Q4 2021 Oracle Corp Earnings Call
We had a fantastic quarter with revenue nearly 200 million above my guidance Q4 is really a story of every product every region and every metric exceeding expectations.
Credit for the excellent full year results in the quarter goes to our global team of employees, who supported our customers without interruption. This past year, we were successful by continuing to deliver best in class products and services both infrastructure.
<unk> and applications to help our customers in their digital transformation.
Many who reinvented themselves in real time because of the pandemic.
Now the growth rates, we are reporting today are entirely organic reflecting true net.
Physician related growth across our product portfolio.
Total cloud services and license revenue for the quarter was $7.4 billion up 8% in U S dollars, 4% in constant currency driven by fuel.
Autonomous database and our Gen 2 OCI.
Applications subscription revenues worth 3 billion up 11% in U S dollars and 7% in constant currency, our strategic back office cloud applications now have an annualized revenue of $4.4 billion and grew 32 person.
<unk> in constant currency for the quarter, including fusion, ERP, which was up 42% net suite ERP up 22% and fusion HCM up 30%.
Our back office cloud application revenue is not only bigger than our nearest competitor, but also growing more than twice as fast.
Infrastructure subscription revenues were $4.3 billion up 6% in USD up 2% in constant currency infrastructure cloud services now has an annualized revenue of more than 2.3 billion.
OCI consumption revenue, which was up.
103% in constant currency autonomous database up 56% and cloud at customer revenues up 50%.
Database subscription revenues, including database support and database cloud services were up 8% in USD, 4% in constant currency.
Customers are adopting OCI because of its unique focus on performance and security at the most competitive price.
The highly differentiated autonomous database, which was available debt and the flexibility of deploying Oracle cloud both in our in our own data center, what we call public cloud or behind our customers firewall cloud at customer.
License revenues were 2.1 billion up 9% in <unk>.
USD, 5% in constant currency. So all in total revenues for the quarter were $11.2 billion up 8% in USD, 4% in constant currency operating expenses were up 6% in constant currency this quarter.
And we made significant investments in our cloud business and while you can see some of the ROI in FY 'twenty 1 revenue growth. We expect most of the return will be realized in FY 'twenty 2 and beyond.
Non-GAAP operating income was $5.4 billion up 6% in USD and the operating margin was 49% the.
The non-GAAP tax rate for the quarter was $10.7 and below our base tax rate of 20 as a result of some discrete items that hit in the quarter.
EPS was $1.54 up 29% in USD and up 22% in constant currency.
The way GAAP EPS was $1.37 up.
39% in USD.
31% in constant currency.
Now for the full fiscal year total cloud services and license support revenue was $28.7 billion up 5% in USD up 3% in constant currency total company revenues for the year were 40.
5 billion up 4% USD, 2% in constant currency.
FY 'twenty, 1 recurring cloud services and license support revenue as a percentage of total revenue now represents 71% of total company revenue.
From 70% last year, and we anticipate this trend to continue as cloud services grow and accelerate.
Non-GAAP EPS for the year was $4.67.
Up 21% in USD up 8.
18% in constant currency, marking the fourth consecutive year of double digit earnings growth.
With full year operating margin percentage was 47%.
Currently our best results in 7 years, and up 245 basis points from 44 last year.
Operating cash flows over the last 4 quarters was a record 15.9 billion up 21% in USD or free cash flow was also a record.
$13.8 billion up 19% in USD with capital expenditures.
$2.1 billion during the year.
For the quarter that for the quarter operating cash flow was $4.8 billion up 34% in USD and free cash flow was $4.1 billion up 30% from last year as.
As an aside free cash flow would have been about $30.300 million lower and some capex targeted for Q4 was actually spent.
In the last 2 weeks in early June.
We now have more than 46 billion in cash and marketable securities.
The short term deferred revenue balance was $8.8 billion up 10% in USD, 5% in constant currency.
The remaining performance obligation or <unk> balance is $41.3 billion up 8% in constant currency due to strong bookings approximately 60% is expected to be recognized as revenue over the <unk>.
Next 12 months.
