Q4 2020 Oracle Corp Earnings Call
[music].
Welcome to Oracle's fourth quarter 2020 earnings conference call now, but I could turn todays call over to Cat Bond Senior Vice President.
Thank you Holly good afternoon, everyone and welcome to Oracle's fourth quarter in 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, our chairman and Chief Technology Officer, Larry Ellison, and CEO Safra Catz as a reminder, today's discussion will include forward looking statements, including predictions expectations estimates or other information that might be considered forward looking.
Throughout today's discussion and 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 could differ materially from statements being made today.
As a result, we caution you from placing undue reliance on these forward looking statements and we encourage you to review our most recent reports, including our 10-K and tend to and any applicable amendments for complete discussion of these factors and other risks that may affect our future result, or the market price of our stock and finally, we are not obligating ourselves to revive.
As a result, we're publicly release any revision to these forward looking statements in light of new information or future events before taking questions. We'll begin with a few prepared remarks and with that I'd like to turn the call over to Safra.
Thanks, Ken and good afternoon, everyone I know that many of you listening to this call are still working under unusual circumstances because of the pandemic.
A lot of happened since our March 12 earnings call. When we were all still conducting business as usual within a couple of weeks. The mitigation response to covert 19 reached levels that you could have imagined.
Overall, we found ourselves working with our customers and we believe we have weathered the pandemic well and we're pleased with our overall performance in the quarter.
To start we successfully transitioned our global workforce to working from home and our employees rose to the occasion, they focused on their job building technology, selling technology and most importantly, helping our customers with some of the challenges that have come with this.
Pandemic.
Whether it was supporting systems for federal loan programs with partners or helping states get unemployment checks out or supporting the national Red Cross systems around the world handled the massive volume spikes or helping HHS, the CDC and others.
The third parties around the world or supporting over 100 clinical trials that were horizon. We stood out we were there to help our customers and I think we are much closer to them. As a result, there are many many many more stories like this.
We all underscore how proud I am a far employees and customers as we are all actively engaged in the ongoing fight against Cobot 19.
In addition, we decided to provide training and certification on Oracle cloud infrastructure and autonomous database through Oracle University free of charge to all who wanted it we saw a huge surge <unk> around the world and demand with hundreds.
[laughter] thousands of individual across 150 countries being trained and certified on Oracle latest technology.
No we entered Q4 within enormous pipeline of transactional business.
As the cool that's a quarter progressed, we saw drop off in deals.
Actually in the Industrys most affected by the pandemic.
As countries begin reopening their economies many of these discussions have already resumed.
Since these were not losses to competitors, we believe that most of this business will ultimately be booked.
And while some customers have deferred projects. We're also rapidly building new pipeline with customers that are moving their on premise workloads to the cloud.
Okay, 19 created challenges to forced companies to reconsider how they work in the cloud, including looking to us as an alternative to aimed at the U.S. and issuer as we engaged with these customers. They found Oh see I was more performance than our competitors more.
Youre less expensive.
The easy to use making no see I now a serious part of the infrastructure discussion. We're also seeing this on the application side of the business as many customers entered the pandemic I'm prepared and are now showing renewed interest in modern cloud applications.
With mobility, social machine learning built in.
Moving to the numbers I'll review, our non-GAAP results using constant dollar rate.
Unless I say otherwise keep in mind for your U.S. de model that the strengthening of the U.S. dollar in the quarter resulted in an unexpected currency headwind as there was a flight to quality, which is the U.S. dollar the incremental currency headwind.
With more than $200 million to total revenue and two cents to earnings per share both negative.
Total cloud services and license support revenues for the quarter were 6.8 billion up 3% from last year and accounted for 66% of total company revenue up 61% up from 61% last year.
GAAP applications subscription revenues were 2.7 billion up 3% with fusion AFE up 31%.
Fusion ERP was up 35% and fusion HCM was up 29%.
Next week ERP was up 25% and vertical SAS was up 7%.
Gap infrastructure subscription revenues were 4.1 billion up 3% with database subscription revenue up 6%, which is up from 5% last quarter.
License revenues were 2 billion down 21% after being up 15% last Q4.
All in total revenues for the quarter were 10.4 billion.
Down 4%.
As we saw the pandemic begin to take hold we acted swiftly to lower our operating expenses by 8%.
Non-GAAP operating income was 5.1 billion down slightly from last year and the operating margin was 49% up 2% from last year.
As a reminder to take advantage of very favorable interest rates, we issued 20 billion in debt in the quarter and the added interest expense, which lowered EPS by three cents was not in my early March guidance.
