Oracle Corporation Japan

Yeah, I was on mute. Sorry about that.

So good afternoon, everyone. And welcome to Oracle Japan's First Quarter Fiscal Year ‘22 Earnings Call.

We had a great quarter. We overcame a lot of challenges under this pandemic situation, which continues in Japan.

We start to see some recovery in the IP investments. And we can see that from some of the results of our peers as well.

We did win a lot of new logos across many industries. So this quarter, as our customers are, you know, trying to find ways of becoming more and more - you know, more and more digitally enabled to be able to overcome some of these situations in the future.

I - you know, also would like to say that Oracle is now a third year in a row, we are in the top right hand Quadrant on Gartner for the number one choice cloud vendor for ERP. And, also, Gartner has put us in the top three hyperscalers for infrastructure cloud, which means it's AWS, Microsoft Azure, Oracle and the fourth is Google Cloud, right.

So we are number three on the list of hyperscalers for infrastructure cloud. So all of this really augurs well, for our business.

You know, I - we had a great applications quarter, you know, where our ERP revenues actually grew, you know, almost 50%, very close to 50%. OCI - our consumption on our infrastructure cloud actually grew more than 100% as we go into this New Year.

So let me quickly take you through our results for the first quarter of FY ‘22. Our [Technical Difficulty] sorry about that.

[Foreign Language] Okay. Thank you.

So let me also take you quickly to our key numbers for the quarter. Our total revenue at JPY 50,388 billion grew 5.8%.

[Foreign Language] Operating income at JPY 16,945 billion increased 17% - 16.6%. [Foreign Language] And our net income at JPY 11,767 billion was up 17.2%.

[Foreign Language] Our total revenue and all of our three margin numbers indicate record high consecutively for eight periods. [Foreign Language] If I move to the segment revenues, our cloud and on-premise license at JPY 7,964 billion declined at 2.1%.

[Foreign Language] Having said that, we do see a very strong year ahead of us, as our pipeline in the remaining quarters is extremely strong. [Foreign Language] Within cloud services and licensed support revenue which is our recurring revenue at JPY 33,620 billion grew 10.8%.

[Foreign Language] Our recurring revenue now is almost in the mid 60s as a percentage of total revenue. [Foreign Language] Hardware systems revenue at JPY 3,537 billion was down 11.7%.

[Foreign Language] This was a very tough compared with Q1 of last year, and also globally we do see some supply chain issues in the hardware business, which we hope to overcome over the next few quarters. And it's not just isolated to Oracle, you know, we are facing chip shortages globally for all the businesses, including the automobile business.

Our services revenue at 5,266 billion increased 2.1%. [Foreign Language] As you can see, overall, we are very, very happy with our performance in Q1 and we hope to continue this into the rest of the fiscal.

[Foreign Language] Thank you very much, and I'm ready for questions.

In the previous closing the revenue was down by JPY 3 billion from the bottom of the range, that was a JPY 6 billion from the medium value. And the reason that you described was due to the timing issue.

So perhaps there was a contribution in this quarter if there was a postponement. So what was the contribution due to the timing in this quarter?

And if you could explain, including advanced received or the contract liabilities, that will be helpful?

Okay, sure. First let me answer the slip transactions [ph] the question on slip transactions.

Yeah, I did mention that some of the companies were sort of postponing their investment decisions. And we still continue to see that that phenomenon.

So I think we are not still out of that phenomenon. Having said that, we did close a few transactions that we were supposed to close in Q4, we did sort of close them in Q1.

You know, I cannot tell you the exact number or the value of those transactions, but we did close some transactions in Q1. Look, we are - overall we are very happy with the general trend of the business.

But I think we are still in a state of emergency in Japan. I still think there is some way to go before we can say that, you know, customers are you know, very, very open to making big investment decisions, as we look into the future.

So that's question number one. [Foreign Language]

Okay. And the next question on advances received and contract liability, it is nothing, but just a classification change.

