First full-scale ISP in Japan Highly skilled Internet-related engineers

IIJ’s overseas business is mainly global NW operation and is
to increase Japanese clients’ loyalty

 Smaller in size compared to competitors

 NW service development & operation capabilities One of the largest Internet backbone NWs in Japan Reliable Internet backbone operation

IIJ continuously develops innovative NW services andsolutions to be ahead of the market needs

 Excellent customer base Corporate culture of pioneering spirit

Opportunity

Threat Slow IT adoption in Japan

Digitalization (DX) in Japan
 NW, CPU and storage are becoming faster and larger, Domains of
NW and systems are converging

IIJ focuses on promoting digitalization of large Japanesecompanies with various NW services and systems integration
to fully meet their needs

 Internet traffic increasing
 Security demands expanding: zero trust and cyber security
 Cloud shift Japan, slow IT adopter, including public sector is changing
triggered by the Pandemic・Digitalization to advance© Internet Initiative Japan Inc.

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About IIJ

Extensive Service Lineup
FY22
Revenue category
revenue

Unit: ¥ (JPY) billion (bn)

About

Business Situation & Outlook
 Matured market (hard to entry)

 Core service providing from the foundation

IP

Internetconnectivity
services forenterprise

14.84

40.25

enterprise (multi-carrier, redundancy, etc.)
 Contracts are based on bandwidth Enterprises use the service for their main Internet line
Enterprise mobile (IoT usages, etc.)

11.18

MVNE (Proving to other MVNOs)

10.07(Others) Broadband Internet services, etc.

Internetconnectivity
services for
consumers
WAN(Wide Area NW)

Outsourcing

24.24

Mobile21.03

 Inexpensive SIM services (mainly data),
 Direct sale (via IIJ web), Indirect sale (via sales

partners such as retailers)(Others) Broadband Internet services and email services for households, etc.

27.63

Closed NW used to connect multiple sites

46.81

Various in-house developed Internet-related service line-ups
 Managed security services, Security Operation
Security
26.74
Center services and so many more
Public2.82  Offered as a part of Cloud service line-ups

SI(including equipment
sales)

42.95

38.39

PrivateCloud, etc.

29.61

volume and contracted bandwidth increase 1Q-3Q23 IP service revenue: +9.9%YoY
 Expect infrastructure utilization & profitability to improve bygathering various traffic such as IoT/enterprise/ consumers• Enterprise: Expect the demand to increase in the mid-to-longterm. Consumer: Maintain and increase market sharesubscription with GigaPlans in competitive market
 1Q-3Q23 total mobile revenue: +8.4% YoY• Of which, enterprise mobile: +23.3% YoY• Of which, MVNE: +6.4% YoY• Of which, consumer mobile: +1.8% YoY

 Operation and maintenance of constructed systems
 Promote Cloud shift with abundant, highly reliable,

value-added private Cloud related service line-ups

System construction related to office IT, security, Cloud, IoT, Internet-related
construction such as online banking & brokerage, NW for university, and Ecommerce site
© Internet Initiative Japan Inc.

 Have been developing services based on Zero Trust concept Acquire enterprise demand by cross-selling services
 Continuous service development is important 1Q-3Q23 security service revenue: +16.0% YoY

82%

 Expect great business opportunity in the mid-to-long term as internal IT

systems migrate to Cloud Revenue to increase continuously along with accumulation of

construction projects

 1Q-3Q23 operation and maintenance revenue : +5.0% YoY
 SI projects are becoming larger 1Q-3Q23 construction revenue: +12.0% YoY

One timerevenueConstruction

68.00

On-premise
Systems Expect the revenue to continuously increase along with traffic

Stable market in the long-term, 1Q-3Q23 revenue: +3.2% YoY

CloudOperation
andMaintenance Blue-chip client base

IP

Monthly Recurring Revenue

21.25

 Highly reliable dedicated connectivity services for

MobileNW services

MobileStrength

BusinessModel
GrowthStrategy13About IIJ

Monthly Recurring Revenue Accumulation
Revenues

FY18

ATM operation business

192.4(+9.2%)

Systems construction

FY19

204.5

(+6.3%)

FY20

213.0

(+4.2%)

Unit: ¥ (JPY) billion (bn)

FY21

226.3

(+6.3%)

FY22

252.7

Strength

BusinessModel
GrowthStrategy

FY23
targets

286.0(+11.7%)(+13.2%)42.9

SI(including equipment sales)

Outsourcing services

32.0

31.8

68.0

51.5

60.0

41.8

46.4

29.2

32.3

35.7

40.5

46.8

31.0

27.0

25.0

26.4

27.6

25.2

26.1

25.7

23.4

24.2

33.2

36.6

40.3

37.9

40.3

Cloud service revenues

20.1

23.6

26.2

28.7

32.4

Security-related service revenues

14.1

16.4

18.4

22.2

26.7

Mobile service revenues

42.0

46.1

47.5

40.7

42.3

Internet connectivity services for consumers(including consumer mobile)

Internet connectivity services for enterprises(including MVNE and enterprise mobile services)

•
•
•
•

27.9

35.4

NW
Services

Monthly recurring Revenue

WAN services(including security-related services)

Monthly recurring revenues

Systems operation and maintenance(including Private Cloud services)

Mobile revenue decreased year over year in FY21 due to ARPU decrease for consumers and change in unit charge for MVNE clients
Systems construction and systems operation & maintenance revenue increase for FY21 includes PTC revenue which became IIJ’s consolidated subsidiary from Apr. 2021
During FY20, ATM operation business was impacted by the COVID-19 pandemic due for example to the store closure and smaller number of users coming to stores
WAN revenue decreased year over year in FY19 and FY20 mainly due to certain large customers’ migration to our mobile services (cheaper than WAN to connect multiple sites)© Internet Initiative Japan Inc.

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About IIJ

Gross Profit and Margin Growth
FY18

NW
services

FY19

FY20

FY21

+8.4

Gross
profit17.4
Grossmargin

+2.5

14.6%
•
•

+7.3

19.9

16.3%

27.2

21.4%

35.6

+2.5

27.8%

9.8

Gross
margin

14.0%
•
•

FY22

1Q‐3Q23

38.1

27.5%

FY19

FY20

FY21

FY22

+3.7

SI

Strength

32.2

28.7%

NW services include Internet connectivity services for enterprises, Internet connectivity for consumers, Outsourcing, and WAN services. These are all monthly recurring revenue
FY22 NW service gross margin slightly decreased due to the decrease in mobile business margin, which is part of NW services, mainly because of an increase in marketing cost such as low price hand-set offering

FY18

Gross
profit

Unit: ¥ (JPY) billion (bn)BusinessModel
GrowthStrategy

+1.0

10.8

13.8%

+1.3

+2.8

12.1

14.5%

14.9

15.7%

1Q‐3Q23

18.6
12.7

16.7%

14.7%

SI includes systems construction which is one-time revenue and systems construction and maintenance which is monthly recurring revenue
FY21 SI includes PTC revenue which became IIJ’s consolidated subsidiary from Apr. 2021
© Internet Initiative Japan Inc.

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NW Services (monthly recurring revenue) as Profit Growth Driver - Economies of Scale -About IIJ
Strength

BusinessModel
GrowthStrategy

Profit Model of NW Services

Revenue

Connectivity services
IP (Internet Protocol) service•••

Details in P.26

Contracted based on bandwidth
Contract period: 1 year, generally auto-renew
Low churn rate, royal clients for 30 years

WAN (Wide Area NW) service
Mobile service

Security services

Various in-house developed services

DDoS protection, Firewall, SOC, etc.

Remote access, DNS, monitoring, etc.

•

Contracted based on number of accounts•

Contracted based on number of accounts•

Contract period: 1 year, generally auto-renew•

Contract period: 1 year, generally auto-renew•

Cross-selling to IP service clients•

Cross-selling to IP clients

Details in P.32 - 34

Details in P.27 - 30

Details in P.25

Cost

Mainly common and shared cost to operate NW
Leasing costfor Internet backbone, WAN lines andleased DCs, etc.

Personnel cost

Outsourcing cost(service development & operation, etc.)(mobile-related, outsourcing personnel,
maintenance, etc.)

Depreciation & Amortization
cost for NW equipment, etc.

for engineers

Historical track record of NW services gross margin
FY18

FY19

FY20

FY21

FY22

14.6%

16.3%

21.4%

27.8%

27.5% *

Intend to enhance NW services revenue accumulation by Service Integration strategy••

FY22 gross margin slightly decreased due to the decrease in mobile business margin, which is part of NW services, mainly because of an increase in marketing cost such as low price hand-set offering
Among NW service revenues, WAN, mobile and part of security services have variable cost which fluctuates depending on revenue© Internet Initiative Japan Inc.

16

Service & Solution Development Capability

About IIJ
Strength

BusinessModel
GrowthStrategy

Initiate the market by continuously developing innovative
various NW-related services & solution in-house© Internet Initiative Japan Inc.

17

About IIJ

Excellent Customer BaseStrength

BusinessModel
GrowthStrategy Through reliable operation, continuous use of Internet connectivity services since the inception of IIJ
 Our reliable infrastructure operation and cross-sell strategy have led to low churn rate Number of IIJ Group’s clients: approx. 14,000 as of Mar. 31, 2023
Cover Most of Top Revenue Companies in Japan

Client Distribution by Industry

Client Distribution by Revenue Volume

Retail4%
Construction,
Real estate
6%

Manufacturing
10%Service
13%

Public,Education
14%••

Communication,
IT
33%

Top 401-500
4%

Top 50121%

Top 1-10048%

Top 301-400
6%Finance,Insuarance20%

Top 201-300
8%Top 101-200
13%

Top ten firms in each industry taken from annual revenues are selected by IIJ based on the Yahoo! Japan Finance website (finance/sales/whole market/daily).
The service penetration and the revenue distributions are based on IIJ’s FY22
© Internet Initiative Japan Inc.

18

About IIJ

Competitive Advantages

Strength

BusinessModel
GrowthStrategy

Against telecom carriers, IIJ

Against systems integrators (SIers), IIJ• Has highly skilled IP (Internet Protocol) engineers• Operates one of the largest Internet backbone (SIers do not)• Is faster to move than bureaucratic organizations• Has NW services asset and development capability (SIers do not)• Focuses on blue-chip companies’ IT needs with SI• Focuses on Internet-related open type systems

Telecom
Carriers
Legacy NW Services
i.e. telephoneSIers
IP services
Security services
Mobile services

NW Integration
Systems Operation
Private Cloud

Legacy Systems
i.e. mainframe

IIJ deals with newer systems and growing IT market(Not involved in heavy and legacy systems)© Internet Initiative Japan Inc.

19

About IIJ

Mid-term Plan (FY21-FY23)

Unit: ¥ (JPY) bn

Previous Mid-term (FY15 - FY20)

Strength

BusinessModel
GrowthStrategyLonger term growth (FY24 - )Current Mid-term (FY21 - FY23)
Initial mid-term plan target (announced in May 2021)
Revenue: ¥270 bn, Operating margin: over 9%(updated to 11.5% in May 2022)

Revenue
FY17
results

FY18
results

FY19
results

FY20
results

FY21
results

FY22
results

FY23
targets(announced in May 2023)

176.2

192.4

204.5

213.0

226.3

252.7

286.0

 Plan to largely

expand businessin the long term Continuously

Operating Margin and Operating Profit

seek business
investment &M&Aopportunities

Market capitalization
600
500
400

 Expect market

capitalization tofurther increase

300
200
100
0
© Internet Initiative Japan Inc.

20

About IIJ

Long-term Growth Outlook

Strength

BusinessModel
GrowthStrategy

Future outlook
Migration of legacy systems requires customization with systems construction

SI revenue:
Systems construction(including equipment sales)•

Approx. 80% of Japanese corporates are faced with legacy systems issues*•

Legacy systems are transforming to NW-based systems to which IIJ can leverage its Service
Integration model (provide NW services as part of SI projects)

Systems operation and maintenance(including private Cloud)

Cloud migration among Japanese blue-chip should continue to take place•

NW services revenue:

IIJ is one of the few Japanese cloud service providers with great client base

WAN services
Outsourcing services(including Security services)

WAN shall be a required element in enterprise private NW

Internet connectivity services• IIJ, an independent ISP, can offer multi-carrier WAN.

Mobile services

Cyber security demands continuously increasing• IIJ has great set of service leveraging NW traffic data obtained as an ISP

Various NW services to be offered through Service Integration(Cloud, generated AI, CDN, etc.)
Internet traffic should continue
increase
Internettotraffic
should continue to increase•

IIJISPs
is oneof theservices
few ISPs
IIJ is one of the few reliable
offering
to Japanese blue-chip for more than 30
years

Stable and reliable operation

Structurally increase along with continuous accumulation of construction
projects most of which have operation & maintenance phase

Advanced usages of IoT projects to increase, in addition to the existing projects•

FY1994

FY2000FY2005FY2010FY2015

IIJ can offer both NW services & SI to construct IoT systems

FY2022*According to The Ministry of Economy, Trade, and Industry published in September 7, 2018
© Internet Initiative Japan Inc.

