Q3 2020 Earnings Call

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Welcome to Oracle's third quarter 2020 earnings conference call now I'd like to turn the call over just said Hey, do Ken Bond Senior Vice President Sir.

Thank you good afternoon, everyone and welcome to Oracle third quarter fiscal year 2020 earnings Conference call.

Copy the press release and financial tables, which includes a GAAP to non-GAAP reconciliations and other supplemental financial information can be viewed and downloaded from our Investor Relations website on the call today, our chairman and Chief Technology Officer, Larry Ellison, and CEO Safra Catz as a reminder, today's discussion will include forward looking statements incur.

Putting predictions expectations estimates or other information that might be considered forward looking throughout today's discussion we will present, some important factors relating to our business, which may potentially affect these forward looking statements. These forward looking statements are also subject to risks and uncertainties that may cause actual results may differ materially from statements being made.

Welcome to oracle's third quarter 2020 earnings conference call now. I'd like to turn the call over to hey to Ken Bohn senior vice president, sir. Thank you. Good afternoon, everyone and welcome to oracle's third quarter fiscal year 2020 earnings conference call a copy of the press release and financial tables which includes a gaap to non-gaap reconciliation and other supplemental financial information can be viewed and downloaded from our investor relations website on the call today are chairman and chief technology Officer. Larry Ellison and CEO cats as a reminder today's discussion will include forward-looking statements including predictions expectations estimates are other information that might be considered forward-looking throughout today's discussion. We will present some important factors relating to our business which may potentially affect these forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today. Yep.

Today as a result, we caution you against placing undue reliance on these forward looking statements and we encourage you to review our most recent reports, including our 10-K intend to any political amendments for a complete discussion of these factors and other risks that may affect our future results for the market price of our stock and finally, we're not obligating.

Selves revise our results for public release any revision of these forward looking statements in light of new information for future events before taking questions. We'll begin with a few prepared remarks with that I'd like to turn the call over to Safra. Thanks, Ken as usual I'll review, our non-GAAP results using constant dollar growth rate unless I state otherwise.

As you can see we had an excellent quarter in Q3 with total revenue growth of 3% in constant currency and EPS of 97 cents in U.S. dollar both revenue and EPS were above the midpoint of my guidance, even though we saw strengthening U.S. dollar which resulted.

In a negative headwinds to total revenue.

It was really a remarkable quarter with a lot of product and customer momentum in both applications and infrastructure the quarter demonstrated the acceleration of revenue that I've been forecasting.

Our cloud services and license support business.

Basically our subscription business, which includes staff I asked and software update powered our revenue growth.

So subscription revenues for the quarter were 6.9 billion up 5% and accounted for nearly 71% of total company revenues up from 69% last year license revenues were 1.2 billion the same as last year.

We're seeing a lot of momentum across our applications portfolio with gap applications subscription revenues at 2.8 billion up 7%.

Fusion App were up 32%.

Fusion ERP was up 38% and fusion HCM was up 27%.

A result we caution you against placing undue Reliance on these forward-looking statements. And we encourage you to review our most recent reports, including our 10-K and 10-q and any applicable amendments for a complete discussion of factors and other risks that may affect our future results for the market price of our stock and finally, we're not obligating ourselves to revise our results or publicly release any revision of these forward-looking statements in life information for future events before taking questions will begin with a few prepared remarks. And with that. I'd like to turn the call over to Safra. Thanks Ken as usual. I'll review our non-gaap result of using constant dollar growth rates unless I stayed otherwise as you can see we had an excellent quarter in Q3 with total revenue growth of 3% in constant currency off an EPS of ninety-seven cents in both revenue and EPS were above the midpoint of my guidance, even though we saw a strengthening u.s. Dollar which results

Next we ERP was up 26% vertical fast was up single high single digit and data cloud was up low single digit.

Gas infrastructure subscription revenues were 4.1 billion up 4% with total database revenue up 5% highlighted by the way AOL and autonomous database revenues, both up over 150%, but off a small base.

As you can see we've replaced eco system revenues with subscription revenues, which will make it easier for you to see the revenue growth rates of the largest part of our business more clearly you'll still be able to determine the growth rates for our entire software ecosystem by coming.

Binding subscription and license revenues.

Our cloud renewal rates continue to go up.

The gross margin for cloud services and licensed support was 86% up 1% from last quarter, both Hsas and I ask gross margins were up more than 1% from both last quarter and last year.

As we continue to get to scale I expect our cloud gross margins will increase further driving an acceleration in our gross profit growth.

In the negative head went to total revenue. It was really a remarkable quarter with a lot of products and customer momentum in both applications and infrastructure the quarter against traded the acceleration of Revenue that I've been forecasting are cloud services and license support business, basically our subscription business, which includes staff is and software updates powered our Revenue growth those subscription revenues for the quarter were six point nine billion up five percent and accounted for nearly seventy 1% of total company revenues up from 69% last year license revenues were one point two five billion the same as last year.

Total revenues for the quarter were 9.8 billion up 3% from last year.

