Oracle Corp Japan

Hello, everyone. I'm Nishio from Nihon Oracle IR. From now on, Nihon Oracle will hold a second half-term settlement explanation session in May 2024. As for the disclaimer, it is as described in the mid-term summary of the settlement summary and the report of achievements. Today, I will explain the achievements of this period from CFO S. Krishna Kumaru, who is the executive director of Saikozaimu. Next, I will answer your questions using the Zoom Q&A function. Now, I'd like to turn this call over to KK, Senior Vice President, JPEG, and Japan CFO.

Thank you very much, Nishio-san. Good afternoon, everyone, and welcome to Oracle Japan's second quarter and fiscal year 2024 earnings conference call.

We had an excellent quarter, which is accelerated by the growth of our cloud services. Let me give you a few highlights.

Oracle was named leader for the fifth time in 2023 Gartner Magic Quadrant for Cloud ERP for product and centric enterprises.

I would like to introduce some highlights. Oracle has been selected as the leader of Gartner's 2023 Magic Quadrant in the cloud ERP, which is an enterprise-based cloud ERP area.

And Oracle was also recognized as a leader for strategic cloud platform services and cloud infrastructure services.

Similarly, in Japan, now our status has been established as one of the hyperscalers.

We have become the enterprise technology vendor of choice because we have products and services that help our customers drive cost efficiency and modernize their businesses.

The customers recognize that they can get more value while paying less by moving to our cloud services. お客様はより少ない資金でもってより多くのものを得ていくことができる。 特に弊社のクラウドサービスに移行することでそれを実現することができるということを認識されています。 We had a lot of marquee cloud customers in various industries, especially financial industries, manufacturing and public sector. Now, I will be sharing some customer references that were released recently.

First one is payroll. Payroll is a provider of payroll and related outsourcing services. and has been growing since it was founded in 1989 with 255 companies and a million users of its outsourced payroll services as of March 31, 2023.

The first one is Payroll. Payroll is a provider of payment and outsourcing services. It has been growing since its founding in 1989. As of March 31st, 2023, 255 companies,

The company has newly implemented and began operating Oracle Exadata Cloud at Customer, a hybrid cloud solution of Oracle Cloud Infrastructure, as the database foundation for its payroll system.

And this customer is starting the operation of Oracle Exadata Cloud at Customer. This is Oracle Cloud Infrastructure. The infrastructure is the basis of the payroll system database. It is a hybrid cloud solution.

By installing Exadata clouded customer hardware within the company's data center, an environment has been created that allows highly confidential data to be stored in-house while providing high processing capacity with low latency.

In addition, the availability of managed database provided on OCI

has reduced the operational and management burden.

Number two, Ryobi Systems.

Ryobi Systems, a provider of information services for public medical and social security sectors, as well as for private sector, will collaborate with Oracle Japan on migration of local government systems to government cloud.

The next one is the nursing system. It is a provider that provides information services to public institutions, medical institutions, the social security industry, and private companies. The government cloud will support local governments by cooperating with Nihon Oracle.

The latest version of Ryobi Systems Community Health Management System for municipalities and insurers, Kenco Karude Version 8, will be compatible with Oracle Cloud Infrastructure, which has been adopted as Government Cloud.

And the local medical management system of the nursing system, which is provided by local governments and health insurance companies, is the latest version. It is the Oracle Cloud Infrastructure OCI, and it is compatible with Oracle Cloud Infrastructure OCI. This is adopted in the form of a government cloud.

By adding OCI as an option for government cloud support for Kenko Karute, which is used by more than 700 municipalities nationwide, both companies will strengthen their value offerings in the municipal domain.

By adding OCI as an option for government cloud support, this will be used by more than 700 local governments. Both companies will strengthen the value offering in the domain of local governments.

Number three, the National Institute of Advanced Industrial Science and Technology, AIST.

AIST will revamp its new financial accounting system with Oracle Fusion Cloud ERP. AIHT's mission is to create innovation through social implementation of science and technology and to contribute to strengthening Japan's industrial competitiveness. The financial accounting system, which is the target of the restructuring, had its operations

divided into several separate systems, which required restructuring to screen inconsistencies and data integration.

The financial management system will be rebuilt this time. Previously, the operation was divided into multiple different systems, but we will rebuild that part. Previously, the screen was not consistent, and this time we will also integrate the data.

Therefore, it was decided to adopt Oracle Cloud ERP as the accounting system using our cloud so that they can digitize a series of financial accounting-related business processes.

今回、オラクルのクラウドERPを用いることによりまして、 財務関係の関連のビジネスプロセスの包括的なデジタル化を進めていくことになります。

This was just to give you a sense of the broad outreach in the market that we have with our different products and services and to underline Oracle's presence in most mission-critical systems, applications, and industries.