The non-GAAP tax rate for the quarter was 16.6 below our our base tax rate of 20% as the result of some discrete items and EPS was $1.20 in U.S. dollars up 3% in U.S. dollars up 5% income.
Constant currency.
As I mentioned currency had a negative two cents impact on E. P. S.
The GAAP tax rate was 15.7.
Also a result of some discrete items and GAAP EPS was 99 cents in U.S. dollars down 8% in U.S.P. and down 5% in constant currency.
Now for the full fiscal year total cloud services unlicensed support revenue was 27.4 billion up 4% and accounting for 70% of total company revenue up from 68% last year.
Total company revenue for the year was 39.1 billion up slightly in constant currency.
Non-GAAP EPS was $3.85 in U.S. be up 9% and up double digits for the third consecutive year at 11% in constant currency.
The full year operating margin percentage was up slightly at 44% and I expect we will see record margins in the coming years as our revenue growth accelerates and we benefit from greater scale in the cloud.
Operating cash flow over the last four quarters.
Was 13.1 billion.
During Q4, we saw delays in customer payments due to the pandemic as some customers suffered financial hardship, we worked with those customers and we expect that these payments will be collected in fall over the course of this fiscal year.
Capital expenditures for the year were 1.6 billion and free cash flow over the last four quarters with 11.6 billion.
We now have more than $43 billion in cash and marketable securities. The short term deferred revenue balance is 8 billion now that's a down 3% in constant currency due to timing differences in customer payments, which were more pronounced this quarter.
Because of Cove at 19, but I want to remind you gross deferred revenue was up 3% in constant currency.
As we've said before we're committed to returning value to our shareholders through technical innovation strategic acquisitions stock repurchases prudent use of debt ended dividend. This quarter, we repurchased nearly 107 million shares for a total of five.
<unk> 2 billion over.
Over the last 12 months, we've repurchased 361 million shares for a total of 19.2 billion over the last 10 years, we've reduced the shares outstanding by nearly 40%.
In addition, we paid a dividend of 3.1 billion over the last 12 month and the board of directors again declared a quarterly dividend of 24 cents per share.
Now.
Before moving to guidance.
I'd like to restate, what I said on our Q2 in Q3 earnings call, which was that our business is expanding and our revenue is accelerating and our relationships with customers is broadening.
But for the timing of the pandemic. We had every reason to believe that this momentum would have carried forward to Q4, and though delayed by a few months. We believe the pandemic has actually focused customers more clearly on the need for the modern technology, which.
Our uniquely at the core of Oracle offerings.
We are confident in our growth because our mix of business is becoming increasingly favorable.
Our revenue is now clearly in one of three distinct groups, one growing one stable and one declining.
What I see is that while overall revenue growth has averaged around 1% to 2% over the last few years underneath the growing businesses have grown at a 30% compound annual growth rate the declining businesses averaged almost double digit decline and ours.
Stable businesses were up one or 2%.
We are now at a point, where our growing businesses.
Our now larger than our declining businesses and this favorable shift will inevitably drive revenue acceleration going forward.
Second I believe our SaaS business momentum will increase as are very large installed base of application customers continue to move to the cloud and as we take share from our on premise competitors SH t. for one the do not have a true.
SAS offerings.
Our products, our modern secure perform at mobile and importantly, highly referenceable as more of these ERP workloads move to the cloud we believe that they will move to Oracle fusion.
Third we have four decades work of Oracle database applications, which has only recently started to move to the cloud. These databases contain the most mission critical and valuable valuable information of our customers.
Now with autonomous database, they have a place to go where they get far better technology at a lower price for those who care about security performance and cost the autonomous database will be the standard that everyone else is measured against the.
Autonomous database runs on Oracle cloud infrastructure in our public cloud ending the customers own data center with clouded customer.
The economist database is without question, our most significant database release and will absolutely drive revenue acceleration going forward as it grows lastly is the momentum in OCI that I've already mentioned, we're thrilled that once companies see.
Our differentiated okay see <unk> technology. They become believers. This is evidenced by the fact that annualized consumption revenue for Gen to go see I grew over 140% in Q4 by the wet the HCR for autonomous database.
Grew nearly 70%.
In Q4. These two are getting to be a large number across all of these product category industry analysts are universally recognizing our technology innovation and leadership in the class.
Pick your favorite independent.
Independent publisher, whether its Forrester Gartner or I D C or any others you will see oracle in the upper right of every chart.