21

Capex and Business Developments
FY16
Revenues (¥ bn)
OperatingmarginOperatingprofit (¥ bn)

FY17

FY18

Unit: ¥ (JPY) billion (bn)

FY19

192.4

FY20

204.5

FY21

157.8

176.2

3.3%

3.8%

3.1%

4.0%

6.7%

5.1

6.8

6.0

8.2

14.2

213.0

FY22

226.3

Stronger demands forenterprise network services

Large CAPEX increase due toaggressive business investment

252.7

10.8%

11.0%

23.5

27.2

31.5

CAPEX & its depreciation
almost same volume

16.5

20.7

15.1

15.2

15.2

16.1

20.8

12.6
3.6
0.3

9.4
7.9
1.2
2.3

9.4
1.9
2.1
1.7

9.6
2.6
2.0
1.0

8.8
2.8
1.5
2.0

9.1
2.3
1.5
3.2

10.0
2.0
5.4
3.4

SI, others
CAPEX-related
depreciation andamortization (¥ bn)

10.9

12.1

13.9

14.4

14.5

15.1

15.3

Number of
employees

3,104

3,203

3,353

3,583

3,805

4,147

4,451

(Sep. 2015)

Enhanced SMX(Oct. 2016)

Launched GIO P2Opened SOC(Mar. 2017)

Launched UOM(Oct. 2015)(Apr. 2017)

Added SWG Sandbox(Feb. 2016)

DDoS service global(Jan. 2017)

Launched private connectivity with AWS(Sep. 2016)
•
•

22.5
Including¥7.0 bn fornd
Shiroi DC 2
site-

Cost stabilizing

Various Network Services Asset
Launched Omnibus

286.0

10.4%

NW services
Shiroi DC

Strength

FY23 targets

CAPEX (¥ bn)
Cloud

BusinessModel
GrowthStrategy

About IIJ

Launched Secure Endpoint(Oct. 2018)

Enhanced SWG(Dec. 2020)

Launched full-MVNO(Mar. 2018)

Launched Flex Mobility(Dec. 2018)

Enhanced Omnibus(Oct. 2018)nd

Shiroi DC 2 site
started operation

Opened Security
training school Launched CDP (July 2023)(Jan. 2022)

Opened Shiroi DC(May 2019)

Launched enterpriseeSIM (Apr. 2021)
Enhanced SOC(May 2021)-(Dec. 2022)

Launched GIO P2 Gen.2(Oct. 2021)

Launched Smart HUB(June 2022)

Launched ISA(Sep.2022)

FY16: US-GAAP, from FY17: IFRSCAPEX-related depreciation and amortization is calculated by excluding depreciation and amortization of assets that do not have the nature of capital investment, such as right-of-use assets related to operating leases, small-amount equipment andcustomer relationship© Internet Initiative Japan Inc.

22

About IIJ

Enhancement of Human CapitalStrength

Breakdown of Employees

Turnover rate Basic policy: continuously hire and train new graduates New graduates who studied NW are attracted to IIJ who is the first full-scale(As of Dec. 31, 2023)

ISP in Japan

 Increasing the size and improving the quality of recruitment andhuman capital development
 Programs to promote autonomous career development by having working•

experiences at other departments and/or working at overseas subsidiaries

 IIJ provides a wide range of experience which leads to high employee

satisfaction. Corporate culture of adopting new technology, aggressively
engaging in new service development, etc.

•

 Expect further business expansion by seeking M&A opportunities

Revenue Growth and Human Capital Enhancement
FY19

Total revenue
Year over year

Total number of employees
Year over year
Number of outsourcing personnel

Number of new graduates
•
•

FY20

FY21

FY19

FY20

FY21

FY22

4.6%

3.6%

4.2%

3.8%

Admin.
12%
Sales
18%

The turnover rate of IIJ (non-consolidated
basis) is calculated by dividing leavers forthe fiscal year by the number of full-time
employees at the beginning of that fiscal
year.
The industry average turnover rate of
approx. 10% is announced by the Ministryof Health, Labor, and Welfare

Engineers
70%•

Employee Age Composition
FY22¥204.5 bn¥213.0 bn¥226.3 bn¥252.7 bn

+6.3%

+4.2%

+6.3%

+11.7%

FY19-end

FY20-end

FY21-end

FY22-end

3,583

3,805

4,147

4,451

+6.9%

+6.2%

+9.0% *

+7.3%

1,123

1,270

1,319

1,385

Apr. 2020

Apr. 2021

Apr. 2022

Apr. 2023

210

190

178

246

BusinessModel
GrowthStrategy(As of Apr. 1, 2023)

Number of outsourcing personnel is for SI
We added 62 personnel through PTC consolidation (Apr. 2021)© Internet Initiative Japan Inc.

0
57
52
47
42

Female Manager Ratio（personnel）

50

Breakdown of new graduates is almost
identical

100

FY20

FY21

FY22

FY23

4.6%

5.5%

5.7%

6.3%

•

The female manager ratio is IIJ (nonconsolidated basis)•

The original target was over 6% for FY24,
achieved a year earlier in FY23•

IIJ targets over 8% or more in FY27

37
32
27
（age）22

For more information onhuman capital, please visit
https://www.iij.ad.jp/en/ir/integrated-report/human_capital/

23Service/Business Function
Comprehensive NW system solution with NW services and SI

P. 25

Enterprise NW Services

P. 26

Security Services

P. 27 - 30

Mobile Services

P. 31 - 34

IoT Services

P. 35 – 36

Systems Integration (SI)P. 37

Cloud Services

P. 38 - 39

Data Centers (DC)P. 40

© Internet Initiative Japan Inc.

24

Comprehensive NW system solution with NW services & SI

Service/Business
Function By combining various in-house developed NW services with SI to provide comprehensive NW system solution

SI to meet specific requirements cannot be covered by NW services
NW services (in-house developed)
Secure Web
Gateway

Secure MX

ManagedWAF

IIJ ID

File ServerManaged DB

C-SOC
PrivateAccess

UnifiedOperation
Management

Endpoint
Security

Flex Mobility

VirtualDesktopCloud
Exchange

Smart HUB

Cloud
Proxy

Cloud Data
Platform

Cloud Connectivity

CLOUD

Internet

INTERNET

IIJ
Data Center

ManagedFirewallManaged IPS

MobilePrivate GW

SimpleBackupOCI

Private Backbone
Internet
AccessContent
Acceleration

DNS Platform

Internet

SASE

Directory

Cloud
Web Hosting

MobileNW

Existing
customer WAN

Branch Branch Data
office office Center

Private WAN
WAN

ClosedNW

IIJ Mobile

Outside of office© Internet Initiative Japan Inc.

Data
CenterVPN

NTT
FLET’S
network

RAS

VPN
equipment

Branch Branch Branch Branch Outside of office
office office office office25

Service/Business
FunctionEnterprise NW Services
IIJ’s enterprise NW services’ business model:
Cost doesn’t have to increase at the same pace as the revenue – economy of scale business
IP (Internet Protocol) service

Cost structure IP Service is a bandwidth guaranteed dedicated Internet connectivity service forenterprises who use the services for their core Internet access services

 Service contracts are based on bandwidth. Minimum contract period is 1 year The revenue is 100% recognized in Internet connectivity services (Enterprise) As one of the largest independent ISPs, IIJ has strong buyer power whenpurchasing fiber

 IIJ expands its Internet backbone continuously Fiber purchasing cost is recognized as circuit-related cots

 Very low churn rate. Contracts are renewed every year, generally speaking

 IIJ owns NW equipment that are needed for Internet backbone and NW service

 IIJ has very high and stable market share among Japanese blue-chip Difficult to newly enter the market because one will need customer base and engineers

to operate Internet•

 IIJ purchases physical fiber from carriers

IIJ’s IP services clients include general Japanese enterprise as well as NW operatorssuch as consumer ISPs and cable TV operators

facility NW operation cost which is many depreciation amortization costs for NW

equipment is stable due to the technological innovation of servers and other NW
equipment•

In other words, ¥1 million server today is higher spec compared to the ¥1 million
server a year ago.

IP Service Revenue (unit: ¥ billion)

FY18

FY19

FY20

FY21

13.68
10.57

10.70

12.17

(+13.7%)(+12.4%)FY22

Profitability

14.84

 Enterprise NW service revenues such as IP services and Outsourcing services

3.97

 By that, IIJ can enjoy an economy of scale with strong revenue accumulation

3.77

 In other words, the costs for enterprise NW services do not have to increase at(+8.4%)(+4.2%)(+1.2%)

4Q

2.65

2.71

3Q

2.71

2.68
2.68

2.97

3.35

3.64

2.63
2.58

2.63

2.88

3.28

3.45

2Q
1Q

3.61

3.18
3.14

3.45

are to continuously increase while their costs remain relatively stable
which leads to gross profit expansion
the same pace the revenue growth© Internet Initiative Japan Inc.

26

Service/Business
Function

Security Business (1) Provide a wide range of security services over network
 Information analysis platform utilizing information and expertise only available to ISPs

Security services for internal systems

Mail security
Spam mails, anti-virus, audit, archives,countermeasures against erroneoustransmission, Microsoft 365, etc.
Enterprises’ NW

Internet
boundaries

Internal NW

Internet
IIJ Backbone

Managed firewall
Per user policy (access, application),
detect anomaly, monitor 24/365

Targeted attacks security

DNS operation & management
Registration, maintenance, and management oforiginal domain, prevent fake DNS responses,
protect of DNS reflective attack, etc.
DMZManaged IPS/IDS
Detect & interrupt attacks against
NW/OS/middleware, monitor 24/365

Detect malware including “Zero-Day threat”,
Sandbox, communication interruption for C&C
server, etc.
SASE

endpoint•

DDoS Protection
Detect & prevent DDoS attacks, including
those take place IIJ backbone

Security Operation Center (SOC)
Security consulting/training

Cloud

Web access security
Web filtering, anti-virus, web isolation, log
analysis, access control on user basis, etc.

Security services for external systems

Managed WAF
Interrupt attacks against Web application suchas SQL injection and XSS

Endpoint security

Anti-virus, prevention of taking out data, dataencryption, management of IT assets, detectionof unauthorized PCs, etc.

Public servers

SASE (Secure Access Service Edge) is a concept to shift controls of NW and security on the route to Cloud services to enable secure access from any points, instead of the conventional centralized management throughheadquarters or data centers.
© Internet Initiative Japan Inc.

27

Security Business (2) Many initiatives taken by IIJ for security

1994

Started providing firewall services (first in Japan)

Invited and trained police officers to our SOC
Apr. 2017 Hyogo prefecture (1 year)
Oct. 2018 Shimane prefecture (3 months)
July 2019 Hokkaido prefecture (3 months)

1999

Started providing fully-managed firewall services (first in Japan)

2004

Started providing spam mail filtering (first in Japan)

2005

Added sender domain authorization technology/spam mail protection (first in Japan), Started providing IIJ DDoS Protection Services

2006

Started providing IIJ Managed IPS Service and IIJ Secure MX Service (SMX)

2009

Started providing IIJ Secure Web Gateway Service (SWG)

2015

Added sandbox option (function to detect behaviors as a countermeasure against targeted attacks)

2016

Constructed information analysis platform (constructed platform to analyze log data within our backbone to realize early detection and countermeasures against increasingly sophisticated threats)

2017

Started providing DDoS Protection Service (terabit-compatible), Opened new Security Operation Center (SOC) and started providing
C-SOC Service

2018

IIJ Security engineers provided trainings at an international security conference “Black Hat USA 2018” (first as Japanese)

2018

Started providing IIJ Secure Endpoint Security Service

2019

Started providing IIJ Managed WAF Security Service (public web system vulnerability countermeasures)

2021

Started providing IIJ CSPM Solution (Cloud Security Posture Management which means cloud security management)

2021

Opened IIJ Security Training School (launched business for IT division personnel assigned for security to become specialists)

2022

Started providing IIJ Secure Access Service (in-house developed SASE service)2023

IIJ Security Business division director was appointed as Kanto Regional Police Bureau’s cyber security advisor© Internet Initiative Japan Inc.

Certification of multiple international standards
Feb.2020 Mail, Web Security Services
Apr. 2020 IIJ Managed IPS/IDS Services
Mar. 2021 DDoS Protection Service, IIJ Managed WAF

Continued afterwards

Training
programs by
experienced
lecturers andactive SOC
analysts28

Service/Business
Function

Security Business (3)IIJ Secure MX Service (SMX)IIJ DDoS (Distributed Denial of Service) Protection Service

 Cloud-based integrated mail security service (launched in Sep. 2006)
 Differentiating by in-house developed filtering, providing support in Japanese,

update, etc.

 Minimize mail threats with multi filtering, able to store unlimited mail data in DCs

located in Japan, prevent accidental transmission/information leak with the system

 Competitors withdrawing from the market

SMX contracted accounts

Cloud based mailsecurity market

Share

Cloud based mail security

Sep. 2023

2.84 million

Share No.1

Sep. 2022

2.83 million＜Source＞ITR “ITR Market View:
Cyber Security counter market
2023”

Sep. 2021

2.65 million

Over 9 million accounts if include OEM

 Comprehensive service to protect enterprise NW system from DDoS attacks(launched in Oct. 2005)

 Service model requires NW backbone to offer
 Realize reliable web services by avoiding overloaded NW and server triggered byhuge traffic 24/365 operation by security engineers who have expertise obtained through ISP

business

 Automatically detect and prevent DDoS attacks
 Internet access line are also within service coverage Global coverage to prevent terabit level large-scale attack (Jan. 2017)

 High penetration rate toward large financial institutions

IIJ Secure Web Gateway Service (SWG)

IIJ C-SOC (Security Operation Center) Service

 Cloud-based integrated web security service (launched in Mar. 2009) Differentiating by in-housed developed engines, etc. to block and isolate web

functions, etc.
 SWG clients include Sumitomo Life Insurance,
Fuji TV, Mitsubishi Chemical, Meiji Gakuin
University, and Morinaga
10 consecutive years

SWG contracted accounts
Mar. 2023

1.24 million

Sep. 2022

1.23 million

Sep. 2021

1.19 million

Sep. 2020

1.12 million

 Comprehensive security incident response service provided by IIJ security

engineers Operational SOC service unique to ISPs: visualize invisible threats by applying

IIJ’s unique intelligence, execute initial response, etc.

 Individual service operation and monitoring including other managed services
 Relatively expensive service
Information resource of IIJ

Coverage comparison＜Competitors＞＜IIJ＞
Trouble shooting
Hardware exchange
Configuration change

SaaS Web gateway security＜Source＞ITR “ITR Market View: Cyber Security counter market 2023”

Software version up
Log collection server
Router construction© Internet Initiative Japan Inc.