I would like to introduce just one example here, but I think you can understand that there is a wide range of reach in the Japanese market. With various products and services, Oracle's presence has been an example that you can feel this presence in the machine-related mission-critical energy system application industry.

Now, let me move on to the numbers. Total revenue, JPY 117 billion, 419 million yen are growing at 8.9% compared to the previous year, given strong growth in our cloud revenues.

またまず総売上高になりますが 1174億1900万円となっていまして 前年対比8.9%の伸びとなっています クラウドの売上高が強力に伸びている結果となっています クラウドの売上高が強力に伸びている結果となっています

Up almost 38% and now represents almost 20% of our company's revenues.

クラウドのサービスの売上高は238億5200万円となっていまして 約38%の伸びとなっています 日本オラクルの売上高の約20%を占めています

All our cloud offerings, including our ERP Cloud, NetSuite, our infrastructure consumption revenues, were all showing strong momentum with very high double-digit growth.

そしてERP Cloud, NetSuite, インフラストラクションのコンサプションに関しましては どれも伸びていまして2桁の成長となっています。

Our remaining performance obligation, RPO, is also growing strongly. Our RPO numbers show our strong backlog for the next couple of years.

また、残存履行義務、RPOですけれども、非常に強力なものとなっていまして、バックログを見ますと、今後数年間はこのクラウドサービスは強力に推進するということを示唆しています。

Net income was 26,665,000,000 yen, up 10.4%. So total revenue and all the three margins indicate record highs in the second quarter. We hope to continue the momentum into the year. Thank you very much.

I will donate for questions. I will donate for questions.

This presentation is for those who are involved in the stock market market, so please note that we will not answer any questions from the press. Please enter the company name, name of the company, and three questions from the Q&A of the Zoom system. Please note that we will skip questions that do not contain the company name. I will read each question and answer them from CFO KK. I will not repeat the questions. Let's start the discussion. Do you have any questions? Oh, sorry. This is the first question. This is a question from Tsuruo from Citigroup Shoken. Please tell us about the on-premise and pre-purchase of Cloud for the first half of the year.

So first question is from Tsuruo-san from Citigroup Securities. The first question is, what is your forecast for the second half in the on-premise to cloud, for both on-premise and cloud?

I only forecast on a total revenue basis. And I'm holding on to my guidance as of now, which is 2% to 6%. As you can see, our first half has shown strong momentum. And hopefully we can finish somewhere around the high end of my guidance. But at this point in time, it is too early for me to change anything.

Basically, we are talking about the sales based on the outlook. We think that the guidance is correct, and the guidance is 2% to 6%. The momentum of the paper machine is very strong. Regarding the Nagawakuba Shimo machine, we hope that the guidance will be higher. At the moment, we do not have this guidance.

The second question is from Tsuruo-sama. Second question from Tsuruo-san.

Can you explain the background of the significant growth in the services, the significant growth in profits in services?

There's no particular reason. I think we executed some of the projects some of the more profitable projects in time and we are becoming more and more efficient with our execution of the projects because you know as we gain experience cloud implementations are you know easy to run and unlike the big on-premise implementation which have long overruns cloud implementations are more efficient and And for that reason, we see increasing, you know, margins in our services business.

And for that reason, we see increasing, you know, margins in our services business. And for that reason, we see increasing, you know, margins in our services business. And for that reason, we see increasing, you know, margins in our services business. On-premise. Thank you very much.

We do not have any questions at the moment, but if you have any questions, please enter them in the Q&A section. This is a question from Kikuchi-sama of SMBC Nikko Shoken. The first question is, Please tell us about the breakdown of the increase in cloud services. The breakdown of the increase in cloud services is for each service, isn't it? Is it okay with SARS-CoV-2? I'd like to wait for Kikuchi-sama to answer this question. Please tell us about the breakdown of the increase in sales of SARS-CoV-2 for cloud services. ブレイクダウンは開示していませんので ご容赦ください 2問目ですね 費用面ですがロヤリティー両立が 全給通で1.1ポイント上昇 今期のQ1では0.7%上昇で ロヤリティー両立44%になっている

So the question from Kikuchi-san from SMBC Securities. So in terms of expenses for The royalties, the royalty rates, it has gone up by 1.1 points compared to the second quarter of last year. And it has gone up by 0.7 points compared to the first quarter. And it is now 44%. Can you explain the reasons, the elements, factors related to this?

Okay, regarding the first question on breakdown of the cloud services revenue, as I mentioned in my opening comments, all of our cloud segments are growing strongly. ERP, Cloud ERP, our flagship product, which is recognized by Gartner as in the leadership quadrant, continues to make big inroads. in the Japanese market. NetSuite continues to make inroad into segments where into the small and medium enterprise segment that is where we focus the NetSuite product on that is also gaining momentum. OCI without having to even qualify it, OCI services are being accepted widely across all enterprises in Japan. also showing great momentum for us, which is very, very encouraging signs for the future. I cannot at this point in time break down between the different cloud segments.