Non-GAAP operating income was 4.4 billion up 3% from last year. The operating margin was 44% essentially unchanged from last year.

Non-GAAP tax rate for the quarter was at 19.1 slightly below our base tax rate of 20%.

S was 97 cents in U.S. dollar up 12% in constant currency and 11% in U.S. D.

The GAAP tax rate was 16.4% and GAAP EPS was 79 cents in U.S. D up 5% in constant currency, 4% in U.S. D.

Operating cash flow over the last four quarters was 13.9 billion capital expenditures were 1.5 billion and free cash flow was 12.4 billion.

We now have approximately 26 billion in cash and marketable securities and <unk> and the short term net deferred revenue balance is 7.8 billion down 1% in constant currency due to timing differences in customer payment.

Gross deferred revenue was up over 1% in constant currency and would have been up over 3% if not for the A.S.C. six so six transition changes.

We are seeing a lot of momentum across our applications portfolio with gap application subscription revenues at 2.8 billion up 7% commission apps were up 32% Fusion was up 38% and fusion HCM was up 27% off next week was up 26% vertical SAS was up high single-digits and data Cloud was up low single-digits wage Gap infrastructure subscription revenues were 4.1 billion up 4% with total data base Revenue up 5% highlighted by birth and on Thomas database revenues both up over a hundred and fifty percent but off a small base.

Now we remain committed to returning value to our shareholders through technical innovation strategic acquisitions stock repurchases prudent use of debt and the dividend.

This quarter, we repurchased 73.5 million shares for a total of $4 billion and over the last 12 months, we've repurchased 366 million shares for a total of 20 billion and over the last five years, we have reduced.

The shares outstanding by nearly 28%.

The board again declared a quarterly dividend of 24 cents per share.

The board of Directors also authorized an additional 15 billion for the repurchase of Oracle shares.

Now before turning to guidance I need to say a few words about the impact of the code that 19 virus.

as you can

Over the last few weeks, we've observed the growing public concern.

We're largely conducting business as usual with some modifications such as using video conferencing and asking our employees to postpone nonessential travel Likewise, we're seeing other companies take precautionary actions.

It's not yet clear what the effect of the virus will have on our customers and suppliers and as a result, what the impact will be on our business in Q4.

So with that backdrop, let me share with you my thinking on the modeling for Q4.

The subscription part of our business cloud and product updates will continue to grow and we expect minimal impact from the virus in the quarter given that much of the subscription revenue is already contracted.

See, we've replaced ecosystem revenues with subscription revenues which will make it easier for you to see the revenue growth rates of the largest part of our business took more clearly. You'll still be able to determine the growth rates for our entire software ecosystem by combining subscription and license revenues are Cloud renewal rates continue to go up the gross margin for cloud services and license support was 86% up 1% from last quarter. Both SAS and is gross margins were up more than 1% from both last quarter and last year as we continue to get to scale. I expect our Cloud gross margins will increase further driving and acceleration in our gross profit growth.

Last year, the subscription business was 61% of the quarter.

Consistent with the trends over the last year I expect it to be a larger percentage of Q4 this year.

In meeting with my Executive team, we were reviewed the enormous pipeline of transactional business for Q4. As you know Q4 is typically a seasonally large quarter for software licenses and to a lesser extent hardware.

Given the uncertainty in the current business climate I'm going to provide a much wider range in my estimate for total revenue.

My guidance today is on a non-GAAP basis and in constant currency.

Assuming current exchange rates remain the same as they are now currency should have no significant effect on revenues or E. P. S.

Now of course that May change, but that's what it is right now so for Q4.

Total subscription revenues are expected to range between.

3% to 5%.

Both constant currency and U.S. dollars.

Total revenues are expected to range between negative to two positive two in both constant currency and U.S. dollars.

Non-GAAP EPS is expected to grow between 3% to 9% and be between a $1.20 and $1.28 in both constant currency and U.S. D.

Total capex for F. Quite 20 is expected to be around 2 billion, but it could vary.

Total revenues for the quarter were 9.8 billion up 3% from last year non-gaap operating income was 4.4 billion up 3% from last year. The operating margin was 44% essentially unchanged from last year the non-gaap for the quarter. Was it 19.1 slightly below our base tax rate of 20% EPS was $0.97 in US Dollars down 12% in constant currency and 11% in USD. The Gap tax rate was 16.4% and gaap EPS wage was $0.79 in us up 5% in constant currency 4% in USD.

My EPS guidance for Q4, and the F. why 20 assumes a base tax rate of 20%. However, onetime tax events could cause actual tax rates for any given quarter to vary from our base tax rate, but I expect that in normalizing for these ones.

Time test events, our tax rate will average around 20% for fiscal year 2020.

Now in June.

Assuming the global economic situations have stabilized I will share with you the basis for my optimism around our revenue growth acceleration for fiscal year 2021.

It will be based on the ever growing portion of our revenue attributable to our faster growing subscription business.

You saw a bit of it in Q3 and it would have been even more obvious but for the early impact of the virus and with that I'll turn it over to Larry for his comments.