It’s a same number. We are required to report that as contract - the advances received as contract liabilities and so it's a result of an accounting - accounting standard change nothing else.

[Foreign Language]

Can you comment a bit more about demand from SMEs? I'm sorry, sorry, I have to say the same in Japanese, I'm sorry.

Okay, okay.

[Foreign Language] Sorry about that.

No problem. I think so, I have been commenting about some of the demand from SMEs, you know, for the past - past few quarters.

And I - you know, so we do see demand from the SMEs slowly coming back to track. And so it's much better than what it was a few quarters ago.

I think the SMEs also realize that for companies to survive an extremely high level of digital enablement is required under the current circumstances and that's - you know, and so, we Oracle will definitely continue to reap benefits of that phenomenon. [Foreign Language]

It seems that you have controlled Q1 SG&A, but what is your plan or approach as to SG&A for this term?

We continue to be a very tightly managed company and wherever there is opportunity we will find ways to save money and that approach continues. I don't see any extraordinary change from last year to this year.

You know if you look at four quarters rolling or you know by the time we finish this year. I think we'll - should be more or less in at the same level with a downward bias.

[Foreign Language]

Against the annual guidance, the first quarter performance made a great progress. But cloud and on-premise license was minus 2.1% year-on-year basis in terms of revenue.

And three months ago, you explained about the COVID-19 impact on SMEs and they're postponing the investment decisions. So what is current situation now?

So two parts to the question, one license and the second SME. I think I already answered the SME question.

And on the license business, I like to look at license on a full year basis. You know, that is what that tells me you know, what is happening and I don't really like to look at it on a quarter-over- quarter basis.

You know, I've said that we've got good - we continue to have good demand for our on-premise licenses as well. You know, Japan enterprise customers are big users of Oracle database, so that demand is not sort of going down.

So I think we will see some recovery as we go through the year on this business. [Foreign Language]

If you could explain the reason behind a strong license support that will be helpful? And is it sustainable, and is the reason OCI?

Yeah. So our license - our support business and also there are two [Technical Difficulty] right, there is the cloud services revenue and the license support revenue.

I think the license [ph] support revenue is a very, very stable business for us. It will continue to renew at you know, in excess of 90%.

And, you know, our cloud services is growing up very - at a very high levels, at a very fast pace, right. So both of these things put together I think we will be able to give good numbers in the space in the future.

[Foreign Language]

The license revenue was weak in the first quarter of last year, as well, and this year, it's not so strong. So it's the run rate for this license revenue improving?

Is it coming back? And you mentioned that you have a strong pipeline, but when will those revenue be recognized?

You know, as I said, I like to look at license on a full [ph] quarter basis. And as I said before, we do have a very strong pipeline going into this year.

So, you know, I cannot exactly - so we see you know, we see a lot of deals and - you know, this quarter, next quarter or the quarter after next. So it all depends on how soon we are able to pull it in, how soon we are able to convince the customer to make that call.

We have to find compelling [ph] events with the customer to make those bookings. So we are not worried about our license business at all, that's how I would put it.

[Foreign Language]

First question, you mentioned that some customers have started to make IP investments, but there still are some customers who are still watch and see [ph] being prudent in making decisions. So are there any differences amongst the verticals or the industries?

You know, it's not - it's difficult to pick verticals, there are both, you know, aggressive and conservative customers in every vertical. You know - but I think, you know, overall, my point is that the situation, the pandemic situation is making people really sit back and look at their IP investments, and how they can be digitally enabled in the future.

As you know, Japan, a lot of the enterprise customers still operate on main site [ph] So they - those customers will almost skip a step into cloud infrastructure very soon. And also I mean you people will know this better than me.

In Japan once you know the pipe is open, it just the water gushes out like anything. So, you know, so that phenomenon is also something that we are waiting for.

But it's difficult to pick sectors or you know, areas where people are fast or people are slow. I think it's just customer - depends on customer.

[Foreign Language]

About the earlier question about advanced received in contract liabilities. Either way, there was a reduction this time, until the previous quarter in four consecutive quarters, this advance received had increased by double-digit.