Let me go in, sir. Sorry. It is a company that we are committed to as a leader. And in the Japanese market, we are working hard to promote it. It is also a net suite for small and medium-sized companies. This is also a situation where this work is progressing strongly, and in that sense, it has momentum. Also, regarding the OCI service, we have received it at the level of all enterprises in a wide range of ways, and it has momentum. In particular, it has not been released regarding the division, so I would like to explain it so far.

Regarding the second question on the royalty rate, it's basically due to a change in product mix. We have different royalty rates for our different products. As the product mix changes, the royalty rates will go up and down. And on the outsourcing expense, Basically, there are some fiscal recharges, the corporate charges, which came in lower this quarter. That's the only reason.

As for the second question, regarding the loyalty rate, it is a change due to the change in the product mix. Due to the product, the loyalty rate is different, so if the mix changes, it will go up or down. Also, the cost of outsourcing, However, as for this period, it is going down. Sorry, sir. This is the interpreter. I'm sorry. I wasn't aware that there was an outsourcing-related question. Can you repeat the answer? Or rather, can you wait for a moment? Can you wait for a moment?

You want me to repeat it?

No. Can you wait for a moment?

Excuse me. This is the third question. There was an answer from Keikei first, but I asked Keikei first about the answer to the question, please tell us what has decreased in the amount of 600 million yen due to the decrease in the amount of 1990,000 yen.

So may I repeat the question? So the outsourcing expenses compared to the first quarter has gone down by approximately 600 million yen. So what has gone down and what is your forecast for the second half of the year?

So as I said, we... The outsourcing expense, there were lower charges from the corporate for the various services that we use. And so that's the reason why it went down. We usually forecast it based on our existing run rates. And sometimes those run rates don't hold and we get sometimes higher or lower charges from the corporate. So it is a less predictable expense for me. But in the overall scheme of things, it's a marginal difference.

In terms of the commissioning fee, from the corporate side, the demand was lower. The demand for the services used was lower. Thank you. Next, we have a question from Mitsui Sumitomo, DS Asset Management, Watanabe-sama.

There is a strong wind to parents and children, but please explain the stance of the benefactors again.

The next question is from Watanabe-san from SMBC DC Asset Management. So there seems to be some criticism towards the IPO of the parent in subsidiary situation. What is the stance of the company? What is the sense of the organization?

I don't really understand the context of the question, but as far as Oracle Japan and Oracle Corporation are concerned, we're both listed in different countries, different stock exchanges. We have been listed for 30 years, and we've been functioning normally. We have a great working relationship with the parent. And we get the benefit of all the innovation that happens in the parent company. So there's, I mean, I don't read anything as far as Oracle is concerned. It's business as usual.

I'm not sure if I understand the context of your question, but both Nihon Oracle and Oracle Corporation have been rising in different countries and in different stock markets, and our company has been rising for 30 years. The relationship with the parent company is very good, and the innovation created by the parent company has been used in various ways, so I see that the business situation as it is now will continue in the future. Thank you very much.

Next, we have a question from Mr. Segawa of Morgan Stanley. The sales value of cloud services has decreased with QonQ, but was Q1 due to the impact of services for specific customers that the sales value was strong? Will the cloud service sales value return to the trend of increasing in QonQ in the future? If there is any risk in the future, please let me know.

Next is Mr. Asagawa-san from Morgan Stanley. So the question is, the cloud service revenue has gone down on a huge scale. quarterly basis. Subsequently, it has gone down compared to Q1. So is that because there were some specific activities that went live, there was a go live for some specific projects in Q1? And for the cloud service revenue, from here on, do you expect to see an increase in both revenue and are there any particular risks that you are concerned about?

As far as the sequential number is concerned, it's more to do with some seasonality. And I think if you go back a year, Q1 to Q2 last year also was similar. And we continue to grow for the remaining quarters. I think that trend will continue as our cloud services revenue increases. grows and becomes even more substantial, some of these seasonality effects will go away. And hopefully then you would only see sequential growth in every quarter.

Compared to the first quarter, the decline is due to the seasonality. If you look at it a year ago, it was a similar situation compared to the first quarter and the second quarter. However, in the third quarter and the fourth quarter, sales increased. This is due to the fact that the number of cloud services has increased this year as well, so there is a possibility that there will be no more seasonal factors in the future, so I think we can look at the situation that the number of cloud services will increase with each quarter.

Thank you very much. I don't have any more questions. Are there any more questions? Okay. Since there are no more questions, we will now end the second half of the session on May 2, 2024. Thank you for joining us today.