Oracle (NYSE:ORCL) Japan has announced significant growth in its cloud business during the third quarter of the fiscal year 2024, positioning the company as the preferred enterprise technology cloud vendor. The company emphasized the cost efficiencies and business modernization that their products and services offer to customers across various industries, including financial services, manufacturing, and the public sector.
Notable clients such as HID, Ono Pharmaceutical, and Daiwa Institute of Research have adopted Oracle Cloud Infrastructure (OCI) to enhance their operations. Financial performance indicators such as operating income and net income both saw a 9.7% increase, reaching record highs for the quarter. Oracle Japan's Senior Vice President Krishna Kumar, despite a bad throat, delivered these insights during the earnings call and expressed optimism about maintaining this momentum.
Key Takeaways
- Oracle Japan's cloud business drives revenue growth, with Q3 showcasing excellent performance.
- The company has become the enterprise technology cloud vendor of choice, offering cost-efficient modernization.
- Notable clients in various industries have adopted Oracle Cloud Infrastructure for operational enhancements.
- Operating and net income both increased by 9.7%, hitting record highs for the quarter.
- The company aims to continue this positive trend throughout the year.
Company Outlook
- Oracle Japan expects to maintain the current momentum and continue growing in the cloud business sector.
- The company will proceed with hiring in growth businesses, aligning with market salary trends.
Bearish Highlights
- Headcount reduction by 3.9% over the past twelve months, viewed as minor and part of efficiency efforts.
- Service business saw a profit decline greater than the revenue increase, attributed to a timing issue with project revenue recognition.
Bullish Highlights
- Notable client collaborations with HID, Ono Pharmaceutical, and Daiwa Institute of Research demonstrate Oracle's strong market presence.
- The company's focus on efficiency has led to revenue growth and margin expansion.
Misses
- Specific growth rates for applications and technology cloud business were not disclosed during the call.
Q&A Highlights
- The company monitors costs closely and has reorganized to place the right resources in the right functions.
- Salary increases will align with market trends, as Oracle Japan aims to offer competitive compensation.
- Excess cash is managed by lending to the parent company, which offers better interest rates than the market in Japan.
- The company will disclose RPO numbers in the next quarter's securities report.
Oracle Japan (ticker not provided) has demonstrated resilience and growth in its cloud business, with a strong outlook for the remainder of the fiscal year. The company's strategic client partnerships and efficient operational management have contributed to its financial success in the third quarter. While headcount has been reduced slightly, the company assures that this is part of its efficiency drive and that it will continue to invest in talent for its growth sectors. Oracle Japan's commitment to aligning with market salary trends and managing its cash reserves effectively further underscores its robust business strategy.
Full transcript - None (OCLCF) Q3 2024:
Operator: [Call Starts Abruptly] Now I would like to turn this call over to KK, Senior Vice President, JAPAC and the Japan CFO.
Krishna Kumar: Thank you very much, Nishio-san. First of all, let me apologize. I have a bad throat, but I'll try and be as clear as possible. Good afternoon everyone and welcome to Oracle Japan's Third Quarter Fiscal Year 2024 Earnings Call. Our cloud business has been a driver of accelerating revenue growth and we had another excellent performance this Q3. We have become the enterprise technology cloud vendor of choice because our customers have recognized our products and services, bring out their cost efficiencies, and modernize their businesses. Also, they figured out that they can get more while paying less by moving to our cloud services. We had a lot of marquee cloud customers in various industries, especially financial services, manufacturing, public sector, et cetera. Let me give you a few examples. HID has over 40 years of experience in providing services to municipalities and offer a comprehensive administrative system that include resident record and welfare-related operations which are subject to standardization by local authorities. As the digital agency emphasizes the need for cloud smart and system modernization, the two companies will work together to provide new initiatives and cost effective services including cloud nativization in HID's general administration system in collaboration with Oracle Cloud Infrastructure. In particular, HID evaluates that OCI is suitable for municipalities and private services as it is expected to offer significant cost and performance advantages over other companies services. The second example is Ono pharmaceutical. Ono Pharma is transforming the management of global clinical trials with a focus on efficiency and data-driven decision making. The aim is to improve the prediction of potential risks and probability of trial success by utilizing Oracle's Clinical Trial Management System. Example number 3, Daiwa Institute of Research. Daiwa Institute of Research provides high quality, reliable system services that strongly support IT strategies and underpin business fundamentals of each company as the systems lead for diverse securities group companies. DIR has revamped the order and order analysis infrastructure for global markets divisions of the group company Daiwa Securities Company Limited with our Oracle Autonomous Data Warehouse provided by OCI. Multi-cloud and hybrid cloud environments can increase operational complexity and load cost, but by selecting Oracle Autonomous Data Warehouse as the analysis infrastructure, high performance is achieved at a low cost and database changes, patches, resource changes where the cost of these were reduced significantly by the autonomous functionality. 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.