Thank you Sabra.

There are two key product areas that will determine oracle's future cloud ERP applications and autonomous database infrastructure.

Being number one and both of these two giant market segments will enable the success.

Our other application it infrastructure products in adjacent market segments.

Operating cash flow over the last four quarters was 13.9 billion Capital expenditures were 1.5 billion and free cash flow was 12.4 billion. We now have approximately $26 billion in cash and marketable securities and and the short-term net deferred revenue balance is 7.8 billion down 1% in constant currency due to timing differences in customer payments gross deferred revenue wage was up over 1% in constant currency and would have been up over 3% If not for the ASC 606 transition changes.

We expect the cloud ERP market segment to be two to three times larger than the prior on premise ERP software market.

We already have a huge lead in the cloud European market with over 7000 fusion ERP customers and 21000, that's ERP customers.

Our primary ERP competitors are struggling.

Lets say p. never rewrote their ERP applications for the cloud.

And today many of US Apds largest customers are actively working with us to migrate from S&P diffusion ERP in the cloud.

Workday the other competitor is seeing very little success in cloud ERP.

Workdays European market share is tiny compared to ours.

But even more interesting is workdays lack of success in cloud ERP is also creating opportunities for Oracle and cloud HCM.

HCM increasingly is being purchased as a part of an ERP cloud application suite as a result, wearable now has more HCM customers than workday.

And fusion HCM revenue is growing faster than workday.

And we're beginning to see the same integrated suite strategy.

Our sales of CX customer experience applications and sales service and marketing.

Now we remain committed to returning value to our shareholders through technical innovations strategic Acquisitions stock repurchases prudent use of life and a dividend this quarter. We repurchased 73.5 million shares for a total of four billion dollars and over the last twelve months. We had purchased 366 million shares for a total of 20 billion and over the last five years. We have reduced the shares outstanding by nearly 28% of 20.

I want to highlight a couple of our multi pillar wins because these sales demonstrate the power of having an integrated cloud application suite like fusion.

First one Johnson controls.

They are they selling to $15 million annual recurring.

Deal.

That included ERP Oracle fusion cloud ERP.

Enterprise performance management supply chain management, and CX for marketing fusion marketing fusion service fusion sales E commerce and configure price quote.

Yes, good similarly.

the board of

Well, what fusion ERP fusion M and fusion HCM in the class.

directors also authorized an additional $15 billion for the repurchase of Oracle shares

And at Fusions, S. as supply chain and HCM in the cloud.

So we're seeing a lot of multi pillar deals where they buy most or all of the fusion.

The fusion suite.

We had a lot of European NPM wins in the cloud we won Unisys ERP.

Mm SCM and CX, we are as a S&P global body ERP.

I did services Automobile Association bought ERP Rico bought ERP that's.

Help broad both ERP and HCM.

Deco body ERP, the institute of electrical and electronic Engineering bought age ERP and HCM, United Airlines bought ERP.

Yeah bought ERP.

Now before turning to guidance, I need to say a few words about the impact of the covered 19 virus over the last few weeks. We've observed the growing public concern. We're largely conducting business as usual with some modifications such as using videoconferencing and asking our employees to postpone non-essential travel likewise. We're seeing other companies take precautionary actions. It's not yet clear what the effect of the virus will have on our customer and suppliers. And as a result what the impact will be on our business in Q4.

CDK global barcode ERP and SCM, we had a number of lcms number of supply chain wins in the quarter.

Big one was Dow chemical.

Board fusion supply chain national oil wells.

Bob Fusion supply chain Rico bought the supply chain. In addition to ERP Unisys bought supply chain.

This world bought supply chain Conagra supply chain, you see health lot supply chain.

National convenience distributors bought supply chain and so did total us as a by supply chain as I said selling the suite has enabled us to sell a lot more HCM as a part of this week.

CSS bought HCM, you see help bought HCM, along with supply chain ERP and mm Nemours bought ERP and supply chain and replaced their workday HCM with Oracle fusion HCM.

So in a health care bought HCM Ascension technologies bought HCM.

Ford Motor company dramatically expanded their their oracle fusion HCM cloud implementation.

Did kind your health another big expansion of their kaiser's fusion fusion HCM cloud cloud implementation.

Geared Dr Pepper, a broad our CX products marketing.

Fusion sales fusion service I cannot expanded dramatically there implementation of fusion service micro focus, but fusion marketing fusion service fusion sales infusion E Commerce, Banco de Chile, but fusion marketing and fusion Sir.

So with that backdrop, let me share with you my thinking on the modeling for Q4 the subscription part of our business cloud and product updates will continue to grow and we expect minimal impact from the virus in the quarter given that much of the subscription revenue is already contracted last year. The subscription business was 61% of the quarter consistent with the trends over the last year. I expected to be a larger percentage of queue for this year in meeting with my executive team. We were reviewed the enormous pipeline of transactional business for 6 to 4, as you know Q4 is typically a seasonally large quarter for software licenses and to a lesser extent Hardware.