In summary, it's the continuation of leading technologies favorable mix shifts in our existing businesses and higher growth rates from our growing businesses to give me the confidence that our revenue growth will accelerate this year.
Now to the guidance.
My guidance today is on a non-GAAP basis and in constant currency.
Currency is extremely volatile as you've all seen and it is clear what happened in Q4, However, assuming current exchange rates remain the same as they are now, though I'm not projecting that I'm just telling you.
Currency should have a negative 1% effect on total revenue and one cents negative effect on EPS in Q1.
Total revenues are expected to grow from zero to 2% in constant currency and assuming a 1% currency headwind total revenues are expected to grow from negative one deposit of one in U.S. deak.
Non-GAAP EPS in constant currency is expected to grow 5% to 9%.
And between 85, and 89 cents in constant currency and assuming a one cents headwind non-GAAP EPS in U.S. The is expected to grow between four and 8%.
Be between 84, and 88 cents in U.S. day.
My EPS guidance for Q1 assumes a base tax rate of 20%.
However, onetime tax events could cause actual tax rates for any given quarter to vary but expect that in normalizing for these onetime tax events, our tax rate will in fact average around 20%.
Now given me I'm I'm, taking it into account as much as they can the uncertainty related to the pandemic.
Now I'm not going to be providing guidance for the entire fiscal year 2021, but as I said earlier I have a high level of confidence that our revenue.
Will accelerate as we move on past calls at 19.
And with that I'll turn it over to Larry for his comments.
Thank you Safra.
Looking at this quarter, we announced a new customer relationships with zoom and eight by it.
They were great wins, but there were many others and before I start lifting the additional wins I want to explain why we're winning.
Oracle cloud infrastructure is the world's only second generation autonomous cloud autonomous software technology, the Oracle or dollar them as database Oracle Autonomous Linux autonomy is the defining technology that separates our gen. Two cloud.
From Amazon Microsoft.
Googles generation one club.
Autonomous self driving computer systems eliminate human labor.
The us eliminate human error.
There is nothing for humans to learn and nothing for humans to do.
Eliminating human labor dramatically lowers the cost of running an autonomous system.
Eliminating a human error dramatically increases data security and system reliability.
All of the big data losses at Amazon.
Were caused by human error.
There is no opportunity for any human error.
If your data is stored in an Oracle autonomous system.
This is a very big deal.
The Oracle autonomous database provisions itself configures itself and ripped the data itself touches itself and updates itself automatically scales itself up and down and continuously teams itself as the data base grows and user access patterns change.
And it does all of those things wall. The system is running there's no downtime required to patch, there's no downtime required to install and version there's no downtime required the double the number of processors that you're currently use and workforce or reduce the number of processors.
Uh huh.
It all happens while the systems is running.
Oracle economist went into the world only autonomous operating system, which provides 99.99, 0.5% availability, while maintaining itself would continue security monitoring continuous batching and remediation wall. This system is running.
Furthermore.
Soon.
All the popular OCI services compute.
Storage et cetera will be truly serverless inelastic.
The other guys don't because.
The Oracle OCI will have elastic compute the lasted storage all the popular.
All about what your bid things, we truly serverless allows the scaling itself up and down automatically wall you were running.
So we keep the promise of the cloud where customers only pay for what you use quite often another clouds you have to reserve compute capacity and even if you don't use that you have to pay for that's not the case.
It is less and less the case and the Oracle Autonomous club.
Okay. The Oracle public cloud now has 24 Lucy I Gen two regions lives.
Soon we will have more regions like but then it w. US which is currently at account of 20 bought.
We will this fiscal year at another 14 Gen two Lucy I regions.
Allowing more customers to run at a public cloud without compromising data locality or Dave data sovereignty requirements.
For customers, who are wanting or needing to run their applications in their own data center behind their own firewall, we uniquely offer oracle cloud at customer.
Yeah, either for just the Oracle database.
All or for all of our OCI cloud services, including our SaaS applications. None of the other cloud vendors have this kind of clouded cups customer opera.
To summarize oracle's Gen. Two autonomous Serverless elastic cloud infrastructure delivers better performance our security at a much lower cost then ADW us as Youre, where the Google cloud.
That's why we won zoo.
And that's the other and <unk>.
And some of the other deals I'm about to tell you though.
Okay, let's start with them.
Demand for Zoom services has increased almost 20 times since January.
Zoom needed additional cloud capacity immediately.
Within hours of the first Oracle deployment.
Oh, CIA supported hundreds of thousands of simultaneous meeting participants.
