#1Internet Initiative Japan Inc. Corporate Overview IIJ Internet Initiative Japan Internet Initiative Japan Inc. TSE1 (3774) June 2021 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 "Yuka-shoken- 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. O Internet Initiative Japan Inc.#2Outline Strengths and competitive advantages Business accumulation Business model page 2-4 page LO page 6-7 Blue-chip customer base Comprehensive service line-up page 8 Example of cross-selling page 9 Competitive advantage by NW &SI page 10 Positioning page 10 Continuous revenue growth page 11 Growth strategy Network services page 12-13 Cloud page 14-15 Security page 16-17 Mobile page 18-22 IoT page 23-24 Business through affiliated companies page 25-27 Mid-term plan page 29-31 Financials FY20 results summary FY21 financial targets FY20 results in detail Dividend Sustainability Appendix page 28 page 32-33 page 36-54 page 34 page 35 55 page 55-61 Internet Initiative Japan Inc. 1#3Internet Technology Initiatives in Japan • Established Number of Employees Listed Markets Shareholder base December 1992 3,805 (approx. 70% engineers, 20% sales, 10% back office) Tokyo Stock Exchange 1st Section (code: 3774) NTT group (26.0%), CEO Suzuki (5.6%), Foreign investors (23.0%) About IIJ ◆ The first established full-scale ISP (Internet Service Provider) in Japan ✓ Introduced many prototype Internet-related network services ✓ Highly skilled IP (Internet Protocol) engineers ✓ In-house developed services and related back office facilities "IIJ" brand towards blue-chips ✓ Mainly among large enterprises and governmental organizations ✓ Differentiate by reliability and quality of network and systems operation ✓ Long-term client relationship with no serious systems troubles ◆ At the leading edge of IP R&D ✓ Differentiate by continuous service developments and business investments Enhancing cloud, mobile, security, CDN (Contents Distribution Network) and solutions related to bigdata and loT ✓ Participate in world-wide research and organizations Number of employees are consolidated base and as of March 31, 2021 We voluntary delisted from the U.S. NASDAQ Market in Apr. 2019. Our ticker symbol at OTC is IIJIY ...and many more • CEO Suzuki's ownership 5.6% includes his wholly owned private company portion O Internet Initiative Japan Inc. 2#4Technology and Service Developments About IIJ ΑΙ Healthcare Endpoint platform Global Security Initiate the market by developing network-related services WAN SASE IoT Overseas cloud Overseas SI Projects SACM SDN/NFV FX Application Development Container DC Zero Trust Multi-Cloud Cloud "IIJ GIO" SOC Smart Systems Operation P to P Smart Mobile meter (Flex Mobility Systems Integration Data center LalT WAN Internet LAN LTE M2M IBPS Internet VPN Managed DDoS Service Web Global backbone Consumer Mobile 5G Web Hosting Home Page Service CDN Full-MVNO SEIL Anti-spam Gateway Solution BigData MVNE SMF Mobile Service IPv6 Firewall ISP in U.S. IP Multicast Consume ISP IX Service IlJmio Asia Backbone SLA Dial-up service Mail Hosting IIJ4U 1992 1996 1997 1998 2006 2007 2008 2010 II.J Internet Initiative Japan internet IIJ mp IIJ IIJ America Engineering Net Chart Japan TRINITY Loyalty Marketing Solutions 2013 2014 2016 2018 2019 2021 IIJ IIJ JOCDN DeCurret ILJ INNOVATION INSTITUTE IIJ Global IIJ Europe Protech i-revo Trust Networks O Internet Initiative Japan Inc. PTC Data Management GRAPE ONE 3#5ISP to Total Network Solution Provider Revenue breakdown: Systems integration (SI): Systems construction revenue (including equipment sales) Systems operation and maintenance revenue (including private cloud revenue) Network services: WAN services revenue Outsourcing services revenue (including security services revenue) Internet connectivity services revenue (enterprise & consumer) (including mobile services) BLOOM Harvesting the flower of Total Network Solution Provider Birth Earned enduring client base Transition Change in business model EMERGE Cloud, consumer mobile, loT .... M&A (Sep. 2010) FY94 FY95 FY96 FY97 FY98 FY99 FYOO FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Increase in number of ISPS Tough price competition Merger of corporate ISPs Cloud penetration Mobile demands Inexpensive consumer SIM Market Internet Initiative Japan Inc. About IIJ One-time Monthly Recurring Revenue Revenue FY17 FY18 FY19 FY20 Strong security demands, enterprise mobile 4#6Business Model Leveraging Internet-related technology IIJ is a comprehensive NW solution provider Approx. 12,000 customers (Japanese companies, central government agencies, universities, ISP more) Network Services Outsourcing services SI WAN services Private Cloud Public Cloud Security Data center VPN Email gateway etc. Private connectivity Global WAN Systems construction データセンター NDC (ネットワークオペレーションセンター) ASIA China ㅋㅋㅋㅋ Osaka Internet connectivity services Mobile Multi site connectivity etc. IP Data center Connectivity 浜松 MERT WZ 143.00 DC (食用町) GUPA) CC DC Our consumer business is mostly mobile services. BROC Systems Operation and Maintenance etc. About IIJ OC BROC Cost • Service development (mainly engineers' personnel cost recognized as cost of revenue in NW and SI) • Network equipment depreciation (recognized as depreciation cost) Purchasing mobile bandwidth from MNOS (recognized as outsourcing cost in NW cost) • Leasing data center space from data center owners (recognized as outsourcing cost) Own 2 data centers • Leasing fiber from carries (recognized as circuit related cost) etc. Internet Initiative Japan Inc. (LE) Tokyo DC 5#7Excellent Customer Base with Many Blue-Chips Cover Most of Blue-Chips Companies Competitive Advantages 三井住友銀行 NOMURA TOKYO SMBC STOCK EXCHANGE 損保ジャパン日本興亜 Sompo Japan Insurance CHUGAI SAPPORO Daiwa House. Rocha A member of the Roche group MORINAGA 大和ハウスグループ DNP TOTO TDK Panasonic JR 子どもたちに誇れるしごと With Your Life SHIMIZU CORPORATION O 清水建設 CAPCOM BANDAI NAMCO 日本通運 NIPPON EXPRESS JR西日本 JR West 都市に豊かさと潤いを 三井不動産 総務省統計局 NOEVIR HOLDINGS Mitsui Fudosan Ministry of Internal Affairs and Communications THE DOCUMENT COMPANY FUJI XEROX 介 神奈川県 JAL JAPAN ANNE Saitama Prefecture Kanagawa Prefecture Shibuya Ward and many more... Internet Initiative Japan Inc. 6#8Excellent Customer Base with Many Blue-Chips Cover Most of Top Revenue Companies The number of clients among the top 10 companies in each industry. 10 10 10 10 Competitive Advantages Increase Revenue per Customer We don't expect our number of clients to increase but revenue per customer should continue to increase by cross-selling strategy. Revenues per Electronic appliances Insurance Securities Information/Telco 9 9 9 9 Banks Construction Precision equipment Retail Revenue Distribution by Industry Construction Retail. 5% 4% Manufacturing, 10% Service 20% Public 15% Communication, IT 28% Client base is well diversified among industry sectors Revenues are generated from various industries Finance 18% Customer Number of Customers Revenue Distribution by Clients Top 401-500 4% Top 501- 20% Top 301-400 5% Top 201-300 8% Top 101- 200 13% Top 1-100 50% Approx. 80% of the revenue comes from top 500 clients . Much room to grow revenue per customer • Cross selling strategy is important Largest client revenue portion to the total is less than 3% Internet Initiative Japan Inc. Source: IIJ's FY20 Financials 7#9Monthly Recurring Revenue Comprehensive Line-ups of IT services Revenue category Network services Internet connectivity services for enterprise Internet connectivity services for consumers FY20 revenue IP 12.2 40.3 25.7 WAN 25.0 Mobile Mobile About Core service providing from the inception of the company, highly reliable dedicated connectivity services for enterprise (multi-carrier, redundancy etc. ) IoT/M2M-related 24.5 MVNE 23.0 7.8 16.7 Inexpensive SIM services (mainly data), Direct sale (via IIJ web), Indirect sale (via sales partners such as retailers) Closed network used to connect multiple sites In-house developed Internet-related various service line-ups (Security, datacenter, remote access related etc.) Unit: JPY billion Competitive Advantages Business Situation & Outlook Matured market (new entry difficult) ➤ Blue-chip client base ➤ Expect the revenue to continuously increase along with traffic volume and contracted bandwidth increase Strong revenue growth in FY20 ➤ Expect profitability and mobile infrastructure utilization to improve as we gather various traffic such as loT, enterprise, consumers • • IoT/M2M: Expect the demand to expand in the middle to long term MVNE/Consumer: Focus on expanding sales channel under severe competition Stable market for long-term, Large clients migrated to mobile in FY19 Outsourcing 35.7 Acquire enterprise demand by cross- selling services. Continuous service development is important Security 18.4 Public Cloud 2.8 ➤ Demands for security and remote access to increase continuously 84 % Operation and Maintenance Promote cloud shift with our abundant, highly reliable, value-added private cloud related service line-ups ➤ Expect great business opportunity in 51.5 From construction 28.1 Private Cloud the middle-to-long term as internal IT systems migrating to cloud 23.5 SI Construction (including Equipment sales) 31.8 System construction related to office IT, security, Cloud, lot. Internet-related construction such as Online banking & brokerage academic backbone network for university, and E-commerce site Internet Initiative Japan Inc. ➤ Systems to be converted to cloud Through providing SI, offer greater value as loT and cloud usage penetrate One time revenue 8#10Examples of Cross-selling/Total Solution Competitive Advantages Meeting enterprise NW systems that are becoming more complexed and diversified with in-house developed NW services and SI Example: WAN and Internet gateway for a certain financial institution Backup, BCR East Japan region West Japan region Future expansion II) multi product Controller service Internet Web Security Internet Gateway Gateway 365 Microsoft Azure Oracle Sandbox Firewall AWS GCP Unified Operation Mngt. (UOM) Security operation center Multi-Cloud IIJ GIO Public servers III C-SOC IIJ Backbone Security for public severs IIJ Omnibus IIJ Omnibus Closed WAN (Carrier A) Private WAN (Carrier B) Mobile WAN Close network 11J mobile 11J mobile Client's branches (overseas) Client's branches (over 100) Internet Initiative Japan Inc. Client's datacenter 113 mobile 9#11Competitive Advantage by NW services & SI Target Blue-chip's IT Shift Competitive Advantages Cover Corporates' New IT Services Demands with reliable operation IIJ Cloud Services Internet Initiative Japan loT Solutions Carriers Systems Integrators Internet Connectivity Services Network Integration Outsourcing Services WAN Services Systems Operation Private Cloud Legacy Network Services i.e. telephone Legacy Systems i.e. mainframe • • IIJ's differentiation points against competitors Many highly skilled network engineers Corresponds to the Internet market rapidly Unbureaucratic organization structure Operates network facilities by ourselves . Develops network services ⚫ Moderate number of employees Internet Initiative Japan Inc. 10#12Continuous Revenue Accumulation Cross-selling multiple service products FY15 Unit: JPY billion % = year over year change Growth Strategy FY16 FY 17 140.6 157.8 176.2 FY18 192.4 FY19 FY20 204.5 (+14.3%) (+12.2%) (+11.7%) (+9.2%) (+6.3%) 213.0 (+4.2%) 2.9 Revenues ATM Operation Business Systems construction Systems operation & maintenance 4.1 31.8 4.1 32.0 Outsourcing services Monthly WAN services recurring Consumer Internet services revenue Enterprise Internet services 4.0 27.9 51.5 26.2 46.4 4.1 41.8 25.6 3.9 37.9 26.2 23.6 24.4 20.1 Cloud revenue 35.1 35.7 Private cloud revenue recognized in 17.9 32.3 29.2 systems operation & maintenance 33.0 Public cloud revenue recognized in Outsourcing 26.1 18.4 15.7 14.1 16.4 12.1 14.1 22.2 21.3 9.6 27.0 25.0 31.0 Security revenue 29.3 100% recognized in outsourcing 86' 26.5 25.7 26.1 25.2 25.2 24.8 21.7 47.5 Mobile revenue 42.0 46.1 35.3 153…. Enterprise mobile recognized in enterprise Internet services, consumer recognized in consumer Internet services 26.7 15.6 17.6 22.6 28.0 33.2 36.6 40.3 System construction revenue includes equipment sales *YoY growth