As you've heard me say many times before we are committed to returning value to our shareholders through technical innovation strategic acquisitions stock repurchases.
Cost of debt and the dividend this quarter, we repurchased.
We repurchased 107 million shares for a total of $8 billion.
Both of the last 12 months, we repurchased 329 million shares for a total of $21 billion.
Over the last 10 years, we have reduced the shares outstanding by more than 44%.
In addition, we paid out dividends of $3.1 billion over the last 12 months and the board of directors declared a quarterly dividend of 32 cents per share.
Now to the guidance.
Let me first start with my confidence in the continuation of our revenue growth acceleration for fiscal year 2022.
As I've said many times over the last 2 years, our overall revenue growth is continuing to accelerate as our fast growing cloud business becomes a larger portion of our total revenue.
I see total revenue for fiscal 2022 growing faster than fiscal 'twenty, 1 with constant currency revenue growth somewhere in the mid single digits.
Given our increasing confidence in revenue growth and our unique and differentiated position in the market. We are going to invest back in the business at a greater rate. So we can further accelerate the top line.
We also see cloud as being fundamentally a more profitable business.
Compared to on premise and as everyone knows our annual non-GAAP margins of 47%.
And that's what we run the business that are in fact, the highest non-GAAP margins.
All of our competitors and we believe that now is the right time to increase our investment to capture market share.
As such we expect to roughly double our cloud capex spend in FY 2022 to nearly $4 billion.
We are confident that the increased return in the cloud business more than justifies this increased investment and our margins will expand over time.
Let me now turned my guidance for Q1.
I'll review this on a non-GAAP basis, and assuming currency exchange rates remain the same day are now currency should be about 2% to 3% positive on total revenue and <unk> positive on EPS in Q1, however currency.
And the actual impact could be different.
Total revenues for Q1 are expected to grow from 3% to 5% in USD and are expected to grow 1% to 3 in constant currency.
Service and license support revenue growth for Q1 will be about the same as Q4 at 4% in constant currency and then climbed through the year.
As a result of the increased investment in the quarter non-GAAP EPS in USD is expected to grow between 2 and 6% and day between 94 and 98.
In USD non-GAAP EPS growth in constant currency is expected to be anywhere from negative to positive too and be between 9% 991 and 95% in constant currency.
Now my EPS guidance assumes a base tax rate of 19%. However, 1 time events could cause actual rates for any given quarter to vary but I expect in normalizing for these 1 time events, our tax rate will average around 19 or so.
Finally, we want to thank our employees around the world for working so hard and staying focused on our customers and partners during the pandemic.
And we also want to spend.
Particular, thanks, and warmest wishes to our employees and Covid hotspots, who has been hit particularly hard.
And with whom we have been working very hard to support them, including providing vaccination.
We just want to thank all of you and congratulate you all on our successful year end year end you evolved been remarkable so thank you.
And with that I'll turn it over to Larry.
For his comments.
Thanks, Safra and great job Youre team delivered a spectacular Q4.
Clearly our strategy to develop cloud applications with cloud infrastructure.
Now beginning to drive topline revenue growth to go along with years of consistent double digit earnings per share growth.
Our strategy is as easy to explain is it is technically challenging to implement.
That's a good thing because it wasn't on preferred to do others would be able to do it.
Our strategy on applications.
On Oracle, becoming the world's largest provider of cloud ERP systems.
Then building upon a strong ERP foundation.
We're going to expand is in manufacturing.
CRM and industry specific applications.
We are successfully executing the strategy.
Oracle fusion earned net suite are now the worlds 2 most popular cloud ERP systems.
As the leader in on premise ERP never rewrote their ERP system for the cloud.
This has caused hundreds of customers to abandon that.
And migrate to <unk>.
Oracle fusion ERP.
That's already happened.
But over the coming months.
Several more major banks with utilities, a lot of other companies will will complete their oracle fusion implementation projects.
And go live on fusion ERP.
Oracle's, taking massive amounts of share away from Europe.
Europe.
It's crucial to our future.
While our fusion and Thats it.
<unk> been growing.
We have also developed a complete new generation of cloud application suites.
Our new manufacturing systems fully support and manage.
