Q1 2022 Oracle Corp Earnings Call
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Hello.
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Thank you.
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Welcome to Oracle's first quarter 2022 earnings conference call.
Like to turn the call over to Ken Bond Senior Vice President.
Thank you Erika good afternoon, everyone and welcome to Oracle's first quarter fiscal year 2022 earnings conference call a copy of the press release and financial tables, which it concludes a GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from our investor Relations website. Additionally.
A list of many customers, who purchased Oracle cloud services or went live on Oracle cloud recently will be available from the Investor Relations website. Following this call on the call today are chairman and Chief Technology Officer, Larry Ellison, and CEO Safra Cat as a reminder, today's discussion will include forward looking statements, including predictions.
Spectation 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.
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 any applicable amendments for a complete discussion of these factors and <unk>.
Other risks that may affect our future results or the market price of our stock and finally, we're not obligating ourselves to revise our results or these forward looking statements in light of information or future events.
We're 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.
Good afternoon, everyone.
We had a great quarter as total revenue was 100 million.
The midpoint of my constant currency guidance with outperformance coming from all parts of our business.
PFS was also very strong and was eight.
Above the midpoint of my comp currency guidance as the dollar strengthened from when I gave guidance then it strengthened significantly we didn't get the benefit we would have gotten had it.
At the same level throughout the quarter.
Now from here on I'll review, our non-GAAP results using constant dollar growth rates.
Unless I say otherwise.
So total cloud services and license support revenues for the quarter were $11.0 billion up 6% in USD up.
5% in constant currency and accounted for 76% of total company revenue.
Total cloud revenues are now at an annualized revenue of 10 billion with an accelerating growth rate that we expect will exit the fiscal year.
The mid twenties.
GAAP application subscription revenues were 3 billion up 7% with fusion apps up 26% in USD and 24% in constant currency.
Our strategic back office applications grew 25% in constant currency, including fusion ERP up 30% and Netsuite ERP up 26%.
GAAP infrastructure subscription revenues were $7.0 billion up 3%.
Excluding legacy hosting services infrastructure cloud services grew in the mid Thirty's.
And we saw triple digit bookings growth this quarter. So I expect the infrastructure revenue growth will ramp higher through the spin.
Okay.
I consumption revenue, which includes autonomous database was up 80% in constant currency and cloud customer revenue was up 44%.
Database subscription revenues, including database support and database cloud services were up 6% in USD up 5% in constant currency and that's up from 4% last quarter.
License revenues were $813 million down 8% after it's tough.
From last year's Q1.
All in total revenues for the quarter were $16.0 billion up 4% in USD up 2% in constant currency.
Operating expenses were up 3% this quarter.
This margin for cloud services and license support was 84% and.
And the gross profit dollars grew 2%.
We expect the full year growth in gross profit dollars for cloud services and license support will be similar to last year.
Non-GAAP operating income was $7.0 billion up 2% from last year and the operating margin was 45%.
The non-GAAP tax rate for the quarter was 18% slightly below our base tax rate of 19% and earnings per share was $1 three in U S dollars up 11% in USD and up 9% in constant currency.
As a result of some discrete items the GAAP tax rate was eight 4% and GAAP EPS was <unk> 86.
The us dollars, which was up from 19% in USD and.
816% in constant currency.
Operating cash flow for the last four quarters was $18.0 billion up 17% in USD and our free cash flow over the same period was $18.0 billion up 9% in USD with capital.
Expenditures of $10.0 billion.
Also over the same period.
Capex for Q1 alone was $2.0 billion.
We now have more than 39 billion in cash and marketable securities. The short term deferred revenue balance is $10 billion up 1% from a year ago due to timing differences in customer payments, but with growth deferred revenue up 5% in <unk>.
Constant currency.
The remaining performance obligation.
Our RFP.
Our balance is $45.0 billion up 10% in constant currency due to strong bookings.
Approximately 60% is expected to be recognized as revenue over the next 12 months.
As we've said many times before we're committing committed to returning value.
Through technical innovation strategic acquisitions stock repurchases prudent use of debt and a dividend.
This quarter, we repurchased 94 million shares for a total of $8 billion and over the last 10 years, we have reduced the shares outstanding by 46% and an average price that's about half the current share price.
In addition, we paid out dividends of $3 two.
$2 billion over the last 12 months and the board of directors declared a quarterly dividend of 32 per share.
Now to guidance, what you are all waiting for.
I remain highly confident that fiscal year 'twenty two revenue growth will accelerate because of our fast growing cloud businesses are becoming a larger portion of our total revenue.
Total revenue growth for fiscal year, 2022, which is the one we're in somewhere in the mid single digits in constant currency and accelerating.
Cloud is fundamentally a more profitable business compared to on premise.