rate written for FY17 revenue is comparing FY16 revenue which is prepared with U.S. GAAP and FY17 revenue which is prepared with IFRS Internet Initiative Japan Inc. 11#13Enterprise Network Services (1) Growth Strategy ➤ Continuously developing and operating various network services to promote further IT utilization and advancement by Japanese enterprises Cross-selling these various highly reliable and value-added monthly recurring revenue services to fully meet Japanese enterprises' needs IIJ's network service offerings Internet Multi-Cloud Connection Microsoft Microsoft Azure 365 IUJ GIO AWS GCP Anti-Spam Internet Gateway Web Access Security Cloud Gateway Unified Virtual Desktop Operational monitoring Cloud Route Distribution Dedicated Line Connection Private Access Active Directory SD-WAN WAN ID Management ID PW Large Scale Mobile Gateway Remote Access Mobile O Internet Initiative Japan Inc. IoT Closed Connection 12#14Enterprise Network Services (2) IIJ's Network Services Business Model Cost doesn't have to increase at the same pace as the revenue Revenue ➤ Accumulation of monthly recurring service charge • IP services are contracted based on bandwidth base Very low churn rate. Minimum contract period is 1 year. • Contracts are renewed every year, generally speaking. ➤ Enterprise Internet connectivity market in Japan is already matured (everyone is already using Internet) and consolidated. Very high market share. Difficult to enter the market • IIJ enjoys stable and high market share among large enterprises IIJ's internet connectivity services clients include general Japanese enterprise as well as network operators such as consumer ISPs, cable TV operators Revenue for IP services, our core services, increasing as Japanese enterprises use more Internet and more contents are exchanged over Internet. ➤ Continuously developing innovative services by ourselves to encourage Japanese enterprises to outsource their network and/or system operation ➤ Outsourcing services continuously and largely increasing mainly because demands for security services and remote access services are strong Cost Unit: JPY million Growth Strategy economy of scale business ➤ IIJ purchases physical fiber from carriers. IIJ owns network equipment • Circuit related costs, depreciation and amortization costs, data center leasing costs, personnel costs, outsourcing costs. As one of the largest independent ISPs, IIJ has strong buyer power when purchasing fiber and/or equipment Profit ➤ Revenue continuously growing. Cost, mostly fixed type cost. IIJ can achieve enjoy economy of scale with strong revenue accumulation which leads to profit expansion IP service revenue growth rate accelerating Number of 791 769 contracts for 743 greater or equi to 1Gbps as of 40-end 709 690 9.77 10.14 10.57 (+1.0%) (+3.8%) (+4.2%) 10.70 (+1.2%) 12.17 (+13.7%) 3.18 2.44 2.55 2.65 2.71 40 3.14 2.46 2.56 2.71 2.68 30 2.47 2.51 2.63 2.97 2.68 120 10 2.40 2.49 2.58 2.63 2.88 FY16 FY17 FY18 FY19 FY20 ⚫ IP 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 IP service revenue is 100% recognized in Internet connectivity services (Enterprise) Internet Initiative Japan Inc. 13#15Cloud Business (1) Growth Strategy ➤ Cloud shift of Japanese enterprises' large internal core systems just began ➤ Additional system area for IIJ: revenue growth opportunity IIJ's Cloud Revenue (recurring) Unit: JPY billion % = Year over year comparison Cloud Market in Japan Cloud penetration among Japanese enterprises 64.7% as of 2019-end, 33.0% as of 2013-end (source: MIC) Slowly but surely using more Cloud services, yet most of such usages are primitive ones such as using cloud services for web and/file servers etc. Cloud shift is gradually taking place as 26.20 • 23.58 (+11.1%) • (+17.1%) 20.13 6.91 17.94 (+12.2%) 6.31 15.66 (+14.6%) (+11.1%) 5.27 4.74 6.74 4.07 6.11 5.10 4.57 3.96 040 6.36 5.81 3Q 4.93 4.36 3.83 □ 20 1Q 3.80 4.26 4.83 5.35 6.19 FY16 FY17 FY18 FY19 FY20 6.7 6.9 5.8 6.1 6.3 6.2 6.4 5.4 Overseas etc. 0.7 0.7 0.7 0.7 0.7 0.7 □ Public 0.9 0.9 1.2 1.0 1.0 0.7 0.7 1.3 1.3 0.8 Raptor 3.8 4.1 4.4 4.3 4.4 4.5 4.6 4.7 Private 1019 2019 3019 4019 1020 2020 3020 4020 4Q20 Cloud revenue recognition: 89.6% in systems operation and maintenance, 10.4% in outsourcing services ✓ Private Cloud services and other services that are similar to systems integration, meeting specific needs, are recognized in systems operation and maintenance ✓ Public Cloud services which are similar to conventional web hosting services or simple network services in nature are recognized in outsourcing services • Japanese blue-chips' 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 migrate to Cloud services when their existing systems approach to the end of life Seeing some advanced usages • Nippon Express (one of the largest logistics companies): replacing on-premise critical business operation system to IIJ Cloud (3,500 servers, 2PB storage) etc. IIJ's Cloud Service Offerings Mainly laas Raptor (ASP foreign exchange system developed by IIJ) is currently used by 22 FX service providers including Hirose Tusyo, LINE Securities, au Kabucom, Nomura Securities and Sony Bank SaaS business through partnership Internet Initiative Japan Inc. Raptor 18% Public 10% Private 69% Based on IIJ's FY20 results 14#16Cloud Business (2) Growth Strategy ➤ Cross-selling Cloud services with various network services and SI function IIJ's Competitive Advantages IIJ's competitive advantage ➤ Blue-chip client base: Hands-on/close relationship with clients (Cloud as a cross-selling element) ➤ New business opportunity: Because blue-chips' internal systems have been covered by legacy system integrators, it is a new business opportunity for IIJ once such systems migrate toward Cloud. IIJ has not dealt with legacy internal enterprise systems ➤ Various network service line-ups such as security and various ways to access cloud systems (mobile, WAN, etc.) Competitors ➤ AWS (Amazon) & Azure (Microsoft): Strong scale merit. Focus on public cloud. Not so strong about meeting individual systems needs Because start-ups and SMEs do not have to worry about so much about existing systems, they tend to use Cloud services much more and much faster compared to large blue-chips who have large and complex existing systems ➤ Legacy system integrators who constructed and currently looking over blue chips' large internal systems Multi-Cloud Strategy Japanese enterprises avoid relying on single cloud service vendor and demands for multi-cloud is increasing ➤ IIJ provides private connectivity with Microsoft Azure/365, AWS (Amazon Web Service), GCP (Google Cloud Platform) ➤ IIJ provides operation and management services to effectively monitor an entire IT systems, covering IIJ's cloud services, other cloud vendors' cloud services and on-premise systems. IIJ's Cloud Business Model Revenue Revenue depends on system volume (i.e. number of cloud servers, volume of storage) ➤ Total Cloud revenue is to expand along with an increase in customer numbers and each system volume Cost ➤ Leasing fee for data center space, depreciation and amortization cost for servers and other network equipment, outsourcing cost and personnel costs for service developments Profit ➤ Currently very low profitability, need more revenue to have economy of scale Internet Initiative Japan Inc. 15#17Security Business (1) Growth Strategy ➤ Continuously developing new services and expanding service functions as new cyber/network threats are evolving ➤ Cross-selling to the current blue-chip client base gained as the first full- scale ISP in Japan IIJ's security service revenue (recurring) Unit: JPY billion % = Year over year comparison IIJ's security service offerings Security services for Public systems Security services for Internal Systems 16.35 18.42 (+12.7%) 14.11 (+15.9%) Web access security Web filtering, anti-virus, etc. DDoS Protection Detect & prevent DDoS attacks 4.82 (+16.9%) Internet 12.07 4.24 (+26.2%) 9.57 3.79 4.66 (+10.9%) 3.21 4.16 Mail security Spam mails, anti-virus, Microsoft 365 etc. DNS operation & management Prevent fake DNS responses, Protect of DNS reflective attack etc. 2.58 3.67 IIJ Backbone 3.06 4.56 40 2.37 4.03 3.39 Enterprise' network 3Q 2.99 2.32 20 10 2.29 2.81 3.26 3.91 4.38 Managed firewall Per user policy, Detect anomaly, monitor, 24/365 Internal network FY16 FY17 FY18 FY19 FY20 Total scale of security 14.62 16.77 19.18 21.47 revenue (NW services + SI) Targeted attacks security Detect malware, sandbox etc. Strong growth in FY17 was mainly due to "Information Security Cloud" projects. As for FY20, demands to expand NW seemed more urgent than security implementation Security service revenue is 100% recognized in Outsourcing services Endpoint security Detect unauthorized PCs etc. Managed IPS/IDS Detect & shutdown attacks against NW/OS/MW, monitor 24/365 Managed WAF Shutdown attacks against Web application such as SQL injection Internet Initiative Japan Inc. Security Operation Center (SOC) 16#18Security Business (2) Strong & various demands continuing DDoS protection services: handle terabit cyber attacks. Widely used by central government agencies & major financial institutions. Moreover, prominent services doing business over Internet are also using our DDoS protection services. ➤ Security Operation Center services (SOC): with approximately 6 billion daily log records of network etc. (other vendors: approx. 0.8 billion a day). Detect Internet threats & execute counter measures promptly Leveraging security log obtained as an ISP to protect against latest cyber threats ➤ Gateway mail security services: Have been providing for almost 20 years. Still very popular. Some Japanese enterprises fully outsource their email systems to us because email security is becoming critical and difficult to handle. Service providers who were offering similar services withdrawing from the market these days. ➤ Advising regional police departments about cyber security such as unauthorized access and Internet network Growth Strategy Breakdown of IIJ's security service revenue Managed firewall services, detecting behavior etc. Full-outsource of web security, URL filtering, anti-virus functions etc. Others Full-outsource of mail system, prevention of wrongly sending mails, protection against targeted spam mails, sandbox etc. Fire Wall Mail 13% 31% Web Gateway 23% Network 28% DDoS protection, IPS/IDS, WAF etc. Based on IIJ's FY20 results IIJ's Competitive advantage of having them all IIJ Security vendors System integrators none none Network Analysis platform ✓ somewhat somewhat Operation and monitoring facility System integration none 17 Internet Initiative Japan Inc.