<unk> made it robotics factory.
No 1 else does that.
Our new cloud CRM applications help you sell more by.
By fully automated automated internet advertising lead generation and flow.
On litigation.
Nobody else does that.
And we're launching.
Loud application suites for 2 new industries.
Health care and state and local governments are.
Our healthcare initiative is an outgrowth of the National public Health management systems that we built to manage the COVID-19 vaccine clinical trials on vaccine distribution in the United States and in other countries around the world.
In summary.
Our cloud application portfolio is more complete than.
And then other on Arps vendors.
Better integrated.
Because almost all of our applications were developed internally not acquired.
Our infrastructure strategy depends on AI technology.
Good day bring neural networks machine learning that we use to develop second generation autonomous cloud services.
Such as the Oracle Autonomous database.
Oracle economy Autonomous Linux operating system.
On a ray of autonomous cyber security defense box that automatically identify neutralize cyber attacks.
All of Oracle Cloud application, then run within the defensive perimeter of Oracle's autonomous cloud infrastructure.
Most reliable and secure platform in the world.
And that's increasingly important.
World plagued by cyber warfare data theft and ransomware.
Oracle's autonomous database and other autonomous services.
Eliminate human labor.
No human labor means no human error.
Our opportunity for human mixture.
Autonomy makes computer systems and cars much safer and more reliable.
On the Oracle Autonomous database offers 90.999, 5% availability that means only a few minutes of downtime a year.
And we have zero down volume security, Patrick and upgrades available today for infrastructure and very soon available for all of our applications.
Economics is also important.
OCI has by far the best cost performance.
The structure of hyper scaler.
That's why so many service providers like zoom have chosen to expand into OCI.
<unk> cost performance is continuously getting better.
Our new version of my people the world's most popular open source database just got between 10 and 100.
Volume is faster.
And when you charge by the minute.
Every minute you don't use with money says.
Our new or microprocessors from technology.
Partner and appear delivers much better compute cost performance than either Intel or AMD.
And by far the lowest energy usage.
New server microprocessor in the world.
So our latest infrastructure technologies are good for our applications.
Your budget.
Good for the health of the planet.
And very good for oracle's future stock to use safra.
Thank you Larry Eric if you could please now prepare the audience poll for questions.
Ladies and gentlemen to ask a question. Please press star 1 on your telephone keypad withdraw your question press the pound key.
Our first question comes from Mark <unk> with Bernstein Research.
Thank you and congratulations on the <unk> to the team on a clean nice quarter.
Like to try to get some more color on the drivers of the success of the Oracle cloud ERP solutions can you give us some more sense of how much of Oracle fusion ERP is from new Oracle ERP customers, how much is international versus the U S. How much is large enterprise where's the sweet spot any color on.
We can give to get a sense of what's really driving the growth and how much of that is new to versus <unk>.
Existing customers would be very helpful.
Yes. This is Larry.
There are more new customers.
And then upgrades from.
On premise ERP with Oracle fusion so it's.
Its probably about 60.40 in the sixties.
It's probably not quite 2 to 1.
New customers, but.
Most of the debt a majority of the business is coming from new customers. We're also upgrading our installed base.
The E business suite on People's thoughts.
JD Edwards to fusion, but again.
More revenues coming from new customers customers in 4 customers people like that that are coming from our installed on our on premise installed base. So that's really the trend and we think that trend is actually going to accelerate in favor of new customers because the migration.
Migration phenomena is relatively recent in the last 12 months.
Over the last 2 years, but it is really accelerating now in the last 12 months. So we think we can thats going to hold so.
Another way to look at it is it's a very.
People migrate to Oracle fusion ERP.
Smaller companies migrate to net suite ERP. These are both enormous businesses.
Yes.
Fusion ERP, certainly much bigger than $10 billion and Thats, what is bigger than $10 billion.
<unk>, probably bigger than 21 billion as these as these businesses mature.
Yeah, and as far as where it's happening I have to tell you. It is so broad based it is a worldwide phenomenon for us.
Our.
Fusion net suite are just chugging along.
It was an incredible.