NetSuite: Operating income was JPY 57,706 million increasing at 9.7%. Net income at JPY 40,181 million, up also 9.7%. Total revenue and all three margins indicated record high in the third quarter. We hope to continue the momentum into the rest of the year. Thank you very much.
Operator: So the first question is from Ueno-san of Daiwa Securities.
Makoto Ueno: From third quarter end of last fiscal year, the number of headcounts have come down by 3.9%. Will this piece continue?
Krishna Kumar: As I've said before, we are a very efficiency driven company. We look at our cost very closely and carefully. We monitor our cost. We have been trying to reorganize and put the right resources in the right functions and what you see as a result is minor reduction over a period of twelve months, which I would not read much into it. If you look at our revenues, we actually grew almost very close to 6% last year. For the nine months so far, we have grown about 8% with all the efficiencies that we have gained. That is why you see margin expansion in our business. And just one more thing to add. We will continue to hire into our growth businesses as we go into the future. So we will not stop looking for the right resources for the businesses where we want people to be.
Makoto Ueno: So, second question from Ueno-san is also related to headcounts or payroll cost. Japanese companies are actively increasing their salaries, but do you expect salary increase per headcount at Oracle?
Krishna Kumar: As I said, we are a performance driven company. We reward performances. We look for the right resources, and over time, yes, we will also align with the market. So if the market in general is going up, obviously we cannot stay behind. We like to pay the right level of salaries to our employees.
Operator: Next question is from Kikuchi-san of SMBC Nikko Securities.
Satoru Kikuchi: If you could explain about the increase in lending to your parent company and also the outlook going forward, and also how you will be using cash.
Krishna Kumar: It's not different from what we have done in the past. Whenever we have excess cash, we look for safer avenues to put our money, safe avenues to put our money. One of the safe avenues is with the parent company, and we get interest rates, which are better than the market in Japan and so we use that opportunity to park our money. As and when we require we would recall it whether it's for dividend or whether it's for any acquisitions that we may make in the future, et cetera, et cetera. So depending on our need, we recall the money. So it's kind of business as usual.
Operator: The next question is from Watanabe-san of Sumitomo Mitsui (NYSE:SMFG) Asset Management.
Yoshiro Watanabe: The service business in third quarter experienced increase in revenue, but profit came down, so and the profit decline was bigger than the revenue increase. So if you could explain the background, that would be helpful?
Krishna Kumar: Again, it's more like a timing issue. We have been hiring into our consulting our services businesses because there's lot of cloud projects that we need to deliver on. Some of the hiring converts into revenue and there is a time lag. There is also time lag in different projects when we recognize revenue. So it's more like a timing issue than anything else.
Operator: Next question is from Noda-san of CLSA Securities.
Hideo Noda:
NetSuite:
Krishna Kumar: We do not disclose -- the -- so we will disclose the RPO numbers when we file our securities report next quarter. So you will have to wait till that time again. As far as the rate we are experiencing significant growth rate in our applications business and our technology cloud business at this point in time. I don't split those growth rates specifically.
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