Log collection server
Router construction

Security equipmentlog

170 billion lines
per month

Mail access log

3.8 billion lines
per month

Web access log

90 billion lines per
month

Monitoring node

48 thousand

Number researchsites by web crawler

Over 400
thousand per day

29

Security Business (4)Unit: ¥ (JPY) billion

Security Service (monthly recurring revenue) Revenue strongly increasing along with continuous strong demands

 Total security business volume also growing
 Security projects outside the scope of IIJ security services are handled through SI

Total security businessvolume (Service＋SI)

FY18
16.77

FY19
19.18

FY20
21.47

FY21
25.44

FY22
31.25

 Highly regarded as a top-class SASE implementation & operation vendor

 Palo Alto Networks 2023 JAPAC SASE Partner of the Year (Dec. 2023) and Zscaler

Momentum Partner of the Year 2023 (Oct. 2023) were given to IIJ Global, IIJ’s
subsidiary From a vendor neutral position, provide all-in-one support ranging from solution
selection, design, construction, implementation to operation

 Strong demand for “IIJ C-SOC Service”

Greater opportunity to integrate it as a part of large NW renewal project IIJ’s competitive advantages:• Collaborate with various in-house devolved managed type gateway security services• Wide monitoring scope including EDR and SASE
• Apply abundant traffic log data to develop IIJ’s unique intelligence as well as detectthreat Continued to enhance service line-ups and functions

 Launched “IIJ leaked account detection solution” in Nov. 2023
• Research, detect and help manage leaked account information
 Launched “IIJ Attack Surface Assessment Solution” in Nov. 2023
• Automatically detect IT asset that could potentially become cyber attacks target andconduct risk assessment

Service/Business
Function

Mail Security

Web GW Full outsource of mail system,
countermeasures for spam mail, etc.
 IIJ Secure MX Service (SMX)• Cloud-based integrated mail security service(launched in Sep. 2006)• Differentiating by in-house developed multifiltering, providing support in Japanese andupgrades• Minimize mail threats with multi-filtering, able
to store unlimited mail date in DCs located inJapan, prevent accidental
transmission/information leak with the system Full outsource of web security, URL filtering,etc.
 IIJ Secure Web GW Service (SWG)• Cloud-based integrated web security service(launched in Mar. 2009)• Differentiating by in-housed developed engines
etc. to block and isolate web functions, etc.

NW Security

 IIJ DDoS Protection Service• Comprehensive service to protect enterprisenetwork system from DDoS attacks (launchedin Oct. 2005)• Service model unique to NW operators• Realize reliable web services by avoiding
overloaded network and server triggered byhuge traffic, global coverage to prevent terabit
level large-scale attack (launched in Jan.
2017)
 IPS/IDS, WAF, etc.
FW (Firewall) Outsource of firewall operation, detection
system for anomaly, etc. (launched in Oct.
2006)

SASE

 Operation of Prisma Access, Zscaler etc.
 IIJ Secure Access Service “ISA”• Launched in Sep. 2022
• In-house developed SASE service• Differentiating by operating in Japan, highcompatibility with other IIJ security services
such as C-SOC, small start and low-pricerange
SOC and others

 IIJ C-SOC Service• Launched in Oct. 2018
• Operational SOC service unique to ISPs:
visualize invisible threats by applying IIJ’s
unique intelligence, execute initial response as
well as notification etc.
• Continuously expanding functions including
recently launched “Premium” in May 2021
which offers primary responses against attacks
 Endpoint Security, etc.

• Security Service Revenue (recurring) is 100% recognized in Outsourcing• SASE (Secure Access Service Edge) is a concept to shift controls of NW and security on the route to Cloud services toenable secure access from any points, instead of the conventional centralized management through headquarters ordata centers. This concept is gaining popularity along with Cloud migration of enterprise operation systems, prevalenceof flexible workstyle including teleworking.
• SOC (Security Operation Center): organization providing advices and actions regarding cyber attacks by constantly
monitoring log data such as NW and device to detect and analyze cyber attacks© Internet Initiative Japan Inc.

30

Unit: ¥ (JPY) billion (bn)%, YoY = Year over year comparison
QoQ = Quarter over quarter comparison

Mobile Business (1)Mobile Subscription (Subs.)
2,249

1,457

1,494

1,126

1,178

1,032

1,039

1,685 1,810

1,951

Accumulate enterprise IoT traffic by leveraging the blue-chip client base,various NW services & SI function – higher utilization of the mobile
infrastructure Consumer subscription contributing to expand the infrastructure

Subscriptions (Subs.)(unit: thousand)Enterprise mobile
IIJmioMVNE

2,039 Enterprise mobile (deducting MVNE from IIJ Mobile)

1,197 1,206

1,203

1,222

1,239

1,086 1,120

1,115

1,140

1,147

 1Q-3Q23 revenue: ¥10.05 bn (+¥1.90 bn YoY)
 3Q23-end subs.: 2,249 thousand (+211 thousand QoQ)•

Mobile Revenue
1Q-3Q22: 31.49

1Q-3Q23: 34.14

FY22: 42.27

Revenues(unit: ¥ bn)

Enterprise mobile
MVNE
IIJmio10.37 10.63 10.49 10.79 10.94 11.50

11.70
3.46

•

Revenue largely grew YoY mainly as the existing transaction becoming larger andcontinuously acquiring new orders. Additional line orders from the current clients such as GPS
tracker for safety, taxi payment devices, dashboard cameras, and foreigners visiting Japanrelated service

 MVNE(providing mobile services to other MVNOs) 1Q-3Q23 revenue: ¥7.87 bn (+¥0.47 bn YoY)
 3Q23-end subs.: 1,147 thousand (+8 thousand QoQ)
 3Q23-end MVNE clients: 189 clients (+13 clients YoY)

2.63

2.67

2.85

3.03

3.15

3.44

2.43

2.41

2.56

2.67

2.63

2.62

5.31

5.55

5.08

5.08

5.17

5.44

5.61

1Q22

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

•

Cable TV operators (94 operators), prominent retailer, etc.

 IIJmio (consumer)

2.62

 1Q-3Q23 revenue: ¥16.22 bn (+¥0.28 bn YoY)•

4Q22 enterprise mobile revenue includes approx. ¥0.1 bn of lump-up revenue related to a large mobile
project which consists of several phases
Enterprise mobile subs.: in 4Q22, the subs. consistently increased by 124 thousand QoQ mainly due toadditional line orders from the existing project for a taxi payment devices and increased demands fromforeigners visiting Japan. In 3Q22, the subs. increased by 192 thousand QoQ as the existing project for a
GPS tracker for children security largely increased by approx. 60 thousand

Started offering eSIM and added larger data volume plans to “IIJ Travel SIM” prepaid SIM
services mainly targeting foreigners visiting Japan (Feb. 2024, 3GB to 55GB, effective for 30days) 3Q23-end subs.: 1,239 thousand (+16 thousand QoQ)••

Service/Business
Function

Of which, the old plan’s subs. were 232 thousand
GigaPlans(unit: thousand)Subs.

© Internet Initiative Japan Inc.

1Q22-end

2Q22-end

3Q22-end

4Q22-end

1Q23-end

2Q23-end

3Q23-end

757

837

878

908

928

963

995

31

Service/Business
Function

Mobile Business (2)Revenues (unit: ¥ billion)

IIJ became au’s MVNO
and started providing
consumer services from
Oct. 2016

IIJmio (consumer mobile)
MVNE (providing mobile services to other MVNOs)Enterprise mobile (direct sales)

IIJ started providing LTE
services to both enterprises andconsumers from Feb. 2012

FY09

FY22 revenue¥10.1 billion, -0.2% YoY

IIJ became MVNE by providing
its mobile services to otherMVNOs

IIJ started providing 3G
mobile services bybecoming MVNO in Jan.
2008

FY08

FY22 revenue¥11.2 billion, +9.0% YoY

FY10

FY11

FY12

Providing mobile services to enterprises for their laptops’ data
communication and Machine to Machine (M2M) usages

FY13

FY14

Opened mobile
infrastructure to consumers

FY15

FY16

Dec. 31, 2013

•
•
•
•

FY18

FY19

FY20

FY21

FY22

The launch of new
consumer plan (Apr. 2021)

IIJ became full-MVNO in 2018

SIM type MVNO market share in Japan

Mar. 31, 2023

Dec. 31, 2022

Mar. 31, 2023

June 30, 2023

Sep. 30, 2023

MVNO subscription

1st IIJ

19.7% IIJ

19.8% IIJ

20.0% IIJ

SIM subscription

2nd NTT Resonant

11.1% NTT Resonant

11.9% NTT Resonant

12.2% NTT Docomo(*) 11.3%

3rd Optage

9.1% Optage

9.0% Optage

9.0% Optage

8.9%

4th

5.6% Fujitsu

5.6% Fujitsu

5.6% Fujitsu

5.6%

4.7% Aeon Retail

4.8%

4%

•

Dec. 31, 2022

FY17

Rapid expansion of consumer
inexpensive SIM market

Japan’s consumer inexpensive SIM market
Total mobile subscription

FY22 revenue¥21.0 billion, +3.2% YoY

IIJ started offering voice
call services as an
option menu toconsumers from Mar.
2014

1%

13.8%

9.4%

14.3%

9.5%

Fujitsu

The data is based on the reports by the Ministry of Internal Affairs and Communications (MIC) who publishes mobile
4.9% Aeon Retail4.8% Aeon Retail
5th Biglobe
subscription quarterly
The total mobile subscription was over 200 million for both Mar. 31, 2023 and Dec. 31, 2022.
(Source:theMinistryofInternal
AffairsandCommunications)
As of Marc. 31, 2023, MVNO subscription was 30.2 million, SIM subscription was 15.6 million(*) NTT Docomo’s figures as of Sep. 30, 2023 was formerly NTT Resonant’s one
As of Dec. 31, 2022, MVNO subscription was 28.8 million, SIM subscription was 15.3 million
IIJ’s total mobile subscription was approx. 4,136 thousand and 3,968 thousand as of Mar. 31, 2023 and Dec. 31, 2022,
respectively.
© Internet Initiative Japan Inc.

20.4%

32

Service/Business
Function

Mobile Business (3) Most of current enterprise mobile solution are simple usage such as connecting NW and surveillancecameras, etc.
•

Seeing some advanced usage such as Factory IoT for Toyota Motor Hokkaido https://www.iij.ad.jp/en/news/pressrelease/2020/0803.html
Accumulating various enterprise mobile solutions© Internet Initiative Japan Inc.

33

Service/Business
Function

Mobile Business (4)IIJ’s mobile business model

Growth Strategy

 Revenue

 Aim to improve mobile infrastructure utilization by gathering IoT/M2M &various consumer traffic Consumer mobile revenue is calculated by multiplying subscription by ARPU•

Headsets sales are also recognized as consumer revenue. IIJ is recognized as MVNO
with good lineups of smartphone Enterprise mobile revenue is to grow with IoT/M2M traffic. Because we charge by how

much data is needed and an IoT device does not require much data, generally
speaking, per device revenue tends to be quite small Cost All of IIJ’s mobile services are provided from the same mobile infrastructure Currently buying mobile capacity to meet the peak hours which are concentrated oncommuting hours and lunch time Currently, IIJ is increasing mobile infrastructure to meet the peak ofconsumer traffic which is concentrated around commuting hours andlunch time. The overall mobile infrastructure utilization of other hours islow Purchasing mobile infrastructure on bandwidth-base from mobile carriers (mainly from By gathering various type of mobile traffics such as enterprise IoT traffic
which is not concentrated at certain hours, we could aim for higher mobile
infrastructure utilization

 In order to provide voice services, we purchase per usage base (no economy of scale

IIJ’s sales channel for consumers

Docomo, some from KDDI). Such purchasing cost is recorded as “outsourcing” in NW
services’ costs
merit for voice services)

1. Direct sales through IIJ’s website

 Sales commission expenses (SG&As) to sales partners such as BicCamera

2. Sales partners such as BICCAMERA INC. who is one of the largest retailers in ProfitJapan Profitability to increase by improving infrastructure utilization through gathering IIJ pays sales commission expenses to sales partners

various consumer & enterprise traffic•

3. MVNE “IIJ Mobile Platform Service”

Traffic patterns of consumers and enterprises are different
 Consumers’ peak time is commuting hours and lunch break. Other than these hours, ourconsumers tend to access Internet through their home and/or office Wi-Fi. On the other
hand, there is no clear peak time for enterprise. Traffic is generated through mobile
dongle and/or IoT type usages which run 24/7

 IIJ provides mobile services to other MVNOs As of Dec. 31, 2023, IIJ had 189 MVNE clients•

Among them, 94 MVNE clients are Japanese cable TV operators who already havedirect relationship with consumers•

Largest MVNE client is one of the largest Japanese retailers© Internet Initiative Japan Inc.

34

Service/Business
Function

IoT Business (1)Combining IIJ’s existing service lineups and SI to build IoT systems
IIJ IoT
Specific Fields andBusinesses

Cloud Services

Industry(Manufacturing)

Agriculture

WISE-PaaS IIJ Japan-East(PaaS for Industrial IoT)

Home / Care
Monitoring

IIJ Water Management
Platform

EnergyNecolico HomePlus

IIJ IoT Service (IoT Platform)(Device / NW Management and Data Utilization Shared IoT Infrastructure)

Gateway

Local 5G

LTE / LTE-M(Full-MVNO)(Full-MVNO)

LoRaWAN®

WAN/VPN

Security

Secure (Closed) Network

NW Services

Unique Device AgentIoT Gateway Equipment / Industrial PCs / LoRaWAN® Gateway Equipment

Edge Equipment /Facilities / Sensors© Internet Initiative Japan Inc.

35

Service/Business
Function

IoT Business (2)IIJ’s IoT projects

Advanced IoT usage: factory IoT
 IIJ provides IoT system for Toyota Motor Hokkaido

Industrial
machinery
manufacturers

Shift from reactive post-sales maintenance model toproactive field services(making predictions based on data)

Car accessory
manufacturers

Expansion of service businesses by acquiring data throughthe networking of products and establishing software
technology development organizations to develop services
that use that data

Measuring
instrument
manufacturers

Expansion of services to streamline & improve the accuracyof recording tasks by going beyond just "measuring" things& providing linking data customers measure with theirbusiness systems

Automotive
manufacturers

Improved efficiency of equipment management to coverpersonnel shortages, analyzing the expertise of skilledworkers in maintaining operating capacity and implementing
traceability to ensure quality

Trading companies(agriculture)

Shift from the sales of pesticides & chemical fertilizers to
the provision of pesticide spraying technologies that reduce
the amount used, & the development of cutting-edge
agricultural technologies

 Providing a one-stop solution by offering mobile and Cloud services from datacollection via closed mobile network to creation of a cloud platform for visualizing
and analyzing the collected data.