Incredible Q4, and Q1 looks enormous so imagine bookings are way up and theirs.
Theres just a lot of success, we have so many customers that have gone live. So we have referenced sales from some of the largest companies in the world to really small or medium sized companies net.
It's pretty consistent almost any prospect can find many companies just like it already being incredibly successful and I think that frankly.
The pandemic taught many of our prospects and customers that moving quickly is really required. These days I think that focus is to think moving quickly is risky I think they really saw that they had to move to much more modern.
Flexible digital businesses.
And.
And that we are the on destination for them for the back office without a doubt.
Thank you the expert here, but I really do appreciate it.
I'd like to add 1 thing I'd like to add 1 thing we almost never lose the competitive ERP deal in the cloud.
Virtually never.
And our next question is from Keith Weiss with Morgan Stanley.
Excellent. Thank you guys for taking the questions and congratulations on another year of 20% or your accounts plus earnings growth and frankly nice to see the stock starting to reflect the durability of earnings growth you guys have seen over the past couple of years.
So it's nice to see that I wanted to dig in a little bit on the infrastructure side of the equation isn't particular OCI.
On the quarter, you said, 103% growth in OCI consumption can you dig in a little bit on sort of what are the workloads that are being done on OCI is this just all Oracle database workloads, we know theres a lot of those out there that just run so well on OCI reserve broader perspective of the big workloads that guys are bringing over.
Not looking for commentary on any specific customer, but just broadly what are you seeing thats based on where do you guys do well, where do you win with OCI.
Okay. I mean, it is really easy to remember about half of its database hasnt been as everything else. So on everything else on the database you understand we're lifting and shifting existing database workloads and developing new Oracle database workloads on OCR and the other thing varies from things like zoom.
Who've moved over but also in the stimulation.
We're very very good at running stimulation software so almost so a large number of car companies have.
We have moved all of their proximity simulations.
To the Oracle cloud, because we do it faster and cheaper than any other club.
So we have actually a pretty balanced portfolio right now where we're we have the Oracle database contributed to half of the.
Workloads running on running on OCI and the other half is a variety of new customers doing new applications not database related.
Yes.
The key thing. Thank you first of all thank you for that.
Thanks.
The reality instead of any customer that is really focused on performance security like Larry mentioned and cost which happens to show up in many many workloads 1 of the areas, we're doing particularly well or isds.
Who are obviously experts at running their workloads, they're in the business and they are coming to us extensively because they are really studying the benefits that we bring them and of course as I mentioned in SMA never stopped mentioning security with what's going on these days.
You really have to be in the cloud that is basically obsessed with security, while still giving you incredible performance at lower cost I mean, once we are given the try what happens is a workload comed 1 workload comms and it's usually followed by many others and so it's.
We've got a lot of momentum, let's say.
I want to emphasize 1 thing I've said, it but I want to say again is there our new Oracle workloads being developed.
Especially.
In the area of genomics, where there are a number of new databases move to Oracle in OCI.
The track things like the genetic variance of COVID-19.
And there are but there are a number but there are a number of these things and youll see a whole series of announcements coming out where we've moved aggressively into health care and 1 of the big New applications for our database is just is tracking the genomics of pathogens.
And in.
Those databases are being developed.
Right on Oracle autonomous database from scratch.
Outstanding Thats, great color guys. Thank you.
Our next question comes from Derrick Wood with Cowen <unk> Company.
Great. Thanks for taking my questions and congrats as well on a strong quarter I've got 1 for Safra on 1 for Larry Safra.
In the past you've talked about the potential revenue opportunity for the App space. If you were to migrate everybody to SaaS, but I wanted to ask about the database side and in particular extra data.
Can you give us a sense of what the revenue potential or uplift the DSD shifted all extra data customers to cloud at customer on <unk>.
Neil about the strength of those motions heading into the new fiscal year, and then for Larry on the AG.
Guys push to drive adoption of autonomous database should we think clouded customer being the biggest vehicle for adoption or what routes to market do you see working cash.
Okay. Let me, let me get it started and then Larry can finish so Derek I'm glad you asked because.
When customers move from running their own dozen or hundred extra data.