But now after five quarters, this now has been reduced. So was it this slipped the transaction?

Or is it because you have been able to collect this liability. So what's the reason for this recovery, the collection, yes?

Was it due to the sub transaction or is it because of the collection?

Well, I think that are - you know, it's not - there's no one reason for it. One, you know, this is a timing difference.

But generally, after the end of Q4, we will have a higher balance because generally Q4 tends to be a big quarter. And last year, also there were multiple contracts, which we've received money.

And also, you know, we had increased OCI consumption. So, you know, a lot of the advances actually converted into revenue for us because of increased consumption on our cloud, right.

So all of these factors put together I cannot lay on one single reason. [Foreign Language]

The number of headcount is decreasing, it is on the decreasing trend, and you have been controlling the payroll cost as well. So what is the situation of recruitment and human resources?

Is it progressing according to the plan?

We don't have any challenges with regard to our headcount levels. We continue to look at our headcount levels.

We tried to be as lean an organization as possible, that's why you see our margins are so high and we will continue to work towards that. It's not - we do not see a declining trend or anything.

So it is just a question, we may invest in the future again. So you know, it's - that's not in our mind.

Our mind is focused on where - how can we convert more and more customers to our cloud, that's what we are working on and we are - we have rightly resourced for that strategy. [Foreign Language]

Please tell me about the contribution of cloud products within cloud service and on-premise support, the level of contribution and the growth rate? And also id you could talk about the outlook going forward as to the demand and the revenue growth?

Yes. So we do not split this line, as I have mentioned many times before, so I cannot tell you the split.

As with regards to the future, I think our license business and our support businesses will continue to be stable. Our cloud revenues will start showing - you know will show - continue to show big growth and that is where our growth is going to come from.

[Foreign Language]

First question is regarding the increase of revenue in Cloud, ERP, particularly Fusion and NetSuite? And also about the outlook of these products?.

And if you could also touch upon the competitive landscape that will be helpful.

I already mentioned that we are experiencing very high growth for both our Fusion ERP sets of products and for our NetSuite ERP products. I think our Fusion ERP, by far, Oracle ERP by far is the leader, a global leader.

There is no other - we don't have much competition when it comes to - when it comes to Cloud, in the Cloud ERP business. They're seeing a lot of customers in Japan as well who are looking at investing in Cloud ERP.

And the only solution - only valid solution they have is Oracle. SAP does not have a cloud ERP product.

What they sell is a hosted on-premise or a software on either AWS or wherever - whichever Cloud that they want to sell on. And it's not - it's not a SaaS product.

With our offerings in the market what we can do is we can actually upgrade all the customers at the same time. We offer new releases, customers who are live on ERP they get new releases almost every quarter and they can choose to turn on the new release or wait you know as for their choice.

We aren’t so - the offering that we have in the market no one else has, we have a huge head start over our competitors as far as the ERP business is concerned. We also have - we think that this is going to pull other application products as well, anybody who's bought ERP with us would want to have HCM you know more or less because it just makes sense to buy HCM from the same vendor because it will use the same data sets.

You buy ERP from one vendor, but you buy HCM from another vendor. These two applications have a lot to talk to each other for.

So it would for us - I think, we think it's going to pull a lot of HCM business to us. So we are extremely happy with our applications strategy.

[Foreign Language]

The second question from [Indiscernible] digital agency was established in September in Japan and going forward, the local governments, as well as central governments and public institutions will progress with their cloud shift. And what will this impact - what will this - what kind of impact will this have on your business?

And if you could tell us including the timeline of the impact?

It is a very good development for Oracle. As you know, public sector is a very, very big customer for Oracle and we have worked - working very closely with the various stakeholders to move this forward.

We are already a certified vendor, you know, for cloud with the government. As you know, we have two data centers, so data privacy and everything is taken care of.

So this opportunity really augurs well for Oracle and you know we should see some good developments happening from this in the future. [Foreign Language]