© Internet Initiative Japan Inc.

36

Service/Business
Function

Systems Integration (SI) Started offering SI to fully meet Japanese enterprises’ IT demands which are quite specific & difficult tomeet solely by NW services
 Seeing greater proposal opportunities to replace legacy private NW and systems which often require

customization and Service Integration
SI revenue growth
Unit: ¥ (JPY) billion

FY19pure operation &maintenace(monthly recurring)
consturction(onetime)

57.5

FY20

+4.1%

59.8

25.5

28.1

32.0

31.8

FY21
+16.3%

69.6

FY22+16.9%

34.2
35.4

81.3

 A quotation of construction revenue, a onetime revenue, is prepared based on

cost; an increase in cost can be reflected Pure operation and maintenance which is calculated by deducting private cloudservice revenues from systems operation and maintenance revenue is monthly
recurring revenues, for constructed systems

38.4
42.9

•

FY20 construction revenue decreased slightly year over year mainly because of the Pandemic recession.
Because construction revenue is one time revenue, it is easily affected by the economic environment andhighly impacted by IT investment appetite of Japanese enterprises.

IIJ’s SI projects are becoming larger and more complex
Conventional contracts

Current trend

Revenue Size

Few million to tens of millions (JPY)Few hundreds of millions (JPY)Type

NW integration, server enhancement and other Internet related systems
construction projects

Complete replacement of current enterprise NW/system

Term

Construction revenue is usually booked after 3 to 6 months from order
received• Construction revenue is sometimes booked a year later from order
received• Greater time to book order received as projects becoming more complex
and larger

Cost structure

Mainly hardware

Larger number of system engineers and outsourcing personnel are needed© Internet Initiative Japan Inc.

37

Cloud Business (1)Unit: ¥ (JPY) billion

Service/Business
Function

Cloud service revenue (monthly recurring) Revenue continued to accumulate along with the constant cloud shift
1Q22

OthersPublic cloud
RaptorPrivate cloud

8.29
0.71
1.21

6.13
•

FY22 Cloud Service revenue recognition: 91.3% in systems operation, 8.7% in Outsourcing

Private cloud IIJ GIO Infrastructure P2 Gen.2• Next generation IaaS enabling easy
Cloud migration from on-premise• Highly transitional VMware base hosted
private Cloud IIJ Unified Operation Management
Service (UOM)• SaaS to improve efficiency of multicloud system operation work
• Management and operation cover wide
range from cloud to on-premise,
Improve efficiency with automatedincident management, etc.
 Multi-cloud etc.

••

Public cloud Low-cost servers with pay-as-you-go
pricing, etc.

7.80
0.71
1.20

5.62

3Q22

4Q22

1Q23

8.31

8.03

7.87

0.71
1.31

0.69
1.20

0.68
1.12

6.05

5.89

5.84

2Q23

3Q22

8.36

8.53

0.69
1.10

0.69
1.13

6.34

6.49

3Q23 cloud revenue recognition: 91.9% Systems operation and maintenance, 8.1% Outsourcing services
1Q23 and 2Q22 Private cloud revenue decreased because of a decrease in multi-cloud usages by a game service
provider Extensive service line-up promoting multi-cloud usages
 Multi-cloud usages increasing as companies prefer to avoid "vendor lock-in" which is adependence on a specific cloud vendor, flexible system design by combining multiple
cloud services, and BCP measures such as redundancy and risk diversification

Raptor “IIJ Unified Operation Management Service (UOM)” reducing IT department’s In-house developed SaaS base FX(Foreign Exchange) platform services foronline brokers

operational burden by fully outsourcing the operation and management of multi-cloudthat is becoming more complexed “IIJ Cloud Exchange Services” enabling private connectivity to third party cloud Providing services to Hirose Tsusho, Line
Securities, au Kabucom Securities,
Nomura Securities, Sony Bank, SMBC
Nikko Securities, Matsui Securities, etc.

services: offers connectivity to Amazon AWS, Microsoft Azure, Microsoft 365, GCP(Google Cloud Platform), OCI (Oracle Cloud Infrastructure), etc.

 “IIJ Cloud Data Platform Service (CDP)” enabling secure data collaboration on multi-

cloud

Others Cloud services provided throughoverseas subsidiaries, etc.

2Q22

•
•

Multi-Cloud: Cloud that is comprise of combining multiple cloud services“IIJ Cloud Exchange Services” revenue are recognized in NW Service Revenue© Internet Initiative Japan Inc.

38

Service/Business
Function

Cloud Business (2) Cloud services as one of the cross-selling elements
 Promoting cloud shift of the current blue-chip Japanese enterprises

IIJ’s competitive advantages

Cloud market in Japan Blue-chip client base
 Cloud as new business opportunity

 Slow cloud shift in Japan Japanese enterprises are slowly but surely using more cloud services, yet most of Because blue-chip companies’ internal systems have been covered by legacy system

integrators (SIers), it is a new business opportunity for IIJ once such systems migrate
toward Cloud. IIJ has not dealt with legacy internal enterprise systems

such usages are primitive ones: using cloud services for web and/file servers, etc.

 Japanese blue-chip’ internal systems are quite large and complicated - can’t migrate

all at once Japanese enterprises consider whether to re-invest their on-premise systems or Various NW service line-ups, various ways to access cloud systems
 Competitors
 AWS (Amazon) & Azure (Microsoft): Strong scale merit. Focus on public cloud. Not sostrong about meeting individual systems needs

Because start-ups and SMEs do not have to worry about existing systems, theytend to use cloud services much more and much faster compared to large blue-chipcompanies who have large and complex existing systems
 Legacy SIers•

migrate to Cloud services when their existing systems approach to the end of life
• Average cycle of IT system: 4-5 years Some advanced usages
 Nippon Express (one of the largest logistics companies): replaced on-premise criticalbusiness operation system to IIJ Cloud (3,500 servers, 2PB storage), etc.

IIJ’s cloud business modelMulti-cloud strategy

 Revenue Revenue is to increase along with an increase in the number of cloud service clientsand each system volume (system volume depends on a number of cloud servers,
volume of storage, etc.)

 Cost Depreciation and amortization cost for servers and other NW equipment, outsourcing

cost and personnel costs for service developments

 Profit Currently very low profitability, need more revenue to have economy of scale Japanese enterprises avoid relying on single cloud service vendor andprefer multi-cloud systems
 Multi-cloud demands are generating demands for “IIJ Cloud Exchange Services”(revenue recognized in NW Services) which provide private connectivity to third
vendor Cloud services such as AWS (Amazon), Microsoft, and Google IIJ provides operation and management services to effectively monitor an entire IT
systems through IIJ UOM Service which covers IIJ’s cloud services, other cloudvendors’ cloud services and on-premise systems
 “IIJ GIO Infrastructure P2 Gen.2,” which was launched in Oct. 2021 to promote full-scale cloud shift of enterprise systems, is accumulating orders© Internet Initiative Japan Inc.

39

Service/Business
Function

Data center (DC) Operate 16 DCs in Japan, 2 of which are owned by IIJ

Matsue DCP (opened in Apr. 2011)(as of Dec. 2023)

 Expanding own DC capacity along with growing demands for IIJ services
 Expect higher efficiency by gradually migrating leased DC spaces to own DCs

Features• First in Japan to use outside-air
cooling container units• Able to increase capacity
responding to demand percontainer• Utilize on-site solar power panels• Adopt latest energy-saving method
including outside-air coolingmethod• More flexible and cheaper capacity
expansion through system module
method• Shifting peak of air conditioning
power by utilizing lithium-ion
storage batteries• Utilize on-site solar power panels

Land

Approx. 16 thousand square meters

Approx. 40 thousand square meters

Approx. 500 racks

Approx. 700 racks

Number of inplaced racks

Tesla’s power pack•

Shiroi DCC (opened in May 2019)

Own service facility

Objective

FY22 PUE

1.33

1.31

FY23 plan• Constructing new system module Schedule: begin construction in
Feb. 2024, operation in May 2025
 Approx. 2 thousand square
meters Approx. 300 racks
 FY23 capex (plan): over ¥5.0 bn(to be partially covered withsubsidy)• Operation of 2nd site
(Expandable up to 3rd site) Started operation from July 2023
 Approx. 8 thousand square
meters Approx. 1,100 racks(1st site: approx. 700)
 FY23 CAPEX (plan): approx. ¥7.0
bn (FY22: ¥5.4 bn)
 Soon reach to its capacity by own
service facility & colocation• Began direct procurement of nonfossil fuel certificates toward the
supply of electricity withenvironmental values (Apr. 2023)

Edge computing

PUE (Power Usage Effectiveness) is a metric that shows how efficiently electricity is used at a data center.
The closer to 1.0 is considered to be good.
© Internet Initiative Japan Inc.

40

Financials
Financial Performance (FY19 ~ FY22 results)

P. 42

1Q-3Q23 Financial Results

P. 43 – 57

FY23 Financial Targets

P. 58 - 59

© Internet Initiative Japan Inc.

41

Financial Performance (FY19 ~ FY22 results)
FY19

Total revenue

FY20

204.5
YoY

Unit: ¥ (JPY) billion (bn)YoY = Year over Year

FY21

213.0

FY22

226.3

252.7

+6.3%

+4.2%

+6.3%

+11.7%

122.0

126.8

128.2

138.9

YoY
of, enterprise NW
YoY
of, mobile
YoY

+2.8%
75.9
(0.1%)
46.1
+9.8%

+4.0%
79.3
+4.5%
47.5
+3.1%

+1.1%
87.5
+10.3%
40.7(14.3%)+8.4%
96.6+10.5%
42.3
+3.8%

78.4

83.3

95.3

110.9

YoY

+12.5%+6.2%+14.5%+16.4%

8.2

14.2

23.5

27.2

YoY

+36.6%
4.0%+73.2%
6.7%+65.3%
10.4%+15.6%
10.8%

4.0

9.7

15.7

18.8

YoY

+13.8%+142.4%+61.4%+20.2%

ROE

5.2%

11.5%

16.2%

17.0%

NW service gross magin
SI gross margin

16.3%
13.8%

21.4%
14.5%

27.8%
15.7%

27.5%
16.7%

NW services

SI

Operating profit
Operating margin

Net Profit

Financials

For our financial strategy, please visit https://www.iij.ad.jp/en/ir/integrated-report/financial_strategy/•••

NW services (excluding Mobile service) revenue decreased YoY in FY19 mainly due to WAN services’ certain large customers’ migration to our mobile services
Mobile service revenue decreased YoY in FY21 and expect to decrease in FY22 mainly due to subscriber migration to new cheaper plan
Net profit is “Profit for the period/year attributable to owners of the parent”© Internet Initiative Japan Inc.

42

1Q-3Q23 Summary
Continuous acquisition of large-scale complex projects by meeting the demands to renew NW from a wide range of industries(Pubic, finance and general enterprises)

Competitive advantages of Service Integration Model (*) & Reliable operation have been demonstrating a strong presence
1Q-3Q23 earnings: NW Service progressed steadily. Weaker-than-expected SI was mainly due to longer project period as project sizes becoming larger despite strong demand
Profit increased YoY although the onetime profit contribution impact from NTT Docomo interconnectivity data was smaller in 3Q23 YoY(*) Provide in-house developed NW services with SI function. Greater opportunities along with internal large-scale NW renewal, etc.

Total Revenue¥201.10 bn

Gross Profit+8.5%
NW Services

Revenue

1Q‐3Q22102.74+9.3%¥45.95 bn

Operating Profit+10.3%

Gross Profit

1Q‐3Q23

1Q‐3Q22112.3028.12+14.6%Net Profit¥20.28 bn

+7.9%
SI

Revenue

1Q‐3Q23

1Q‐3Q22

32.23

80.48

+7.6%

¥12.98 bn

1Q‐3Q23
86.62

+1.0%

Gross Profit

1Q‐3Q22
12.64

+0.8%

1Q‐3Q23
12.75

 1Q-3Q23 total revenue: ¥78.16 bn, +9.7% YoY• Each service revenue continued to grow. IP: +9.9% YoY, Outsourcing: 13.9% YoY (of which, security: +16.0% YoY), WAN: +3.2% YoY(exc. Mobile)• In Jan. 2024, acquired large-scale NW renewal project for a prominent financial institution, evaluated highly as a top-class SASE vendor & comprehensive solution provider (¥4.0 bn, 8 years)

NW
Service

MobileIoT

 1Q-3Q23 total revenue: ¥34.14 bn, +8.4% YoY (1Q-3Q22: +2.6% YoY), 3Q23-end total subs.: 4,635 k, +667 k YoY (3Q22-end: +592 k YoY)
• The total revenue growth led by enterprise IoT revenue which largely increased by +23.3% YoY: Existing transaction becoming larger and continuously acquiring new orders

MVNE & consumer back to QoQ net addition from 2Q23

• In 3Q23, recognized over ¥0.1 bn of onetime profit contribution impact as FY22 NTT Docomo data interconnectivity data (unit charge) was fixed (3Q22: over ¥0.5 bn)

 1Q-3Q23 order-received: Construction ¥43.39 bn, +26.9% YoY, Operation & maintenance ¥64.50 bn, +11.6% YoY

3Q23-end order backlog: Construction ¥23.65 bn, +41.6% YoY, Operation & maintenance ¥80.38 bn, +18.9% YoY

SITopics• In 3Q23, acquired construction & operation of service infrastructure for an enterprise (¥4.0 bn, 5 years), large-scale server construction for AI infrastructure overseas (¥3.0 bn for 3 years), etc.
• In 3Q23, as expected, recognized the overseas DC project which had revenue of ¥2.8 bn and associated reasonable profit• Foreign exchange platform service for financial institutions “IIJ Raptor Service” has been renewed. Sony Bank is the first client to use the new platform DeCurret: Partnership with Securitize from Jan. 2024. Aim to adopt digital currency for digital securities' settlement transactions

Working toward the launch of digital currency platform service in Jul. 2024 which will be the first in Japan

Steady progress is being made in strengthening business foundation toward accelerating growth over the mid-to-long term
© Internet Initiative Japan Inc.

