Q2 2021 Oracle Corp Earnings Call
[music].
And.
Thank you our cats and good afternoon, everyone and welcome to Oracle second quarter fiscal year 2021 earnings conference call a key.
Copy of the press release and financial tables, which includes a GAAP and non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from our Investor Relations website. Additionally, a list of customers mentioned on this conference call as well as many others, which a purchase Oracle cloud services or went live on Oracle Cloud recently will also be available from.
The Investor Relations website on the call today are 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 todays discussion and we will present some important factors relating to.
Our business, which may potentially affect as forward looking statements.
Forward looking statements are subject to risks and uncertainties that may cause actual results could differ materially from statements being made 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-Q and 10-K and any applicable amendments for a complete discussion.
These factors and other risks that may affect our future results for the market price of our stock and finally, we are not obligating ourselves to revise our results or these forward looking statements in light of new information or future events will begin with a few prepared remarks, and then we'll take your questions. However, and I want to remind everybody we will not be making any comments regarding kicked off and.
With that I'll turn the call a bit as safra.
[noise] safra like and I get your anything.
Jeffrey on mute a yeah I'm here, sorry, okay, thanks and and.
And good afternoon, everyone as.
As you can see we had another excellent quarter as usual I'll review, our non-GAAP results using a constant dollar gross right unless I say otherwise.
I first want to highlight that since our oldest migration to fusion ERP. We've continued to close our books faster and faster. This quarter. We are reporting our results for our entire global operations and.
Hey, after the end of this fiscal quarter in fact, using a fusion ERP, we submit our 10-K and how do.
You filing.
After that and had one company and the S&P 521 day.
After that and the average.
Understanding our business performance sooner as an advantage that we enjoy and uses a fusion ERP and it's one a fusion and customer a rapidly beginning to appreciate.
On the quarter.
This quarter revenue was $40 million above the midpoint of guidance and Ethiopia beat the high end of guide and by fourth that day.
The impact of currency movement was in line with guidance, meaning that our outperformance with both.
Both.
And execution on the sales side and a disciplined management of our operation.
Operating income grew 12% our best result in a year.
Our total cloud services and license support revenues for the quarter were 7.1 billion up 4% from last year over the last four years and we have dealt with a percentage of revenue that is being derived from our cloud service.
What's driving our recurring revenue as a percentage of total revenue higher and higher now reaching 73% of total company revenue.
We anticipate this trend to continue as cloud services continue to grow.
GAAP applications subscription revenues were 2.9 billion, a 5% with a strategic back office applications, a 26%, including a fusion ERP, which was up 33% net suite ERP up 20%.
And fusion HCM up 24%.
Also retention rate forced to teach and back office cloud applications, which were already.
And you to go even higher.
GAAP infrastructure.
Works and revenues were 4.2 billion, a 3% and database subscription revenue a 5%.
And assumptions revenue was up 64% for autonomous database and a husband hundred and 39% for OIC see a high our cloud and too late.
License revenues were 1.1 billion down 5%. So all in total revenues for the quarter were 9.8 billion up 2% in U.S.C. up one percentage in constant currency.
As usual, we've continued to be disciplined in our spending with operating expenses down 7% this quarter.
Non-GAAP operating income was 4.6 billion up 12% from last year. Obviously, we're delighted with this result as were continues as the operating income become a bigger part of our NPS gross.
I continue to have a very high level of confidence that our revenue growth will accelerate as our cloud business continues to become a much bigger portion of total revenue.
The operating margin percentage was 47% up more than 450 basis points from 42% last year and as I said, a best result, as 20 well.
The non-GAAP tax rate for the quarter was 18.7 a slight.
Slightly below our base tax rate as 20% as a result, as some discrete items.
EPS was a $1.60 U.S. dollars, a 19% and up 17% and constant currency. Despite interest income being a 120 million lower than last year and interest expense being 135.
And higher than last year.