#19Mobile Business (1) Growth Strategy Main strategy: accumulate enterprise mobile by leveraging blue-chip client base, various NW services & SI function - higher utilization of the mobile infrastructure ▸ Consumer subscription contributing to expand the infrastructure Total subscription & revenue % YoY comparison 3,251.2 3,029.3 2,744.7 FY-end subs (unit: thousand) 2,345.4 Recent subscription & revenue Total mobile subs. on March 31,2021: 3,251 thousand (+7.3%) ➤ FY2020 total revenue: ¥47.52 billion (+3.1%) • of which full-MVNO revenue: ¥2.17 billion (+54.3%) 42.0 (+18.8%) 35.3 46.1 (+9.8%) 6.0 47.5 (+3.1%) Subscriptions 7.8 4.9 (+32.3%) Revenue 3.8 16.6 16.7 (unit: \ billion) 14.6 (unit: thousand) Enterprise mobile MVNE 1,072 1,091 1,074 1,076 1,105 1.107i 1,124 1,123 1,119 1,110 1,046 1,099 1,073 1,075 1,063 1,045 1,037 1,034 10.9 968 923 Enterprise IUmio 843 mobile MVNE 20.7 22.5 23.5 23.0 ■IUmio 711 651 637 FY17 FY18 FY19 FY20 • • • IlJmio: Brand name for IIJ's consumer mobile services. IIJ provides the service through its website (direct sales) and sales partners MVNE (Mobile Virtual Network Enabler) aka "IIJ Mobile Platform Services": Revenue are generated by providing mobile services to other MVNOs who want to provide mobile services to their consumer customer base. Enterprise mobile: Calculated by deducting MVNE from IIJ Mobile (enterprise) Revenues (unit: \ billion) Enterprise mobile ■MVNE ■IUmio FY19: 6.02 (+23.8%) 1.42 1.48 1.45 1.67 4.07 4.16 4.20 4.14 FY19: 16.57 (+13.9%) 5.85 5.86 5.89 5.88 FY19: 23.49 (+4.2%) FY20: 7.81 (+29.6%) 1.67 1.81 2.03 2.29 4.37 4.18 3.97 4.20 FY20: 16.72 (+0.9%) 5.80 5.75 5.81 5.63 FY20: 23.00 (-2.1%) Internet Initiative Japan Inc. 1019 2019 3Q19 4019 1020 2020 3Q20 4020 18#20Mobile Business (2) Growth Strategy ➤ Most of current enterprise mobile solution are simple usage such as connecting network cameras etc. Seeing some advanced usage such factory loT Accumulating various enterprise mobile solutions Network Cameras Office IT B-to-C Store marketing cameras iPads and tablets Karaoke communications Security cameras for apartment complexes, etc. Surveillance cameras for material storage sites, etc. Security cameras River water level remote monitoring Remote work (teleconferencing) Business / IP transceivers Store visitor management systems Built-in SIMs for PCs Child monitoring devices Networking between devices at game arcades Currency exchange machines for foreign visitors to Japan Cashless payment terminals Transportation Dashcams Taxi dispatching Bus locational information Remote key locking and unlocking Corporate Activities / Other Structural health monitoring terminals Plant equipment management Natural disaster observational data collection Vending machines Rice paddy water management Shrimp cultivation Mobile sales offices Digital signage O Internet Initiative Japan Inc. 19#21Mobile Business (3) Became the first full-MVNO (data) in Japan in March 2018 Mainly targeting enterprise loT needs New forms of SIMs Growth Strategy • • Chip SIM 5mm 6mm ☐ Chip SIM Embedded Chip-type SIM (M2M UICC) Can handle a wide range of temperature environments and it is resistant to vibrations and corrosion. IIJ's Full-MVNO Revenue Growth Internal revenue of consumer and enterprise mobile revenue • Soft SIM eSIM (embedded SIM) SIM as data- based information Subscriber Management Features A communication module given SIM functions where the information required for mobile communications is logically written in internal memory 0.7 0.6 Revenues (unit: \billion) 0.5 0.3 0.4 0.4 0.4 Consumer 0.3 Partners Inbound Enterprise 10 19 20 19 30.19 40,19 10 20 20 20 30 20 40,20 FY20 Full-MVNO revenue breakdown: 96% IIJ Mobile, 4% ||Jmio Consumer revenue: eSIM services Partner revenue: IMSI for overseas enterprises such as travel agency Inbound revenue: Pre-paid SIM for foreigners visiting Japan Enterprise revenue: IoT-type usages such as connecting cameras IIJ Internet Initiative Japan Maintaining our own subscriber management features allows us to provide an eSIM service 5G Business Initiatives Developed Japan's first 5G SA-compatible eSIM (Nov. 2020) 5G SA (standalone) is upcoming mainstream 5G mobile communications Launched 5G services (au) for enterprises (Oct. 2020) Local 5G business: established JV (Grape One) with SUMITOMO CORPORATION and some cable TV operators Local 5G networks: dedicated 5G networks operated by local governments and companies in keeping with diverse needs of their respective communities and industries Cable TV operators, serving as local media, can leverage their own large-capacity bidirectional infrastructure to play key role in local 5G-based community development O Internet Initiative Japan Inc. 20#22Mobile Business (4) Launched new consumer mobile plan (Apr. 2021) As of May 6, approx. 350 thousand subs., of which 15% new users. ➤ For FY21, expect total mobile revenue (sum of enterprise & consumer) to decrease by JPY8.3 billion YoY Please refer to page 51 of this presentation for more detail on the mobile unit charge Please refer to page 54 of this presentation for a table comparing old and new consumer mobile plans IIJ's Sale Channel for Consumers 1. Direct sales through IIJ's website . Growth Strategy Approximately 60% of 4Q19 IIJmio's revenue was through direct sales 2. Sales partners such as BicCamera who have physical stores • IIJ pays sales commission expenses to sales partners 3. MVNE "IIJ Mobile Platform Service . IIJ provides mobile services to other MVNOS As of December 31, 2020, IIJ had 158 MVNE clients Largest MVNE client is one of the largest Japanese retailers ✓ Majority of MVNE clients are Japanese cable TV operators who already have direct relationship with consumers 2GB 4GB 8GB Voice SIM (Data + voice calls) JPY780 JPY980 15GB JPY1,380 JPY1,680 20GB JPY1,880 SIM with SMS JPY750 (Data + SMS) JPY950 JPY1,350 JPY1,650 JPY1,850 • Data-only SIM JPY680 (Data only. Type Di only) JPY880 JPY1,280 JPY1,580 JPY1,780 eSIM (Data only. NTT DoCoMo JPY400 JPY600 JPY1,000 JPY1,300 JPY1,500 network only) MVNO Penetration in Japan*1 Total mobile subscription Dec. 2013 MVNO subscription SIM subscription • IIJ 14.4% June 2019 Dec. 2020 Consumer MVNO share as of Dec. 2020 *2 Rakuten 13.7% . . 4% 12.2% 13.4% NTT Communications (brand name: OCN mobile) 11.3% OPTAGE (brand name: mineo) 8.7% • LINE Mobile 6.7% MVNO share in other countries *3 Germany 47.5% Spain 16.8% 1% 8.9% 10.1% Canada 28.8% The US 13.8% Source: France 26.9% Italy 12.1% *1 Ministry of Internal Affairs and Communications (the MIC) *2 Published by the MIC in Mar. 2021, share among "SIM subscription" *3 "MVNO Market Maintains Upward Trajectory" by Pete Bell in Apr. 2019 https://blog.telegeography.com/mvno-market-maintains-upward-trajectory The UK 18.6% South Korea 12.1% Internet Initiative Japan Inc. 21 21#23Mobile Business (5) Business model of IIJ's Mobile Business Revenue Growth Strategy ➤ Consumer mobile revenue is generated by subscription growth multiplied by ARPU ➤ Enterprise mobile revenue to grow with loT/M2M traffic. Charge loT projects by how much data traffic is needed Cost ➤ All of IIJ's mobile services are provided from the same mobile infrastructure ➤ Purchasing mobile capacity on bandwidth-base from mobile carriers (mainly from Docomo, some from KDDI) ✓ Such purchasing cost is recorded as "outsourcing" among network services' costs ➤ In order to provide voice services, we purchase per usage base (no economy of scale merit for voice services) ➤ Sales commission expenses (SG&As) to sales partners such as BicCamera Profit ➤ While many of consumer-oriented MVNOs are said to be in deficit, IIJ's mobile business is profitable ➤ Profitability to increase by improving infrastructure utilization through gathering various consumer & enterprise traffic ✓ Traffic patterns of consumers and enterprises are different Consumers' peak time is commuting hours and lunch break. Other than these hours, our consumers 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 loT type usages which run 24/7 Currently, purchasing mobile capacity to meet the peak time of consumers (commuting hours and lunch break) Mobile infrastructure utilization is still quite low except for those peak time of consumers ◆ Growth Strategy < Aim to improve mobile infrastructure utilization by gathering loT/M2M & various consumer traffic IIJ's History on MVNO/Mobile Business Became the first MVNO in Japan to connect Docomo's mobile network. Provide mobile solution to enterprises Started providing consumer mobile services & MVNE business 2008 2012 2018 Became the first full-MVNO (data) in Japan 2019 Launched Japan's first eSIM services Internet Initiative Japan Inc. 22#24IoT Business (1) Growth Strategy Combining IIJ's existing service lineups and SI to build loT systems IIJ and lot Specific Fields and Businesses Industry (Manufacturing) Agriculture Home / Care Monitoring Energy Cloud Services IIJ GIO WISE-PaaS IIJ Japan-East IIJ Water Management (PaaS for Industrial IoT) Platform Necolico Home Plus ADVANTECH WISE-PaaS loT Edge Intelligence IIJ IoT Service (IoT Platform) (Device / Network Management and Data Utilization Shared IoT Infrastructure) LoRaWANⓇ WAN/VPN Secure (Closed) Network Network Services 11J mobile fid omnibus Local 5G (Full-MVNO) LTE / LTE-M (Full-MVNO) Gateway Edge Equipment / Facilities / Sensors Unique Device Agent SACM IoT Gateway Equipment / Industrial PCs / LoRaWANⓇ Gateway Equipment Internet Initiative Japan Inc. Security 23#25IoT Business (2) Change in Japanese enterprise attitude toward lot Just executing PoCs to actually implementing lot systems Some loT projects Industrial machinery manufacturers Car accessory manufacturers Measuring instrument manufacturers Automotive manufacturers Trading companies (agriculture) Shift from reactive post-sales maintenance model to proactive field services (making predictions based on data) Expansion of service businesses by acquiring data through the networking of products and establishing software technology development organizations to develop services that use that data Expansion of services to streamline & improve the accuracy of recording tasks by going beyond just "measuring" things & providing linking data customers measure with their business systems Improved efficiency of equipment management to cover personnel shortages, analyzing the expertise of skilled workers in maintaining operating capacity and implementing traceability to ensure quality 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 Advanced Usage: Factory loT Growth Strategy IIJ provides loT system for Toyota Motor Hokkaido ➤ Providing a one-stop solution by offering mobile and Cloud services from data collection via closed mobile network to creation of a cloud platform for visualizing and analyzing the collected data. System image II network (closed network) Facilities manager IU GIO (cloud network) • Reporting + Big data collection, analysis, etc Quality controller/analysis, II] Private Backbone (inter-serivce network) Data transmission II] IoT Service Device monitoring mobile wireless monitoring Device control control and management Data hub forwards data, applies attributes Data transmission Oversight and II] Mobile remote access Data transmission Plant Industrial PC Plant local network Around 370 machines PLC CNC Upcoming support Measuring instruments Torque wrenches Internet Initiative Japan Inc. 24#26Business through affiliated companies: FinTech Business (1) Company Profile Name Est. Capital Directors DeCurret Inc. January 2018 JPY8.6 billion (including capital reserve) President: Kazuhiro Tokita (from IIJ) Part-time directors: IIJ CEO, IIJ COO, IIJ CFO Equity in net loss related to DeCurret (unit: JPY million) Crypto Asset Exchange Services (BtoC) Growth Strategy First & new licensed service provider after the FSA enacted registration process Exchange various crypto assets (BTC, BCH, LTC, XRP, ETH) ✓ Highly reliable system, low bid-ask spread, and meeting • security requirement such as AML/KYC Trading system leveraging the existing IIJ Raptor: 4Q19 1Q20 403 2Q20 3Q20 4Q20 306 273 207 193 \IIJ ownership: 4Q19 30.0%, from 1Q20 41.6%, from 1Q21 38.2% is planned to be used to recognize gain and loss Other than above, in 4Q20, gain on changes in equity of ¥349 million arisen from the issuance of common stock is recognized ✓ Top share ASP FX (Foreign Exchange) system in Japan, proving to 22 major Japanese financial institutions. ✓ Core-engine, dealing system, connecting multiple FX exchanges, investor service platform, operator management function etc. Approx. 70% of DeCurret service system is leveraged from the existing IIJ Raptor system ✓ Launched order book trading services from Apr. 2021 Digital Currency Settlement Platform Business (mainly BtoB) Executing many and various PoCs with business partners and shareholders KDDI Kansai Electric Power DAIDO LIFE INSURANCE TOYOTA SYSTEMS Local governments Automated digital currency settlement Automated settlement of P2P electricity trading Use digital currency for BtoB transaction Automated settlement for employee benefit programs Digital coupon systems And many more Active discussion with core players on how to set up digital currency platform infrastructure in Japan . ➤ Digital Currency Study Group: From June to September 2020 Members: Mega banks, Seven Bank, JR East, KDDI, NTT Group, FSA, MIC, Bank of Japan, MOF, METI etc. The Study Group developed into Digital Currency Forum Members: the Study Group members and leading companies from various industries Internet Initiative Japan Inc. Main discussion topics: examination of practicality of digital currencies in each use case, requirement definition, design, and development of common and additional areas, identification of issues and solutions for the actual operation of digital currencies, and creation of standards 25#27Business through affiliated companies: FinTech Business (2) Shareholders of DeCurret (35 companies) Internet Initiative Japan Inc. ITOCHU Corporation QTnet, Inc. OPTAGE Inc. KDDI CORPORATION KONAMI HOLDINGS CORPORTAION SUMITOMO LIFE INSURANCE COMPANY Sompo Holdings, Inc. The Dai-ichi Life Insurance Company, Limited DAIDO LIFE INSURANCE COMPANY Daiwa Securities Group Inc. Tokio Marine & Nichido Fire Insurance Co., Ltd. Nippon Life Insurance Company Nomura Holdings, Inc. NTT Corporation East Japan Railway Company SBI Holdings, Inc., SECOM CO., LTD. BIC CAMERA INC. Growth Strategy Source: DeCurret Webpage Mitsui Sumitomo Insurance Company, Limited Sumitomo Mitsui Banking Corporation Mitsui Fudosan Co., Ltd. Mitsubishi Corporation The MUFG Bank Meiji Yasuda Insurance Company YAMATO HOLDINGS CO., LTD. ITOCHU Techno-Solutions Corporation CHUBU Electric Power Co., LTD. DENTSU INC. Hankyu Hanshin Holdings, Inc. MATSUI SECURITIES CO.,LTD. Energia Communications, Inc. SOHGO SECURITY SERVICES CO.,LTD. (ALSOK) JAPAN POST BANK Co., Ltd., Toppan Printing Co., Ltd. Internet Initiative Japan Inc. 26 26#28Business through affiliated companies: CDN Business Company Profile Growth Strategy Name IIJ Ownership JOCDN Inc. 16.8% Business Model IIJ Internet Initiative Japan Capital Establishment Shareholders Directors JPY845 million (including capital reserve) December 1, 2016 IIJ, Nippon TV, TV Asahi, TBS, TV Tokyo, Fuji TV, WOWOW, NHK and non-Tokyo local broadcasters Chairman: Koichi Suzuki (IIJ CEO) President: Shunichi Shinozaki (Nippon TV) Conditions led to create All Japan CDN company ➤ Akamai Technologies (global leader in CDN services, US company) has had quite dominant position in CDN market ➤ Growing needs to distribute contents over Internet (4K/8K contents to increase towards the Tokyo Olympics etc.) ➤ Broadcasting companies distributing contents via Internet Nippon TV owns Hulu Japan . • Broadcasting companies operate "TVer" (web platform operated by Japanese broadcasters where users can watch some TV programs for free) IIJ has rich and well-renowned expertise in CDN business Olympics games, high school base ball games, university sport and many other popular sports events Equity method gain related to JOCDN: Turned to positive in 2Q20, FY20 ¥28 million CDN: Contents Distribution Network WOWOW: Prominent satellite broadcaster in Japan NHK: Japan's only public broadcaster Ownership Internet connectivity services * JOCDN Ownership CDN service JOCDN's shareholders & other Japanese broadcasters Nippon TV TVer NHK WOWOW Hulu And more Internet Initiative Japan Inc. 27#29Summary of FY2020 Unit: (JPY) billion (bn) Financials %= Year over year Phase of structural profit expansion with enterprise recurring revenue growth Accumulated asset of blue-chip customer base & NW service business strongly demonstrated competitive advantage under the digital transformation expansion Revenues ¥213.00 bn +4.2% Operating Profit ¥14.25 bn +73.2% Enterprise Recurring Rev. FY19 FY20 Gross Profit Operating Profit Net Profit & ROE FY21 FY19 FY20 target FY21 target FY19 FY20 FY21 FY19 FY20 FY21 target target +23.6% +12.2% 7.7% +\7.7 bn 45.3 6.7% 11.5% 12.4% 110.9 40.3 98.8 F10- 4.0% 32.6 1.0 5.2% | 14.3 17.5 12.1 1.9 +73.2% 51.5 14.3 46.4 10.8 30.0 11.7 9.7 +142.4% 27.2 19.9 +36.5% +\7.3bn 8.2 52.4 59.3 Enterprise NW rev. SIO/M rev. NW GP MSI GP ATM GP Operating Profit OPM 4.0 Net profit - ROE ♦Enterprise recurring revenue Stronger than expected expansion of ICT usage, Growth rate accelerated FY20 + 12.2%, FY19 +10.3% ➤ Satisfying enterprise NW demands that are becoming more diversified and complexed by continuously expanding and improving in-house developed services IP services ¥12.17 bn +13.7% +¥1.5 bn, Outsourcing services ¥35.71 bn +10.4% +\3.4 bn, Cloud services ¥26.20 bn +11.1% +¥2.6 bn ♦Mobile/loT Enterprise: leading loT penetration with full-MVNO, Consumer: enhance our presence with new plan Dividend per share FY19 FY20 initial FY20 forecast results FY21 forecast 39.00 (30.1%) 29.75 (27.6%) 19.50 17.00 13.50 (30.7%) 19.50 Total mobile revenue ¥47.52 bn +3.1%, of which enterprise ¥7.81 bn +29.6% • Total mobile subscription 3.251 mil +7.3%, of which enterprise 1.110 mil +31.8% (30.4%) 6.75 6.75 8.50 19.50 8.50 10.25 Amid the COVID pandemic, leveraged comprehensiveness with enterprise NW services & integration (Notes) Enterprise NW revenues: sum of Internet Connectivity Services (Enterprise) excluding MVNE and Outsourcing. It does not include WAN Services which had specific factor. Net profit is "Profit for the period/year attributable to owners of the parent" O Internet Initiative Japan Inc. Interim Year-end (%) Payout ratio 28#30Previous Mid-term Plan (FY16~FY20) Results Operating profit margin 4.4% Number of employees Rev. 140.6 as of FY15-end: 2,980 Operating Profit 6.1 Unit: JPY¥billion (bn) FY15 U.S. GAAP, FY20 IFRS "times" are written in approx. terms 1.5 times Revenues 213.0 FY15 Operating profit margin 6.7% 2.3 pts Operating profit 14.3 2.4 times up from FY15 FY15 Number of employees as of FY20-end: 3,805 1.3 times FY15 FY15 FY16 Exc. Mobile & security Enterprise NW services FY15: 50.8 FY20: 58.2 Retained & cross-selled to current clients, IP service revenue growth accelerated Met diversifying and more complex enterprise NW by developing IIJ Omnibus services, service line-up largely expanded Continuously expanded NW, stable CAPEX Cloud services FY15: 14.1 FY20: 26.2 FY17 FY18 Previous mid-term plan period FY19 FY20 Mobile-loT services FY15: 15.6 FY20: 47.5 ➤ Full-MVNO as competitive advantage for loT etc. Accumulate various NW camera & factory loT Established strong market position as one of largest MVNOs in Japan Exc. Cloud-related SI SI ➤ Competitive advantages in Private Cloud services, Multi-Cloud solution, Revenue continued to increase Opened Shiroi DC, gradually expanding, better visibility about future sever racks space Developed highly migratable and accommodative new cloud facility New business HR Security services FY15: 8.6 FY20: 18.4 Exc. Security related SI Became one of the largest corporate security service providers (monthly recurring revenue) Very high market penetration for Mail & Web gateway securities Pioneer in consumer MVNO, top market share with Expanded service offerings: DDoS, SOC.EDR IlJmio and MVNE Exc. Cloud services, Inc. equipment sales FY15: 45.4 FY20: 59.8 Differentiated by having NW services and SI expertise Profitability continued to increase with stricter management of system engineers etc. Overseas FY15: 5.3 FY20: 8.3 Inc. some from Enterprise NW services, Cloud, and SI ➤ Asian region started up, expanded global solution for Japanese clients, turned positive & managing profit, JVs with local prominent companies ➤ Bought a Singaporean Sler – expect to strengthen ASEAN business ➤ Expanded business domain by leveraging accumulated assets such as technology, system infrastructure, client relationship ⚫ DeCurret: Fintech JV with major banks etc., working to realize digital currency exchange platform which is envisioned in the future ⚫ JOCDN: CDN JV with broadcasting companies, consortium by envisioning the future of Internet broadcast & convergence of communications and broadcasting Continuous hiring and training of newly graduates as a core policy, enhanced human capital to support mid-to-long term business growth internet native Japan inc. 29#31FY21 Plan & New Mid-term Plan (FY21~FY23) Rev. 213.0 6.7% Operating Profit 14.3 Rev. 226.0 7.7% CAGR: over 7% Operating Profit 17.5 Unit: (JPY) billion (bn) except for Dividend per share (¥) "times" are written in approx. terms Revenues 270.0 1.3 times FY20 Operating profit margin over 9%2.3 pts up from FY20 FY20 FY21 targets New Mid-term plan period FY22 FY21 Plan (financial targets) \bn (% YoY) Revenues Operating Profit Profit before tax Net Profit Dividend per share FY21 226.0 (+6.1) 213.0 FY20 (+4.2) 17.5 17.3 (+22.8) (+23.3) (+20.5) 14.3 14.0 9.7 (+73.2) (+96.0) (+142.4) 11.7 ¥37.00 (+\9.25) ¥29.75 (+\16.25) FY23 plan New Mid-term Plan Further expansion of business scale for long-term growth Significant growth of enterprise recurring revenue Providing an integrated IT environment including SI Expanding provision of digital platforms -IoT -Digital currency /Fintech -Digital distribution Under structural profit growth phase, achieve economy of scale and lead profit expansion with enterprise recurring revenue accumulation • Strengthening total solution: NFV/SD-WAN service enhancement, SASE SOC (security), DWP/virtual desktop/secure browsing, launching of new cloud facility (Shiroi) etc. Enterprise mobile to expand with various loT projects, Consumer: Return to subs. net addition with new plan ⚫ NW utilization to improve by combining both enterprise & consumer, Mobile profitability to remain steady as purchasing cost (unit charge) to decrease (revenue decrease factor) Sl; revenue & profit to increase by cross-selling NW construction & services, M&A (SNG/Sler) to be added Profit before tax to improve along with new business starting up Strengthening the company's management base for long-term sustainable growth Acquisition and development of human resources to support long-term growth Creation of M&A opportunities Continuous development of technologies and services to demonstrate our superiority Network Cloud O Security Core Technologies Continued practice of MVNO 5G SA Large scale backbone Ꮬ Operation L corporate governance Contribution to a sustainable society Infrastructure virtualization /automation Security information analysis platform Digital workplace Multi cloud SASE Full MVNO Develop services & solution continuously: Enterprise cloud, business cloud, partner, industry specific Cloud Execute & strengthen current strategy, target to achieve operating margin over 9% Market cap. to largely increase: further business expansion for long- term including M&A opportunities Contribute to sustainable NW society from technology innovation and NW operation perspective Internet Initiative Japan Inc. 30#32Mid-to-Long term Business Growth Business foundation enhancement with aggressive investment Total revenue Total revenue annual growth Operating profit ratio Revenue growth accelerating Growth Unit: JPY billion Strategy Further business developments Scale-merit Profit improvement Completed Shiroi DC CAPEX ➤Established DeCurret ➤Launched Omnibus ➤Launched IIJ GIO P2 ➤Launched full-MVNO services ➤Launched Health care business FY23 Target ➤Extended Internet backbone to Europe ➤Stronger security investment ➤Launched IIJ IoT services 226.0 JPY270.0 213.0 ➤Doubled Matsue capacity ➤ Established JOCDN ➤ Aggressive hiring 204.5 192.4 176.2 (Over 100 newly graduates) ➤Launched IIJ GIO VW service ➤Launched IIJ UOM service +6.3% 157.8 +9.2% 140.6 +11.7% 123.1 114.3 +12.2% FY23 Target over 9.0% 106.2 +14.3% 7.3% 6.7% 7.7% 5.0% 4.1% 4.4% 3.3% 3.8% 4.0% 3.1% 20.7 10.4 12.6 11.8 14.8 16.5 15.1 15.2 15.2 17.5 • FY12 FY 13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Target FY13 operating profit decrease was mainly due to large gaming clients decreased cloud usage. FY18 operating profit decrease was because small Docomo's unit price revision made our network service gross profit decrease significantly • FY16 and before: US-GAAP, FY17 and after: IFRS • Total revenue annual growth rate for FY17 revenue (IFRS) is calculated with FY16 revenue (US GAAP) Internet Initiative Japan Inc. 31#33FY2021 Financial Targets Revenues % of Revenues FY21 Targets Apr. 2021 Mar. 2022 226.0 % of Revenues YOY FY20 Results Apr. 2020 Mar. 2021 213.00 +6.1% +13.00 80.0% Cost of Sales 180.7 20.0% Gross Profit 45.3 12.3% SG&A etc.