Usage has continued to ramp where oracle now supports millions of simultaneous meeting participants.
You lose zoom selected LCR because of our advantages and price performance scalability reliability and cloud security.
Every day.
Our assume our zoom conferences.
<unk>.
More than eight petabytes through DLC I network, that's an extraordinary amount of data, we've been able to scale and help zoom scale as demand group.
Okay No. Another one addition is now.
Yes.
A great example of our sales process.
Customer began by moving some services to LCR where performance enhancements.
They buy it was very surprised by the extent of their performance gains by moving out of HW us moving part of their system Automative U.S. and into OCI. They were so surprised by the performance gains they achieved and the cost savings they achieve.
They decided to move all of their services out of ADW us and into Oracle.
Once the OCI demonstrated much better performance at a much better price that's sealed the deal.
Eight by age and it's growing base of 20 million monthly active users.
Another one.
The Armani information technology, and Communications group, a three year contract. They built a dedicated OCI gentoo clouded customer data center in Oman offering.
Oh, C.I. services OCI public cloud services to all the different government agencies within Omar.
Vis a vis means they'll be able to have the full benefits of the public cloud OCI Gen. Two public cloud again without compromising their data locality or their data sovereignty requirements.
Another with Jefferies. The world's largest nine a world world ninth largest investment firm plans to move over 500 workflows to oracle's Gen two public cloud.
Jefferies picked oracle over both a WSS and as Youre.
They are also using oh CR to extend their fusion HCM applications.
Another win a general authority of Civil Aviation, all in Saudi Arabia cloud customer.
And the customers own words, the key factors that were considered when we chose exited a cloud and customer was cost reduction of by approximately 50% well being and compliance with government requirements for data sovereignty.
Additionally, with the taught them as database on exited a cloud customer our Kerr our team could save time and effort and focus on bid as business innovation by leveraging its self driving self securing sell preparing characteristics of the Oracle autonomous business.
Wes diagnostics.
Let's see.
The World leader and diagnostic testing and they continue to invest in the Oracle cloud and support the ongoing battle against the Kuroda virus bad debt.
Experts that have its heard yesterday, the cloud the customer environment. So that the company could migrate it's myquest portal or an anticipated.
In anticipation of dramatically increased hope at 19 anti body testing.
Must also upgraded its existing exited on premises environment to new the new Gen. Two exited the cloud customer.
The board, both corporate and line it would be a lot of business business functions. Another win Santander Bank.
That pad or its consolidating their databases.
On Oracle exit data cloud customer and adopting our economists database to support the banks digital transformation another of OCI with TD Bank group in Canada, TD Bank made a multiyear commitment to use oracle's public cloud, including Oracle's Gentoo cloud infrastructure, along with Oracle SAP.
Yes data integration.
In a taught him as data warehouse to move their financial reporting systems from an on premise configuration to a public cloud deployment.
Horizon business group of four year contract.
Ryzen has already moved over 25 mission and business critical workloads to the OCI Gen. Two public cloud serving as customers around the globe.
These workloads process more than 200000 plus.
Oh I ops.
Bio's perception with 120 terabytes of data.
<unk> Verizon uses the Oracle cloud infrastructure with exited the cloud services, including rack and data guard and rising plans are dramatically increase its commitment to the Oracle Oracle public cloud and move more and more workloads over the wearable.
Another win cyber reason, a four year contract.
Using the OCI public cloud to run its own SAS platform to provide their customers with endpoint production response and analytics as a service.
Fiber is a cyber is and will be using oracle.
Our metal service plus the autonomy autonomous database to run their analytics, another OCI with a very large European auto manufacturer.
Lets customers looking for a highly last that high performance compute environment in the cloud to reduce their capital corp. cost and introduce deployment flexibility. They will run computational fluid dynamics to stimulate clash worth the crashes car crashes in the OCI public cloud.
To support their tar development and scale up and they expect to scale up using many thousands of scores by the end of this year.
Another one.
Yes, Yes formally society general a three year contract moving multiple workloads OCI Gen. Two public cloud, including a 34000 user you business suite application with the goal of lowering costs, while improving security reliability and performance. This.
When is open doors for the next phase of SGS transition to the public cloud focused on peering and Microsoft is sure would oracle's LCR Y. Gen two public cloud.
Another way Synacor three year contract there are migrating.
Some of their production assess businesses those July which enables them to shutdown did a number there designers and may they expanded their initial contract as they continued migrating existing and new SAS environments to oracle's cloud infrastructure.
I want.
Three year contract.