This call path.

Comcast excuse me call basketball fusion sales Cargill bought fusion marketing Thermo Fisher bought configure price quote Motorola bought configure price quote and Kronos participate book, a fusion fusion marketing fusion sales and fusion E commerce.

Okay. That's the application.

Part of our business I'm going to spend I'm going to give you a little more detail about our infrastructure business being driven by our database business, our autonomous I knew autonomous database.

Oracle has long been the market share leader in the database business.

This quarter, our overall database business, both cloud and on premise grew 5%.

Given the uncertainty in the current business climate. I am going to provide a much wider range in my estimate for total revenue.

With our cloud database business growing and triple digits.

We have an enormous technology advantage.

With our economist database and we expect our database growth rates to accelerate from that 5% number we experienced this quarter past quarter as customers transition from legacy databases to the autonomous database in the cloud.

My guidance today is on a non-gaap basis and in constant currency.

Let me give you have quite a bit of detail on on a on a number of these wins that we think our strategic and very important to give you a sense.

How much momentum our infrastructure business is beginning to pick up.

Assuming current exchange rates remain the same as they are now currency should have no significant effect on revenues or EPS off.

No Mora in Japan made a $20 million commitment to the Oracle cloud.

They are there are moving their production systems handling mission critical transactions to the Oracle cloud. These these are the applications that service.

A number of large scale financial institutions, good very big commitment from Nomura Pfizer. Similarly made an 8 million dollar commitments.

To move their payments applications.

Now of course that may change but that's what it is right now. So for Q4 total subscription revenues are expected to range between 3% to 5% in both constant currency and US dollars.

Into oracle's Gen. Two infrastructure, there will be using both our public cloud and our private and our cloud at customer. This allows spin served to gain tremendous ongoing cost savings as a benchmark our cloud versus the clouds from competitors.

A workforce software is this as I made a 4 million dollar commitment there moving their SaaS application.

To to.

To the Oracle Gen two public cloud.

Total revenues are expected to range between -2 to positive two in both constant currency and US dollars.

Their application helps customers digitally management time and labor.

They will move out of there they're owned data centers to the Oracle Gen. Two public cloud because after a good deal with testing they got better performance from the Oracle public clouds, better security and a huge reduction in cost for them.

Yeah or has it made.

Non-gaap, EPS is expected to grow between 3 to 9 % and be between a dollar twenty and a dollar Twenty Eight in both constant currency in USD.

6 million dollar annual commitments to the Oracle cloud.

They're moving their retail applications are there most critical workloads will move into the Oracle public cloud and they will ledger and they will leverage our new interconnect with Microsoft is Youre and their engineers, who are public cloud Manhattan Associates is moving their warehouse and asset management.

total

Cap it for FY twenty is expected to be around two billion, but it could vary.

Based on their SaaS application into our into our cloud and their expense, they're expanding that business T mobile is moving.

Into our Gen. Two public cloud for their mission critical lend lease application to manage that financing mobile device sales for both T mobile and now sprint.

This one is really interesting a depository trust clearing and corporation, 98% of all global trades go through.

Oh global trade or through any accredited brokerage firm settle and clear using depository Trust the clearing corporation repository trading system.

DTCC is migrating their multi terabyte.

Amazon ADW S redshift system out of them Hassan and into our public cloud using the Oracle economists database.

They're also moving their analytics from Amazon to the Oracle analytics suite.

My EPS guidance for Q4 and the fy20 assumes base tax rate of 20% However, one-time tax events could cause actual tax rates for any given quarter to vary from our base tax rate, but I expected in normalizing for these one-time tax events. Our tax rate will average around 20% for fiscal year twenty-twenty now in June assuming the global economic situation has stabilized. I will share with you the basis for my optimism around our Revenue growth acceleration for fiscal year 2021. It will be based on the ever-growing portion of Revenue attributable to our faster growing subscription business. You saw a bit of it in Q3, and it would have been even more obvious.

Sunoco, a international provider, a diversified consumer packaging product products.

But for the early impact of the virus and with that, I'll turn it over to Larry for his comments. Thank you Sandra. There are two key product issue is that will determine oracles future Cloud Erp applications and autonomous database infrastructure being number one in both of these two giant market segment one table the success of our other application and infrastructure products in adjacent Market segment. We expect expect the cloud off two to three times larger than the prior on-premise Erp software Market. We already have a huge lead in the cloud Erp Market with over seven thousand v e r p customers and 21,000 next week Erp customers.

Our primary European competitors are struggling sap never rewrote their Erp applications for the cloud. And today many of sap s largest customers are actively working with us to migrate from sap to Fusion Erp in the cloud.

Workday, the other competitor is seeing very little success in Cloud Erp workdays Erp market share is Tiny compared to ours what off even more interesting is workdays lack of success in Cloud Erp is also creating opportunities for Oracle in Cloud HCM.