(¹) Operating Profit Shares of profit (loss) Unit: (JPY) billion (bn) except for Dividend per share (¥) % of Revenues 1H21 Targets YOY Apr. 2021 Sep. 2021 108.0 +6.34 +3.19 81.1% 80.9% 172.72 87.4 +4.6% +7.98 18.9% 19.1% 40.28 +12.5% 20.6 +5.02 +3.15 12.2% 13.1% 14.1 27.8 26.03 +6.8% +1.77 +1.88 7.7% 6.7% 6.0% 17.5 14.25 +22.8% 6.5 +3.25 of investments accounted for using equity method investees (0.4) 7.7% Profit before tax 17.3 5.2% (0.41) 6.6% 14.03 +23.3% 4.6% +0.01 (0.3) 5.8% 6.3 +3.27 3.9% +1.26 +0.08 +1.83 • • YoY Year over year Financials Assumptions for Revenue Enterprise NW services: Expect revenue to grow continuously, As WAN decrease factor is solved in FY20, expect to see WAN revenue return to growth Mobile: Expect revenue to decrease by ¥8.3 bn as ARPU, especially voice, to decrease due to new consumer plan SI: Additional ¥8.5 bn from M&A (PTC) in addition to continuous growth ATM: Same level as FY20 Assumption for Gross Profit • Enterprise NW services: Expect profit to . • Net Profit (2) 11.7 9.71 4.2 . +20.5% +1.99 +1.43 Annual Cash Dividend per Share ¥39.00 ¥29.75 +31.1% +\9.25 ¥19.50 +\9.25 expand along with revenue growth Mobile: Expect same level of profit as FY20 with decrease in purchasing cost and ARPU (Onetime cost decrease upon FY20 mobile interconnectivity charge confirmation is taken into consideration) SI: Additional ¥0.8 bn from M&A (PTC) in addition to continuous growth ATM: Same level as FY20 Assumption for SG&As Same incremental pace from the past, smaller disposal than FY20 (¥0.64 bn) • Additional ¥0.4 bn from M&A (PTC) • • Other assumptions Equity in net loss of affiliates: approx. \0.4 bn, Expect equity in net loss of DeCurret to turn positive in 4Q Net addition of employees: approx. 290 (of which, newly graduates 190) (*1) SG&A etc. shows the sum of SG&A, which includes R&D expenses, and other income/expenses. (*2) Net Profit is "Profit for the year (period) attributable to owners of the parent." O Internet Initiative Japan Inc. CAPEX: approx. ¥17.5 bn, Expect to increase YoY as some FY20 investments such as ¥1.2 bn of Shiroi DC and NW are slided over 32#34FY21 Revenue and Operating Profit Revenues Revenues YoY change in Enterprise NW services revenues YoY change in Mobile services revenues YoY change in Sl revenues YoY change in ATM operation business revenues FY20 213.0 Unit: (JPY) billion YoY Year over year +13.0 FY21 Target 226.0 (0.2) +13.7 +7.8 (8.3) ARPU to decrease due to the new consumer plan Including approx. JPY8.5 bn from M&A (PTC) Financials Enterprise NW services revenues is calculated by deducting the below mentioned Mobile services revenues from total NW services revenues. It includes non-mobile consumer revenue which is small amount Mobile services include IIJ Mobile Services (including MVNE) and IIJmio (consumer mobile) Operating Profit Operating Profit YoY change in NW services GP YoY change in SI GP YoY change in ATM operation business GP YoY change in SG&A etc. FY20 14.25 +3.25 +2.2 +1.8 (0.01) +2.8 Including approx. ¥0.8 bn from M&A (PTC) Including approx. ¥0.4 bn from M&A (PTC) SG&A etc. in this slide shows the sum of SG&A, which includes R&D expenses, and other income/expenses Internet Initiative Japan Inc. FY21 Target 17.5 33#35FY21 Dividend Forecast Our basic dividend policy: Unit: JPY Financials Basic dividend policy of IIJ is that IIJ pays dividends to its shareholders continuously and in a stable manner while considering the need to have retained earnings for the enhancement of financial position, medium-to long-term business expansion, future business investment and other goals. ◆ Historical Dividend per Share: (%) Payout ratio Year-End dividend Interim dividend FY17 FY18 FY19 FY20 FY21 forecast 39.00 (30.1%) 29.75 (27.6%) 19.50 19.50 13.50 (27.5%) 13.50 (34.6%) 13.50 (30.4%) Initial forecast: 8.50 Revised forecast: 10.25 6.75 6.75 6.75 19.50 6.75 6.75 10.25 Initial forecast: 8.50 6.75 *We conducted 1:2 stock split on January 1, 2021. Dividends payed before the split are retroactively adjusted to reflect the spit. Internet Initiative Japan Inc. 34#36Sustainability https://www.iij.ad.jp/en/sustainability/ As the first full-scale ISP in Japan, we have consistently been the leader of Japan's Internet development. With our management philosophy of developing and supporting Japan's Internet infrastructure at our core, we recognize our responsibility as a provider of social infrastructure and continue supporting social and corporate system platforms, providing stable network services. Lead network infrastructure advancement with technological innovations and contribute to solving various social issues Bringing innovation: We shall continue to bring technological innovations to realize an even better network society and propose new values and usages. ➤ Solving social issues through our business: We shall provide Internet services that will help solve social issues Our response to climate change: We shall use our Internet services to drive our environmental contributions GOOD HEALTH AND WELL-BEING IIJ's material issues: Provide safe and robust Internet services that support social infrastructure ➤ Maintaining security and privacy: We aim for a world where privacy and security are protected for all users as the norm. ➤ Enhancing network resilience: As a platform for industries, education, and day-to-day living, we develop and operate robust backbone networks that will withstand natural disasters, accidents, and cyber-attacks. AFFORDABLE AND CLEAN ENERGY 8 DECENT WORK AND ECONOMIC GROWTH INDUSTRY, INNOVATION AND INFRASTRUCTURE 11 SUSTAINABLE CITIES AND COMMUNITIES 16 PEACE, JUSTICE AND STRONG INSTITUTIONS M Provide an arena for people with diverse talents and values, where they can exercise their skills and actively and boldly take on challenges ➤ Promoting diversity and work-life balance: a workplace where all employees' values are respected and they can exercise their skills, regardless of gender, nationality, or disability. ➤ Developing human resources: maintain and develop a corporate culture that fully respects and supports employees' self- actualization and motivation to learn and contribute to society. ➤ Promoting occupational safety and health and respect for human rights: a workplace that protects employees' physical and mental health and enables them to work safely. 9 INDUSTRY, INNOVATION AND INFRASTRUCTURE 13 CLIMATE ACTION Internet Initiative Japan Inc. QUALITY EDUCATION сл 5 GENDER EQUALITY 8 DECENT WORK AND ECONOMIC GROWTH 35#37Consolidated Financial Results for FY2020 Announced on May 12, 2021 Internet Initiative Japan Inc. 36 36#38Consolidated Financial Results Unit: \(JPY) billion, except for cash dividend (¥) Financials YoY Year over year Revenues % of revenue % of revenue % of revenue FY20 FY19 YOY FY20 Targets (Revised on Feb. 8, 2021)(*3) YOY Apr. 2020 - Mar. 2021 Apr. 2019 Mar. 2020 Apr. 2020 Mar. 2021 213.00 204.47 +4.2% +8.53 213.0 +4.2% +8.53 81.1% 84.1% 81.6% Cost of Revenues 172.72 171.88 +0.5% +0.84 173.9 +1.2% +2.02 18.9% 15.9% 18.4% Gross Profit 40.28 32.59 +23.6% +7.69 39.1 +20.0% +6.51 SG&A etc. (*1) Operating Profit Profit before tax (*2) Net Profit Annual Cash Divident Per Share 12.2% 26.03 6.7% 14.25 6.6% 14.03 11.9% 12.0% 24.37 +6.8% +1.67 25.6 +5.1% +1.23 4.0% 6.3% 8.23 +73.2% +6.02 13.5 +64.1% +5.27 3.5% 5.8% 7.16 +96.0% +6.88 12.3 +71.8% +5.14 4.6% 2.0% 3.6% 9.71 4.01 +142.4% +5.70 7.6 +89.7% +3.59 ¥29.75 ¥13.50 +120.4% +\16.25 ¥20.50 +51.9% +\7.00 (*1) SG&A etc. shows the sum of SG&A, which includes R&D expenses, and other income/expenses. (*2) Net profit is "Profit for the period/year attributable to owners of the parent." (*3) FY20 Targets were revised upward from the original targets on Nov. 9, 2020 and Feb. 8, 2021. Internet Initiative Japan Inc. 37#39FY2020 Revenue & Operating Profit YoYvo Revenues Unit: (JPY) billion GP = Gross Profit YoY Year over year comparison Revenues YoY change in Enterprise NW services revenues YoY change in Mobile services revenues YoY change in Sl revenues YoY change in ATM operation business revenues FY19 204.47 +8.53 +4.89 +1.44 (1.19) +3.39 Including WAN revenues decrease (-\1.92 billion) Decreased as expected with the store closure due to the COVID-19 pandemic and removal of certain number of ATMs Financials FY20 213.00 Enterprise NW services revenues is calculated by deducting the below mentioned Mobile services revenues from total NW services revenues. It includes non- mobile consumer revenue which is small amount Mobile services include IIJ Mobile Services (including MVNE) and IIJmio (consumer mobile) Operating Profit Operating Profit YoY change in NW services GP YoY change in SI GP YoY change in ATM operation business GP YoY change in SG&A etc. FY19 8.23 +6.02 +1.28 (0.85) +1.67 +7.26 Of which, ¥1.09 billion is due to the onetime cost decrease upon the finalization of FY19 mobile interconnectivity unit charge SG&A etc. in this slide shows the sum of SG&A, which includes R&D expenses, and other income/expenses O Internet Initiative Japan Inc. FY20 14.25 38#40Revenues NW Services Internet Connectivity Services (Enterprise) Internet Connectivity Services (Consumer) Outsourcing Service WAN Service Unit: (JPY) million [ ], YoY = Year over year comparison Financials Systems Integration (SI) ☐ Systems Construction (including equipment sales) Systems Operation and Maintenance ATM Operation Business FY19: 204,474 [+6.3%] FY20: 213,002 [+4.2%] 49,829 49,391 51,469 53,785 50,379 51,286 54,405 56,932 I 731 980 766 1,001 824 1,040 1,060 18,109 17,806 20,147 22,331 570 18,875 19,292 21,760 23,357 FY20: ¥31,767 million, -0.7% YoY I One-time Revenue (14.9% of FY20 revenues) Recurring Revenue FY20: ¥178,344 million, +5.9% YoY (83.7% of FY20 revenues) 30,680 30,524 30,321 30,47430,934 31,170 31,879 32,843 Enterprise Recurring Revenue FY20: ¥110,855 million, +12.2% YoY (52.0% of FY20 revenues) • 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 ➤ 1Q +11.5%, 2Q +12.3%, 3Q +13.1%, 4Q +11.8% YoY One-time revenue, systems construction revenues which includes equipment sales, is mainly recognized when systems or equipment are delivered and accepted by customers Recurring revenue represent the following monthly recurring revenues: Internet Connectivity Services (Enterprise), Internet Connectivity Services (Consumer), Outsourcing Services, WAN Services, and Systems Operation and Maintenance Enterprise recurring revenue: Internet Connectivity Services (Enterprise) excluding MVNE, Outsourcing Service and Systems Operation and Maintenance, which excludes WAN Services due to the impact of specific factor. Internet Initiative Japan Inc. 99 39#41Cost of Sales & Gross Profit Ratio Unit: (JPY) million Financials [ ], YoY = Year over year comparison Gross Profit FY20: ¥40,282 million (+23.6%, +¥7,689 million YoY) •1Q: ¥8,113 million (+9.9%, +¥731 million YoY) • 2Q: ¥9,342 million (+19.5%, +¥1,524 million YoY) • 3Q: ¥11,342 million (+33.5%, +¥2,848 million YoY) • 4Q: ¥11,485 million (+29.1%, +¥2,585 million YoY) NW Services Cost of Sales: NW Services SI ATM Operation Business Gross profit ratio: NW Services SI Total Total 23.8% 22.5% I 19.9% 20.8% I 19.4% 16.4% 16.5% 17.4% 17.3% I 16.5% 20.2% 16.0% 18.2% 16.5% 16.4% 15.8% 16.1% 14.8% 15.1% 13.8% 14.4% 12.8% T 10.4% ¡10.5% FY19: 171,880 [+5.2%] FY20: 172,720 [+0.5%] 42,447 41,573 42,974 44,885 42,265 41,945 43,063 45,446 531 467 567 548 558 438 486 476 . FY20: ¥27,171 million (+36.5%, +¥7,264 million YoY) 1Q: ¥5,991 million (+19.4%, +¥972 million YoY) 2Q: ¥6,217 million (+23.6%, +¥1,186 million YoY) 3Q: ¥7,574 million (+43.9%, +¥2,311 million YoY) 4Q: ¥7,388 million (+60.9%, +¥2,796 million YoY) ✓ Onetime cost decrease impact was recorded in 3Q20 (¥0.70 billion) & 4Q20 (¥0.39 billion) as the mobile interconnectivity (unit charge) based on FY19 was fixed Onetime cost increase impact was recorded in 4Q19 (¥0.35 billion) as the mobile interconnectivity (unit charge) based on FY18 was fixed SI 18,473 16,219 15,523 17,370 19,525 16,884 16,506 18,282 I 25,661 25,493 25,057 25,881 24,943 24,953 24,305 25,455 I I I I I ➤ FY20: ¥12,087 million (+11.8%, +¥1,278 million YoY) 1Q: ¥1,991 million (+5.4%, +¥101 million YoY) • • 2Q: ¥2,786 million (+22.0%, +¥502 million YoY) 3Q: ¥3,478 million (+25.2%, +¥701 million YoY) 4Q: ¥3,832 million (-0.7%, -¥27 million YoY) ✓ In 4Q, recognized allowance for prospected personnel- related costs of ¥0.31 billion ATM Operation Business ➤ FY20: ¥1,024 million (-45.4%, -¥853 million YoY) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Internet Initiative Japan Inc. ✓ The COVID-19 pandemic impact was largest in 1Q with store closure and stay-at-home orders. For the remaining quarters were impacted by the scheduled removal of certain number of our ATMs and the government's request to refrain from going out 40#42Network Services (1) Revenues