And as we look ahead to next year, we expect company operating margins will be the same or better than pre pandemic levels.
Let me now turn to my guidance for Q2.
And I'll review this on a non-GAAP basis.
Assuming currency exchange rates remain the same as they are now currency should have a minor positive effect on total revenue and EPS in Q2.
Total revenue for Q2 are expected to grow between 3% to 5% in both USD and constant currency cloud.
Cloud services and license support revenue for Q2 are expected to grow more than a percent in both USD and constant currency and then climb higher through the second half of the fiscal year.
Non-GAAP EPS for Q2 is expected to grow between two and 6% in both USD and constant currency and between a dollar nine and $14.0
My EPS guidance for Q2 assumes a base rate of 19%. However, one time tax events could cause actual tax rates for any given quarter to vary both up and down.
Expected in normalizing for these one time tax events.
Our non-GAAP tax rate.
<unk> average around 19% or so.
With that I'll turn it over to Larry for his comments.
Thank you Scott.
Oracle's cloud business.
Structure, plus applications has rapidly grown to $10 billion a year.
Oracle and net suite were pioneers and cloud applications.
Oracle next week being the very first cloud company if any color.
Several years later Amazon launched the very first cloud infrastructure.
Oracle fusion ERP is over 8000 cloud customers.
Net suite ERP has ever 2008.
Cloud applications.
Oracle is the overwhelming market leader in the global cloud ERP market.
Oracle cloud ERP is currently used by many of the largest most.
Company's honor.
This past quarter in Q1.
Company I Couldnt name until now major.
The major portion of Bank of America went live.
On Oracle fusion ERP.
Consolidating ledgers and 33 separate countries into.
Into one global cloud ledger.
Also in Q1, another huge bank Macquarie <unk>.
Largest investment bank in Australia.
Went live with Oracle fusion ERP.
Also in Q1 Vanguard, the largest global mutual fund provider.
Went live with Oracle fusion ERP.
Just in Q1, Okay. So oracle fusion is building a very strong position in the world's largest financial services company.
HSBC.
New York Mellon Jpmorgan Chase.
They are all live on Oracle fusion application.
We have started working with our strategic partners in banking.
To develop a new generation of cloud b could be financing and payment system.
There are things you didn't do in the cloud you could never do on premise.
There are opportunities in the cloud if you are the largest ERP supplier there are opportunities to go into new business like finance again, Dave.
With banking partners that would've been impossible with the old on premise systems and those are opportunities.
We're aggressively pursuing with the world money Center banks.
Banking and healthcare will be oracle's two largest verticals.
Going forward.
Speaking of health care.
<unk> was an important to fusion ERP win in Q1.
And the infrastructure part of our cloud business, we continue to innovate and several technical areas.
We have made great progress and then now and we are now on our way into the big four global.
Hybrid scalar.
And I'll give you a list of those in case, you don't know their Amazon.
Microsoft.
<unk> and <unk>.
Google.
<unk> order.
I was not the one who sorted that list.
<unk> come a long way in the cloud infrastructure.
Our technology is getting really good and very competitive.
And of course, we continue to deliver breakthrough innovations in areas, where we have long been strongest like database.
The Oracle database remains unrivaled and running the world's biggest and most critical systems.
And our other database via open source system by sequel.
It is now is now on a new generation.
And it now includes an ultra high performance in memory, we are a processor fault heatwave plus.
Plus a new set of management tools for the autopilot.
Amazon's version of my sequel again.
That open source database anyone can have it.
Amazon to diverge that <unk> will be named Aurora.
And put it up.
And AWS.
Now the open source version of <unk>. The old version of <unk> will pre heatwave is.
Very very slow at query processing.
Is that the way you use.
Aurora typically in Amazon over the years.
Do your transaction processing in Aurora also known as my sequel, and then when you did your query processing you moved your data out of Amazon might equal called Aurora.
And two things called redshift.
A data warehouse system from Amazon.
Recently Snowflake has come up with a data warehouse that runs at AWS.
And snowflake competing quite effectively against redshift.
Snowflake runs on multiple clouds.
And snowflake like redshift is way faster inquiries than the old might equal or Laura.
Okay. So oracle is introducing this new version of myself.
This new generation of Mike's equal.
Okay.
And the customer reaction has been superb.
Simply for the reason that over and over again.
They measure oracle's my sequels to be 100 times faster than Amazon Aurora.
Theory processing now this was actually not unexpected.
The old my sequel.
Which is Aurora, that's what or where is the old my single, it's terrible for query processing.
What was unexpected is that.
Oracle My sequel proved to be more than 10 times faster than Amazon redshift or it's notably.
So suddenly there is one database. So you can do trend that's Europe.
To open source database.
You can do a transaction processing on Mike's equal with heatwave and that say fastest place to run Europe.
So you don't need to move.