I wanted to Brazilian ipi as they knew that gotten has their own SaaS applications.
After running on both ADW S and the Oracle cloud they found that Oracle's cloud gave their customers much better performance as a much lower <unk> costs. As a result, there are moving all of their workloads to the Oracle cloud.
Another one another win for infrastructure.
At a premium finance in India, a five year contract they decided to move entirely to the Oracle public cloud and our Mumbai agenda to data center, a with our newly launched hybrid Jude Hyderabad agenda data center as their disaster recovery site and I'll stop with nonetheless.
Infrastructure when I'll talk about as elsewhere at the three year contract five times of the slides with their initial contract and they're migrating more of their high performance compute and commercial what workloads dose yacht there were a lot more infrastructure deals in the fourth quarter, which was this button.
Popular quarter for OCI and infrastructure, but you know I don't have time to name them. All so right now I'm going to move on to cloud application with.
Currently Oracle is the cloud ERP market in technology leader with over 7100 fusion ERP customers and nearly 22000 net suite customers.
We have taken a hugely either in the cloud ERP market, because our largest competitor Sep never rewrote their ERP applications for the cloud.
Gartner lives fusion Oracle fusion at the very top of their ERP ranking.
With SAP.
In the lower have listed with a lower house competitors. This is a dramatic change from a few years ago.
Workday has a cloud ERP system, but most of their successes come in a in HCM.
And more and more customers. These days are purchasing HCM as a part of that overall ERP purchase an ERP decision.
We've now seen RF fusion HCM growth rates as a result of the fact that HCM purchase decisions are now getting bundled with ERP purchase decisions, we've seen our HCM fusion growth rates surpass workdays HCM group growth rates.
We are already by far the biggest cloud ERP player.
And.
It looks like we're going to be able to leverage our advantage in ERP and our scale in ERP to also become.
The biggest cloud HCM.
Before I go onto the key European HCM wins this quarter I'd like to highlight a few fusion customers that went live in Q4 during the pandemic.
First.
With JP Morgan Chase.
JP Morgan Chase and this past quarter went live in 100 countries.
With over 256000 employees on Oracle cloud HCM and recruiting.
JP Morgan Chase has already moved over 2 million of their recruiting kind of candidates to the new Oracle cloud recruit recruiting system.
Maybe the most interesting one Goldman Sachs.
Goldman Sachs initially purchased Workday HCM.
But their implementation was not successful.
Thereafter, Goldman Sachs acquired Oracle cloud HCM.
And they went live a little over a month ago.
It's interesting to note that bodes Gartner and Forrester research rate Oracle HCM much higher than what I don't believe me go look at the reports their online.
Okay. So.
Where we really distinguished ourselves and in addition to capabilities and also other things was in customer satisfaction looked at the Gartner report looked at the Forrester report.
Our customers that rating is 5.0 right at the top.
And workday is right in the middle with 3.0 far behind us.
Another company that Wasnt lives that went live in Oh during the pandemic was Mount Sinai Hospital, and the Icahn School of Medicine.
What lie with Oracle cloud HCM amid the cobot 1919 pandemic to support.
More than 26000 frontline employees with more modern accessible tools that they could use at home.
They replace the 30 year old HR and payroll system.
All right. Those are go lives that happened during the pandemic and I think you're very interesting.
Okay.
I'd also add a lot of customers in ERP.
And EM and supply chain management.
First one TPM, Netherlands, but fusion ERP, they're going to started complete back office transformation of nearly 2000 applications.
Yeah.
Going from multiple vendors ERP systems to Oracle fusion ERP.
Advertising at Oracle fusion ERP.
A large global networking company is leveraging oracle's digital supply chain with a single data model to achieve and and view of innovate to commercialize manufactured as Phil and design to recycle operations.
Another large global insurance provider, where we where we'd be workday.
For the ERP replacements workday was the incumbent in HCM.
Ah, but we were able to win the ERP deal, even though they were already there and age there.
The customer chose Oracle because of our accounting hub and our global capabilities. They also bought fusion procurement and fusion project management.
A large multinationals and blubbering in the Asia or find a $13 million or our deal a we'll be rolling out ERP supply chain management HCM.
To over two there are over 200000 employees and multiple subsidiaries worldwide in a wide range in program to modernize their corporate systems and remove tens of millions of dollars of operating loss. Another win in the quarter ERP went in the quarter was west Pap New Zealand.
There will be using Oracle cloud ERP, and Oracle cloud EM to reduce cost and complexity of their current environment, while meeting local banking standards to operate independently from their parent in Australia.