A GAAP tax rate was 17.8% as a result, and some discrete items GAAP EPS was 80 cents in U.S. dollars, a 16% and up 13% in constant currency.
Operating cash flow over the last four quarters was 14 billion with capital expenditures of 1.8 billion and free cash flow in excess of 12.1 billion over the same period.
Due to operating cash flow was 1.4 billion compared to a half a billion last year with collections, especially strong this quarter from a bigger book of business and to a less as a lesser extent delayed payments received from customers affected by the pandemic.
We now have nearly 39 billion in cash and marketable security.
The short term deferred revenue balance is unchanged at 8.1 billion. However, the short term gross deferred revenue grew 6% in U.S. dollar the difference between the two as growth rate is doing as higher than the timing differences in customer a pain.
As we've said before we're committed to returning value to our shareholders through technical innovation. She teaches acquisitions stock repurchases prudent use of debt and a dividend.
This quarter, we repurchased more than 68 million shares for a total of 4 billion over the last 12 months, we have repurchased 338 million shares for a total was $18.2 billion over.
Over the last 10 years and reduce the shares outstanding by nearly a 42% and.
In addition, we've paid as dividends of nearly 3 billion over the last 12 months and as.
The board of directors again declared a quarterly dividend.
A 24 cents.
Now to the guidance again my guidance today is on a non-GAAP basis and in constant currency a.
Assuming current exchange rates remain the same as they are now currency should have a 1% positive impact on total revenue, maybe even a little bit more like one and a half inch and potentially.
A three cents a positive effect on EPS for Q3.
Total revenues are expected to gross from 1% to 3% in constant currency and are expected to grow between 2% to 4% and you would see.
Non-GAAP EPS in constant currency is expected to grow 10% to 14% and be between a dollars fit and.
And as dollars 10, and constant currency and non-GAAP EPS and U.S.D. is expected to grow between 13, and 17% and be between a dollar and nine and.
And on $1.13 in U.S.D. Mike.
EPS guidance for Q3 as soon as a base tax rate was 20%. However, as it could be one time tax events could cause actual race for any single quarter does vary but I expect the normalizing for these one time tax events, our tax free will average this year.
A 20% or so and with that I'll turn it over to Larry for his comments.
Thank you Safra.
We just completed a great quarter, but the quarter would have been even better.
As we would have had a more and we would have had more revenue growth as we have not been capacity constrained and LCR during Q2.
It was more today and then we had supply there.
A remedy this capacity shortfall, we are adding capacity and.
As a building a new OCI data centres and stuff yeah.
We are now up to 20 volume and regional data centers around the world more than a W. EPS.
Okay and customers.
And grew revenue at a rate as well in excess of a 100% year over year in Q2.
Your goals on it as database with over 50%.
We also introduced several new OCI matters certain that as his services during the quarter.
The most interesting as these new LCR and managed services.
For the popular open source database mikes equal.
Featuring an all new Oracle developed.
Massively parallel queries query accelerator called as he works.
Most people plus a few words processes queries hundreds of times faster.
Very good.
Hundreds of gone faster than the current version of my people by itself.
And other mines sequel compatible databases, such as Amazon as Aurora.
But as people plus heat wave as so much faster so much easier to use and less expenses.
And then both breast redshift nope.
Snowflake or any other database available on Amazon a W.
You may be a bit about where it is that you don't have to move your data out of my sequel.
And build a separate data warehouse to get this huge performance gross.
You simply take and existing mice equal or awarded.
Run that exact same database on the new my simple birds and that includes.
And immediately your queries rone hundred times faster.
You don't have to change as a single line of code.
Yes get any easier to use and buck.
Now I would like to change subjects and talk about our multi billion dollar application businesses and the cloud.
Fusion as a ingredient.
And your T. grew 33% in Q2 to over 7500 customers.
Yes, we grew 21%.
To over 24000 customers.
We have the top rated ERP products on both Gartner and ITC.
There is no large scale enterprise application business and the cloud and let's.
Thats growing as fast as we are.
In the coming months, our cloud a European market leadership will become even more obvious when.
When we announced the several major a large scale, that's a ERP customers, a leading as they did and moving to our fusion ERP and cloud.
Oracle is the clear a market leader and cloud ERP.
Finally, I'd like to talk about our all new cloud based.
National Electronic health record system.
And health management application suite that Oracle build and response to the COVID-19 pandemic.
This system has already been used to register a more than half a million people.
Preclinical trials run in the United States for COVID-19 vaccines and therapeutics, such as monoclonal antibody.
Last month in partnership with a Tony Blair Institute, we use the same exact national electronic Health Records as.
It's a managed the distribution of yellow fever, a vaccine and Africa.
70000 people and on a ribaxamase a during the first week at a program.
We're very proud as that.
We are currently in discussions with dozens of countries around the world.
Who adopt Oracle, new national electronic health record system.
To modernize their and national public health infrastructure, thus, enabling a efficient.
COVID-19, that's seen management.
There are a few that monitoring and diagnostic tests.
Normally at this point I'd begin to read a list of notable new customers that we acquired during the quarter.
But our new more efficient practice as.
We will be to provide you with a lift as those customers a password detailed financial quarterly number.
For a mercifully you will be able to read the list for yourself and no longer will you have to endure and be reading a too.
So with that I'll turn it back over to John.
Thank you Larry Erika, if we could queue up by a startup the Q and a and just a reminder, no questions on kicked up thank you.
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 Heather Bellini with Goldman Sachs.
Great. Thank you so much for taking the question Safra I wanted to go back to your comments from June on your Q4 call. When you talked about what was going on under the Hood of your constant currency revenue growth and and you mentioned that the growing businesses were growing at a 30% CAGR and the declining businesses that about a double digit decline.
And in a stable one for a 1% to 2% I'm just wondering taking a look today and you know kind of how you're thinking about the future how west a pandemic and changing these growth rates if at all especially as a OCI and things like cloud a customer to become even bigger areas of focus for customers.
So it is a pandemic affects us in some ways negatively in some way as positively simply because it and because of our size and we bought a breath of our customer base it affects them differently and so obviously, our hospitality and custom.
Emerge have had a very difficult time as it in the names and domain some of our retail customers have done horribly. Some have done very very well what is becoming a very clear and to our customers is that those that are digitally.
Forward and as that can work also under a you know with a lot as automation using a digital tools using our technology using the cloud they are fairing far far better and as a result, as we see change.
A ring and you know you can see it in our ERP stats numbers day, and our HCM numbers net suite numbers you can just see that those numbers continue to do very very well and then of course, our gen. Two cloud, whether it's compute where many of our customers.
As our using a way more than they expected to and as Larry said, Jeff.
Just blowing out our internal forecasts such that we we will need a few more weeks to really catch up with our demand. While we're also expanding globally simultaneously. So we actually believe that vinces remains very consistent.
Obviously, there was uncertainty before because of the pandemic at this point I think it's very clear that our business is accelerating our stable businesses remained stable.
And our shrinking businesses, whether its non strategic hardware or other things those continue to get smaller.
But generally the overall revenue number will be showing acceleration even in this pandemic and I almost feel bad we stay and maybe a helped ultimately because many of our customers have realized the importance of using technology to.
Deal with their customers their employees their suppliers.
Great. Thank you and happy holidays to you and your families a city to him.
Our next question comes from and Brad Zelnick with credit Suisse.
Great. Thank you so much and congrats on a on a good quarter and strong guidance, Larry Ive got a maybe a bigger question bigger picture question for you you know.
I hear you appreciate there a generational aspects to I T, where most often a winter in the last generation isn't the winner in the next day, it's under your leadership and and vision and Safra as operational discipline work as has been an industry leader for over a four decades by thinking strategically about the future and today, we remain and feedback and a locals latest innovations the as.
A couple underlying technology like OCI and autonomous and by that alone. It would seem the futures price for Oracle, but we've also seen in the past where the best technology doesn't always win.
What gives you confidence and Oracle can remain successful and appeal to a younger generation, many who think cloud first and want to move really really fast.
All right well, let me start and to curious Ive always said there are two key as Duke assets Oracle feature one is the as autumn as database, which as a cloud only product.
As it works a cloud and cloud a customer so it is certainly cloud first.
It is the only database that really does bode transaction processing and free processing. So great processing were much faster than snowflake. The you know the market's current drilling.
And then transaction processing were much faster than anybody so a so we have a unit as a single unified day to day that is fully autonomous it never goes down as batches itself nobody else is making a claims anything like that.
So we have a vast leadership.
And a plus we have a by far the larger as installed base and our database business continues to grow some of our other businesses. Our middleware businesses have declined but our database business continued to grow throughout the move to the cloud. So we're very confident we're going to hold onto our database franchise.
A we're convinced that the and I mean, they are really good.
I don't have as any strong competition, not one or the and you can see there's not a lot a strong competition from Amazon because as you know what's going on with snow. They do a curious whats happening with snowflakes No Blake is a.
A decent products as a good product I think.
And it just killing redshift over and Amazon, So, it's doing extremely well, but it doesn't remotely and compared or a goes on and as database. It doesn't do transactions at all and it back and carry processing, it's not even close to assess a.
As the Oracle database, so we're a bit but it's much better than what Amazon EPS.
And when it's competing inside a day ws it does very well a feel rich.
A retrofit is not very good good day.
We didn't have a huge lead and database.
But no one's trying to do a we're doing a mean under us GAAP patches and so none of the stuff never goes down that's true.
The okay, that's that's holding onto a database franchise.
The next thing is ERP as.
As creepy forgotten to move their ERP systems to the cloud. They just built decided as that go compete with Oracle without a.
They don't have a cloud product a.
Oh.
We have if you look at Gartner and as a b Sep as to be moved off the Gartner list because that's a p. was lower and what was and the lower left hand corner you are not even considered a cloud system by Gartner as a bit.
As for ERP. So we are we have.
Dominant we have over 30000 customers and the cloud running our cloud ERP systems.
Gross second work day with a few hundred.
I mean a bit.
It's not close as.
And as that's the largest applications business, that's a largest application business on premise and it will be the largest applications business and the cloud and where the overwhelming technology and market leader.
So I think those two linchpins the economy as database a.
And the a and Oracle ERP and the cloud secure our future now add to that and we see eye and a which is a new for us we've never been a platform company in a way.
As the Olympics as a platform and the old on premise days when it was a platform windows was the most famous platform. It was HP U.S. and.
And as you know Ivy idea and that its own operating to bear a lot of Blackburn Hoover and ever enough business. We were a portable and ran on lots of different platform now we have our own platform for the first time and our platform is competing very well again.
Hey, Wls and and Microsoft and we can be a way better technology on our platform than the other guys a.
And we're winning lots and lots of customers to our platform. That's an all new initiative for us to go into the platform business. So again, we were moving from number two the number one and cloud applications again, we have the fastest growing cloud a large scale cloud applications business on the planet.
Who has a a multibillion dollar cloud business as that's growing.
A 33%.
And I mean, maybe there is somebody I don't know know would it.
And who as a who has anything like a autonomous database technology.
And a who has a cloud platform that's being picked by a.
Some of the most sophisticated technology companies on Earth over a that the U.S. and Microsoft. So I guess those are the three pieces OCI and autonomous database and fusion ERP and the cloud that gives me confidence that we're going to get our fair share of the new generation of cloud a cloud.
And applications and and infrastructure.
Excellent. Thank you so much.
No. Thank you Larry.
Our next question comes from Mark Maguire with Bernstein Research.
Thank you very much.
And congrats on a quarter Larry following up on a last question is if you don't mind given as the world is going to start to vaccinate and we would expect a nike focused could be more on.
On premise and the cloud and work from home I'd like to get a better understanding of what you're seeing and what you were expecting for autonomy as database running in the cloud and cloud a customer when do you think we see that big inflection we've been hoping for that could be that could drive revenue acceleration.
Yeah.
So I again, the interesting thing about cloud a customer accounts I'll do the change in our business model. So you got to remember when we saw and a huge cloud and customer deal, we deliver a bunch of exited as to a customer.
We recognized let's see how much revenue nothing.
Got it thank you know versus selling a bunch of escalators. So what would happen to every remember were going from selling exited and machines to delivering them for free and then charging a if you will a rental or usage on the machines as we've ever been selling hardware a.
To selling exited a cloud customer.
So our accounting model you see a while Oracle revenues flat with last you know maybe not so bad as just grow and go growing somewhat but keep in mind, where we used to get paid for us and it and machines right away, we now deliver them a cloud a customer and we have to wait a bit.
It gets those monthly average monthly revenues over a four year period.
So what you're seeing a is this change and model.
And cloud and customer is already doing pretty well, it's just there's a a huge laggards histories as from the time you. Yeah. There is a a lag and the Tories are selling a bunch of is that until all the revenue starts coming and so that's what's going on right now where it's already a very successful product, we're selling a lot of them.
Our our sales are accelerating but there's this time lag.
Between sales and a revenue very different than a selling a day to day database license or selling and exited a machine.
As we move to the new model, a it's a more profitable model long term, but it doesn't have the instantaneous impact. So there is a timeline and that's what you're saying.
Sorry, with later on and they're getting them and thank you very much I do appreciate.
Thank you.
Our next question is from Michael Turits with Keybanc.
Sure and good evening and congrats to corner.
Larry you talked a lot about ERP and thats not been a lot I don't know where the messaging has been around fusion apps.
He has been a really strong year, even during cold at a run front office.
Can you talk a little bit about your CX business, and whether or not you could see acceleration, there and particularly how some of your AI capabilities, a playing into that as they are.
Yeah, well they are actually because a.
We're making actually I've been directly involved with a major push and Ceocs and we've come out with several new CX products on a.
One of one of which as I.
As.
Our our product our product and a references system, where we have a thought as references database a that.
That we sell and we have an AI engine that sits on top of it and what it does it tells you a it interfaces, where a sales automation system.
And as tells customers or do a coal sales people what product they should be selling this particular customer next it's got a recommendation as Andrew and I will tell the and also told a sales person what are the best references what are the best references when you're selling customer a day fusion ERP.
And then a watch we've got and find those references and and prepare a micro a web site a micro site a for that process to go through so.
So we are we are enhancing our sales automation, which year heretofore sales automation and really has not been about automating sales sales automation.
Which we pioneered by Salesforce dot com sales automation as all about a.
Opportunity management and forecasting.
Our new sales automation is all about giving sales people tools, enabling them to sell more and automatically generates a proposal would automatically generates a reference listed auto radically generates microsites that automatically generates recommendation of what the sales person should be selling to this customer and that's what module. So these.
Our declined a product or what we call automated lead generation and.
And qualification a build.
Built into the sales the selling system as a product made reference a system. We also have a another another new product that's coming out and see a which we think is very important which is the ability to launch and advertising campaign from a computer Council.
Without going through.
A AD agencies as we have fives as a disintermediate the a.
The as business. So that you can again target lets say with let's say, we're selling a fusion ERP do a little too and oil company, a large oil company and we want to advertise to people and Matt oil company a there.
The decision makers as CEO, the CFO people and accounting all of that we can that launch and and AD campaign targeting those people.
And with references for fusion ERP.
It's a rather than when a lot when a log on to look at a good.
Google news rather than them seeing as.
As for Nike shoes, where they were a recently browsing the website, they're going to see as for Oracle fusion ERP. So we have as we have and add system. So we've we're doing a bunch of and don't always know what is doing a spin off.
We are the only one that's doing this.
And it will you have a target people and launch as from a call a from a console.
We're the only ones that I mean people do it on a consumer side, but not on the beat a besides.
We're doing that and we're doing that on a b to b side and we're the only ones that are using a the.
The recommendation engine the way that we are not only to recommend what to sell net but who the best references are and actually preparing the micro sites a floor for the prospects to examine a examined as references so I think as CFO as a huge opportunity for us. The fact that we have CX Lee.
Linked to our ERP, we a front office linked to our ERP linked work, it's the and system is a huge advantage that we have front office, we have HCM, we a back office, we linked it all together a it.
It's a much more valuable when you have all the front office and back office data in a single database that allows you to do the cloud of innovative things we're doing in the front office. So again, a that's you're going to see a.
A major improvement on a in our.
Our portfolio and the front office over the coming months.
Great. Thanks, Larry.
Our final question comes from a Raimo Lenschow with Barclays.
Hey, Thanks for squeezing me and and congrats from me as well.
You guys have been very good and disciplined so you wouldn't and kind of those dates and just as for the CECO a billing theatres tend to as if I look at a momentum here like a for two new this year, a two moving to 29, now and going up to 48 and a few months.
Can you talk a little bit about what you're seeing there and what's kind of driving that momentum because thats super impressive. Thank you.
Larry do you want operating margin one as well.
Good and you go ahead, sorry go ahead.
All right and we're just seeing demand a demand for our products all over the world.
Our day to day, we were going to one data center, a one day and OCI data center that runs not only all of our technology.
A you know like the thought of a database a.
And ER or a high performance computing all of that stuff at a runs all of our applications as well. So we're seeing demand for these products all over the world and we are going into more countries. We've decided as you know our strategy is because we have a large existing business we have.
A large existing installed base. We believe we just have to get into a more countries than as someone who.
And then.
And then and then Amazon, let's say a.
As because because we have to serve a those.
Those countries, where we have a large installed base like Indonesia lets it always is a very big country, a but a lot of people don't have data centers and and Indonesia.
Israel I mean, a very important to get as you know we've got a good a bit as theirs and Israel and cause some of the cloud companies and late to get there we think thats a very important marketplace. So we think.
We have been building as fast as we can but weve been trying and we've been trying not to build ahead of demand as.
And we were doing a pretty good job actually until this last quarter, where demand was actually turned out to exceed our ambitions, where our you know our gross our plan as for growth and though it's a very ambitious plan still the demand and you know on the demand side, we have some large cash.
Customers that just wanted more capacity the weak as we could supply and a that you know that bit of a and.
Q2.
Hopefully it will be out of as others that were probably a month or two away from correcting that and get and getting ahead of that curve, but we just see right now there's more demand a week and then we can supply as.
So were going as as a what are we doing we're going as fast as we possibly GAAP.
Yeah, Let me just add a couple of things one is we have upped our capital spending plans because the demand is so strong that we increased it by probably this next quarter, probably be 50% hires and then last one.
Just to keep a.
Keep everything going and growing I also want to point out that some of our customers a.
Do not want and go into a big public data center, but for a different reasons regulatory research or others want a half cloud a customer and thats very important and that we are able to offer that and in addition to some extent a have extremely a large requirements and are basically a price.
Reach and those aren't in a number as you work you were mentioning as far as data center build outs, but that's another area, where we are expanding and consumption is increasing and that.
Very large range. So we're very busy here, just keeping up with demand.
Perfect. Thank you congrats.
Thank you. Thank you thank you safra and.
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. Appreciate you joining as staying with that I will turn the call back to Erica for closing.
Thank you for joining today's Oracle <unk> second quarter 2021 earnings Conference call. We appreciate your participation you may now disconnect.
[noise] and Oh.
[music].
[noise] [noise].
[music].
[noise] [noise].