Peer data into redshift or it's like anymore, just to do query.
This is excited so many customers that they asked us over and over again.
We've made it available we made it available this quarter.
My single Gateway, but it's available.
At the Oracle public cloud, but they asked if we would make it available on other public clouds and we thought.
That's what our customers want.
That's what we're going to do so we plan to manage.
Sequel.
Yeah.
Where we have huge sector.
What vantages over Amazon.
Don Aurora, Amazon redshift, and perhaps most interestingly huge technical advantages performance and cost.
Snowflake alternative Baptist Safra.
Thanks, Larry Ken I think we're ready to take questions.
Ladies and gentlemen to asking.
A question Please press star.
Your telephone keypad to withdraw your question press the pound key.
My question is around.
Fusion and Netsuite.
We obviously are in the recovering somewhat.
Your professional services as well, which.
You're seeing there in terms of people.
Wanting to do now that they're coming out of <unk>.
The pandemic more around digital transformation and hence you had actually an extra boost in demand. Despite what you saw.
Ready beforehand, or how do I have to think about the dynamic. Thank you.
Maybe I'll start and then Larry can add Ann I think that one of the things is becoming a pandemic.
Companies that have closed.
Booster digital relationships with their customers their employees and their suppliers are doing much better than those that don't.
Small ball or otherwise one to you.
<unk> to adapt to changing business situations.
So much better if you move.
Capabilities that you.
Hi by a vendor like ourselves where for example, as we've discussed we rolled out.
Our health and safety to our HCM customers.
And Covid and Don.
There is no question.
That digital transformation is the top goal.
<unk> companies and those companies that had been delaying or moving slowly.
Brand, new urgency on it and of course, because we our ranks and I think it's our third year in a row in the top right hand quadrant of Gartner really with no one even close to US we are the number one choice.
For.
Moving to fusion ERP Accretable income.
Credible momentum.
And customers.
For companies, who have been on premise either with our price.
I would have say P worthy.
Just can't continue like they did.
Pretty much made the migration.
Mutations where all of our SaaS.
On cloud implementations and.
So through when these transitions it looks.
Something is shrinking.
Well.
In this case the on Prem and stuff went down that until it almost went away and basically all of the all of the implementation services you see.
No.
Since we've now made.
The migration and that should just grow steadily as demand.
Okay.
We really don't have a lot of competition.
That's the understatement of the year.
In cloud ERP.
I'd love to know who the competitor.
When we bid.
We're in a competition with SAP right now.
And we've just gotten.
Now we just found out we got we got were vendor of choice and they are big thing was we will never.
<unk> willing to put our accustomed computer.
Amazon and just build a specialized version.
We update our application.
Okay every three months the entire fleet of 8000 fusion customers are updated every three months the entire fleet.
28000.
Every six months.
Do you get there.
They probably will update it again.
The system, they don't have a cloud system.
We are winning every deal against everyone.
We're taking a lot of their customers away.
Okay. Thank you.
Churn comes from Mark <unk> with Sanford Bernstein.
Okay. Thanks for taking my questions.
Congratulations on the size and strength.
The Ias plus SaaS cloud.
OCI Gen two past.
Google G CP in the Gulf.
Fox enough to capture market.
The customers funding.
Fundamental.
Mentally you OCI differently.
P M y.
Well I.
Hi, Thank you.
The.
<unk>.
Big issue.
It remains open about Oracle I would say it probably still remains open about oracle.
As Ken Oracle compete with databases based against Amazon.
Well Amazon is like 13 separate databases.
Okay.
Okay.
Where the Oracle data, we do bring in a single database.
Yeah.
Five or six separate databases, we think it is a very very risky security architecture, but the collection is Amazon.
The big leader in cloud, where the big leader in databases.
It forced to choose.
Will they pick the Amazon cloud and database other than the Oracle database.
Or are they willing to move to migrate their oracle application to get Steve.
All the security and performance advantages of the Oracle database. That's the that's been the big question out there.
Pete it's in many cases, it's much better.
For our performance.
For <unk>.
For reliability.
Yes.
For cost where we're cheaper.
One of the reasons, we have such a big <unk> business.
Okay.
And so many people have left Amazon.
Come to the Oracle cloud was because we cost less.
So we have significant cost advantages.
And I think this is another big step.
Proving maybe oracle cloud as part of the Big four it's not a big three.
Partners sequence in the Gartner.
Is Amazon.
Microsoft Oracle Google.
And if we're in the big four and virtually every important database application on Earth.
Runs.
I mean, not everyone, but the.
Thats majority run on the Oracle database.
Migrate to the Oracle.
And we're seeing people moving more and more things to the Oracle cloud now in this Gartner report will just help yes.
Thank you.
Great.
Freeport is a common look and they run it they do a comparison.