HCM increasingly is being purchased as a part of an Erp Cloud application Suite as a result Oracle now has more HCM numbers then work day and fusion HCM revenue is growing faster than workday.

and we're

Beginning to see the same integrated Suite strategy Drive our sales of CX customer experience applications in sales service and marketing. I wash highlight a couple of our multi pillar wins because these sales demonstrate the power of having an integrated Cloud application Suite like fusion-io one Johnson Controls. They they they selling the 15 million dollar annual recurring deal that included Erp Oracle Cloud Erp Enterprise Performance Management Supply Chain management and CX for marketing Fusion marketing Fusion service Fusion sales office eCommerce and configure price quote gasca. Similarly, but fusion therapy Fusion e p.m. And fusion HCM in the south.

And fusion supply chain and HCM in the cloud. So we're seeing a lot of multi pillar deals where they buy most of them or all of the fusion the fusion sweet. We had a lot of em wins in the cloud. We won Unisys e r p e p m s e m and CX we S&P Global body RP United Services Automobile Association bought Rico body are paid wages Health bought both Erp and HCM Adecco body RP The Institute of electrical and electronics engineering bought h e r p n a g m United Airlines bought Erp snap, but she cdk Global bought both Erp and SCM. We had a number.

Of sems number of supply chain wins in the quarter big one was Dow Chemical but Fusion supply chain National oil wells I bought Fusion supply chain. Rico bought a supply chain and addition to Erp Unisys bought supply chain Citrus swirl brought supply chain ConAgra month supply chain uchealth bought supply chain National convenience Distributors bought supply chain, and so did Total SSA by supply chain. As I said selling sweet is enabled us to sell a lot more HCM as a part of The Suite C h c m u c help bought along with supply chain of a European DPM Nemours the bought Erp and supply chain and replaced their workday HCM khong

Oracle Fusion HCM Molina Healthcare bought a sentient Technologies

Yeah, Ford Motor Company dramatically expanded their their article Fusion HCM Cloud implementation, as did Kaiser help another big expansion pack of Kaiser's fusion fusion HCM cloud cloud implementation. Dr. Pepper bought an RC Xbox marketing Fusion sales Fusion service Ikea expanded dramatically their implementation of fusion service microfocus wage, but Fusion marketing Fusion service Fusion sales and fusion e-commerce, Banco de Chile bought a fusion marketing and fusion service Compaq Comcast. Excuse me, a compact bought bought a fusion sales Cargill bought Fusion marketing Thermo Fisher bought configure price quote Motorola thought configure price quotes dead.

And grown-up participate bought a fusion fusion marketing Fusion sales and fusion e-commerce.

Okay, that's the application part of our business. I'm going to spend I'm going to give you a little more detail about our infrastructure business being driven by our our database busy are autonomous. I knew autonomous database Oracle has long been the market share leader in the database business this quarter our overall database business both cloud and on-premise grew 5% with our Cloud database business growing in triple digits. We have an enormous technology Advantage with our autonomous Thursday, and we expect our database growth rates to accelerate from that 5% number we experienced this this court best quarter as customers transition from a legacy databases to the autonomous database in the cloud. I'm going to give you a a quite a bit of detail on on a on a number of these winds that that we think are strategic and very impatient.

To give you a sense of how much momentum our infrastructure business is beginning to pick up nomura in Japan made a 20 million dollar commitment to the Oracle Cloud. They are they are moving their production systems handling mission-critical transactions to the Oracle Cloud. These These are the applications that service a number of large-scale financial institutions the very big commitment from numerous Fiserv similarly made an eight million dollar commission to move their payments applications into oracle's Gentoo infrastructure. They'll be using both our public cloud and our private life clouded customer. This allows finserv to gain tremendous ongoing cost savings as they benchmarked our Cloud vs the clouds from competitors.

Work for a software is the maid.

Or a million dollar commitment. They're moving their SAS application to to the Oracle Gentoo public Cloud their application helps customer digitally manage Time and Labor, they will move out of their their own data centers to the Oracle Gentoo public Cloud because after a good deal of testing they got better performance from the Oracle bubble clouds that are security and a huge reduction in cost for them.

Yeah, it has it made six million dollar annual commitment to the Oracle Cloud. They're moving their retail applications there most critical workload will move into the Oracle public cloud and they will and they will leverage our new interconnect with Microsoft Azure and there and there's your public lab Manhattan. This is moving their warehouse and asset management system their stats application into our into our cloud and they're they're expanding that business T-Mobile wage is moving on into our Gentoo public Cloud for their mission-critical Lend Lease application to manage financing mobile device sales for both T-Mobile and now sprinting yeah.

This one is really interesting depository trust clearing and Corporation 98% of all Global trades go through global trade through any accredited brokerage firm settle and clear using depository trust clearing corporations repository trading system. Dtcc is migrating. There are multi terabytes Amazon AWS redshift system out of Amazon off and into our public Cloud using the Oracle autonomous database.