Okay stopped doing ERP, a and that's and supply chain wins on the moved HCM wins, Okay. First we won Kroger.
North Americas largest grocery is replacing their essay piece system.
With fusion HCM.
The key enablers that allowed us to win this deal where our capabilities around.
All of HCM can operate from the smartphone AI machine learning a integrated into the application Chatbots integrated.
It into the up of the HCM and all of our modern SaaS applications and our Oracle voice digital assistant.
You can do a lot of things expense reporting calling up reports using a voice interface.
On your mobile phone.
Makes a.
Huge difference a difference between us and our other cloud competitors.
As our Oracle voice digital system.
Another HCM when was that Petronas, and Malaysia, and once again, there were replacing Sep with fusion HCM.
A very large us managed health care company.
They acquired fusion HCM to replace 40 separate systems managing HR activities.
These silos of disconnected data a result in a loss of visibility of their most valuable resource.
Their enterprise workforce other significant HCM wins in the quarter, where the United Nations Norfolkline County Council, the University of Texas, and MD Anderson Cancer Center, there were lots more but I'm not going to I'm going to stop right here and turn it back over to Safra.
Okay. Thank you Eric if we can move to the Q and a portion of the call now.
All right [noise], ladies and gentlemen, if he'd like to ask a question Press Star then one on your telephone keypad.
Our first question is going to come from the line, Brad Zelnick Credit Suisse.
Thanks, very much for taking my question, Larry you talked about OCI quite a bit in your prepared remarks, but I don't think we can hear too much about the success, you're having in particular the traction outside your customer base with wins like zoom and eight by eight in the quarter very impressive.
Can you talk more about the impact at the pandemic might be having on your cloud infrastructure business and any change in your confidence level, there based on what you're saying.
Well I think what we're seeing is now that.
Some people are actually trying the people are the first group of people that are coming to OCI are people who are in the business providing their application. It's not I mean, it's great. We have rise we have end user customers like horizon very big success. They came to owes the like they I think they tried a number but.
Their clubs and they found OCI is is better.
Then other clubs.
Zoom.
But OCI was faster and cheaper, which makes a big deal in their business right. So they had to expand capacity, but they prefer paying less and getting more when they run on someone else's cloud. So if your business is to build an application in the cloud and you're going to use someone else's cloud we think OCI.
It is where there a lot of them are going to end up once they try our cloud not everyone believes that most people don't believe that Oracle has the fastest cloud and the lowest cost cloud.
But when you come here and try it that's exactly what you find out and you're just seeing the beginning of that happening and I think a bunch of people were shocked with the zoom pit durable zoom pay I think zuma shocked also I think Jim what zuma shocked when they looked at the results.
After they moved their application to Oracle and we were faster much faster and we were much less expensive and we were more secure.
So we think as people compare our cloud our infrastructure, our second generation infrastructure to HW us and as you were and the rest.
They're going to pick our cloud they just have to come look as opposed to just assuming a the abuse is bigger so they must be better as yours bigger so there must be better once they look we win and I think a as far as or end users are concerned a bryson is a perfect example is someone who who tried other clouds and then.
Tried oracle found that Oracle to do a lot more oh for a lot less money than they could get done would they give you absorb.
Or a or is your.
We have a lot of customers, we've got to get them in and we've got to get them looking we got to get them trying our cloud and comparing to that to the result debate of U.S.
And we think we're going to get the lion's share.
Our installed base or database installed base moving to our cloud.
If I'm right.
That's right.
Our infrastructure cloud business is gigantic we have hundreds of thousands of database customers, including all the largest companies and governments on the planet Earth.
Thank you very much smaller.
Our next question is going to come from the line of Heather Bellini Goldman Sachs.
Great. Thank you both very much for taking my question I wanted to talk a little bit about the the launch of cloud at customer Gen. Two that you mentioned that autonomous database and and with the ability now to be able to Ron autonomous on pricing on premise excuse me can you give us a sense for how you see there.
You know accelerating adoption of autonomous and then I just was wondering when you factor in both now that it's available in the cloud on <unk> Dot credit how much of a tailwind SAP or is it factored into your two year view that you think that revenue growth could accelerate in fiscal year 21 is just one of the biggest webinars to that.
To to your tier estimation there. Thank you.
Let me just answered the before the end of that and then Larry I think you should coverage.
In much more in detail I have not counted on that and my underlying in my underlying assumption, but I do believe it is going to be incredibly successful and as ours. Our initial customers are using.
