Now I'd like to turn this call over to KK, Senior Vice President, JAPAC, and Japan CFO.
Thank you, Nishio-san. Good afternoon, everyone, and welcome to Oracle Japan's Q1 fiscal year 2025 earnings conference call. We just had Oracle CloudWorld in Las Vegas two weeks ago, which is Oracle's largest celebration of customers and partners. Oracle Corporation announced a lot of references and new technologies, including our OCI database applications, analytics, multi-cloud strategy, GPUs, and generative AI. We have many recordings available on our website if in case you want to view it. We had another excellent performance this Q1. The demand is substantial for our cloud business and on-premise license, which has led to an acceleration in revenue growth. We have clearly become recognized as a robust cloud vendor.
We continue to expand our customer base for OCI and Fusion, even in the Japanese market, which is known to be lagging behind in adoption of cloud computing. We had a lot of marquee cloud customers in various industries. So let me give you a few examples. Number one, Hitachi Construction Machinery. Hitachi Construction Machinery develops, manufactures, sells, and rents hydraulic excavators, wheel loaders, road equipment, et cetera, with more than 400,000 units of construction equipment in operation worldwide. With Oracle Cloud VMware Solution and Oracle Exadata Database Service, they were able to quickly and reliably migrate their mission-critical system of 500 virtual servers and 100 databases to the cloud, reducing costs of IT infrastructure and strengthening IT infrastructure. It also helped them reduce their infrastructure costs by about 20%. Number two, Wakayama City.
Wakayama City is moving forward with a full-fledged local government information system standardization. Initiative started in 2023 and is considering how to operate a standard compliance system suitable for Government Cloud. Among the mission-critical systems operated by Wakayama City that are subject to unification and standardization, the resident information system has been migrated using Oracle Cloud Infrastructure, a cloud service selected as Government Cloud. The migration has started. Number three, Yashima Denki Co., Ltd. Yashima Denki is an engineering company that sells products and provides system design, installation, and maintenance services, utilizing its core technologies in electrical control systems, power supply systems, and air conditioning systems.
[Foreign language]
They have selected Oracle Fusion Cloud Applications Suite to strengthen their ability to respond to business transformation and changes in the market environment, which will be used for sales and quotation, supply chain accounting, project and business management.
[Foreign language]
Number four, Pocketalk Corporation. Pocketalk develops translators and software services that provide real-time translation in more than eighty languages and operates in Japan, United States, and Netherlands.
[Foreign language]
The challenge for them was to build a system that could handle IPO and future business expansion, and to conduct audits quickly to ensure data integrity. To solve these issues, they selected NetSuite as their new ERP system.
[Foreign language]
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 the most mission-critical systems, applications, and industries.
[Foreign language]
Now, let me quickly give you a summary of the numbers. Total revenue at JPY 63.915 billion grew 11.4% compared to previous year, given a strong growth in our cloud and license revenue.
[Foreign language]
Cloud services revenue was 13.915 billion , up 9.2% and now represents 22% of the total company revenues.
[Foreign language]
Infrastructure consumption revenues showed a very strong momentum, which includes Autonomous Database , and also our RPO grew double digits this quarter.
[Foreign language]
Operating income was JPY 22. 194 billion, increasing 20.2%.
[Foreign language]
Net income was JPY 15.374 billion up 19.4%.
[Foreign language]
Total revenue and all three margins indicate record highs for the Q1 .
[Foreign language]
Q1 continues to show strong cloud demand, a strong license business, and we hope to continue the momentum into fiscal year 2025 .
[Foreign language]
For the time being, I am maintaining my guidance for fiscal year 2025, for revenue at 5%-9% and for EPS at JPY 445-JPY 460.
[Foreign language]
Thank you very much, and I'll hand it back for questions.
[Foreign language]
[Foreign language]
The first series of questions came from Tanaka-s an of Morgan Stanley MUFG Securities. The first question is that the on-premise license is doing well, and are there any particular sector or industries, which showed more, strength? Were there any major deals and what is your prospect in coming, quarters?
So as you can see, our on-premise license revenue actually grew very strong this quarter. The demand was general all around. We did not have a significant large deal. There were some large deals, but, you know, we didn't have, it was not on the back of one large deal or two large deals.
[Foreign language]
So overall, we saw demand from consistent demand across industries. So I cannot pick and point out to demand coming from any single or a particular set of industries.
[Foreign language]
Yeah. And, the second question was?
[Foreign language]
The second question, also from Tanaka-san, is that the growth rate of the cloud services is now at 9%. It seems a bit decelerating. What are the reasons and do you think that this number will go back to the double digit in the future?
There is a certain seasonality issue that plays into Q1 every year, which will normalize from here on. I expect the growth to return back to normal in Q2, and I also expect acceleration in Q3 and Q4 for cloud revenues.
[Foreign language]
[Foreign language]
So the third question from Tanaka-san. You used to disclose the COGS number and as well as the SG&A, growth and the decline. And could you give us some breakdown of those?
So let me just broadly answer this question. I think there was a lot of duplication in the information that we used to disclose before. So we have streamlined the disclosure. In terms of breakdown of cost of sales and SG&A expense, I think we are doing reasonably okay. There is no you know cause for concern, and it's like business as usual as of now.
[Foreign language]
You can also see that our gross margins are slightly higher this quarter, and I expect the gross margin to maintain at the same percentage, which is what I have been maintaining for several years. You know, we are trying to be as efficient as possible. As a company, we are cutting costs where we think we can gain more efficiencies, and we are investing into the future. We continue to invest into the future.
[Foreign language]
Thank you very much.
And we also have three questions from Tsuruo-san of Citigroup. First question is that Q1 results in comparison to the internal expectations, how much upside did you have in terms of revenue and also the income or profit?
So sorry, can you repeat that question?
What was the upside in comparison to the internal expectation for the Q1 revenue and profit?
We definitely had, you know, a very strong license demand that came in the quarter, which was not completely in our internal estimate. So there was some positive surprises for on-premise license, and you know, that helped us, you know, turn a very strong quarter.
[Foreign language]
[Foreign language]
There are questions on the on-premise and cloud from Tsuruo-san, but those were the overlap from the previous questioner, so we are skipping them.
Another question from Tsuruo-san is that our operating margin improved significantly year on year. What is the prospect for the full year?
For the near term, we will have our operating margin in the, you know, slightly less than mid thirties, or in the early thirties. That trend will continue. There will be some quarters where we will be seeing slightly higher margins. There'll be other quarters that we'll probably see some lower margins. I like to look at my business on a twelve-month basis. Our cost models have not changed. Our royalty models have not changed. So, we will continue to deliver consistent operating margins through the next few periods as well.
[Foreign language]
[Foreign language]
There were questions from Kikuchi-san of SMBC Nikko, but those were the questions already answered. Question from Watanabe-san of Sumitomo Mitsui DS Asset Management is the reasons behind the lower outsourcing expenses. Since the business is growing, I thought that the outsourcing expense also would increase, but what is the reasons for lower outsourcing expense?
Primarily, this quarter, primarily because of slightly favorable exchange rates, we saw lower outsourcing expense. And, frankly, you know, these are things which are not in my control. As I said, we will continue to maintain operational efficiency. We will continue to work on operational efficiencies. We will continue to deliver expected gross margins that you have been seeing in the past. I think it will continue for the near term, at least.
[Foreign language]
[Foreign language]
Question from Ueno-san of Daiwa Securities. The question on the on-premise was overlapping, so we are skipping that. So another question from Ueno-san is that, was there any replacement demand because of the price increase of the VMware?
Not really. It's got nothing to do with VMware. It's Oracle Database. You know, people want to buy Oracle Database to run their mission-critical systems, and you know, sometimes we have a spot in demand. So this is nothing to do with VMware. Thanks.
[Foreign language]
[Foreign language]
We are still waiting for other questions.
[Foreign language]
Yes, we did receive one question from Tsuruo-san of Citigroup Securities. So if we can maintain the gross profit margin at Q1 level, then your full year earnings will improve. What is your view on that?
We have done a modeling based on, you know, what we see for the full year. So hopefully we can end up at the high end of my estimates. You know, you're right. If we continue to operate at the same level of margins, we can improve it. But it's very early for me to comment on that.
[Foreign language]
[Foreign language]
Another question from Tsuruo-san. Could you tell us the percentage of the dollar-based expenses in the operating expenses? And what is the impact of the Forex fluctuation?
I don't have the exact, you know, percentages. A lot of our outsourcing expense are dollar based. Other than that, everything else is yen based. So, there is some impact, but not like, you know, a very high impact of the dollar exchange rate.
[Foreign language]
[Foreign language]
Question from Watanabe-san of Sumitomo Mitsui DS Asset Management. We hear that there were several major projects or deals in licensed sales. What was the total amount? And, we also heard from the distributors, one of the distributors that there was a 3 billion JPY level renewal deal for three years for Mega Bank. It was a ULA. So, aside from that, what were the other major deals?
I don't know what you heard from who. I really cannot comment on, you know, somebody telling you something and all that. I have already told you that we had a very good license quarter. There was general all around demand. There were some large deals. There were a mix of large, small and medium deals. We just had a consistent quarter, that's all.