When it's time for a refresh or a new set.
We prefer that they go to cloud at customer.
And our or have a dedicated region. However, just to let you know since you all focus on the numbers, Jeff to understand that when we sell hardware regular way, we recognize all that revenue once it's delivered all of that hardware to de Levered.
But when we install cloud customer extra day to cloud at customer our dedicated region.
We don't recognize that revenue upfront and so.
You don't even see that that is all happening right now in our income statement and yet we're still growing so as a general matter first of all it is much even though.
We believe we make around 3 times may be more in revenue in in the case of cloud at customer.
Versus selling just selling the hardware can be anywhere from 3 to 5 times the customer actually ends up spending less because we manage their entire.
Day, we update their databases et cetera, depending on what services they are using and they get the benefit of always having capacity always having the most up to date system. The most secure system and patched and fully manned.
<unk> by us so they'll ultimately they give us significantly more money 3 to 5 times as much in fact, they end up spending much less to maintain that as states. So for us it's kind of a win win.
And because we are much more efficient fully automated and saves them. The immense amount of labor. It takes 2 to run these very critical production systems.
Okay, I guess Larry question, what was it again.
Derek.
It was wrong.
<unk> database and web front on the routes to market.
Adoption is cloud at customer really the biggest vehicle or are there other routes, but are working well.
Robert.
I was wondering as database only runs in the cloud that does not run on premise.
Run on EBIT, even as the extra day to our clients it runs on a customer or a public cloud so right.
Right now the public cloud is the.
The most popular route for autonomous database.
<unk> cloud at customer.
It's becoming a more popular as people scale up.
So, but right now the most popular way to use autonomous database is the OCI public cloud.
Great. Thank you.
Our next question is from FERC on the turn with Evercore ISI.
Thanks, very much on and thanks for taking the question I was wondering could you just talk about sort of the performance in Europe. This quarter. It looks like it bounced back nicely and I guess, along those same loans can you just talk about cloud adoption on surface.
This may be what youre seeing in the us.
Can you guys, just probably leading the charge, but what youre seeing in other regions just following maybe close behind it.
Sure. So first of all I have 2 new leaders and not in Europe Middle East Africa.
<unk> refreshed and new and.
Really successful management team in Europe, and they are pretty much firing on all cylinders. It is extremely broad throughout Europe middle East all of EMEA.
So tell you incredible strength worldwide Latin America doing phenomenally, Japan.
Japan doing phenomenally as a result, J path doing very very well and of course led.
By North America, I should tell you it's been an amazing year, it was a phenomenal quarter, but truly an amazing year.
Our worldwide and items.
More than satisfied I am delighted by the results.
Of the of the of the team and you know for me. This was my first full year.
With the field so I.
I really applaud the team for doing a spectacular job worldwide.
Our final question comes from Raimo on Shah with Barclays.
Hey, Thanks for squeezing me in.
Suffer on the 1 thing that was interesting that we didn't really talk that much about is your RP. All on pure growth can you talked about begin because like the gross there is actually even better than I see on the revenue line.
To me suggest that this wasn't just Q4 it looks like things are coming together broad based in the coming quarters as Robert Thank you.
Yes, Raimo you are so right out of Q4, but really it's just coming together all around on the RP.
Hum.
Really really strong bookings are we're truly enormous obviously, they don't show up in the income statement right away, but they.
The future is Jeff So positives and you might have heard me I was hinting to that.
In my comments and 1 of the reasons, we're so comfortable leaning into our investment because we really want to make sure. We've got the capacity to take on the enormous amount of bookings that are flying in and that both were contract during.
The year and are going online and so we will be recognized over time over this next year and beyond.
But there is just a enormous backlog for us.
Of customers that are going live and that will start consuming and were very.
We're very optimistic so thank you so much for asking and I'm glad you noticed that.
Thank you Okay correct.
Thank you Safra.
If theres any questions coming out of this call. Please feel free to call the Investor Relations hotline, otherwise I'll turn the call back to Erica for closing.
Thank you for joining today's Oracle fourth quarter 2021 earnings Conference call. We appreciate your participation you may now disconnect.
Okay.
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