ORACLE CORPORATION JAPAN FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥134.68B
• Operating Income: ¥42.66B
• Net Income: ¥29.91B
• EPS: ¥233.59

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

Verdict: Solid topline growth with resilient profitability, but slight margin compression and weaker cash conversion temper the quality of earnings this quarter. Revenue rose 7.5% YoY to 1,346.8, while operating income increased 1.8% to 426.6 and net income rose 1.9% to 299.1. Operating margin printed at 31.7%, down from roughly 33.5% a year ago, indicating about 180 bps of compression. Net margin was 22.2%, down about 120 bps from approximately 23.4% in the prior period. Gross profit margin stood at 44.9%, reflecting a high-value software mix, though SG&A intensity increased versus revenue given operating leverage turned negative. DuPont analysis shows ROE at 17.5% (excellent), driven primarily by robust margins and moderate financial leverage of 1.84x, with asset turnover at 0.427 consistent with a software/IT license-heavy model. Cash conversion weakened: OCF/NI was 0.78 (below the 0.8 threshold) and OCF/EBITDA was 0.54, signaling a cash collection lag or working capital headwinds. Accruals ratio at 2.1% remains benign and supports longer-term earnings quality despite the quarter’s softer cash metrics. Liquidity is adequate with a current ratio of 1.39x and cash of 642.3, though below the 1.5x best-practice benchmark; leverage is conservative with D/E at 0.84x and an interest burden above 1.0 indicating net interest income. Free cash flow, estimated at about 218.4 after capex of 15.8, was below the implied annual dividend cash outlay (~243.8), suggesting partial funding from the balance sheet this period. The dividend payout ratio is high at 81.5%, supportable by earnings but tight against FCF. Tax burden of 0.693 sits slightly below the 0.70 benchmark, implying a modestly heavier effective tax take at 30.7%. Forward-looking, continued growth in high-margin cloud subscriptions and support can sustain ROE, but tighter working capital management and billing timing will be key to restore cash conversion. Near term, watch for normalization of receivables collections, seasonality effects, and any changes in product/license mix affecting gross margin. Overall, fundamentals remain strong, but cash flow quality flags warrant monitoring.

Profitability Analysis

ROE decomposition (3-factor): 17.5% = 22.2% Net Profit Margin × 0.427 Asset Turnover × 1.84x Financial Leverage. The component that changed the most YoY appears to be Net Profit Margin, which compressed by roughly 120 bps (driven by a 180 bps decline in operating margin). Business drivers: operating income rose slower than revenue, implying higher SG&A intensity or less favorable revenue mix (e.g., lower one-time license uplift or higher service delivery costs) pressuring operating margin to 31.7% from ~33.5%. Interest burden at 1.012 indicates net interest income, so financing costs did not drive the change; tax burden at 0.693 (vs >0.70 ideal) modestly weighed on NI margin. Sustainability: the margin headwind looks more cyclical/mix-related than structural; software support/cloud subscriptions should sustain high-20s to low-30s operating margins if mix skews to recurring and pricing holds. Concerning trends: revenue growth (7.5%) outpaced operating income growth (1.8%), implying operating deleverage; SG&A growth likely exceeded gross profit growth, though a detailed SG&A breakdown was not disclosed. Overall margin quality remains strong but showed negative operating leverage this quarter.

Growth Assessment

Revenue grew 7.5% YoY to 1,346.8, with operating profit up 1.8% and net profit up 1.9%, indicating moderating profit growth versus sales. The 31.7% EBIT margin remains best-in-class for IT software vendors in Japan, but its 180 bps compression signals either mix shift or higher cost-to-serve. Non-operating income was modest (5.2), and interest burden above 1.0 suggests no debt drag. EBITDA was 432.9 (32.1% margin), aligning with stable core profitability despite cash conversion softness. Near-term outlook: growth sustainability hinges on subscription renewals, cloud migration pace, and enterprise IT budgets; a recurring-heavy mix should support mid- to high-single-digit revenue growth with operating margins around 30% if cost discipline resumes. Watch for seasonality around fiscal year-end renewals and large license deals, which can introduce quarterly volatility.