43

Consolidated Financial Results% of revenue

1Q-3Q23
Results

Apr. 2023 - Dec. 2023

YoY

185.34

Cost of
Revenues

77.1%

77.5%

155.15143.68

22.9%

22.5%

45.95

SG&A etc.
Operating Profit
Profit before tax
Net Profit

25.67% of revenue

FY2023 Targets(Same as before)

Apr. 2022 - Dec. 2022

201.1012.8%•% of revenue

1Q-3Q22
Results

Revenues

Gross Profit•••

Unit: ¥ (JPY) billion
YoY = Year over year comparison+8.5% +15.76+8.0% +11.46
+4.30

18.79

9.8%

10.3%

19.65

19.02

6.5%

6.9%

12.98

12.85

65.5 +13.1%
11.9%

22.87 +12.3%

20.28

220.5 +13.2%
22.9%

12.3%

10.1%

286.0 +13.2%
77.1%

41.66 +10.3%

10.1%

YoY

Apr. 2023 - Mar. 2024

+2.81

34.0 +10.8%
11.0%

+7.9%

+1.49

31.5 +15.7%
10.6%

+3.3%

+0.63

30.4 +11.1%
7.2%

+1.0%

SG&A etc. represents the sum of SG&A, which includes R&D expenses, and other income/expenses
Net profit is “Profit for the period/year attributable to owners of the parent”
YoY change of net profit is based on the retrospective application of IAS 12 "Income Taxes"
Net Profit: valuation on gain of funds decreased (1Q-3Q22: gain of approx. ¥0.38 bn, 1Q-3Q23: loss of approx. ¥0.21 bn)© Internet Initiative Japan Inc.

+0.13

20.7

+9.9%

44

Unit: ¥ (JPY) billion (bn)GP = Gross Profit
YoY = Year over year comparison

Year over Year Analysis
Revenues
1Q-3Q21165.60+19.74+15.76

1Q-3Q22185.34Each service
continued to
grow

•
•

Stronger than
expected due toenterprise IoT,
etc.

1Q-3Q23201.10SI (one-time revenue included) was
weaker than expected due to longer
project period as project sizes
becoming larger despite strong
demandNW services (excl. Mobile) revenues are calculated by deducting the below mentioned Mobile services revenues from total NW services revenues. The revenues include non-mobile consumer revenue which is a small amount
Mobile services revenues include IIJ Mobile Services (including MVNE) and IIJmio (consumer mobile)

Operating Profit
1Q-3Q2116.30

1Q-3Q22

+2.49

18.79

(¥0.17 bn of gain on
sales of tangible
assets included)
•
•

+1.49

1Q-3Q23

20.28

In 3Q23, recognized over ¥0.1 bn of onetime
profit contribution impact as FY22 NTTDocomo data interconnectivity data (unitcharge) was fixed (3Q22: over ¥0.5 bn)

NW services gross profit consists of gross profit related to NW revenues (excl. Mobile) and Mobile revenues (The two have costs in common and cannot be broken down in accounting terms)
SG&A etc. in this slide represents the sum of SG&A, which includes R&D expenses, and other income/expenses© Internet Initiative Japan Inc.

45

Revenues
Network (NW) Services

Unit: ¥ (JPY) million[ ], YoY = Year over year comparison

Internet Connectivity Services (Enterprise)Internet Connectivity Services (Consumer)
Outsourcing Service
WAN Service

1Q-3Q22: 185,339 [+11.9%]
FY22: 252,708 [+11.7%]
58,190 63,772 63,377 67,369

Systems Integration (SI)ATM Operation Business1Q-3Q23: 201,098[+8.5%]
61,42066,77872,900
708

724
721

710

24,26928,57827,629•••742

30,467

24,341

28,40933,23434,47335,03836,17836,35437,627

1Q22

2Q22

3Q22

4Q22

1Q23

2Q23

One-time revenue
1Q-3Q23: ¥33.54 bn, +12.0% YoY(16.7% of 1Q-3Q23 total revenue)

725

687

Systems Construction (including equipment sales)
Systems Operation and Maintenance

33,870Recurring revenue
1Q-3Q23: ¥165.38 bn, +7.9% YoY(82.2% of 1Q-3Q23 total revenue)

38,322

NW Services revenue (excluding Mobile Services)
1Q-3Q23: ¥78.16 bn (+9.7%, +¥6.91 bn YoY)
Mobile Services revenue
1Q-3Q23: ¥34.14 bn (+8.4%, +¥2.65 bn YoY)

3Q23

One-time revenue, systems construction revenues which include equipment sales, is mainly recognized when systems and/or equipment are delivered and accepted by customers
Recurring revenue represents the following monthly recurring revenues: Internet Connectivity Services (Enterprise), Internet Connectivity Services (Consumer), Outsourcing Services, WAN Services, and Systems Operation and Maintenance
Mobile services revenues include IIJ Mobile Services (including MVNE) and IIJmio (consumer mobile)© Internet Initiative Japan Inc.

46

Cost of Revenues & Gross Profit Ratio
Gross margin:

NW (Network) Services

SI (Systems Integration)

Total

Cost of revenues:

NW (Network) Services

SI (Systems Integration)

ATM Operation Business

26.5%

26.4%

21.8%

21.6%
15.3%

14.9%

29.1%

23.9%
16.8%

27.7%
24.1%
19.4%

1Q-3Q22: 143,683 [+11.5%]
FY22: 194,800 [+11.5%]

45,49049,98048,212

51,117

28.1%

28.5%

29.4%

22.5%

23.0%

23.0%

13.4%

15.2%

15.3%

47,62051,389412

20,65924,197409

22,978412

24,556

 Total gross profit
 1Q-3Q23: ¥45.95 bn (+10.3% YoY) Gross profit for NW services

1Q-3Q23: 155,145[+8.0%]

56,136393

400

 1Q-3Q23: ¥32.23 bn (+14.6%, +¥4.11 bn YoY)•

Gross margin improved along with revenue growth•

Among ¥4.11 bn of gross profit increase, which is based on managerial accounting,
NW service (excluding Mobile services) gross profit increased slightly more than
¥3.0 bn YoY•

Gross profit of mobile services also nicely increased along with an increase inenterprise IoT revenue, etc.

•

In 3Q23, recognized over ¥0.1 bn of onetime profit contribution impact as FY22
NTT Docomo data interconnectivity data (unit charge) was fixed(3Q22: over ¥0.5 bn)

398
402

21,08524,087

Unit: ¥ (JPY) million[ ] , YoY = Year over year comparison

28,702

 Gross profit for SI•

24,431

25,371

24,825

26,14926,133

26,904

27,041

1Q22

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

 1Q-3Q23: ¥12.75 bn (+0.8%, +¥0.1 bn YoY)•FY23 gross margin is trending weak mainly due to the small construction revenue,
an allocation of resources such as engineers to prospective orders of large-scale
projects, and a low systems operation and maintenance revenue growth (anexpected termination of a particular project).

NW service gross margin:•
FY22 gross margin 27.5% decreased by 0.3 points YoY as mobile services’ profitability decreased temporarily due to smaller onetime profit contribution related to the mobile interconnectivity (unit charge) revision, the user migration from the oldplan, whose voice plan’s margin is higher, to the new plan and the enhanced procurement of mobile devices for marketing purposes with low margin•
3Q22 gross margin included a onetime profit contribution of over ¥0.5 bn which was the result of FY21 Docomo’s mobile data interconnectivity (unit charge) revision.
© Internet Initiative Japan Inc.

47

Unit: ¥ (JPY) million[ ] , YoY = Year over year comparison
QoQ = Quarter over quarter comparison

Network (NW) Services (1) Revenues
Total Contracted Bandwidth (Gbps)

Internet Connectivity (enterprise) Services

WAN (Wide Area Network) Services
Outsourcing Services

 1Q-3Q23: ¥33.25 bn, +12.7% YoYInternet Connectivity (consumer) Services
Internet Connectivity (enterprise) Services

7,601

7,729

8,727

8,814

1Q-3Q22: 102,744 [+8.0%]

9,376

9,429

10,339•Internet traffic (please refer to P.46) and contracted bandwidth continued to expand•

Of which, IP: ¥11.93 bn, +9.9% YoY•

Of which, Enterprise mobile (IoT usages etc.): ¥10.05 bn, +23.3% YoY•

Of which, MVNE (service offer to other MVNOs): ¥7.87 bn, +6.4% YoY
 Revenue growth absorbed a decrease in revenue due to reflecting a decreased procurement

FY22: 138,922 [+8.4%]

1Q-3Q23: 112,303[+9.3%]

33,234 34,473 35,038 36,178

36,354 37,627 38,322

costs in selling prices at the beginning of FY23

 Internet Connectivity (consumer) Services (Mainly consumer mobile “IIJmio”)
 1Q-3Q23: ¥18.70 bn, +2.0% YoY
•

7,065

Of which, consumer mobile (IIJmio): ¥16.22 bn, +1.8% YoY

7,092

6,841

7,030

7,082

7,055

6,675

11,89012,44812,534

13,092

13,52010,944

11,525

5,993

6,276

6,431

 Outsourcing Services (Various in-house developed network services) 1Q-3Q23: ¥39.15 bn, +13.9% YoY•

Of which, security: ¥22.74 bn, +16.0% YoY
 Demand for SOC (Security Operation Center) is significantly increasing as it is often included

•
•
•
•
•

6,099

6,354

5,882

5,899

9,516

9,753

10,236

10,74910,772

11,194

11,279

1Q22

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

in NW renewal projects with its number increasing

WAN Services (Closed network services) 1Q-3Q23: ¥21.21 bn, +3.2% YoY

Total contracted bandwidth is calculated by multiplying number of contracts by contracted bandwidths for IP service and broadband services respectively which are both under Internet connectivity services for enterpriseIP (Internet Protocol) Service is bandwidth guaranteed dedicated Internet connectivity services for enterprises. Contracts are based on bandwidth and enterprises use the service for their core and main Internet connectivity
MVNE is IIJ Mobile MVNO Platform Service
3Q22 contracted bandwidth increased due to Tokyo public school project by approx. 500Gbps
4Q22 enterprise mobile revenue included slightly over ¥0.1 bn of lump-sum revenue related to a large mobile project which consists of several phases© Internet Initiative Japan Inc.

48

Network (NW) Services (2) Cost of Revenues

 1Q-3Q23 Circuit-related costs increased YoY along with an increase in WAN

Circuit-related costs (Internet backbone, WAN lines etc.)

revenue, etc.

Outsourcing-related costs (mobile infrastructure related costs such as interconnectivity
charge and voice communication services, outsourcing personnel costs etc.)•

Others
Personnel-related costs (NW services related engineers’ personnel cost)
Network operation-related costs (depreciation cost for network equipment, DC leasing costs etc.)

1Q-3Q22: 74,627 [+8.7%]
FY22: 100,776 [+8.8%]

24,431

25,371

24,825

26,149

Unit: ¥ (JPY) million[ ] , YoY = Year over year comparison

1Q-3Q23: 80,078[+7.3%]
26,133

Internet backbone circuit cost remains stable as we can leverage scale merit by having
one of the largest Internet backbone networks

 3Q23 Outsourcing-related costs included over ¥0.1 bn of onetime profit contribution

as FY22 NTT Docomo data connectivity data (unit charge) was fixed (3Q22: over¥0.5 bn)
 1Q-3Q23 Others increased YoY mainly due to an increase in the purchasing license
fees such as SASE in line with increased revenues•

1Q-3Q23 purchasing mobile devices decreased by approx. ¥0.2 bn YoY

 Network operation-related continued to increase along with facility expansions

26,904 27,041
NTT Docomo’s mobile data interconnectivity charge (unit charge)

6,585

6,849

6,989

7,234

7,058

7,137

7,305

Unit charge based on future cost method• Announced in Mar. 2023
• Have been using this unit charge from 1Q23

FY23 • Decreased by 21.7% from the FY22 fixed unit

7,022

7,113

6,670

7,166

7,106

6,992

6,780

4,394

3,762

3,228

3,399

3,596

2,050

2,033

2,151

2,176

2,332

2,342

2,333

5,402

5,614

5,787

6,174

6,041

6,180

6,229

1Q22

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

3,372

charge• Previously announced unit charge in Mar. 2022:¥15,697¥20,327

4,253

Fixed unit charge¥15,644• Announced in Mar. 2022

FY22 • Used this unit charge in FY22

• Decreased by 24.8% from the FY21 fixed unit
charge¥28,385• Announced in Apr. 2021

FY21 • Used this unit charge in FY21

• Decreased by 23.9% from the FY20 fixed unit
charge© Internet Initiative Japan Inc.