They're also moving their analytics from Amazon to the Oracle analytics. Sweet Sunoco International provider of Diversified consumer packaging product products is migrating their e business Suite their product lifecycle management integration analytics all of that to our the public Cloud National Bank of Canada is migrating all of their Oracle databases running on IBM P series to oracle's generation to Cloud at customer. The Norfolk Southern has decided to move there entitle warehousing environment away from teradata and away from Microsoft SQL Server to the Oracle database and our Gentoo public Cloud. They will also use of the oral Google analytics Cloud for visualization. I just wanted to get give you some ideas of the big wage.

that were getting and with customers moving away from

Microsoft SQL Server away from away from work day and into using our into our Cloud using both our applications and our infrastructure it off. It has been a very exciting quarter for us. We had some huge wins and with that. I'll turn it back to Safra.

operator

the audience for a

Certainly, ladies and gentlemen to ask a question, press star one on your telephone keypad to withdraw, press the pound key. Our first question comes from Heather Bellini with Goldman Sachs wage. Thank you so much for taking the question. I was just wondering if if you could talk a little bit about the rebound that you mentioned and that you can start seeing them in the numbers in particular around your your database business. I know in q1, you called out a little bit of dislocation and it looks like things are starting to progress in the direction that you've been telling us about. But life is is there anything you can share with us to kind of give us more detail about what what exactly you think is driving this is it is it things like for example as well and then how are you mentioned that you know, you might be able to share with us in May when you get a little more stability in the picture from a macro perspective, you know kind of how you see this progressing but

Any high-level thoughts you would be comfortable sharing with us now about kind of the acceleration that that you're seeing and in terms of how how we should think about it going forward. Thank you.

Okay, so I will start and then Larry you can add what you'd like. Obviously the power of having great products is what overwhelms everything and the month we have with autonomous database and the the more and more success, you know, all of these projects start a small projects money and expand very dramatically. Our average consumption rate is just increasing dramatically and it's a result of autonomous database being incredibly powerful and very very popular with our customers in addition the database itself database license the Dead the technology business, which I mentioned earlier in the year. We had a little reorganize America a few things like that that is really chugging in fact.

Probably would have been even better but for you know, this coronavirus showing up at the end of the quarter, you know, basically the last week in February Market was down a lot and so I expected but for this coronavirus for Q4 to be really impressive by assuming that we have some flexibility in in in the economy. Globally. I will be sharing with you the fact that it's a bigger and bigger number that can suck revenue is going way way up and that this entire subscription side of the business. The infrastructure subscription side is business is just getting bigger and grows and grows. So overall good products good Services lead to success success for our customers and then adoption takes care of itself. I don't know Larry if you want to add anything.

into that

I want to amplify on what what separate means by, you know, great products. So autonomous database really is a unique product. There is no human labor. Therefore there is no human error. So it's combination of autonomous database cost is cost a lot less to run because human beings don't do the driving the autonomous database drives itself so long so there's not a there's no labor associated with running the autonomous database and if there's no human labor humans can't make mistakes that cause security vulnerabilities. That's one big thing off. But another thing that people may may not know about autonomous database. It is both serverless and elastic what I mean by that is when your application isn't running on the Oracle public Lounge, you don't pay for any any CPUs. You got no CPUs dedicated to you when your application isn't running there, you know, you're not paying for servers that is not true of birth.

Amazon databases if you have red shift you pay you pay for the red shift processors if you if you have the there might be an implementation you pay for those processors.

We're not only to server list. We're instantaneously elastic. So if you suddenly need to go from two servers or two Coors 220 course, we do that instantaneous off all the databases still running and then when you know when you're done no longer need the 20 course, we automatically go back to the two so it literally is the promise of the cloud it's it's serverless when it's not running off and it's fully elastic. So you only pay for what you use what what what this is translated too is people Benchmark us. They actually bring an application to Oracle bring an application to AWS. They are shocked to find that we are much much less expensive than even though we're more secure and we're faster and the now once they discovered that once they do a trial and they do a comparison and they discover that they're picking us and some of the interesting ones that are picking us are some of the the SAS application providers and that's their business their business.

Is to run applications and they they try all of the different clouds and we are the most secure cloud of the highest-performing cloud, but mainly most important life the most economical Cloud. So we're winning more and more business and we expect this trend to continue.

Thank you.

And our next question is one of Brad zelnick with Credit Suisse Brad.

Thanks. Can you hear me? Yes. Yes loud and clear great. Thank you so much Larry. I just wanted to ask a question about the hardware business which I know isn't typically InFocus former ambassadors, but I know many customers have been anxiously anticipating the availability of autonomous database to be supported unclouded customer. So my question is, can you give me any sort of update on the impact that Supply constraints might be having on the hardware business and in any way can that impact the availability of autonomous to be shipping on cloud account? Thanks. So there was a little bit of an impact actually in Q3 as certain components were in short supply and off and so in fact, once again Q3 would have been even higher but for some shortages in components to our suppliers and to their wage

our suppliers suppliers as a result of

The of the coronavirus in China, I think that we're trying to work through all of that and we'll see what the availability is in in Q4. We think we is some some Impact May continue, but my my guidance on this does include our ability to deliver some but not are not all of what we could possibly sell in Q4.