WAN Services Outsourcing Services Internet Connectivity Services (consumer) Internet Connectivity Services (enterprise) Total Mobile Revenue Total Contracted Bandwidth (Gbps) Unit: (JPY) million [ ], YoY = Year over year comparison QoQ = Quarter over quarter comparison Financials 6,624.1 5,869.0 6,021.9 4,272.0 4,454.0 4,745.7 5,115.9 5,288.7 FY19: 121,999 [+2.8%] FY20: 126,827 [+4.0%] 30,680 30,524 30,321 30,474 30,934 31,170 31,879 32,843 6,443 6,270 7,424 6,918 6,453 6,176 6,175 6,161 7,830 7,960 8,151 8,396 9,420 8,497 8,737 9,056 6,500 6,497 6,533 6,525 6,454 6,432 6,504 6,332 11,339 11,504 11,542 11,701 11,842 11,742 11,813 12,126 8,926 9,149 9,183 9,377 9,809 9,841 10,049 10,648 1Q19 2Q19 3Q19 4019 1Q20 2Q20 3Q20 4Q20 Internet Connectivity (Enterprise) ➤ FY20: ¥40,347 million, +10.1% YoY • IP (Dedicated connectivity services for enterprise): ✓ FY20: ¥12,171 million, +13.7% YoY +¥1.5 bn YoY 1Q +9.4%, 2Q +10.8%, 3Q +17.2%, 4Q +17.5% YoY IIJ Mobile (enterprise): ¥24,525 million, +8.5% YoY 1Q+10.2%, 2Q +6.0%, 3Q +6.2%,4Q +11.6% YoY - Of which, loT-related revenue: ¥7,807 million, +29.6% YoY - Of which, MVNE revenue: \16,718 million, +0.9% YoY Internet Connectivity (Consumer) (mostly consumer mobile) ➤ FY20: ¥25,722 million, -1.3% YoY Severe competition continued. Launched new consumer plans called "Giga Plans" (from Apr. 1, 2021) targeting MVNO customers' demand Outsourcing Services (in-house developed various NW services) ➤ FY20: ¥35,710 million, +10.4% YoY • 1Q +8.5%, 2Q +9.8%, 3Q +11.1%, 4Q +12.2% YoY Of which, security services: ¥18.42 billion, +12.7% YoY WAN Services ➤ FY20: ¥25,048 million, -7.1% YoY (-¥1,923 million YoY) 1Q-16.8%, 2Q -11.0%, 3Q -2.8%, 4Q +4.3% YoY Revenue decreased by the impact of the certain large clients' migration to mobile which ended in 3Q19. After overcoming the annual impact, 4Q20 revenue increased YoY Revenue gradually increased QoQ due to the demands to include WAN to enterprise NW 3Q +0.11 billion +1.8% QoQ, 4Q +¥0.17 billion +2.8% QoQ Total contracted bandwidth is calculated by multiplying number of contracts by contracted bandwidths respectively for IP service and broadband services which are both under Internet connectivity services for enterprise Internet Initiative Japan Inc. 41#43Network Services (2) Cost of Sales Circuit-related costs (Internet backbone, WAN lines etc.) Unit: (JPY) million [ ], YoY = Year over year comparison Financials 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, data center leasing costs etc.) FY19: 102,092 [+0.8%] FY20: 99,656 [-2.4%] 25,661 25,493 25,057 25,881 24,943 24,953 24,305 25,455 7,264 6,866 6,573 6,290 6,152 6,189 6,396 6,636 9,991 10,060 10,132 10,700 9,974 9,737 9,927 9,181 ➤ FY20 circuit-related costs decreased by 6.0% YoY, along with WAN revenue decrease Internet backbone purchasing cost remains stable as we can leverage scale merit by having one of the largest Internet backbone networks ➤ FY20 outsourcing-related costs decreased by 5.0%, ¥2.06 billion YoY along with mobile data interconnectivity YoY decrease (for details, please refer below) ➤ Others: Quarterly fluctuate along with the scale of supplies costs Regarding mobile data interconnectivity cost recognition: (MNO's mobile infrastructure cost. Please refer P.18 of this presentation material) 1,569 1,553 1,913 1,691 1,697 1,484 1,987 1,765 1,616 1,683 1,641 1,724 1,803 1,861 1,752 1,853 5,238 5,315 5,227 5,255 5,324 5,278 5,211 5,242 • 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 • • Future cost method adopted from FY20(*). In this method, mobile interconnectivity telecommunications charge is calculated by MNOS' prediction for their future costs and etc. (*) The difference between prediction and result is adjusted to the next fiscal year (FY20 usage charge is expected to be fixed around Jan. 2022) Regarding our FY20 usage charge, from 1Q20, we use the unit charge disclosed by Docomo based on the future cost method, which was a decrease of 16.0% from their FY18 unit charge FY19 usage charge, an internal number of FY20 usage charge described above, which is based on Docomo's FY19 results, decreased by 13.4% YoY (fixed in Jan. 2021). The difference between the result and our estimate were recorded as onetime cost reduction: 3Q20 (¥0.70 bn) & 4Q20 (¥0.39 bn). Remainingly, FY20 mobile data interconnectivity cost YoY decrease rate is 3.0% YoY based on future cost method. we expect to have cost reduction impact when FY20 usage charge is fixed (around Jan. 2022) Regarding our FY19 & FY18 usage charge, Docomo's mobile interconnectivity charge based on FY18 results was fixed in Mar. 2020 and it decreased by 6.0% YoY. We recorded ¥0.35 bn (*) of additional cost in 4Q19 as a difference between our estimate (8% decrease) and actual (6.0% decrease) (*) Includes difference between our estimate and actual mobile interconnectivity and other charge of Docomo and KDDI Internet Initiative Japan Inc. 42#44Systems Integration (SI) (1) Revenues Systems Construction (one-time) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Unit: (JPY) million Financials [ ], YoY = Year over year comparison Systems Operation & Maintenance (recurring) 1Q19 2Q 19 3Q19 4Q 19 1Q20 2Q20 3Q20 4Q20 Order backlog 8,709 8,696 9,064 9,646 9,763 7,507 7,650 8,330 46,514 46,220 48,357 49,981 51,341 51,995 54,564 42,853 FY19: 31,976 [+14.7%] FY20: 31,767 [-0.7%] 7,249 6,504 8,328 9,895 6,550 6,470 8,667 10,080 Revenues FY19: 46,418 [+11.1%] FY20: 51,517 [+11.0%] 10,860 11,302 11,819 12,436 12,325 12,822 13,093 13,277 4,691 5,136 5,439 5,649 5,539 5,682 6,038 6,193 Order received • 8,118 6,492 8,696 8,338 6,693 8,466 8,784 8,647 FY19: 31,643 [+9.3%] FY20: 32,590 [+3.0%] Systems construction's order backlog, revenue and order received include that of equipment sales. Systems construction's order received: Weak 1Q20 order received due to slowdown in business activity made 2Q20 order received stronger 1Q19 order received: A certain large scale project amounted to ¥2 billion 14,099 7,642 15,185 14,574 13,949 14,182 13,747 15,846 FY19: 51,500 [+13.6%] FY20: 57,724 [+12.1%] • Revenue written within systems operation and maintenance revenue is cloud revenue that is recognized in systems operation and maintenance revenue. ➤ Accumulating SI order received from all around industries, under the COVID-19 pandemic. Large-scale construction orders received in 4Q20 are as follows. • • • Branch offices' WAN & Internet gateway for a certain financial institution • Security enforcement of Internet gateway for a financial institution 5G infrastructure for Japanese Cable TV service providers • LAN (Local Area Network) for a central ministry • EC site migration to Cloud Many campus network for universities Many Office IT projects such as installment of Microsoft 365 etc. O Internet Initiative Japan Inc. 43#45Systems Integration (SI) (2) Cost of Sales Purchasing costs (Equipment etc.) Outsourcing-related costs (SI-related outsourcing personnel costs etc.) Others Unit: (JPY) million [ ], YoY Year over year comparison Network operation-related costs (Depreciation cost such as for cloud facility, data center leasing cost etc.) Personnel-related costs (SI-related engineers' personnel cost) FY19: 67,584 [+12.9%] FY20: 71,197 [+5.3%] 16,219 15,523 17,370 18,473 16,884 16,506 18,282 19,525 5,371 4,495 5,305 4,141 3,056 4,742 4,277 2,962 6,751 5,535 5,753 5,913 6,045 5,813 6,223 6,324 860 1,177 1,508 1,521 1,483 1,590 1,680 1,891 3,173 3,189 3,057 3,083 2,978 2,951 2,922 2,801 2,374 2,443 2,396 2,519 2,469 2,686 2,614 2,711 1Q19 2Q 19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Number of SI-related outsourcing personnel at the end of each quarter 1Q19 2Q19 3Q19 4Q19 1Q20 1,075 1,104 1,065 1,123 1,094 2Q20 3Q20 4Q20 1,181 1,236 1,270 (Unit: personnel) Internet Initiative Japan Inc. Financials ➤ By keeping high SE utilization rate, gross profit ratio has been improving quarter by quarter • In 4Q20, recognized allowance for prospected personnel-related costs of ¥0.31 billion ➤ Others increased mainly due to an increase in license costs along with expansion of multi-cloud demands 44#46Number of Employees Contract worker (personnel) Full time worker (personnel) 3,537 3,562 3,585 3,583 I +230 231 243 251 255 I 3,306 3,319 3,334 3,328 2019/6 2019/9 2019/12 I I I I 3,795 3,780 3,804 3,805 +222 253 256 257 258 3,542 3,524 3,547 3,547 2020/3 2020/6 2020/9 2020/12 Financials YoY Year over year comparison ➤ Hired 190 new graduates in Apr. 2021 . 210 in Apr. 2020, 171 in Apr. 2019 ➤ FY21 net addition of employees is planned to be approx. 290 Employee Distribution Sales 17% 2021/3 Admin. 12% • • Personnel-related costs & expenses Unit: \(JPY) million ( ) = % of revenue 1Q20 2Q20 3Q20 4Q20 1Q19 2Q19 3Q19 4Q19 6,402 6,573 6,443 6,911 6,835 (12.8%) (13.3%) (12.5%) (12.8%) (13.6%) FY19: 26,329 (12.9%) +10.0% YoY 7,281 7,032 7,405 (14.2%) (12.9%) (13.0%) FY20: 28,553 (13.4%) +8.4% YoY FY19 personnel-related costs and expenses increased relatively strong due to the revision of personnel remuneration structure FY20 personnel-related costs and expenses increased slightly stronger compared with the ordinary YoY increase rate due to the additional bonus along with profit results etc. Engineers 71% ➤ 4Q20 & 2Q20 personnel-related costs and expenses increased from previous quarter, respectively, mainly due to additional provision for employee bonus (based on financial results) Internet Initiative Japan Inc. 45#47SG&A etc. Research & development expenses Commission expenses Others Personnel expenses ( ) % of total revenues FY19: 24,076 [+6.3%] Unit: (JPY) million Financials [ ], YoY =Year over year comparison Other than the left, we had ¥0.54 billion of expenses, as other income/expenses (net) in FY20 ⚫ FY20 other expenses include \0.64 billion due to disposal (FY19: ¥0.47 billion) FY20: 25,491 [+5.9%] 7,163 (11.4%) (12.6%) 6,042 5,859 5,780 6,396 (12.1%) (11.9%) (11.2%) (11.9%) 6,049 6,075 6,204 (12.0%) (11.8%) 139 125 103 96 111 110 112 1,164 113 995 833 1,043 895 880 850 829 2,993 2,388 2,596 2,450 2,422 2,430 2,596 2,474 2,446 2,446 2,407 2,680 2,584 2,727 2,663 2,867 1Q19 2019 3Q 19 4Q19 1Q20 2020 3020 4020 SG&A etc. in this slide shows the sum of SG&A which includes R&D expenses (not including other income/expenses) Research & development expenses only include the operational personnel cost of IIJ Innovation Institute Inc., consolidated subsidiary ➤ Commission expenses are mainly consumer sales commissions and recruitment expenses. No significant YoY increase under the consumer mobile situation ➤ Others decreased as traveling expenses (domestic and abroad), advertising expenses and others were small due to work style reform and expense control. As for 4Q20, advertising expenses for consumers increased ➤ 4Q20 SG&A etc. increased from 3Q20 as we had additional provision for bonus, sales promotion fees, M&A advisory fees, advertisement expenses and taxes and dues Internet Initiative Japan Inc. 46#48Profit Operating profit Operating profit ratio Net Profit (Profit for the period attributable to owners of the parent) 9.0% 7.2% 6.2% 5.3% 4.0% 4.0% 4.1% 2.8% Unit: (JPY) million bn = billion Financials [ ], YoY =Year over year comparison Operating profit • FY20: ¥14,248 million, +73.2% YoY 4Q20 operating profit includes onetime factors such as \0.39 bn of decreased cost in mobile interconnectivity (3Q20: ¥0.70 bn), ¥0.20 bn of disposal loss (3Q20: ¥0.29 bn), ¥0.31 bn of additional provision for bonus, and approx. \0.1 bn of M&A advisory fees ➤ FY20: ¥14,035 million, +96.0% YoY Interest expense: -¥580 million • Gain on funds: +¥479 million FY19 Operating profit: 8,225 [+36.6%] FY20 Operating profit: 14,248 [+73.2%] • Foreign exchange gain: +¥138 million • Dividend income: +¥98 million Interest income: +¥45 million FY19 Net profit: 4,007 [+13.8%] FY20 Net profit: 9,712 [+142.4%] 403 306 273 Equity method investment loss of DeCurret: ¥629 million ✓ Equity in net loss of DeCurret (Unit: \ (JPY) million): 4Q19 1Q20 2Q20 3Q20 4Q20 193 207 4,888 4,120 3,835 3,192 3,107 2,708 2,165 1,971 2,047 1,598 1,654 1,381 980 1,116 777 653 - IIJ ownership: 4Q19 30.0%, from 1Q20 41.6%, from 1Q21 38.2% is planned to be used to recognize gain and loss Other than above, in 4Q20, gain on changes in equity