Financial Health

Liquidity: Current ratio 1.39x (adequate but below 1.5x benchmark), quick ratio 1.39x supported by cash of 642.3 and receivables of 176.8. Solvency: D/E 0.84x is conservative and well below the 2.0x risk threshold; interest burden >1.0 indicates net interest income. Maturity mismatch: All liabilities are current (1,445.3) versus current assets of 2,011.9, implying no reported long-term debt and manageable near-term obligations; cash plus receivables (819.1) cover over half of current liabilities, and total current assets exceed current liabilities by 566.7. No off-balance sheet obligations were disclosed. Equity increased to 1,710.7 from 1,636.8, bolstering balance sheet resilience.

Cash Flow Quality

OCF was 234.2 versus net income of 299.1 (OCF/NI 0.78), below the 0.8 quality threshold and flagged. Cash conversion (OCF/EBITDA) at 0.54 is weak for a software business, suggesting timing-related working capital outflows (e.g., receivables build or deferred revenue movements) or payment timing. Accruals ratio at 2.1% is low and supportive of underlying earnings quality. Estimated FCF was ~218.4 (OCF 234.2 minus capex 15.8), indicating positive but tighter coverage of shareholder returns. Given year-end DPS of ¥190 implying cash dividend of ~243.8, FCF undershot dividends this period, implying reliance on cash reserves; sustainability improves if collections normalize. No overt signs of working capital manipulation are evident from disclosed data, but the receivables/payables gap and OCF shortfall warrant monitoring for timing normalization next quarter.

Dividend Sustainability

Payout ratio is high at 81.5% based on reported net income, within earnings capacity but above the <60% conservative benchmark. Cash coverage is tight: estimated FCF of ~218.4 was below implied dividend cash outlay of ~243.8, indicating partial funding from cash on hand this period. Balance sheet liquidity (cash 642.3) provides cushion, and low leverage reduces risk, but repeated FCF shortfalls would pressure dividend flexibility. Policy outlook: Oracle Japan historically emphasizes stable-to-increasing dividends; sustaining the current level likely depends on restoring cash conversion and maintaining ~30% operating margins.

Risk Assessment

Business Risks:

• Revenue mix shift risk from high-margin licenses/support to lower-margin services can pressure operating margin.
• Subscription renewal and large-deal timing risk may cause quarterly volatility in revenue and OCF.
• Vendor dependency on U.S. parent for product roadmap and pricing could affect competitiveness in Japan.
• Technology transition risk (on-prem to cloud) requiring sustained investment and sales enablement.

Financial Risks:

• Cash conversion risk: OCF/NI at 0.78 and OCF/EBITDA at 0.54 indicate near-term working capital headwinds.
• Dividend coverage risk: FCF below dividend outflow this period implies balance sheet draw.
• Tax burden slightly heavier (effective tax rate 30.7%) marginally reduces net margins.
• Concentration risk if a few large enterprise customers contribute meaningfully to quarterly results (not disclosed).

Key Concerns:

• Margin compression of ~180 bps at the operating level despite 7.5% revenue growth indicates negative operating leverage.
• Liquidity below best-practice benchmark (current ratio 1.39x) though not alarming.
• Limited disclosure granularity (SG&A breakdown, investing/financing detail) constrains assessment of structural versus timing effects.

Investment Implications

Key Takeaways:

• Revenue growth healthy at 7.5% YoY; profits grew slower, indicating cost pressure or mix effects.
• Operating margin remains high at 31.7% but compressed ~180 bps YoY.
• ROE strong at 17.5% on robust margins and moderate leverage.
• Cash conversion is the main weak spot: OCF/NI 0.78 and OCF/EBITDA 0.54.
• FCF (~218.4) did not fully cover implied dividends (~243.8) this period.
• Balance sheet conservative (D/E 0.84x), liquidity adequate (current ratio 1.39x).

Metrics to Watch:

• OCF/NI and OCF/EBITDA recovery toward >1.0 and >0.9, respectively
• Operating margin trajectory and SG&A intensity
• Deferred revenue and receivables trends for billing/collection timing
• Effective tax rate stability
• Dividend cash coverage by FCF

Relative Positioning: Within Japan’s listed IT/software cohort, Oracle Japan maintains superior profitability (EBIT margin ~32%) and ROE (17.5%), with conservative leverage; however, its cash conversion this quarter lagged peers that typically deliver stronger OCF-to-EBITDA, creating a near-term quality gap to monitor.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis