Q1 2021 Oracle Corp Earnings Call
[music].
Welcome to work off first quarter 2021 earnings conference call, how I'd like to turn todays call over to Ken Bon Senior Vice President.
Thank you Erica good afternoon, everyone and welcome to Oracle first quarter fiscal year 2021 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. Additionally, eight.
List of customers being mentioned on this conference call, which have purchased Oracle cloud services or went live on Oracle cloud. This quarter will also be available 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 pre.
Addictions 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 to 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 10-Q and input moments for complete discussion of these factors and other risks that may affect our future results or the market price of our stock and finally, we are not obligating ourselves to revise our.
Results for publicly release any revisions to these forward 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 before I start I want to make sure you understand that we will be making no comments regarding the press reports about pitcock. So there's no need path.
So now the oracle's results as you can see we had a great quarter.
As usual I'll review, our non-GAAP results using constant dollar growth rate and let's say otherwise.
This quarter revenue was more than 115 million above the midpoint of guidance and EPS was.
But the mid.
Currency helps a little but this quarter was all about solid execution on the sale side and disciplined management of our operations as operating income grew 8%. Our best result in three years.
As I've said previously and only briefly interrupted by coal that 19, our mix of business is increasingly favorable what that means is that are growing businesses are growing faster and are now large share then are declining business.
Our fusion stats momentum is very strong we're seeing the success of autonomous database, which will continue to get even better now that we have autonomous database available on cloud customer.
Our total cloud services and license support revenues for the quarter were 6.9 billion up 2% from last year and accounted for 74% of total company revenue.
You have to application subscription revenues were 2.8 billion up 4%, but our fusion, perhaps were up 26% with fusion ERP up 33% and net suite ERP up 23%.
Fusion HCM was up 22%.
On our fusion, what rich mentioned rate, which are already hi continue to go up.
GAAP infrastructure subscription revenues were $4.1 billion up 1%, but with database revenue up 3%.
Autonomy database consumption revenue was up 64%.
Annualized consumption revenue for C. I was up 130%.
License revenues.
Were 886 million up 8%. So all in total revenues for the quarter were 9.4 billion up 2%.
As usual, we have continued to be disciplined in our spending with the operating expenses actually down 3% this quarter.
Non-GAAP operating income was 4.2 billion and as I said up 8% from last year and our best operating income growth in three year.
Obviously, we're thrilled with this result, and I expect the Q2 will be good as we're beginning to see our operating income become a bigger part of our EPS growth.
Operating margin was 45% of nearly 300 basis points from 42% last year.
Non-GAAP tax rate through the quarter was 19.1 slightly below our base tax rate of 20% as a result of some discrete items and EPS was 93 cents in us dollars up 15% in U.S dollars, 14% in constant currency and that is fine.
And interest expense being $120 million tires year over year to the quarter.
The GAAP tax rate was 13.3% also resulted from discrete items and GAAP EPS was 72 cents in us dollars up 16%.
End up 15% in constant currency.
Operating cash flow over the last four quarters was 13.1 billion with capital expenditures of 1.6 billion and free cash flow of 11.5 billion over that same period.
We now have more than $42 billion in cash and marketable securities.
The short term deferred revenue balance is 9.9 billion down 4% in constant currency from a year ago due entirely to timing differences in customer payment.
Gross deferred revenue was in fact up in constant currency.
And it was up 2%.
As we've said before we're committed to returning value to our shareholders through technical innovation strategic acquisition.
Repurchases prudent use of debt and the dividend this quarter, we repurchased nearly 9 million shares for a total of 5 billion over the last 12 months, we've repurchased 300 and exceed 1 million shares for a total of 19.2 billion.
Over the last 10 years, we've reduced the shares outstanding by 40%.
In addition, we've picked out dividends of $3 billion over the last 12 month.
And the board of Directors again declared a quarterly dividend of 24 cents.
Now in the guidance.
Again my guidance today is on a non-GAAP basis and in constant currency now currency, though is extremely volatile as you can say in what happened this quarter.
And but assuming current exchange rates remain the same as they are now currency should have much slightly less than 1% positive impact on total revenue and potentially two cents positive income.
Facts on EPS for Q2.
So with that total revenues.
Our expected to grow between 1% to 3% in us dollars.
And.
Because we will have slightly under a 1% tailwind so in constant currency that kind of rounds in two zero to 2% probably at the higher.
Non-GAAP EPS in constant currency is expected to grow 8% to 12% between 96 cents an a dollar in constant currency, but again, that's assuming a two cents tailwind. So non-GAAP EPS new at the is expected to grow 10% to 14%.
And today between 98 cents and a dollars to in us dollars.
Now my EPS guidance for Q2 consumed our base tax rate is 20%. However, as you see usually a little below it sometimes it's a little above it however, onetime tax events could cause the actual tax rates for any given quarter to vary but I expect to normalizing for these.
It'll averaged 20% so that's what I targeted in the guidance and with that I'll turn it over to Larry for his comments.
Thanks Dara.
Let's see Oracle occupies a unique position in the cloud markets.
Oracle is the only cloud vendor that competes in both the enterprise applications market.
And the infrastructure as a service market is our competitors themselves are people like Salesforce and workday, our competitors and I as our people like Microsoft and Amazon. They are different markets were the only was that span. These two markets since the very interesting dynamic.
I believe we have the best technology in the market today at both the applications layer and the infrastructure layer of the cloud.
While our analysts have ranked Oracle cloud applications number one in both market share and customer satisfaction for some time, we're number one and customer satisfaction and HCM, we're number one customer satisfaction and.
In ERP argued go on.
But what's interesting is that is that those same analysts are beginning to take notice.
Of the tactical quality and customer satisfaction associated with Oracle cloud infrastructure as a service.
I'd like to read and approved statement from ITC about their recently published survey.
In the 2020 industry Cloud survey that I'd see recently released.
We're at surveyed 935 by customers.
On their satisfaction with Paul I add vendors, including.
Oracle Amazon Web services, Microsoft IDN and Google.
Oracle.
Okay.
Received the highest satisfaction score.
And the biggest year over year score increase of all I add vendors.
In addition.
Maybe 6% of those surveyed said.
They expect their spend on Oracle.
And LCR to increase in the future.
I suspect this conference is a big surprise to many of you.
And many of our competitors.
Justin Zoom picking Oracle infrastructure surprised a lot of people in the recent.
Auto the biggest question for investors has been.
And Oracle preserve it's huge market, leading database franchise into this new cloud era.
Well.
Interesting question, obviously, an extremely important question to me and other Ed and everyone here at Oracle.
But.
Oracle cloud infrastructure OCI isn't fast as those the ITC described.
The best I add plus a platform in the market the I have platform with the highest customer satisfaction.
And I'd say.
See I is the foundation for the World only autonomous database.
Where do you use it.
The Oracle database installed base is going to go.
What we're beginning to see is that is just starting to migrate.
And it's migrating to both the Oracle public cloud the only place you could get your thoughts there.
At Oracle cloud customer.
Excuse me the only other place you can get fewer boardwalk database and Oracle cloud infrastructure all together.
Customers are picking Oracle cloud infrastructure and the Oracle economists database.
For a few very basic very obvious reasons.
Much better security.
Much better reliability.
Much better performance and dramatically lower cost much much lower cost Tomatoes.
And Thats why people are and I'll talk about the people like eight by eight.
Our another another.
Video conferencing system are moving entirely from eight ws.
On to the Oracle cloud.
In fact, there's not a major video conferencing company.
That is in talking to Oracle that moving.
To the Oracle cloud.
Volume is a perfect example of why customers are choosing Oracle cloud infrastructure.
We see the benefits of.
Of choosing OCI and these results.
Recent earnings were still on it.
Maybe the fastest company ever to have their company name become for.
At Oracle, we love to do as most of our employees continue to work from home.
And we love that assumes usage of Oracle cloud infrastructure services delivered triple digit revenue growth in sequential quarters from Q4 last year to Q1 this year.
Those VI cloud data centers are opening all over the world at a record pace.
We now have 26 OCI region live around the world edging out Amazon a ws, which currently has 24 week.
And we'll be adding at least another 10 regions and the next nine months, we're not slowing down we're speeding up.
Oracle database clouded customer is functionally I dead April through the Oracle database in the public cloud that's why we're seeing the migrations going both places.
They're going to database cloud customer, which unique oracle offering and they're going directly into our public cloud.
The prices the same in both cases.
The database is fully serverless inelastic in both cases.
The only pay for what we use in both cases and there are no upfront fees in both cases.
We're seeing very rapid adoption.
Of Oracle database clouded customer among our very largest customers and this is just beginning.
In 2018, we deliver the world's first autonomous database.
And the Oracle database and the Oracle economists database is still the world only about.
Then in 2019, we introduced the world's first autonomous operating system.
And today Oracle Autonomous Linux is still the world only autonomous offer.
Now in 2020, we've introduced Oracle economists data.
Which effectively eliminates cited downtime.
If the data center running your application goes down for any reason.
I want them as data guard immediately switches and automatically immediately and automatically switches that application over to another data center.
No human intervention is required to keep your application running without interruption.
And no human labor is required to setup and can figure a comment that's on a misstated our.
Use autonomy Datagardens, there's nothing to learn and nothing to do just have to turn on a single Swift.
The only or Oracle offers this autonomous reliability feature.
Another unique OCI offering as our dedicated region Gen two cloud customer.
Customers can now put our entire gen two public cloud behind their firewall in their data center all of it.
It's not just the Oracle database behind their firewall.
It's every service that's in our public cloud compute storage fusion application.
Yes, the economist database economist limits the gone on those data guard every day.
And we manage it and maintain it for the customer you get all the benefits of the cloud, but in your data center behind your firewall.
No one.
Not Amazon, Microsoft, Google, Middleby, but oracle and get customers, a complete public cloud in their datacenter behind their firewall.
Our strategic services are growing rapidly.
Economists revenue grew a dominant database revenue grew 64%.
Annualized consumption, our gentoo OCI consumption rate was 130%.
Clearly you are growing faster than the market and we're taking market share in the process.
With that I'll turn it back or BRCA.
Thank you very Erika if you could please queue up the audience for questions. We'll go to Q Ana.
Ladies and gentlemen to ask a question press star one on your telephone keypad to withdraw your question press the pound key.
Our first question comes from Mark Moerdler with Bernstein Research.
Thank you and congratulations on the strong quarter, especially on licensing margins I'd like to ask about the guidance. So Q1 was strong will be economic destruction of covert 19 is not yet over and that you've guided would look strongly can you give us some more color and what do you feel so confident specifically are you modeling.
Increased strengthened database access the European HCM, how big the factories Gen. Two cloud in the guidance and information would be appreciated. Thanks.
Sure.
For the question. So it's really following the pop, but we were on the Port hope that really hit in March and so we were what is going on is very basically an extrapolation of what's happening in Japan. So the things that are going down.
Well and growing on our getting larger and larger is everything associated with the cloud and that so Doug implications on light because options grew not only does database options grew not only double digits, but actually 20 something percent.
And analytics also group because as you know with your with Oracle licenses, you can bring them to our cloud, but in addition access to data.
And some of our.
Work with specific hardware, that's very strategic.
He needs to do well, but really the big foreign theaters are the fact that our SaaS businesses large and growing quickly and now I'll see API and our database cloud product services are growing and they're getting larger and larger and so.
Because we've got annual consumption revenue growing over 100% and this kind of this now overwhelms. The fact that some of our businesses I'll give you. An example on premise consulting this business continues to get smaller and.
So it's completely overwhelmed by the businesses, they're growing faster and commitment to our database is incredibly strong more and more of our customers want to bring the Oracle database.
The Oracle cloud and then of course, you have the cases that Larry talked about where Archer Oracle cloud infrastructures. Gen. Two is shaft. So good and so much cheaper and so performance and secure that more and more applications want to come to that so bottom.
Really what's going on I'm, not being able to the future I'm basically looking at what's going on under the covers only to worry you see extrapolation of her installed bases of our cloud businesses continue to grow.
Excellent. Thank you.
Next question please.
Your next question comes from Brad Zelnick with credit Suisse.
Great. Thanks, so much for taking the question and I'll Echo my congrats.
The company as well.
I want to ask about cloud as customer clearly, there's a lot of excitement for how it can enable very large customers to adopt autonomous database and have all the benefits of OCI behind the firewall and I. Appreciate it's only really become available in the last few months, but maybe for Larry from a product market fit perspective can you explain.
Why this is such a big deal and for Safra are there any leading indicators you can point to maybe backlog or anything else to help us understand the leading demand for these products and which I assume that supports your confidence in the overall business accelerating. Thanks, Yeah, Yeah, I think I can explain it very very clearly so.
We've been working on Oracle economists database for several years as I mentioned in my preamble.
We came out with Oracle economist database in 2018, but there if you, but if you're an on premise user there was no way to get access to be autonomous database.
Until a couple of months ago.
So the Oracle don't have a database is available in our public cloud and has been for three years and it keeps getting better and better but if you're in on a big on premise customer.
You know you didnt have delayed assets to our latest and greatest database. It was a very strange situation for Oracle than our late technology was not available through the vast majority of our customers.
All of us.
With our cloud customer with database cloud customer at very low prices.
Are you couldn't get Oracle economist database and all the latest and greatest features we offer and imitators.
And the ever delivered to your data center behind their firewall and we think the growth here, it's going to be explosive we had a version one and I'll just.
Full disclosure we had a version wanted this that was rather difficult to install and difficult to use and version to kind of extreme office that we learned a lot.
Version, two is really a plug and play are going very very fast.
And it's very simple to use incredibly reliable and we're seeing and we expect this to be one of one of the great stories. This this fiscal year. We think this is going to be triple digit growth.
Or Oracle database cloud customer and the other thing is it's just going to preserve our database franchise, there's two ways deferred.
People are going to make the choice to upgrade.
And move from their current version of Oracle to economist database and once that economist database, they're not going anywhere.
Great. Thank you next question please.
Our next question is from Heather Bellini with Goldman Sachs.
Thank you so much to the tune view I just like Safra.
I had a great quarter, and and obviously you've had really impressive growth with customers like that that you highlighted.
Can you talk to us a little bit about the pipeline momentum you're seeing what they see I as customers accelerate their migrations to the cloud and also can you show what type of workloads in applications are seeing the most traction with it or is it really broad based thank you.
Okay, Let me start, but I know, Larry kind of want us to take things about that so first of all you have to understand that our new fusion customers are also on LCR, which means that all of the applications that they want to build themselves all custom thing there on the Oracle database, they're going.
To be putting them on old also.
In addition, yes realized that many of our database customers paid off premise rated for.
You have owes the gen, two which is powerful enough secure enough and cannibal enough towards their crown jewels and literally weighted it and I know and I have visibility into sort of the future because often they want to do what we called B y O well bring you.
Around license plate Austin need option, and so I can either intention when you're buying those options to bring those database workloads now it is falling into the no category that you've seen historically where that the two.
Communications industry.
Financial services into it straight all of the industry that have very important high performance applications that run on Oracle, leading to put them at LCR and so we see that now some of them are putting it into public cloud many of them actually memoirs than I would like.
That said among others are doing cloud customer second generation of cloud customer now with upon database is it's just so powerful for our customers. So we're talking about app customers database customers custom applications.
Application with otherwise tends to run some of the competing cloud services, but when they do just like you did but a whole bunch of others really use a lot of network a lot of compute may use a lot of storage may have a lot of E cigarettes.
You know back and forth taking data in the now they realize the logical folks more performance and since you paid by the minute the day the hour it's much much cheaper. So we compete at every level of SAP and it's really very daily.
Very broad base for us I don't know Larry if you want to talk about.
Had more to that.
On a little bit of color.
Once our process as our customers waiting for US, let me add a little more information.
A lot of those customers actually tried to run or go ahead of us.
Thanks Ryan.
And just didnt work very well.
So.
So they've decided maybe they should wait.
And so they did.
So they didn't truck they led they looked around they experimented but the vast assets majority that didnt work very well.
We have an exit data cloud service, we have an economist database is not available any place, but the Oracle cloud exited database services available any place to be Oracle cloud.
We're we're much better, but you'd expect that to be much better running oracle applications than anybody else and we are and a significant percentage of enterprise applications.
I don't know, 40% 30 per 30, 40% or Oracle applications.
So that's it that's just a gigantic installed base.
We think it's going to be moving to deal with what we were starting to we're starting to watch it needs to durable growth that's wonder.
So they tried didnt work.
So they're coming to us.
Next next then.
A lot of our application customers you know we got.
Well over 7000.
The customer infusion application customer 7000 fusion ERP customers.
Now those customers are beginning to build data warehouses around their ERP data everyone does.
And they are building those data warehouses, using autonomous database, and Oracle analytics, and the or and the Oracle cloud using Oracle infrastructure services.
Thats it or the Oracle analytic cloud is an oracle infrastructure services and OCI their service got on the database and LCR service. So our application customers pretty much all of our medium and large application customers will.
Become in the not too distant future will become infrastructure customers.
A lot again, you've got to add them onto so these are these are people. There are a SaaS customers are going to become infrastructure customers on premise database customers are going to become infrastructure customers either in the form a target customer or public cloud.
Then there are the then or the surprises like zero.
And eight by eight Andrew but there are more surprises like that.
I think I think zoom is a great example, because it proves that the Oracle cloud is secure reliable high performance and economical.
They pick it has nothing to do the Oracle database.
It has nothing to do that was doing a SaaS customer that was just purely an evaluation of our cloud versus Microsoft's versus googles versus Amazon.
And.
Another example of that is high performance computing car companies are computed simulating crashes now why would anyone go to the Oracle cloud the do high performance computing. When you can go to Google or you can go to Microsoft or you can go to AAMC us.
Well because were much faster therefore, a much of.
We are much much faster and therefore, they get the stimulations and faster, but they got to be willing to pay less yes. Almost every car cup allow that to strong half the car companies around the world are now either using our high performance computing are evaluating our I performance computing.
Because we we benchmark so well against the competition and this is all in all new business like the video conferencing business. So.
The OCI team did a spectacular job building in a second generation learning from what Microsoft did what what what Google did watch.
Amazon bid and then building the next generation.
And.
So good we're winning business everywhere.
So and again these are very early days Gen. Two the agenda OCI is relatively new.
And and Gen two product customer is even newer.
And these are both fabulous products, but I think on it extremely well over the next few years.
Thanks, Gary.
Our next question comes from Rhino Lenschow with Barclays.
Hey, Congrats from me as well.
I wanted to ask about the enterprise additional tick tock, but you said I shouldn't ask about picked up so different question, though.
Yes.
The could you maybe discuss like we talked about the strengthened cloud, but the thing that stood out this quarter was how much better you could do to compare to your appears on the lights from side.
Yes.
Everyone kind of what were what is down quite significantly and you touched on some of the drivers, but maybe you could double click on on someone that again because that extends through the out as something that we haven't seen in industry. Thank you like kinda I'd like to comment on that because I think our license business was really misunderstood people think our Mike light as they see life.
This business and they translate in their brain license it means on premise.
That is not true for us it may be true for everybody else by the way.
Probably a true for everybody else does not true for US. We are this thing called bring your own license to the cloud, we we encourage our customers to buy licenses by more licenses.
And our pitches you can run those licenses in your data center on premise or you can bring those licenses to the cloud and get big discounts running database in the cloud.
So you cannot look at our growth and our database license business and say that's the old a revival of the old on premise business that is not correct.
A lot of these people we have when we sell cooler than you as an.
These days these big contracts for database. The reason people are buying more licenses a lot of I am not all of them at a lot. The majority of them is because they have the flexibility of bringing those licenses to our public cloud to cloud customer and getting big discounts getting getting getting a benefit of getting better.
Prices by doing that.
On a lot of people are doing that so again don't translate.
License to mean not cloud.
A lot of a license is in fact cloud.
As I always on breast driven in fact, it's driven by their plan to move to the cloud and that is very very clear because they're buying the specific option, which as I said the auction number.
Very high.
Percentage growth this quarter, because it's really in preparation for their moved to the cloud, but I will also tell you then that is available so in analytics and in some of the other.
Some of the either.
You know technology licenses, so analytic very strong the database options extremely strong very much pointing in the direction of moving to the cloud. So that's really what is driving it it's not generally not going to be staying on track.
Some of course stays on premise and some will stay on premise indefinitely, but many companies will be either hybrid or will be cloud customer or of course in the public cloud and that's really what's going on here and it's really quite clear.
Perfect. Thank you very clear congrats again.
Thank you.
Our next question comes from Derrick blood with Cowen and company.
Great. Thanks for taking my question is good that's on a strong quarter I wanted to ask about the hardware side of the business. This is the first quarter seeing without negative growth in a long time as CFO heading 70% gross margin pretty impressive and far sooner than what we were thought so does this tell us, though you're you're mostly through.
We didn't get off the commodity pieces in that the majority of growth is driven by accident and proud of customer and how should we generally think about the directional trends from here in both.
In terms of growth end margins.
Yes, so that the hardware growth it's entirely dominated by our strategic hardware product, which is really most focused around X today that revenue enact today, though was up 15% bookings in our strategic.
In our strategic hardware also up.
Very very high double digits, and we have actually an enormous X to data backlog really large shifts.
Actually.
Double what it was.
More than double what it was last year and the reality is that this segment into very very strong. We it is now gotten large enough and you know the issue for us in Q4 as I mentioned was really around supply chain and you know that taking a while tourism.
The itself, but we are we're able to make and ship a lot of that data, but we have an enormous backlog still behind that and so that's really what dominating and of course with that point to is a commitment by our customers. So Oracle you don't fight.
Next to data to run anything.
But oracle database.
Application you know data base.
And that commitment to the Oracle platform is really shown up in in this area cloud customer is not recognized upfront.
Now to customers not recognized in the hardware line at all in fact, it is recognized in the cloud line when they go online and they consumer.
And they consume a credit.
So our cloud credits so.
It doesn't show up in that in that on premise hardware line at all.
Thank you.
Our final question comes from Phil Winslow with Wells Fargo.
Hi, Thanks for taking my question and congrats on great start to the fiscal year just wanted to focus on applications, we I'm really talking about done a lot on this call.
Obviously, you give us some really strong numbers with fusion cloud.
SAP are you talking about some of the puts and takes mineral business and I Wonder if you talked about those sort of application.
Specifically.
Sure I mean really when you think of our application business, you really have to think about fusion and especially fusion ERP and CRM. Our backdrop that you have to think about net suite those are the.
Fastest growing segments and you have to take into account that we have some other things in that business. There are smaller and some of them are from acquisition and that is less.
The the less strategic part of our business and if that gets smaller sometimes replaced by fusion.
That's that's why.
Business. It started is really doing very very well because the ERP everything fusion, but fusion ERP HCM. This whole area really growing quickly I mean, what you see is many of our customers both E business suite Ecosoc JD Edwards customers.
We also see in new phenomenon, which has historically it wouldn't be hard to push a door have been sep customer and S&P on premise customers too, but now we find that many of those doors are not only.
It can be.
Basically are already open for.
So as the only provider of ERP and cloud out for large medium large companies. The fusion product are really taking off and so we've been replacing not only our own products and other companies, but we've made a significant foothold in sep customers.
Simply because there really very frustrated with there with the vendor that they have installed on premise. So this business for us is an enormous opportunity and it's really just chugging on all cylinders.
Worldwide in fact.
Great. Thanks, a lot and give a bigger work.
Thank you Safran. Thank you felt 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 any follow up questions for this call. We look forward to speaking with you.
Thank you for joining us today and with that I'll turn the call back to Erika for closing.
Thank you for joining today's Oracle's first quarter 2021 earnings Conference call. We appreciate your participation you may now disconnect.
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