Yeah, I'd like to I'd like to comment as well. Our database clouded customer product is actually made up of the same component off conventional servers. And therefore we can reallocate the parts away from the conventional servers into the exited machines. So I am and they exited the machines are much higher value cuz they have a much larger software software component to them when we sell them and they updated the machines are Gentoo clouded customer. So I think you'll see us if if we have to do some reallocation away from Plano Plano commodity servers into our exadata machines and you know there by Thursday if there is a shortfall it should be in the lower, uh, you know, the less expensive commodity servers less profitable commodity servers and the high-value high-margin cloud customer service. We're going to do work off.

Very hard to to meet all of those orders.

Yep. Next question, please. And our next question is Phil Winslow from Wells Fargo Bill? Hey, thanks for taking my question and congrats on a great Q3. I just wanted to focus in on the edge of business obviously suffered you called out the acceleration there, but also some pretty strong growth rates Erp Cloud 38% HCM Cloud Fusion 27% So true questions your first you should be driving this growth is this existing customer is flipping over from on-premise to the cloud or is it net new customers to Oracle? And I guess the question for Larry Larry to what are you hearing about sort of why customers are choosing and how much does the birth of your sweet, you know impact that buying decision.

So let me just say sorry to let me just answer your exact question, which is yes. Yes. Yes. Yes. Is it new customers? Yes. Is it upgrading Choice words for me? Business Suite? Yes, is it taking customers from our biggest competitors? Yes. Is it replacing out some of our staff competitors? Yes, it is all those things. All right now, I'll let Larry go ahead. Yeah. Well again, this is back to the maturity of our product. The combination of we think we have the best technology, you know, our our products are built on top of our database which is faster and more secure than other databases. So we think our applications inherit those capabilities, but our applications are also built on top of Technologies, like our voice digital assistant. So we have so when we do a demonstration against work day and work day has long claimed to have a better UI than Oracle. Yep.

and and and they'll show their computer interface and we'll say I don't

I think they have a better and and you just talk to your your smartphone and you get your reports and you do your transactions by talking, you know by saying Oracle, not Alexa, you suck, you know oracle how many vacation days do I have work or would like to schedule a one-week vacation starting August 17th, and that's so we make we make our applications much more accessible with a much more modern user interface taking away is showing the technology difference between us and a company like workday the big Advantage we have against workday and sap I would argue is that our applications are built on top of our infrastructure sap doesn't have an infrastructure Club workday doesn't have an infrastructure Cloud workday doesn't have a digital a voice digital assistant work day doesn't have an autonomous database workday doesn't have integrated machine learning job.

The detect fraud and to to affect to detect security intrusions. They don't have those Technologies are applications inherit all of those Advanced and it allows us to can be very effectively against them from demonstration to deployment and finally, we we have this very very broad Suite where it's going to be very difficult for a company like work day too long to build out everything from to h c m e r p and supply chain and Manufacturing just very difficult for a small company to do that and it's very difficult finally for sap mm that because they haven't started yet. They haven't started writing for the cloud. So we're winning everywhere in applications. We have a sweet. We have the most modern technology. We have the best life and the best performance, you know, we're doing very well very very well against all of our application competitors in the back office in HCM and Erp.

And we're making some progress against sales force though. They are but they're you know, they're very formidable competitor and the front office that's a different that's a different competitive dynamic.

Next question, please. And our next question. It's line of Remo with Barclays Capital Remo. Hey, thank you. Can you talk a little bit like we're off in uncertain times, but you guys have been in uncertain times before. So, can you maybe contrast a little bit Oracle today with its recurring Revenue stream where there's where we were a 2008 wage and we were in two thousand and one and then also talk a little bit about what you see on renewals around the database, but also the cloud. Thank you.

Yeah, so as I pointed out in in my opening remarks the percentage of our Revenue that is recurring which is generally the support business office and and our Cloud business, which is just continues year after year building off a growing base is a very very large percentage this past quarter in Q3. It was seventy 1% of the quarter by the way in q1, it will be a very large percentage because there isn't the big chunk. And in this next quarter is the quarter that it is historically Q4. It's historically the lowest as a percentage because our transactional business is the biggest last year. It was 61% Assuming it does at least what at least. Yep.

this

Quarter did and I expected to be actually a little bit more. It would be about 63% at a minimum cuz this was two point expected to actually be more money. So we have much less variability in especially like I remember two thousand and one when the internet bubble imploded it was just a totally different world at that point. Our license Revenue was a very large percentage of our business and at that point, it dropped very significantly because it had been some would say inflated or very high during the internet bubble because of those kind of companies our business now is strategic and Central to the operations of our customers, whether it's our SAS products on which they run their businesses or it's the infrastructure and the name.