[laughter] I believe is very very important Barry <unk> differentiating capability that only we have and so don't why not worldwide on it. So far this for the acceleration I do believe that it will be an incredible tailwind.
For us and not just you know not just this year, but really for years to calm anyway, Larry why didn't choose common on cloud customer in autonomous database.
Okay. So when we pivoted strongly to the cloud we did a lot of database development for the public cloud and the most conspicuous thing the came out of our development team was the autonomous database, but it only ran in the public cloud and we had this huge installed base. We have this huge install base can.
Sure. It's a thousands of customers most of the world's valuable data is in an Oracle database, but.
But that's sitting on premise and the large bank wanted to use our latest technology, the oracle telling them as database. The only could play say goodbye. It was in the public cloud they couldn't get it they could not get it a a in their datacenter and cloud customer we didnt habit.
So for years several years, our on premise customers had no access to our latest database technology.
Amazing so <unk>. So now after developing all of this for the public cloud and controlled continuously improving the workload on them as database the ergo talking about transaction processes in system. The Oracle autonomous data warehouse, we finally have gone around too.
Making it available to our on premise customers via our cloud customer exit data exited a cloud customer a service offering.
And so now all of our on premise customers Big banks Big government agencies smaller and smaller customers.
Who.
I want to repay upgrade their databases on premise can now use clouded customer and we make it very attractive for them to get access the latest technology, we own when you know there's no upfront capital cost Yeah do get this thing, it's just like buying public cloud, except we put we put the database a cloud to cloud customer in your.
Datacenter or in the form of a number of exited a machines.
And then we manage it for you a across the network across is attached to our public cloud them and we manage it for you.
Again, what's what's happened is for years, our installed base on premise customers had no access to our latest database technology, our best database technology Autonomous database now all of this sudden they do.
We think this is a going to be a gigantic shift.
And a great product for us.
We're very excited and by the with the other thing was great about gentoo versus Gen. One apply to customer Gen. Two cloud customer has been engineered to be amazingly easy to install and use you got to plug. It in an adjusted works. So we think we think it's an easy to use system. There's no capital Yeah, Theres no capital up.
I want to use the system, we think it's going to be attractive to all of all of our on premise customers large and small and it will ease their transition from on premise and into the public cloud during that long period of co existence. When you have your own data centers and you have the public cloud both operating together.
We think it's going to be art, one of our biggest and hottest new product ever.
Autonomous database cloudy customer.
Thank you.
[noise] and our next question is going to come from the line of Sarah and land Butler.
Great. Thank you Larry in top proper, taking my questions and I'm really glad that everybody is safe and well definitely important right now.
Pivot and focus on the applications business, especially SAP or given your commentary around growing parts of the business getting larger bend. The shrinking pouch can you elaborate a little bit on what trends, you're seeing an application software and perhaps in particular are interested in knowing if you're seeing any accelerations in custom.
We're migrations from on premise into your cloud and just any color and insights will be greatly appreciate it. Thank you so much.
Well at least so we have a number of drivers in it stands now that I'm basically is accelerating the adoption of our products first of all we have more and more referenceable customers both small <unk>.
Two very large as you heard lowery talk about it.
So we have many many references which makes it far easier to convince new customers to go ahead and got can choose us.
Secondly, we have a lot of success upgrading on premise customers that are are you. They use products that are on premise with really no possible way to reach the cloud and so we've been incredibly successful with.
The old Lawson based and all that in addition, the business suite customers, which is a massive installed base has only recently started to upgrade and about only about 6% of our installed base has upgraded to.
On the cloud ear in absolute ERP, so, though they picked up you know pieces around financial now they really starting as they build confidence and especially into larger and larger customers have adopted fusion ERP men.
Many of them have just been waiting until they could do that and one of the things my the way that was a very important was the the release is on the supply chain side of the business many of our customers our manufacturing and they wanted to they like having the suite they wanted a.
Hey, full suite of course, our financials in HCM, but in addition, they wanted a mature supply chain chronic and now we have many references in supply chain of course, including ourselves and so I'm. The momentum is really increase now part of that by the way is that one.
Customers start where that many of our customers.
Grow over time, so they'll start with some module and year over year. It is very common that they will grow their installation at least 20% with us. So we have a lot of different drivers.
To the relationship so adopt HCM, Tom you take on more division.
Role in additional capabilities and I'll tell you picks. This pandemic has actually been very very interesting for some of them because they got one is the immediate benefits of being in the cloud and that is for our HCM customers we rolled out.