of ¥349 million arisen from the issuance of common stock is recognized Equity in net profit of JOCDN: Turned to positive in 2Q20, \28 million in FY20 (IIJ ownership: 16.8%) Net profit ➤ FY20: ¥9,712 million, +142.4% YoY Income tax expense:-¥4,234 million (FY19: -¥2,965 million) ✓ Of which, tax reduction due to employment promotion taxation: +¥306 million (FY19: +\237 million) ✓ Of which, deferred tax benefit: +¥384 million (FY19: + \70 million) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 (124) (51) 92 (177) 112 (245) (234) (439) (74) (279) (135) (286) (543) (642) (922) (858) (572) (49) (53) (46) (39) (6) (1,084) (34) 186 (313) (1,625) 368 Finance income (expense), net 319 Share of profit (loss) of investments accounted for using equity method (952) Income tax expense (29) (21) Less: Profit for the period attributable to non-controlling interests Internet Initiative Japan Inc. 47#49Consolidated Statements of Financial Position (Summary) Financials Unit: (JPY) million Changes • Cash and cash equivalents Trade receivables Inventories Prepaid expenses (current and non-current) Tangible assets Right-of-use assets Goodwill and intangible assets Investments accounted for using the equity method Other investments Others Mar. 31, 2020 38,672 Mar. 31, 2021 42,467 +3,795 32,585 34,799 +2,214 2,476 2,171 (305) 17,475 20,136 +2,661 17,400 17,084 (315) 50,560 50,708 +147 24,363 23,037 (1,326) 4,827 9,027 +4,200 9,187 12,912 +3,726 8,979 8,436 (543) Total assets: 206,524 220,777 +14,253 Trade and other payables 18,288 19,244 +956 Borrowings (current and non-current) 27,750 25,560 (2,190) Contract liabilities and Deferred income (current and non-current) Income taxes payable 12,457 14,832 +2,374 2,284 3,012 +729 Retirement benefit liabilities 3,985 4,169 +184 Other financial liabilities (current and non-current) 54,151 53,527 (624) Others 7,553 9,462 +1,909 Total liabilities: 126,467 129,806 +3,338 Share capital 25,531 25,531 Share premium 36,271 36,389 +117 Retained earnings 16,501 25,047 +8,546 Other components of equity 2,670 4,865 +2,196 Treasury shares (1,897) (1,875) +22 Total equity attributable to owners of the parent: 79,076 89,956 +10,881 Ratio of total equity attributable to owners of the parent: 38.3% as of March 31, 2020, 40.7% as of March 31, 2021 Internet Initiative Japan Inc. 48#50Consolidated Cash Flows Operating Activities Unit: (JPY) million Financials YoY Year over year comparison FY19: 33,394 FY20: 40,544 Major Breakdown YOY Change 1Q19 2019 3Q19 4Q19 1Q20 2020 3020 4020 Profit before tax 14,035 +6,876 11,657 11,635 Depreciation and amortization 27,974 -546 9,863 9,901 8,144 8,343 9,145 Equity method loss (gain) 408 -398 5,250 Changes in operating assets and liabilities Income taxes paid 1,513 +2,422 (3,912) -1,301 Investing Activities FY19: (7,265) FY20: (13,216) Major Breakdown YOY Change 1Q19 2019 3Q19 4Q19 1Q20 2020 3Q20 4Q20 Purchase of tangible assets (6,391) +806 T (804) (2,141)(1,946) (2,373) (1,954) (2,371) Purchase of investments accounted for using equity method (4,754) -3,886 (4,592) (4,298) Purchase of intangible assets such as software Proceeds from sales of tangible assets (4,617) +25 2,499 -272 Financing Activities FY19: (19,354) FY20: (23,618) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4020 Major Breakdown YOY Change (2,097) Payment of operating/finance leases and other financial liabilities (20,168) +388 (5,042) (5,200) (5,167) (4,587) Repayment of borrowings (2,190) -3,190 (7,015) (6,802) (7,062) Dividends paid (1,533) -316 Internet Initiative Japan Inc. 49#51Other Financial Data CAPEX Cash CAPEX Finance lease FY19: 15,150 FY20: 15,151 4,464 3,530 3,690 3,466 3,234 4,060 3,643 4,213 Financials Unit: (JPY) million CAPEX-related depreciation and amortization FY19: 14,422 FY20: 14,457 3,563 3,633 3,565 3,660 3,610 3,622 3,621 3,604 3,273 1,239 1,507 1,608 1,906 1,765 2,030 1,859 2,291 2,183 2,453 1,701 2,308 1,191 1,375 1,612 1Q19 2019 3Q19 4Q19 1Q20 2020 3020 4020 While FY20 CAPEX was initially planned to be around ¥16 billion including ¥3 billion of additional placement of modules for Shiroi data center, it landed in ¥15.2 billion FY21 CAPEX plan: approx. ¥17.5 bn, Expect to increase YoY as some FY20 investments such as ¥1.2 bn of Shiroi DC and NW are slided over 1Q19 2Q19 3Q19 4Q19 1020 2020 3Q20 4Q20 Adjusted EBITDA (Unit: JPY billion) NW Usual Capex FY19 FY20 9.6 8.8 Cloud-related 2.6 2.8 Shiroi DC-related 2.0 1.5 SI customer-related 0.7 1.7 ATM-related 0.3 0.3 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 assets that 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 and customer relationship. Adjusted EBITDA is calculated by adding operating profit and CAPEX-related depreciation and amortization. FY19: 22,647 FY20: 28,705 4,944 5,604 6,273 5,825 5,658 6,814 8,509 7,724 Internet Initiative Japan Inc. 1Q19 2Q19 3Q19 4Q19 1Q20 2020 3Q20 4Q20 50#52Service & Business Developments: Mobile & Security % = Year over year Taking advantage of full-MVNO, enterprise mobile revenues continued to increase Strengthening customer appeal with new consumer mobile plans ➤ Total mobile subs. on March 31,2021: 3,251 thousand (+7.3%) FY2020 total revenue: ¥47.52 billion (+3.1%), of which full-MVNO revenue: ¥2.17 billion (+54.3%) Subscriptions (unit: thousand) 1,072 1,091 1,105 1,107 1,124 1,123 Enterprise 1,119 1,046 1,110 mobile 099 1,074 1,076 1,073 1,075 MVNE 1,063 1,045 968 1,037 1,034 923 843 IUmio Revenues (unit: \ billion) Enterprise mobile MVNE ■IUmio 711 651 637 FY19: 6.02 (+23.8%) 1.42 1.48 1.45 1.67 4.07 4.16 4.20 4.14 FY19: 16.57 (+13.9%) FY20: 7.81 (+29.6%) 1.67 1.81 2.03 2.29 4.37 4.18 3.97 4.20 FY20: 16.72 (+0.9%) 5.85 5.86 5.89 5.88 5.80 5.75 5.81 5.63 FY19: 23.49 (+4.2%) 1Q19 2019 3019 4019 --------- FY20: 23.00 (-2.1%) 2Q20 3Q20 4020 comparison Financials bn = billion Enterprise mobile (included in the left graph) High revenue growth rate continued by leveraging full-MVNO functions • • Continuously accumulating Soft/Chip SIM projects Strong demands for remote monitoring using NW camera continuing, Also seeing demands for remote management demand to realize automation and man power reduction Expanding loT service solution ✓ HACCP solution, automatically collecting temperature data, detect and report abnormal situation, for food industry (Jul. 2020) ✓ Solution to reduce factory facility maintenance cost and improve productivity "IIJ Industrial IoT Secure Remote Management" (Aug. 2020) Demands to fully implement remote-work continuing ➤ Launched enterprise eSIM services (Apr. 2021) Enterprise mobile subs. & revenue: 40-end subs. (unit: thousand) 276 515 843 1,110 627 1020 7.81 (+29.6%) MVNE: IIJ Mobile MVNO Platform Services (providing mobile services to other MVNOs) Enterprise mobile: Deducting MVNE from IIJ Mobile 6.02 (+23.8%) 2.29 FY2020 Full-MVNO revenue recognition: 96% enterprise mobile, 4% IIJmio Consumer mobile plans (IlJmio) Revenues 4.86 (+29.6%) 1.67 3.75 ➤ New mobile plans "GigaPlans" from Apr. 1, 2021 (Old plan's user migration from (unit: \bn) May 1), As of May 6:. 350 thousand subs., of which. 15% are new users (approx.) ➤ FY21 expectation: more than half of old plan users to migrate to the new plan, IlJmio monthly net addition to be a few ten thousands 3.15 (+19.0%) 2.03 1.39 (+25.3%). 1.45 40 1.06 0.83 1.24 1.81 3Q 0.96 1.48 0.82 1.15 MVNE ➤ Smaller than initially expected negative impact (-¥1.4 billion YoY) of large MVNE client switching to another operator due to M&A, Expect to see visible impact in FY21 20 0.79 0.86 110 0.71 0.87 1.09 1.42 1.67 FY16 FY17 FY18 FY19 FY20 O Internet Initiative Japan Inc. 51#53Service & Business Developments: M Developments: Mobile data interconnectivity charge Mobile data interconnectivity cost (Mbps unit charge-monthly) YoY change Financials Fiscal Year Method FY18 FY19 FY20 Actual cost method (*1) ¥49,311 New - 6.0% ¥42,702 - 13.4% FY21 FY22 FY23 Future cost method (*2) ¥41,436 ¥28,385 - - 3.0% 31.5% ¥22,190 - 21.8% - ¥18,014 18.8% Docomo Old ¥49,311 - 6.0% ¥42,702(*1) - 13.4% Expected to be fixed in Jan. 2022 ¥41,436(2) 3.0% -14.5% ¥33,211 - 19.8% -20.5% ¥27,924 - 15.9% Decrease by 16.0% ¥52,949 ¥42,154 (1) (*2) ¥32,842 New - 13.3% - 20.4% - 22.1% KDDI ¥52,949 ¥42,154 (1) Old - 13.3% - 20.4% ¥32,8422) -22.1% (*2) ¥27,790 15.4% ¥26,827 - 18.3% -3.5% ¥21,983 - 18.1% -13.4% ¥25,394 ¥18,419 - 16.2% - 8.6% • • • • • Decrease by 38.0% The same calculation method is applied to actual cost method & future cost method: (Data communication cost + profit) /demand About actual cost method: Calculated based on MNOs' actual cost etc. and applied retrospectively. FY19 usage charge (*1), which is based on MNOS' FY19 results, was fixed in January 2021 and recognized in our FY20 financial results (Recognized as a difference between our estimate and result). About future cost method: Calculated based on MNOs' mobile unit charge prediction for next three years, which is based on MNO's future cost etc. It is applied from FY20. Mobile unit charge is fixed based on MNO's actual cost etc. and the difference between prediction and result is revised. For FY20, FY21, and FY22, mobile unit charge prospects by future cost method (described as "Old" above) were announced March 2020. For FY21, FY22, and FY23, mobile unit charge prospects by future cost method (described as "New" above) were announced April 2021. FY20 usage charge (*2), which is based on MNO's FY20 results, will be fixed in around January 2022 and recognized in our FY21 financial results (correctively recorded as a difference between our estimate and result). • Mobile interconnectivity charge, which is underlined above, is fixed based on the result Internet Initiative Japan Inc. The decrease percentage in mobile interconnectivity charge described above is compared with the previous year 52#54Service & Business Developments: Security & Cloud Security service (recurring) revenue continued to increase Triggered by expansion of IT usages, demand for security services increasing Financials Cloud service (recurring) revenue steadily increased Continued revenue growth as enterprises migrate to and adopt cloud services 16.35 18.42 (+12.7%) With strong revenue growth of Multi-Cloud, Raptor and other services, total cloud revenue exceeded forecast at the beginning of FY2020 (¥24.5 bn) 26.20 (+11.1%) 23.58 (+17.1%) (+15.9%) 14.11 20.13 6.91 4.82 12.07 (+16.9%) 17.94 (+12.2%) 6.31 4.24 15.66 (+14.6%) (+26.2%) 5.27 9.57 3.79 (+11.1%) 4.66 4.74 6.74 (+10.9%) 3.21 6.11 4.16 4.07 5.10 □ 40 2.58 3.67 4.57 3.06 4.56 3.96 6.36 □ 3Q 2.37 4.03 04Q 5.81 3.39 4.93 2.99 130 4.36 3.83 ■20 2.32 ■20 10 2.29 2.81 3.26 3.91 4.38 10 3.80 4.26 4.83 5.35 6.19 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 Total scale of security • 14.62 16.77 19.18 21.47 revenue (NW services + SI) FY20 & FY21 Cloud revenue include slight revenue decrease factor in relation to Cloud service facility migration from old to new Strong growth in FY17 was mainly due to "Information Security Cloud" projects. As for FY20, demands to expand NW seemed more urgent than security implementation Security service revenue is 100% recognized in Outsourcing services Breakdown of FY20 Security service revenues . 