The base the database is a very strong and it remains strong. Our our Tech business is very strong. And you know now that we've gotten everything sort of organized correctly in the past, you know few months. It's really starting to show the power of our own mess. Yeah. I'd like to add a couple of comments one is just reiterate with Sampras said our business is much is not a one-time license business very much anymore this past quarter off 71% of the business that we had in the quarter was contracted before the quarter began. So it's just there's just ongoing subscriptions stuff. That's very close to two accurate wage. The other the other comment is, you know, we got all this recurring business. The other comment is our business model is changed radically and that we used to have lots and lots of small offices spread all over the place and yep.

Going away from those small office and spread all over the place to a hub model where we have you know, big big office in Austin, Texas big office in California. We have these hubs and we do digital selling. We do Digital support. You know, we're we're communicating with you across the internet. We do digital we do demonstrations. We're we're not necessarily there. We're just we're trading our products to selling our products to you where we're doing implementation Consulting out of India. We're doing Implement implementation Consulting out of the Philippines where people aren't aren't going on site. So our model our business model selling and services are more and more provided digitally our our Revenue model or more of it is subscription subscription-based and reoccurring so our business has changed radically from the from the time of the internet the internet bubble bath.

2001 for 2008 it's a very different situation.

And our next question is line from Mark moerdler from Sanford Bernstein. Thank you very much. You've reached your buyback authorization this water. How should we think about how you will use the buyback given the market downturn also, how should we think about your ability to support the dividend and expanded dividend given the economic downturn. It seems to be a a very positive statement. You're making I'd like to get whatever color you've got on them.

There's no question. We can support our dividend with he's okay and any kind of increase dividend we can we could support that. Also. I mean our business office is very strong as obvious. It generates very large amounts of cash. We believe as you can tell I I'm not going to comment on a future move back, but obviously you can tell we have been buying back our stock. We think it's an incredible deal is basically gone on clearance sale in the past few days. And we we think it's an enormous, you know, it's a fantastic investment and it reduces the number of outstanding shares or otherwise known as partners. We have to share our our very good profits with so our business has hit an obvious inflection. I mentioned that it would suck.

In the second half I never would have imagined that we would have the kind of reaction worldwide by companies and governments. So I I really I've done my best at modeling what Q4 will look like it to the extent that next year is, you know that the stabilizes I believe we will be a just continuing on in in our in our we've we've changed our model and it's becoming obvious. So I think our our our mouths stock is obviously a bargain. It was a bargain before and and, you know, we we are authorized to buy back and we will let you know after we have done it off. Thank you next question, please.

And our final question comes from Michael turrets with Raymond James Michael everybody good evening and and nice to see strong with good results particularly in a tough time. I want to come back to the applications applications accelerating this quarter and fusion apps continue to grow at high rates. Is there anything left in terms of head wounds that could keep you from seeing further acceleration and app subscription. That's this year and next and where do you think that growth rate could end up with this year?

The business is fantastic. Okay, it's obviously accelerating the base of the business keeps growing. We are winning where winning constantly the products aren't life stronger every quarter and you know, it really ultimately is is well on its way.

I'm sorry, I interrupted. You know, I was going to say in applications. The new news. The noon is is I I mentioned it last quarter that we are engaged with lots, you know more than 10 of sap is very large as customers in terms of doing actually looking at take a couple of divisions of the very large companies and we're talking about American companies Asian companies German companies large German companies that are going to give a are giving us divisions off to put fusion into and there is one, you know one company is giving us multiple divisions because the question they're trying to answer is can I can read can I replace them all of sap throughout my company with fusion and I just you just doing one Division and my company isn't enough. I need you to do multiple divisions within my company. So we have lots of exam.

We'll go back believe it or not with the most famous companies in the world essay. It is astonishing to me that sap is largest customers are now looking at moving away because sap never moved to the cloud. They never rewrote their applications. Ask them. Ask them a very simple question is is that code the same code you had thirty-five years sap programming language, by the way as they can they're still programming in a language called a BAP

It's a proprietary program, you know, we program in Java but they program in this is a 35 year old technology. They never rewrote for the cloud their largest customers are aware of that month. They are looking at us and I have never seen except in the early days when we had the first commercial relational database and Oracle grow grew its franchise which really created our brand they were local branch. I've never seen an opportunity to like this to take out the winner of the of the on-premise wars. They beat us in the on-premise wars and it looks like and they and they missed the cloud entirely. So the scale of the of this opportunity is enormous. We're getting real deal signed with their largest customers. We're implementing decisions and and their largest customers will we we have a buy that this summer

Some huge sap customers going live live on Oracle Fusion applications that will be announcing this summer. You know, I'm not that we just started working with them as we started working with them eighteen months ago. And we're taking their first division. It will be live this summer. So the scale of this opportunity is just enormous and that's going to that's going to help Drive our growth our applications growth higher than we ever dreamed. It could be

And was that I would like to turn the call back over to Ken Bohn for any closing remarks. Sure. Thank you a telephone.

Call will be available for 24 hours dialing information can be found in the press release issued earlier today. Please call the investor relations department with any follow-up questions from this call, and we look forward to speaking with you about that. Let me turn it back to the operator for closing.

Thank you for joining today's oracles third quarter 2020 earnings conference call. We appreciate your participation. You may now disconnect.

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