• To be fixed around the end of Dec. 2024

¥19,979• Fixed at the end of Dec. 2023
• Onetime profit contribution of over ¥0.1 bn in 3Q23
• Decreased by 26.1% from the FY21 fixed unit
charge¥27,024• Fixed at the end of Dec. 2022
• Onetime profit contribution of over ¥0.5 bn in 3Q22
• Decreased by 27.5% from the FY20 fixed unit
charge49

Unit: ¥ (JPY) million[ ] , YoY = Year over year comparison
QoQ = Quarter over quarter comparison
MRR = Monthly Recurring Revenue

Systems Integration (SI) (1) Revenues
Systems Construction revenues (including equipment sales)
Systems operation & maintenance revenues for on-premise system
Cloud revenues such as private cloud which are recognized as systems operation & maintenance revenues

Systems Construction (one-time)
1Q22
Order
backlog

15,5792Q22

3Q22

14,572

16,705

4Q22

13,7991Q-3Q22: 29,936 [+22.6%]
FY22: 42,945 [+21.4%]
Revenues

Ordersreceived

7,628
10,756

11,922

10,385

10,914
12,520
1Q-3Q22: 34,190 [+29.0%]
FY22: 44,293 [+14.6%]

13,00910,103

1Q23

20,644

Systems Operation & Maintenance (MRR)
2Q23

3Q23

26,252

23,649

7,242

10,745which ¥0.8 bn was included in 3Q23’s SI O/M order-received). It was acquired by PTC (subsidiary), who
is a key partner of NVIDIA. Projects to construct AI infrastrcutre are increasing in Asia

• Large-scale NW renewal project for a prominent financial institution (approx. ¥4.0 bn, 8 years, of whichapprox. 8% is to be recognized as SI revenue)

 Construction revenue was weaker than expected mainly due to longer project period as project sizes

becoming larger In 3Q23, recognized the overseas DC project as expected(revenue ¥2.8 bn & associated reasonableprofit)• Plan to recognize revenue of ¥1.2 bn in FY24 and ¥2.0 bn in or after FY25 to the same client as

subsequent projects (included in the above order backlog)

 Small business operator “PTC Malaysia” as a new consolidated subsidiary from Dec. 1, 2023 (nosignificant financial impact), expect higher productivity of a support center in Malaysia

•

4Q22

68,95867,5801Q2371,6022Q23

3Q2375,88380,378

1Q-3Q23: 53,080 [+5.0%]

FY22: 67,999 [+13.4%]

14,087
16,353
12,950
1Q-3Q23: 43,390 [+26.9%]

3Q23’s order-received)

66,365

3Q22

1Q-3Q22: 50,541 [+14.9%]

15,553• Large-scale server construction & operation for AI infrastructure overseas (approx. ¥3.0 bn, 3 years, of

2Q22

66,832

1Q-3Q23: 33,540[+12.0%] Favorable demand from all industries continued (Below projects were acquired in 3Q23)• Construction & operation of service infrastructure for an enterprise (approx. ¥4.0 bn, 5 years, included in

•
•

1Q22

16,641

16,656

17,244

17,45817,09917,664

18,317

9,058
7,583

9,572
7,084

9,641
7,603

10,120
7,338

9,914
7,185

9,994
7,670

10,485
7,832

18,836

19,743
21,945
22,812
1Q-3Q23: 64,500 [+11.6%]

23,133••

16,18918,4591Q-3Q22: 57,781 [+33.1%]
FY22: 76,617 [+22.0%]

1Q23 operation & maintenance revenue was negatively impacted by approx. ¥0.2 bn QoQ as a large system
operation project was ended at the end of 4Q22 as expected
1Q22 operation & maintenance order received included large-scale projects with fixed multi year contracts(approx. ¥3.0 bn) (Generally, orders received is 1 year contract and automatically renewed), 2Q23 operation &maintenance order received included approx. ¥2.0 bn for the Chiba city project which has fixed multi-year
contract

Cloud service revenue (MRR)
Unit: ¥ bn
OthersPublic cloud
RaptorPrivate cloud

7.87

8.36

8.53

0.69
1.20

0.68
1.12

0.69
1.10

0.69
1.13

6.05

5.89

5.84

6.34

6.49

3Q22

4Q22

1Q23

2Q23

3Q22

7.80

8.31

0.71
1.21

0.71
1.20

0.71
1.31

6.13

5.62

1Q22

2Q22

8.29

8.03

 Foreign exchange platform service for financial institutions “IIJ Raptor Service” hasbeen renewed. Sony Bank is the first client to use the new platform•
3Q23 cloud revenue recognition: 91.9% Systems operation and maintenance, 8.1% Outsourcing services
1Q23 construction orders received included several large scale projects (approx. ¥3.0 bn in total: two ¥1.5 bn projects)•
1Q23 and 2Q22 Private cloud revenue decreased because of a decrease in multi-cloud usages by a game
2Q23 construction orders received included ¥5.0 bn of the Chiba city project
service provider
Among 3Q23-end order backlog of ¥23.6 bn, approx.¥14.0 bn are to be recognized as revenue in or after FY24
(Among 3Q22-end order backlog of ¥16.7 bn, approx. ¥7.0 bn are to be recognized as revenue in or after FY23) © Internet Initiative Japan Inc.

50

Systems Integration (SI) (2) Cost of Revenues

Unit: ¥ (JPY) million[ ] , YoY = Year over year comparison

Purchasing costs (Equipment etc.)
Outsourcing-related costs (SI-related outsourcing personnel costs etc.)
OthersNetwork operation-related costs (Depreciation cost such as for cloud facility, DC leasing cost etc.)
Personnel-related costs (SI-related engineers’ personnel cost)

1Q-3Q22: 67,835 [+15.2%]
FY22: 92,391 [+14.9%]

1Q-3Q23: 73,874[+8.9%]

20,659 24,197 22,978 24,556 21,085 24,087 28,702

 Purchasing, outsourcing-related, and others are linked to the size of project andrevenue to a certain degree• Most of the cost related to the overseas DC project (revenue approx. ¥2.8 bn)
was recognized as purchasing costs

 Outsourcing-related cost increased mainly because of pre-sales activities before

order-received for projects which usually requires engineers to be involved (suchcosts are recorded as work in progress after receiving orders)

10,015
7,507
4,419

6,124

5,704

7,475

with customers’ demand No significant change in network operation-related costs on a quarterly basis

3,959

8,778

 Others include license purchasing costs for multi-cloud which fluctuates along

8,904

Number of SI-related outsourcing personnel(unit: personnel)

1Q22-end 2Q22-end 3Q22-end 4Q22-end 1Q23-end 2Q23-end 3Q23-end

6,983

7,641

7,817

8,099

7,791

3,561

3,182

3,479

3,387

3,545

3,925

4,140

2,781

2,624

2,579

2,635

2,586

2,489

2,423

2,914

3,243

2,979

2,960

3,204

3,191

3,220

1Q22

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

1,327

1,390

1,393

1,385

1,367

1,395

1,456

 The number of SI-related outsourcing personnel can be increased incomparison with the number of IIJ’s SI engineers Due to many ongoing projects before order-received, the number ofoutsourcing personnel was at high level© Internet Initiative Japan Inc.

51

Human Capital Disclosure
Number of Employees (consolidated basis)

Personnel-related costs & expenses (consolidated basis)
Unit: ¥ (JPY) million

Contract worker (personnel)
Full-time worker (personnel)

Jun. 2022

Sep. 2022

Dec. 2022

Mar. 2023

Jun. 2023

Sep. 2023

Dec. 2023

4,331

4,355

4,392

4,451

4,747

4,750

4,791

+262 YoYof which, 178 were
new graduates

296

309

+416 YoYof which, 246 were
new graduates

309

311

302

306

Consolidated
personnelrelated costs &expenses

1Q22

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

8,177

8,655

8,341

8,506

9,358

9,252

9,410

(+9.7%)(+6.1%)(+6.5%)(+14.4%)(+6.9%)(+12.8%)(+5.4%)

1Q-3Q22: 25,172 (+7.1%)
FY22: 33,678 (+6.9%)

(YoY)
14.1%

% of revenue

13.6%

13.2%

1Q-3Q23: 28,019 (+11.3%)
12.6%

15.2%

13.9%

12.9%

 The monthly salary table for new graduates was modified in Apr. 2023

304

(the previous modification was in Apr. 2019)

Graduates with bachelor‘s degree: ¥256,667 per month, up 4.8%
Salary ranges for the existing employees were revised along with it Personnel-related costs & expenses increased as expected due to the expansion ofhuman resources and modified salary tables
•
•

4,035

4,046

4,083

4,140

4,441

4,448

4,487

Breakdown of Employees(As of Dec. 2023)

Turnover rates
 Lower than the industry average

turnoverAdmin.
12%
Sales
18%
 FY23 plan: number of employees (consolidated base) to increase by approx.

Engineers70%

400 personnel, progressed as planned•

Of which, 246 new graduates•

Plan to strengthen recruitment of new graduates at the same level for the time
being

 Over 300 new graduates are expected to join in Apr. 2024

 Breakdown of new graduates isalmost identical© Internet Initiative Japan Inc.

•

FY19

FY20

FY21

FY22

4.6%

3.6%

4.2%

3.8%

The turnover rate of IIJ (non-consolidated
basis) is calculated by dividing leavers for the
fiscal year by the number of full-time
employees at the beginning of that fiscal year.
The industry average turnover rate of approx.
10% is announced by the Ministry of Health,
Labor, and Welfare

52

SG&A etc.

Unit: ¥ (JPY) million[ ] , YoY = Year over year comparison
QoQ = Quarter over quarter comparison

Research & development expenses
Commission expenses
Others (including other income and other expenses)
Personnel-related expenses() % of total revenues

1Q-3Q22: 22,866 [+11.6%]
FY22: 30,687 [+9.3%]

1Q-3Q23: 25,673[+12.3%]

7,674

7,645

7,548

7,822

8,797

8,312

8,564

(13.2%)(12.0%)(11.9%)(11.6%)(14.3%)(12.4%)(11.7%)

148
171
125

128

121

1,035

1,097

1,009

173

1,196

2,974

3,111

1,081

1,084

 Almost in line with the plan

(1Q: slight increase mainly due to human resource training, 2Q & 3Q:
normal course) Commission expenses are mainly consumer sales commissions and

3,654
3,229

1,090

160

3,125

3,402

3,522

recruitment expenses

 Others are increasing mainly because of an increase in activity-related

expenses such as advertisement and business trips’ expenses

 Personnel-related expenses are increasing along with an increase in

number of employees, etc.

•
•
•

3,285

3,446

3,307

3,440

3,799

1Q22

2Q22

3Q22

4Q22

1Q23

3,649

3,801

2Q23

3Q23

Above figures are SG&A expenses plus other income and other expenses
1Q22 others included ¥0.17 bn of gain on sales of tangible assets
1Q personnel-related and others expenses mainly due to the entry of new graduates increase along with an increase in training and human capital development expenses. Such expenses decrease in 2Q QoQ as expenses for new graduate
engineers are recorded as cost of revenues from 2Q© Internet Initiative Japan Inc.

53

Profit

Unit: ¥ (JPY) million[ ] , YoY = Year over year comparison Operating profit

Operating margin 1Q-3Q23: ¥20.28 bn, +7.9% YoY

Operating profit
Net profit

12.5%

12.0%

9.6%

8.6%

 Profit before tax

1Q-3Q22 Operating profit: 18,790[+15.3%]

 1Q-3Q23: ¥19.65 bn, +3.3% YoY

1Q-3Q23 Operating Profit:
20,280 [+7.9%]

1Q-3Q22 Net profit: 12,854 [+11.6%]
8,430

Valuation gain(loss) on funds etc.: (¥212) million (1Q-3Q22: +¥376million)

8,200

5,003

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

FY23 plan

(5)

(820)

(73)

+310

+13

(535)

±0

Share of loss of investments accounted for using equity method: ¥422 million (1Q-3Q22:¥161 million)
DeCurret-related loss (IIJ ownership: 38.2%)

1Q22

4,739

4,215

1Q22
+1,200dollars

•

5,999

5,026
4,248

Foreign exchange gain: +¥268 million (1Q-3Q22: +¥323 million)•

 Foreign exchange impacts were also included as lots of assets are dominated in U.S.

7,077

6,147

•

1Q-3Q23 Net Profit: 12,979[+1.0%]

7,617

4,391

11.2%

10.6%

8.1%

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

FY23 plan

94
124
143 Approx. 800
125
102
109
 First in Japan digital currency (DCJPY) is to be issued from July 2024 through
DeCurret’s platform service (For detail, please refer to P. 25)
78

3,583

 Net profit
 1Q-3Q23: ¥12.98 bn, +1.0% YoY

•
•
•

1Q22

2Q22

1Q22

2Q22

3Q22

4Q22

1Q23

3Q22

4Q22

1Q23

2Q23

3Q23

2Q23

3Q23

1,611

152

(1,374)

(97)

632

114

(957) Finance income (expense), net

(14)

(64)

(83)

(42)

(154)

(119)

(150)

(2,136)(1,982)(1,931)(2,266)(1,824)(2,320)

96

5

14

26

74

13

Share of profit (loss) of investments accounted for using
equity method(2,365) Income tax expense
71 Profit for the period attributable to non-controlling interests

Net profit shows “Profit for the period attributable to owners of the parent”
Under IFRS, equity securities are measured at fair value through OCI (Other Comprehensive Income) while funds are measured through profit or loss
Figures for the fiscal year ended March 31, 2023 are based on the retrospective application of IAS 12 "Income Taxes"© Internet Initiative Japan Inc.

54

Consolidated Statements of Financial Position (Summary)Mar. 31, 2023

Dec. 31, 2023

ChangesCash & cash equivalents

42,472

41,419(1,053)

Trade receivables

41,34044,043+2,703Inventories

3,188

3,783

+595

Prepaid expenses (current & non-current)

27,92037,376+9,456

Trade & other payables

Unit: ¥ (JPY) million
Mar. 31, 2023

Dec. 31, 2023

22,31327,011

Changes+4,698Borrowings (current & non-current)

20,43030,190+9,760Contract liabilities & Deferred income (current & non-current)

17,97820,272+2,294

Income taxes payable

4,034

2,651

(1,383)

Tangible assets

23,321

28,048+4,727Retirement benefit liabilities

4,513

4,833

+320

Right-of-use assets

46,67540,788(5,887)

Other financial liabilities (current & non-current)

48,80049,520+720

Of which, operating leases (rent of oﬃce, data center etc.)

31,233

26,618(4,615)

Of which, operating leases (rent of oﬃce, data center etc.)

31,61027,111(4,499)Of which, ﬁnance leases (network equipment etc.)

15,442

14,170(1,272)

Of which, ﬁnance leases (network equipment etc.)

16,447

15,124(1,323)

Goodwill & intangible assets

26,47527,512+1,037

Investments accounted for using the equity method

5,785

5,225

(560)

Other investments

19,15022,273+3,123

Others

9,992

12,063+2,071

Total assets:

246,318

262,530+16,212

OthersTotal liabilities:
Share capital

8,823

9,806

+983

126,891

144,283+17,392

25,562

25,562(1,053)

Share premium

36,73835,685Retained earnings

51,20258,700+7,498Other components of equity

6,571

9,033

+2,462

Treasury shares(1,831)(12,027)(10,196)

Total equity attributable to owners of the parent:(1,289)118,242

116,953

Non-controlling interests

1,185

1,294

+109

Total liabilities and equity:

246,318

262,530+16,212•Prepaid expenses increased mainly due to project for clients and license and facility operation•

Tangible assets increased mainly due to investment for Shiroi DC•

Borrowings increased mainly due to the share buyback•

Ratio of total equity attributable to owners of the parent: 48.0% as of Mar. 31, 2023, 44.5% as of Dec. 31, 2023, decreased due to the share buyback with cancellation© Internet Initiative Japan Inc.