4Q20 Cloud revenue recognition: 89.6% SI systems operation & maintenance, 10.4% Outsourcing services Breakdown of FY20 Cloud service revenues Multi-cloud, GIO P2, VMware Others Mail Fire Wall Full-outsourcing of mail systems, protected delivery/anti-threat email, sandboxing, etc. Private Mail 13% Raptor 18% virtualization platform, high value-added services such as integrated operation and monitoring, etc. 31% Network Web DDoS protection, IPS/IDS, WAF etc. Public Gateway Public 10% Low cost, volume billing server, etc. 23% Web Network 28% GW Full-outsource of web security, URL filtering, anti-virus protection etc Private 69% Raptor Managed firewall services, FW Anomaly detection etc SaaS type FX trading platform. Providing to 22 online brokers such as Hirose Tusyo, LINE Securities, au Kabucom Securities, Nomura Securities, Sony Bank, SMBC Nikko Securities, Matsui Securities Internet Initiative Japan Inc. 53#55Services and Business Developments IP service revenue growth rate accelerating Triggered by expansion of IT usages, in/out enterprises' Internet traffic is increasing. Higher bandwidth by enterprises is to continue bn = billion (*) Based on IFRS except for FY16 (U.S.GAAP) Financials Accumulating large scale projects by cross-selling NW&SI Meeting enterprise NW systems that are becoming more complexed and diversified with in-house developed NW services and SI Received a multiple year project (total revenue ¥5.4 bn) Backup, BCR East Japan region West Japan region Number of 791 769 contracts for 743 greater or equi 709 690 to 1Gbps as of 40-end 9.77 10.14 10.57 Revenues (+1.0%) (+3.8%) (+4.2%) 10.70 (+1.2%) 12.17 (+13.7%) II multi product Controller service Internet Future expansion 3.18 Web Security Internet Gateway (unit: \bn) 2.44 2.55 2.65 2.71 Sandbox Firewall 04Q 3.14 2.46 2.56 2.71 2.68 AWS GCP Unified Operation Mngt. (UOM) Security operation center 3Q Multi-Cloud 2.47 2.51 2.63 2.68 2.97 20 10 2.40 2.49 2.58 2.63 2.88 Private WAN (Carrier B) Public servers Security for II] Backbone public severs IIJ Omnibus IIJ Omnibus Closed WAN (Carrier A) Mobile WAN 200 II C-SOC FY16 FY17 FY18 FY19 FY20 Close network IIJ GIO • IP 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 IP service revenue is 100% recognized in Internet connectivity services (Enterprise) Overseas business FY20: Revenue ¥8.32 bn, Operating Profit ¥0.38 bn ➤ Due to the COVID-19 pandemic, weak SI revenue, accumulate recurring revenues such as NW services ➤ Along with service accumulation and cost control, profit grew Plan to enhance ASEAN business with M&A of prominent Singaporean Sler ➤ PTC SYSTEM (S) a new consolidated subsidiary (Apr. 2021) Acquisition price: SGD44 million ➤ Most recent earnings (preliminary) Revenues: SGD100.4 million, Profit before tax: SGD5.1 million FY21 Target: Revenue ¥18 bn, Operating Profit ¥0.9 bn (approx.) ➤ Amid the ongoing uncertainty under the COVID-19 pandemic, expect to have group synergy with PTC and accumulation of recurring revenue such as global SASE services DeCurret 11J mobile 1J mobile Client's branches (overseas) Client's branches (over 100) Client's datacenter IIJ mabile Raised funds (Mar. 2021) by ¥6.7 bn to set up digital currency business and enhance partnership (IIJ invested ¥2 bn) ➤ New shareholders: NTT, SBI HD, Japan Post Bank, Mitsubishi Corp. SECOM ➤ Former head of FSA, Mr. Endo, became DeCurret's special advisor Equity in net loss of DeCurret (unit: \ million) 4Q19 403 1Q20 306 2Q20 3Q20 4Q20 273 207 193 ➤ Along with transaction increase, loss is gradually diminishing, Started offering order book trading services which show competitive pricing - expect to start up cryptocurrency trading business FY21 Target: turned positive in 4Q • Other than left, in 4Q20, gain on changes in equity of ¥349 million arisen from the issuance of common stock is recognized ➤Will use 38.2% to calculate equity in net profit (loss) of DeCurret O Internet Initiative Japan Inc. 54#56The old and new plans for consumer mobile Appendix Comparison table of basic monthly fees of consumer mobile service *Excluding consumption tax Old Plans New Plans with Voice ¥780 with Voice ¥1,600 Minimum Start Plan 2 GigaPlan Data-only ¥680 (3GB) Data-only ¥900 with Voice ¥980 4 GigaPlan Data-only ¥880 with Voice ¥2,220 Light Start Plan (6GB) with Voice ¥1,380 8 GigaPlan Data-only ¥1,280 Data-only ¥1,520 with Voice ¥1,680 15 GigaPlan with Voice ¥3,260 Data-only ¥1,580 Family Shere Plan (12GB) with Voice ¥1,880 Data-only ¥2,560 20 GigaPlan Data-only ¥1,780 (Note) The above table briefly indicates service prices for major functions to show the differences between the old and new plans. Internet Initiative Japan Inc. 55#57Data Centers (1) IIJ operates data centers in Japan and overseas • Appendix Except for Matsue DCP and Shiroi DCC, IIJ lease data center space from data center owners, mainly on floor basis ➤ In 2011, IIJ built Japan's first container- based modular data center using an outside air-cooling system, eco-friendly DC . Modular approach allows flexible expansion and short-term construction with low cost IIJ has exported container modular center to overseas including the People's Republic of Laos (2016) to help them set up IT infrastructure Data Center Locations domestic locations Tokyo Tokyo DC 1 (Toyocho) Shibuya DC Ikebukuro DC Shiohama DC Nerima DC Mitaka DC Sapporo Higashi DC overseas locations 300 London San Jose 1140 000006 5 2583 New York Los Angeles Singapore Kyoto DC Matsue DCP Shiroi DCC Fukuoka Airport DC Internet Initiative Japan Inc. Osaka Shinsaibashi DC Doujima DC Kozu DC Moriyama DC Yokohama Yokohama DC 1 (Kohoku) Yokohama DC 2 (Tsuzuki) 56#58Data Centers (2) IIJ's second modular container data center Name Address Land Racks Accommodation Investment Plan Schedule Shiroi Data Center Campus (In operation since May 2019 ~) Shiroi city, Chiba prefecture Approx. 40,000 m Can accommodate up to 6,000 racks Phase 1: approx. 1,000 racks with approx. JPY8.0 bn CAPEX Service facility, data center housing services etc. Mainly to meet the middle-to-long term eastern Japan data center demand FY18 approx. JPY3.0 bn (power receiving facility, common facility racks etc.) Gradually place system module-based*1 facility accordingly with demand Completed in April 2019, opened in May 2019 Estimated PUE*2 Less than Matsue DCP's 1.2 Purposes Integrate racks, currently spread out in the eastern Japan area's data centers . • Future cost should be approx. 20% lower than continuously expanding leasing space and with improved operation productivity Absorb increasing rack demand along with further penetration of cloud & lot Competitive advantages with latest technologies • Improved facility with outside-air cooling technology & Al for cooling & energy control, and automated operations with robotics technology etc. Impact on IIJ's consolidated financial results • • Appendix While CAPEX and cash flow will be impacted, this is without new investment return risk because it's an integration of our current service facilities Suppress incremental cost and ensure business expansion scalability for the future Matsue DCP's annual average PUE PUE 2.2 2.0 1.8 1.6 1.483 1.4. 1.2 1.0 0.8 0.6 0.4 0.2 Reference PUE of conventional data centers. Reference PUE of data centers upgraded with high-efficiency facilities 1.426 1.240 1.209 1.217 0.0 2015 2016 2017 2018 2019 FY *1 Construction method systematizing the overall building production by standardizing the components used in the buildings' construction. This allows shorter construction times, cost saving, and flexible scalability while maintaining quality *2 PUE (Power Usage Effectiveness) is a metric, calculated by dividing overall data center power consumption by IT equipment power consumption, indicates the efficiency of power use at data centers. The smaller the figure, the lower the percentage of power consumed by equipment other than IT devices. O Internet Initiative Japan Inc. 57#59Systems Integration (SI) Appendix Offer Sl as a cross selling element to fully meet Japanese enterprise' IT needs Sl clients are companies already using our network services Do not depend on particular industry to generate revenue, just like the overall customer portfolio, because IIJ offers systems needed by any industry like Office IT. ➤ Most of SI projects are Internet related such as Office IT, online service platforms, large-scale website, etc. Internal system and/or large-scale application development, main frame related projects are covered by legacy system integrators Sometimes co-work with legacy Sler on large-scale projects in which they cover application development part and IIJ covers Internet related system construction Business Model Revenue • Cost Construction (one-time): recorded upon constructed system is received by a client. Operation and Maintenance (recurring): systems constructed by IIJ will be operated and maintained by IIJ as well • Profit • • Each SI project's cost differ. Make estimate for each project ✓ Costs are consisted of purchasing, outsourcing personnel, personnel, and depreciation and amortization SI profitability to improve as we accumulate the revenue of operation and maintenance, which profitability is higher than construction profitability Construction profitability is lower because of bidding process etc. Internet Initiative Japan Inc. 58#60Sales Activity for Public Sector Long and enduring relationship < Appendix We have been providing reliable Internet connectivity services to central government agencies and local governments from the early 1990s They are also using our security services such as firewall services and 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 • Hyogo Prefecture • Kumamto City and others ➤ 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 • Kanagawa prefecture in the Tokyo Metropolitan area Many other various projects • Official web page for Shibuya City • Reliable Internet connectivity environment for Ota city • Campus network for universities/colleges 59 Internet Initiative Japan Inc. 59#61Overseas Business Revenue and operating profit Revenue Operating Profit (OP) FY 20 FY14 FY15 FY16 FY17 FY18 FY19 target M&A (Apr. 2021) Singaporean Sler ➤ Additional revenue JPY0.85 billion Additional OP JPY0.8 billion FY16 and before: US-GAAP, FY17 and after: IFRS Revenue mostly recognized in SI Unit: JPY billion 18.0 New York Business Developments Appendix Started focusing on overseas business around FY2011 when Japanese companies who started to expand their business overseas and requested us to provide the same service quality we offer in Japan ➤ Business in Asia: gradually growing • • Increasing demand for NW, SI and etc. in China and Thailand, related to Japanese customers Indonesia: Large public infrastructure SI project, cloud business gradually growing Vietnam: Cybersecurity Law (Jan. '19), Opened another facility in Hanoi in addition to existing Ho Chi Min In Apr. 2021, bought a Singaporean system integrator, PTC - expect to strengthen ASEAN business Provide cloud services in Indonesia, Thailand and Vietnam. Working with local prominent IT companies • With Biznet Networks in Indonesia (from March 2015) •With T.C.C. Technology Co., Ltd, in Thailand (February 2016) • With FTP Telecom Partner in Vietnam (November 2016) 8.3 7.6 6.4 6.1 5.3 0.0 0.1 0.4 0.9 4.9 (0.8) (0.5) (0.2) Overseas offices London Düsseldorf Los Angeles San Jose Bangkok Singapore Shanghai Hong Kong Hà Nội Jakarta O Internet Initiative Japan Inc. 60 60#62ATM Operation Business Business 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 • 9,630 Pachinko parlors in Japan as of December 31, 2019 (source: National Police Agency) Receive commission for each withdrawal transaction Appendix Trust Networks Inc. ➤ In charge of ATM operation business ➤IIJ's ownership: 80.6% Established in 2007 Revenue and Operating Income FY20: Revenue significantly decreased from FY19 as the stores we had placed ATMs were closed temporally and fewer customers visited the stores due to the COVID-19 pandemic and stay-at-home-order/request. We also had expected impact from removal of certain number of ATMs which was not triggered by the pandemic. The profit decrease during April and May were severe, as expected. The stores started reopening from June. For FY21, we expect same level of revenue and operating profit as FY20 FY16 and before: US-GAAP, FY17 and after: IFRS Revenue Operating Profit Unit: JPY billion FY14 FY15 FY16 FY17 FY18 FY19 FY20 COVID-19 pandemic etc. 3.9 4.1 4.0 4.2 4.1 3.6 2.9 0.9 1.1 1.2 1.5 1.6 1.6 0.8 O Internet Initiative Japan Inc. Trust Networks 銀行 ATM 61#63ILJ Internet Initiative Japan The internet started in Japan in 1992, along with IIJ. Since that time, the IIJ Group has been building the infrastructure for a networked society, and with our technical expertise, we have continued to support its development. We have also continued to evolve our vision for the future and innovate to make it a reality. As an internet pioneer, IIJ has blazed the trail so that others could realize the full potential of a networked society, and that will never change. The middle "I" in "IIJ" stands for "initiative," and IIJ alway starts with the future. 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 and managements' 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.