No charge health and safety, which is the might show up in HCM and in working with some partners many of our customers adopted it and to start using it so that they could better support their employees through this pandemic and said that they.
Could assist them and help keep track of them and help them where necessary of course, nothing like that could have been possible on premise and it's those kind of things, where we can just roll out new capabilities, which is the big difference between being on premise but.
Oh dead, Likewise, like S&P and being actually in a software as a service model, where new functionality can just be rolled out for you without you calling in a giant system integrator team to put it in so.
We we have a lot of momentum right now in this business.
Yeah, and I'd like to add was opposite we rolled out the new module that coming the Oracle made available in our cloud, but then our customers we are able to access that new modules.
Home [laughter].
[laughter], so as the doctors, albeit the powder systems are accessible at home. Obviously there are accessible on your smartphone so they're just much more accessible than the previous the previous generation of technology and that's made a huge difference where people are able to continue operating.
Hi.
Other their homes, a if you aren't accountants and you're using an Oracle financial system. There's no reason to getting your car and drive to the office you have the same exact tools sitting on a in your home office on your laptop computer.
Yeah I mean these capabilities are not only you know there modern their mobile you can get to them, but not only that you can work with them by voice and totally monitor you why much more capable I mean, it's literally knighton day between 21st century technology.
Jay which came in incredibly handy during this pandemic and that all 20th century stuff. Some of these customers are using and that's why the moment they get started with that and build the confidence. They realized that this is very very important and critical for their success.
Going forward. Thank you.
Thank you that was very helpful.
Thank you and our last question for the date will come from the line as Mark Moerdler Sanford Bernstein.
Thank you and I appreciate you have time to.
Taking my question. So from my understanding was the company didn't furloughed employees. They Didnt Lainie went off you treated your employees well your license sales were down a bit and yet you beat big on margin can you give us some color on exactly what's driving.
Such good margin improvement thanks.
Well I think you know that we have a very long history of being very careful about how we spend money and during this pandemic. Obviously there were no people flying around only are essential on you know cost only are essential employees that have.
Had to go in to somewhere did any kind of traveling at all we had moved entirely to work from home and so we didnt have t. any expenses. In addition of course, our compensation expenses were down because of commission that's clear.
And we really just trying to carefully watch our our spending while continuing to invest in our future. We're very very optimistic about the strength of these products I cannot say that enough and as a result.
We're also very optimistic about the capability of our field to kind of stand out and have shared the S with our with our prospects and so we want to make sure we have a very strong technical team in place and.
Thank you very strong field. So we just did what are the the reasonable smart things to do every every one of the entire senior management team, Larry and I don't take the credit. It is really the credit of the entire management team that just got a lot more careful.
About extraneous spending and we were able to bring this then.
I'd like to comment also add little color to that I think stoppers apps I totally agree with everything severance that we were I think we've always been actually pretty good about controlling our expenses.
And this.
This is another example, where we executed very well there I think just as important maybe even more important.
Is the fact that are profitable businesses are getting bigger or less profitable businesses are getting smaller.
So the mix you know what exactly was talking about very early on in the call. You know we have good some businesses that are in decline.
You should SCM.
Our infrastructure.
Okay. Gen do autonomous databases. These are much higher profit margin products. So as some of our lower margin businesses get smaller.
And our higher margin businesses get bigger.
It's really what's going on what's going on is a mix shift a fundamental mix shift and I think you should see margin expansion what our entire.
In good times, and and I and margin conservation in Bad times.
Because the business mix change I think the mix changes a very big deal and explains a lot of why even though over the if you look at Oracle.
By and large over the last several years seminal say golly I mean, there they're topline growth has not been very strong, but there are lot bottom line growth has been spectacular where they just must be cutting costs and cutting costs and cutting cost that is not true.
Our mix is changing.
Our profitable businesses are getting bigger are less profitable businesses that are getting smaller that's allowing us to improve our profitability and hold onto our margins.
Even.
When the topline is challenged.
I don't mean to take away anything from that from the team, which is a wonderful job of watching every penny and traveling obviously, we traveled less we review or adults and all those all of those things, but it's really the combination of those two things everything Thats opera shopper outlined in terms of how we manage our expenses plus this mix change.
That had a big impact and allowed us to deliver and earnings Beach.
In a very tough quarter.
Thank you.
Thank you Larry a telephonic replay of this conference call will be available for 24 hours dial in 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. Thank you again for joining us today with that I'll turn the call back to Holly for closing.
Thank you once again, we'd like to thank you for participating in todays Oracle quarter for 2020 earnings Conference call you may now disconnect.
[music].