55

Consolidated Cash Flows

Unit: ¥ (JPY) million
YoY = Year over year comparison

Operating Activities
1Q-3Q22: 27,314

1Q-3Q23: 27,587

1Q-3Q23 Major
Breakdown
YoY Change

FY22: 38,529
1Q22

2Q22

3Q22

13,857
8,602

4Q22

1Q23

11,215

2Q23

11,035

3Q23

Profit before tax

19,645+627

11,536

Depreciation and amortization

21,929+675

Changes in operating assets & liabilities(6,931)(3,940)

Income taxes paid

(7,897)+1,974

5,016

4,855

Investing Activities
1Q-3Q22: (13,160)

1Q-3Q23: (13,060)

FY22: (18,386)
1Q22

2Q22

3Q22

4Q22

1Q23

(2,366)2Q23(2,700)(4,853)(5,941)(5,226)

1Q-3Q23 Major
Breakdown
YoY Change

3Q23(3,994)Purchase of tangible assets(8,261)+1,499Purchase of intangible assets such as software(5,778)(1,628)(6,366)

Financing Activities
1Q-3Q22: (20,766)

1Q-3Q23: (16,065)

FY22: (25,731)
1Q22

2Q22

3Q22

(4,726)(7,875)4Q22(4,965)(8,165)

1Q23(4,535)

2Q23

3Q23

(3,309)(8,221)

1Q-3Q23 Major
Breakdown
YoY Change

Payment of operating/finance leases and other financial liabilities(15,053)(657)

Dividends paid

(5,682)(781)

Repayment of long-term borrowings(2,045)(545)

Short-term borrowings (Borrowings for acquisition of treasury shares, etc.)

11,800+11,900

Purchase of treasury shares(11,405)(11,405)© Internet Initiative Japan Inc.

56

Other Financial Data
CAPEX

CAPEX-related depreciation and amortization

Cash CAPEX
Finance lease

1Q-3Q22: 16,653

1Q-3Q23: 15,832

1Q-3Q22: 11,377

6,791

6,627

6,581

5,288
3,280
2,440
840
1Q22

4,258

4,172

3,917

5,504

5,794
2,647

2,533
2Q22

1,077

1,525

833

3Q22

4Q22

1Q23

3,796

3,792

3,789

3,901

3,869

3,878

3,906

1Q22

2Q22

3Q22

4Q22

1Q23

2Q23

3Q23

3,824

2,007
1,910

1,464

2Q23

3Q23

 Major breakdown of CAPEX (Unit: ¥ bn)

1Q-3Q22

Adjusted EBITDA
FY22

7.9

10.0

9.7

Cloud-related

1.2

2.0

0.9

Shiroi DC-related

5.3

5.4

3.8

Customer-related

2.3

2.9

1.4

(including approx. ¥7.0 bn for Shiroi DC 2•••

1Q-3Q23

NW usual Capex

 FY23 CAPEX plan: ¥22.5 bn

1Q-3Q23: 11,653

FY22: 15,278

FY22: 20,825

nd

site)

1Q-3Q22: 30,167
FY22: 42,499
8,822

1Q22

9,939

2Q22

11,406

1Q-3Q23: 31,933

12,331

10,955

12,106

8,872

3Q22

4Q22

1Q23

2Q23

3Q23

Total amount of capital expenditure is the amounts of acquisition of tangible and intangible assets by cash and entering into finance leases for the fiscal year, excluding duplication due to sale and leaseback transactions and acquisition of assetsthat do not have the nature of investment, such as purchase of small-amount equipment.
CAPEX-related depreciation and amortization is calculated by excluding depreciation and amortization of assets that do not have the nature of capital investment, such as right-of-use assets related to operating leases, small-amount equipment andcustomer relationship.
Adjusted EBITDA is calculated by adding operating profit and CAPEX-related depreciation and amortization.
© Internet Initiative Japan Inc.

57

FY23 Financial Targets (1)% of Revenues

Revenues
Cost of Sales

FY22 Results(Apr. 2023 - Mar. 2024)(Apr. 2022 - Mar. 2023)

286.0

252.7

77.1%

77.1%

22.9%

Gross Profit

65.5
11.9%

SG&A etc.

34.0
11.0%

Operating Profit
Shares of profit (loss) ofinvestments accounted for using
equity method investees

Profit before tax
Net Profit% of Revenues

FY23 Targets

220.5

31.5

Assumptions for Revenue
Targets

Assumptions for Gross Profit
Targets

NW
service• Each service to grow along with
continuous IT advancement• Stronger growth than FY22 as therevenue contribution of the large
complex projects starts• Structural profit increase along withrevenue growth• Gross margin to slightly improve

Mobile• Return to high revenue growth in•enterprise mobile (IoT usages) as
better semiconductor procurement
situation and the post-Pandemic• Consumer revenue to be flat
growth due to a decrease in mobile
devices sales, MVNE revenue todecrease mainly due to reflecting adecrease in procurement cost at
the beginning of FY23

SI

• Strong demands as favorable
business environment continues• Largely increase backed by trend
and outlook for large projects• Expect to recognize approx. ¥3.0
bn of overseas DC construction in
1H23

YoY

+13.2%+33.29(excluding Mobile)

194.8 +13.2%+25.7022.9%

57.9 +13.1%

+7.59

12.1%

30.7 +10.8%

+3.31

10.8%

27.2 +15.7%

+4.28

-

(0.4)

27.3 +11.1%

+3.04

(0.6)

(0.2)

10.6%

10.8%

30.4

Unit: ¥ (JPY) billion
YoY = Year over year comparison

7.2%

7.5%

20.7

18.9

+9.9%

+1.87

Increase as a rebound from FY22
(decrease in device procurement
cost & smaller YoY negative profit
impact than FY22 due to themigration to the new plan whose
voice service margin is lower thanthe old plan. No gain from the unit
charge revision• Increase as the revenue volume toexpand• Gross margin to be almost thesame level as FY22

Future prospects including FY2023 financial targets (excerpt from 3Q23 financial release)

Other Assumptions

 1Q-3Q23 revenues and profits fell short of the initial expectation for 1Q-3Q23 at the beginning of
FY23. It was mainly because SI revenues were weaker than expected due to longer project
duration which is a result of an increase in the number of large-scale projects.

• SG&A, etc.to increase due to business expansion, including personnel expenses• Shares of profit (loss) of investments accounted for using equity method investees:
Expect DeCurret’s related loss to be around ¥0.8 bn• No consideration on any valuation gain (loss) on funds & foreign exchange gain (loss)• Number of employees (consolidated base) to increase by approx. 400 personnel (of which The full-year results largely depend on 4Q due to seasonality, and the variable factors
associated with recording of large-scale NW renewal projects on a percentage-of-completion
method have increased.

246 new graduates)• CAPEX: ¥22.5 bn (including ¥7.0 bn for Shiroi DC 2nd site)© Internet Initiative Japan Inc.

58

Unit: ¥ (JPY) billion (bn)GP = Gross Profit
YoY = Year over year comparison

FY23 Financial Targets (2)Revenues
FY22

252.71••+33.29FY23 Target

286.0

NW services (excl. Mobile) revenues are calculated by deducting the below mentioned Mobile services revenues from total NW services revenues. The revenues include non-mobile consumer revenue which is a small amount
Mobile services revenues include IIJ Mobile Services (including MVNE) and IIJmio (consumer mobile)

Operating Profit
FY22

27.22

•
•

+4.28

NW services gross profit consists of gross profit related to NW revenues (excl. Mobile) and Mobile revenues (These two are not decomposable because some costs are common among them)
SG&A, etc. in this slide represents the sum of SG&A, which includes R&D expenses, and other income/expenses© Internet Initiative Japan Inc.

FY23 Target

31.5

59

Appendix
Shareholders’ Return

P. 61

Market Growth Forecast

P. 62

Sales activity for Public Sector

P. 63

Docomo’s Mobile data interconnectivity charge

P. 64

Consumer Mobile Price list

P. 65

Overseas Business

P. 66

Change in largest shareholders

P. 67

ATM Operation Business

P. 68

Fintech Business: DeCurret (1) - (4)P. 69 - 72

CDN Business: JOCDN

P. 73© Internet Initiative Japan Inc.

60

Shareholders’ ReturnAppendix

Basic shareholders’ return policy:
Continuous and stable dividend payment while considering the need to have retained earnings for the enhancement offinancial position, mid-to-long term business expansion and future investment



Dividend per share:
Continued to increase dividend in line with profit increase due to revenue growth, 5 times in 4 years

In May 2023, IIJ executed sharebuyback of ¥11.4 bn
and cancellation of shares
FY23 total payout ratio forecast:approx. 84%

Unit: JPY

FY19

FY20

Payout ratio

•
•
•
•

FY22

+21.9%

Year‐end
dividend
Interimdividend

FY21+61.3%+120.4%14.875

6.75

9.75

3.375
3.375

5.125

30.4%

27.6%

24.00
12.50

+17.5%

29.255
14.63

11.50

14.625

27.7%

28.0%

Stock split
Jan. 2021

Stock split
Oct. 2022

Dividend per share is written on the post-stock-split basis
FY21 payout ratio: adjusted payout ratio is around 30% which is calculated by deducting temporary and non-cash transaction such as valuation on funds and impairment loss
FY22 payout ratio takes the retrospective application of IAS 12 “Income Taxes” into consideration
FY23 payout ratio takes the share buyback with cancellation which took place in May 2023 into consideration© Internet Initiative Japan Inc.

FY23
forecast

34.36
17.18

17.18
29.4%

61

Market Growth Forecast

Appendix

Historical traffic data of major domestic IX

Operation where IT department spends the most timeTop 7 items are shown below

Peak traffic

72

Study about replacing of the current systems

54

Responding to in‐house inquries

50

System operation and monitoring

33

Study about introducing new systems

31

Security measures
Jun. Sep. Dec. Mar. Jun. Sep. Dec. Mar. Jun. Sep. Dec. Mar. Jun. Sep. Dec. Mar. Jun. Sep. Dec.
2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 2022 2022 2022 2022 2023 2023 2023 2023

Project management of system implementation

24

Developing IT starategy

22

Source: Internet Initiative Japan “Nationwide survey on IT department 2023” Dec. 2023, N=359

Source: INTERNET MULTIFEED CO., IX = Internet Exchange

Status of Cloud migration

Status of Cloud migration by clients’ annual revenue size

Location of servers working and/or deployedMore than 50% on on‐premiseMore than 50% on on‐premiseMore than 50% on cloudOver ¥1 trillion

2023
2022
2021

81%

85%

Source: Internet Initiative Japan “Nationwide survey on IT department”
2021 N=737, 2022 N＝598, 2023 N=214

2023

56%

44%

2022

29%

70%

More than 50% on cloudMore than 50% on others

18%¥500.1 billion ~¥1 trillion

13%¥300.1 billion ~¥500 billion

2023
2022
2023
2022

43%

57%

50%

50%

43%

57%
80%

Source: Internet Initiative Japan “Nationwide survey on IT department” Nov. 2022
2022 N = 598, 2023 N = 359© Internet Initiative Japan Inc.

28%

72%

20%

62

Sales Activity for Public Sector

Appendix Long and enduring relationship

We have been providing reliable Internet connectivity services to central government agencies and local governmentsfrom the early 1990s



They are also using our security services such as firewall services, DDoS Protection services and other network
services such as WAN. We also receive network related integration projects from them as well.

 Not only private sector, but also public sector is changing their attitude toward IT and network Growing demands for network related projects
Enhance remote access for central government agencies



Promote telework environment for local governments

Support educational institution to become online-capable• Hybrid of face-to-face & online classes, remote access, environment for faculty and staff, etc.

Projects to replace “Security Cloud” for local governments

 Social Security and Tax Number System which is often called “my number” was first introduced in

October 2015. As of February 12, 2023, 68.8% to the total Japanese population has received their ID
according to the Ministry of Internal affairs and Communications
https://www.soumu.go.jp/kojinbango_card/© Internet Initiative Japan Inc.

63

Docomo’s Mobile data interconnectivity charge
Fiscal Year

FY18

FY19

MethodActual cost method

FY20

FY21

FY22

(Mbps unit charge・monthly)
FY23

FY24

Appendix
FY25

Future cost method

MNOs are to disclose the charges for next three years based on their prediction about cost etc.
Announced in Mar. 2023
To be fixed around theend of Dec. 2024

New

¥15,644-21.7 % YoY¥13,084-16.4% YoY¥20,327-24.8% YoY¥15,697-22.8% YoY¥13,207-15.9% YoY¥28,385-23.9% YoY¥22,190-21.8% YoY¥18,014-18.8% YoY¥33,211-19.8% YoY¥27,924-15.9% YoY

Fixed in Dec. 2022

Current¥49,311-6.0% YoY

¥42,702-13.4% YoY¥37,280-12.7% YoY¥11,255-14.0% YoY

Fixed in Dec. 2023

¥27,024-27.5% YoY¥19,979-26.1% YoYAnnounced in Mar. 2022

Announced in Apr. 2021

Old
Announced in Mar. 2020

¥41,436-3.0% YoY
•
•
•
•
•

The same calculation method is applied to both the actual cost method and the future cost method: (Data communication cost + profit) /demand
The charge disclosed based on the future cost method is to be finalized based on MNOs actual cost results etc.
Mobile interconnectivity charges, which are underlined above, had been fixed based on the results
The YoY (Year over Year) decrease percentage written under each charge is compared with the previous year charge
The charge is public information disclosed in NTT Docomo’s service terms and conditions document uploaded on NTT Docomo’s website (only available in Japanese)
https://www.docomo.ne.jp/binary/pdf/corporate/disclosure/mvno/business/oroshi.pdf© Internet Initiative Japan Inc.

64

Comparison between the old & new plans of consumer mobile
Old

Appendix

New: GigaPlans (Apr. 2021~)
New Price list from Mar. 1, 2024

Basic Monthly Charge

Minimum Start Plan
(3GB)

Light Start Plan
(6GB)

Family Share Plan
(12GB)

With voice¥1,760Data-only¥990

With voice¥2,442

Data-only¥1,672

With voice¥3,586

Data-only¥2,816

2Giga Plan
(2GB)
4Giga Plan
(4GB)
8Giga Plan
(8GB)
15Giga Plan
(15GB)
20Giga Plan
(20GB)

With voice¥858

Data-only¥748

With voice¥1,078

Data-only¥968

With voice¥1,518

Data-only¥1,408With voice¥1,848

Data-only¥1,738With voice¥2,068

Data-only¥1,958

Newly
added from
Mar. 1, 2024•••

2Giga Plan
(2GB)

With voice¥850

Data-only¥740

5Giga Plan
(5GB)

With voice¥990

Data-only¥900

10Giga Plan
(10GB)

With voice¥1,500Data-only¥1,40015Giga Plan
(15GB)

With voice¥1,800Data-only¥1,73020Giga Plan
(20GB)

With voice¥2,000Data-only¥1,95030Giga Plan
(30GB)

With voice¥2,700Data-only¥2,64040Giga Plan
(34GB)

With voice¥3,300Data-only¥3,24050Giga Plan
(50GB)

With voice¥3,900Data-only¥3,840

The above table briefly indicates service prices for major functions to show the differences between the old and new plans
Voice call charge is only for domestic calls. New voice call charge as you go was revised on September 11, 2021 and is applied to old plan’s users The voice call charge which is pay as you go, was ¥22 per 30 seconds
in the old plan and it is now ¥11 per 30 seconds in the GigaPlans.
eSIM service for consumers: “IIJmio eSIM Service Data Plan Zero” launched in Mar. 2020, Data communication service using NTT Docomo’s LTE and 3G network
Pricing: monthly charge (bundled data volume: 0 GB), ¥165 per month. Additional data volume: First 1GB ¥330, 2GB to 10GB: ¥495 per GB© Internet Initiative Japan Inc.

65

Overseas Business

Appendix

Revenue and Operating Profit

Business Developments
Unit: JPY bn

Overseas business’s revenue and operating profit(included in SI and NW)

FY20

8.32

Operating profit
•

0.38

FY21

17.84

1.24

FY22

25.55

2.04

PTC financial results (included in the above results) : FY21 revenue ¥6.89 bn, operating profit ¥0.31 bn, FY22 revenue ¥10.68 bn,
operating profit: ¥0.47 bn

Overseas offices

 Started focusing on overseas business around
FY11. It was when Japanese companies started to
expand their business overseas and requested us toprovide the same service quality we offer in Japan While IT markets in the U.S. and Europe are
relatively matured, the markets in Asia are justbeginning to build up•

Increasing demand for network services and SI in China andThailand•

Vietnam: Cybersecurity Law (Jan. 2019), Opened anotherfacility in Hanoi in addition to Ho Chi Min•

In Apr. 2021, we bought a Singaporean system integrator,
PTC – expect to strengthen ASEAN business•

From Dec. 1, 2023, a small business operator “PTC
Malaysia” became a new consolidated subsidiary (nosignificant financial impact), expect higher productivity of a
support center in Malaysia

 Providing cloud services in Indonesia, Thailand
and Vietnam. Working with local prominent IT
companies• With Biznet Networks in Indonesia (from Mar. 2015)• With T.C.C. Technology Co., Ltd, in Thailand (Feb. 2016)• With FTP Telecom Partner in Vietnam (Nov. 2016)© Internet Initiative Japan Inc.

66

Change in Largest Shareholders
As of Mar. 31, 2023

NTT Group

Appendix

As of Sep. 30, 2023

Sale

15%

NTT Group
11.1%

25.9%

• Continue to hold as strategic holdings• Seek business synergy(Before the cancellation of the treasury shares: 10.9%)

KDDI
0.9%

Transfer from NTT to
KDDI (¥51.24 bn)

10%

KDDI
11.1%

• Continue to hold as strategic holdings• Seek business synergy(Before the cancellation of the treasury shares: 10.9%)

Share buyback(¥11.40 bn)

2.1%

NTT’s additional
sale completed(¥16.28 bn)

2.9%

•

NTT Group includes NTT and NTT Communications•“%” which is shareholding percentage is calculated by the total number of shares outstanding

Acquisition & cancellation of treasury shares• Transaction completed in May 19, 2023

Additional Sale

• Transaction completed in May 22, 2023

© Internet Initiative Japan Inc.

67

ATM Operation Business

AppendixBusiness Model Similar to “Seven Bank” model Placing ATMs in pachinko parlors in Japan•

After long discussion, started to place in Kanto, Kansai, Kyushu and Tokai areas•

7,665 pachinko parlors in Japan as of Dec. 31, 2022 (Source: National Police Agency) Receive commission for each withdrawal transaction

Trust Networks Inc.



In charge of ATM operation business
IIJ’s ownership: 80.6%
Established in 2007
Number of employees: about 10 personnel

Revenue and Operating Profit
Unit: JPY billion
Revenue
Operating Profit

FY17

FY18

FY19

4.0

4.2

4.1

FY20

1.6

FY22
• ATM (Automated Teller Machine)

2.9
1.5

FY21

2.8

2.8

1.6
0.8

0.8

0.9

• FY20 revenue significantly decreased from FY19 as the stores we had placed ATMs were closed temporally and fewer customers visited due to the COVID-19 pandemic and stay-at-home-order/request© Internet Initiative Japan Inc.

68

FinTech Business through DeCurret (1)About DeCurret Holdings (IIJ’s equity method investee) Management (from Apr. 2022)

DeCurret DCP Partnership with Securitize Aim to adopt digital currency for digital securities' settlement

 DeCurret Holdings (Shareholders: 35 companies including IIJ)

Representative Director and President: Murabayashi (Mr.)(IIJ Vice President, former CIO at MUFG Financial Group, Inc.)• Part-time directors: IIJ, MUFG bank, au Financial Holdings, NTT, JAPAN POST bank•

 Background In Jan. 2018, IIJ established DeCurret Inc. as an equity method investee

engaging in crypto asset business and digital currency business with prominent
Japanese companies•

Appendix

IIJ has been providing IIJ Raptor Service, an ASP based FX systems, which havebeen used by prominent Japanese security companies

 In Dec. 2021, DeCurret Inc. established DeCurret Holdings through a sharetransfer In Feb. 2022, DeCurret Holdings divested its crypto asset business to dedicate

 Securitize, Inc., a parent company of Securitize Japan K.K., was establishedin 2017 and proves platform to issue and manage digital securities
 The scope of partnership includes the followings:•

Explanation and discussion with prospective issuers and other related companies•

Specifics of the scheme and workflow•

Legal research and preparation of contract templates•

Development of system integration

 Image of transaction/flow (idea)
ST (Security Tokens) issuers

Future vision(as of now)••

its business resources to digital currency business Business

Offer and Issue digital securities
Allocate to ST investors

Step 0:
Begin offering

 Digital Current Platform Business (mainly BtoB) Have been executing various proof of concepts with various business partners(please refer to page 71)

 Plan to issue Japan’s first digital currency in July 2024•••

Apply for offered digital securities
Make payment for purchaseReceive ST

Step 1:Create an accountSecuritize PF
Securitize(Used by ST
issuers)

 DeCurret-related loss (IIJ ownership: 38.2%)

ST investors

Step 3’:
Link debit data

Step 6:
Issue ST

Step 7:
Receive ST

Step 2:
Apply(or temporary apply)

Step 3:
Instruct a transfer

unit: JPY million

1Q22
78

2Q22
102

3Q22
94

4Q22
109

1Q23
125

2Q23
124

3Q23
143

FY23
plan
Approx.

800

Digital Currency
PF
DeCurret

Step 5:
Receive digital currency

Step 4:
Pay by digital currency(Used by banks)© Internet Initiative Japan Inc.

69

FinTech Business through DeCurret (2)Digital Currency Forum Subcommittees (over 100 participants as of Oct. 2023)
Retail andDistribution

Electric Power
Transaction PoC

PoC

Administrative
Affairs PoC•

PoC*DCJPY: tentative name of digital currency issued by banks that is able to be issued, transfer, and repay
through the Two-tiered Digital Currency Platform

Settlement inIndustrial Distribution

Security Token
Settlement Practices
and Systems Study

WalletSecurity

NFT

The participants include companies, local governments and others

Two-tiered Digital Currency Platform

PoC

Regional
Currency
PoC

Electronic
Money

Subcommittees

Participators

Industrial
distribution

Mitsubishi
Feasibility studies to use DCJPY for Mitsubishi’s trading transaction
Corporation, NTT, etc. settlement with smart contracts

Electricity powertransaction A
Regional
currency
Administrative
process

1
4

5

7

Appendix

Promoting Proof of Concept (PoC) for DCJPY * (approx. 40 companies participating)

PoC

Credit Card
Company Member
Store Settlement

For more details
https://www.decurret-dcp.com/en/news.html

OutlineKansai Electric
Purchase of goods at convenience stores by using DCJPY which isPower Company, etc. obtained through electricity Peer to Peer (P2P) transactions
ENERES, etc.

Feasibility studies to launch new services by utilizing DCJPY andelectric power transaction data

Mitsubishi UFJ
Digitalization of local governments’ benefits for selective usages
Research &through DCJPY so that local governments’ administrative process
Consulting, TIS, etc. . such as printing, mailing and others are improved

Retail andDistribution

Seven Bank, etc.

Feasibility studies to apply DCJPY transaction among retail,wholesale and banking through EDI (Electronic Data Interchange)

Security token

Nomura HD,
Future Architect, etc.

Feasibility studies to use security token and DCJPY for DVP(Delivery Versus Payment) settlement to learn about potential issues,etc.

Patented “Two-tiered Digital Currency Platform”
3
2

Outline of the patent（Electronic Currency Management System）

6

8

①

Two-tired system consisting of Common Area and Business Process Area②

Issuance of digital currency within Common Area③④ Issuance of Business Process Area’s token tied to Common Area’s digital currency⑤⑥

Transfer of token within Business Process Area, and transfer of digital currency, being tied to thosetransfer of token, within Common Area⑦

Synchronous processing of Common Area and Business Process Area⑧

Transfer of digital currency, not being tied to Business Process Area, within Common Area

© Internet Initiative Japan Inc.

70

FinTech Business through DeCurret (3)Appendix

DeCurret shall be the first in Japan to issue commercial digital currency (July 2024)
About the Case

About DeCurret

Issuer of digitalcurrency

GMO Aozora Net Bank, Ltd.

Usages of digitalcurrency• Digitalization of environmental value transaction (non-fossil
certificates, etc.)• Transactions and settlement in the digital currency DCJPY

DeCurret HLD

Shareholder: 35 companies including IIJ

DeCurret DCP

Shareholder: DeCurret HLD 100%
Business:
 Digital currency business Secretary for the “Digital Currency Forum”• Members consist of over 100 companies, organization, experts, andrelated regulatory agencies (FSA, MIC, MOF, METI, BOJ)

Flow on DCJPY on the Two-tiered Digital Currency Platform
IIJ
Mint and transfer
instructions

Business zone

DeCurret
DCP

Financial
Zones
GMO
AozoraNet Bank,Ltd.

Environmental value
allocation service offerings

DC rack users

environmental
value token
transfer
Businesszone
account

DCJPY
account

Difference between “DCJPY” and Trust Bank’s Stablecoins

Environmental
value token inquiry

Environmental
Value Token
Management
Base

Businesszone
account
Coin transfer

Simultaneous
DCJPY
account
Fund transfer

DeCurret’s digital currency“DCJPY”

Trust Bank’s stablecoins

Corresponding act

The Banking Act

The revised Payment Services Act(enforced in June 2023)

Form

Bank deposits

Stablecoins

Scheme ofissuance• Withdraw from user’s bank deposit• DCJPY will be issued after booking
the same amount of such withdrawal
to DCJPY account on the digitalcurrency platform• User needs to deposit money andset up a trust asset each time
• Then, stablecoins can be issued bya trust bankFeatures• Highly compatible with the current
settlement system• Issuers are reliable and trustworthybanks• Banks support DCJPY can use theDigital Currency services• User needs to open an account with
the Trust bank and deposit money
each time• User needs to arrange a trust asset
each time transferring funds otherthan the two companies, a trustbank and a beneficiary

Mint
Banking system© Internet Initiative Japan Inc.

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FinTech Business through DeCurret (4)Shareholders of DeCurret (35 companies)

Appendix

Source: DeCurret Web Page

(Ownership: 38.2% as of Mar. 31, 2023)© Internet Initiative Japan Inc.

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CDN Business through JOCDNAppendixCompany Profile

Business Model

Name

JOCDN Inc. (IIJ’s equity method investee)

IIJ Ownership

16.8%

Capital

JPY845 million (including capital reserve)

Established

December 1, 2016

Shareholders

IIJ, Nippon TV, TV Asahi, TBS, TV Tokyo, Fuji TV, WOWOW(Prominent satellite broadcaster in Japan), NHK (Japan’s only
public broadcaster) and non-Tokyo local broadcasters

Directors

Chairman: Koichi Suzuki (IIJ CEO)President: Shunichi Shinozaki (Nippon TV)

IIJ
Ownership

Internet connectivity services

Ownership

CDN service

 All Japan CDN company JOCDN Akamai Technologies (global leader in CDN services, US company)

has been dominating CDN market in Japan.

 Growing needs to distribute contents over Internet(Contents Delivery Network) Broadcasting companies distributing contents via Internet•

Nippon TV bought Hulu Japan in 2014•

Japanese broadcasting companies operate “TVer”

JOCDN’s shareholders & other Japanese broadcastersTVer IIJ has rich and well-renowned expertise in CDN business••

Olympics games, high school base ball games, university sport andmany other popular sports events

TVer is a web platform where viewers can watch certain TV programs for free. Its system was developed
jointly by major commercial television networks in Japan to broadcast TV programs over Internet© Internet Initiative Japan Inc.

TBS
TV
Tokyo

Fuji TVTV
Asahi

NipponTVand more73