A straight up comparison us Google.
Amazon they move.
The obligation in both places we win all of those.
When they don't come and look that we have a problem.
Okay.
Thank you Larry Eric next question, please from Derrick Wood with Cowen.
The company.
Great. Thanks for taking my question.
Nice job at accelerating recurring revenue growth, while still growing growing operating income in Q1.
In Europe for you guys. So you can can you just remind us.
Hi, this how youre thinking about balancing top line growth versus operating income growth or operating margins for the fiscal year.
Sure and maybe touch on where you ought to be adding more investments to help with accelerating growth either from a geo perspective, or a product go to market standpoint.
Well you and your colleagues have been following <unk> for a long time and you know that when we talk about investing.
Still focus on increasing profitability, okay. We're not like many of these other companies that when they invest they lose money or they don't make more money, we will make more money this year, while investing and accelerating then.
We did before.
Don't have the pack we've never believed we have to pick because we have differentiated products.
You know, how we run the company we don't wait.
This money we spend it on things that bring returns and we're very careful about that but we have so much demand worldwide right now.
Sure really our cloud product lines pretty much across the board whether it's our database service is our cloud at customer our OCI Gen. Two our RF fusion products.
It's chip, it's just such a great time that even though we're going to invest more we will make more and just the matter of this is an important time for us to.
In fact.
But we're going to make more money.
Yes, I'd like to I'd like to just second that with an example in the past.
Recent recent history.
And we bought net suite.
Considered networks that sweet strategic we thought that this was.
This is a company that should be growing even faster.
Then it was independently as a part of Oracle.
And so a number of investments in that suite.
And we've seen their growth rate that we've gotten bigger.
But their growth rate has increased and we've invested but we've made more money and we're growing faster.
So I think thats, the SaaS model that safra likes to implement.
It seems to be working pretty well.
We don't see why it would be any different than a larger business like the Oracle Oracle public cloud.
Understood. Thanks for the color.
Next question please.
Our next question comes from.
Larry can you.
Europe double click on OCI, and specifically I was curious what youre seeing with some of your early OCI customers in terms of net expansion, meaning how are those customers growing with you in terms of either network loads are.
Thanks.
All right.
Yes, absolutely.
B, we have corporate customers they've been with us for a while but are constantly that are expanding maybe the most interesting thing about this is our <unk> or the Isps because the <unk> there in the cloud business I mean, thats the whole business they run.
Their primary expenses running their cloud operations and when a number of those companies move from.
Amazon to Oracle I mean give me a bunch of examples.
Then.
Really take a close look at the economics.
What theyre doing the reliability the reliability of the system.
Zoom is a famous example, but there are a bunch of other.
Examples of companies that have moved from Amazon to Org.
Oracle and of course.
So.
That is really very encouraging but are perfect. We're seeing it now in our corporate customers as well they move a workload that works the way they move it two or three more workloads that's continuing so.
The report is one more.
One more step.
A step in the right direction and journeys are encouraging our corporate customers to move even more workloads.
Yes, we move a workload.
Hello.
Once they understand.
The economics are advantageous.
Just well they just move more workloads on a continuous basis and thats what were experiencing.
Thank you.
Okay next question.
Our next question is from Michael <unk> with Keybanc.
Hey, Laurence.
Safra I wanted to ask a cloud customer.
Thanks, Katherine is growing 40%.
Welcome.
There are any headwinds as quite a customer seeing.
And as it does that.
Now able to start driving sustainable database acceleration beyond the acceleration that you saw this quarter.
Yeah, I mean, one of the things I didn't mention was that consumption at clubs.
Over 150%.
So you need to understand that once cloud customers they take a while.
I want to set up.
And then once they start getting set up.
Yes.
It's a little bit more complicated.
We followed.
Actual security model.
And what we do and and expand model.
With our customer to customer.
We're bringing in some more clouds and then they realize how incredible it is.
It runs their databases.
It's it is just.
And momentum.
The thing that as I said, it takes a while to actually land and get it all set up but now it's gotten to be as good.
And then it's just accelerating for us.
And so that's really where we're at.
It is a global product it is completely differentiated and it's very profitable for us so.
And a fifth.
Fits the need of our customers because remember their world.
Okay workloads in particular relief really run amazingly, but also those are their most important workloads often and those chassis secure they have to be performance they have to be always to us.
And they have to.
B be economical for them and it's just.
Perfect match for what they need.
Okay, great. Thanks Safra.
Okay next question please.
Our final question comes from Mark Murphy with Jpmorgan.
Yes. Thank you very much. So you seem to have pivoted your capex approach a bit from just in time purchases to carrying a bit of a capacity buffer.
So that you can deploy the <unk> I'm just curious safra does it take a quarter or two and then you have enough of a buffer there.
Perhaps could last a while longer which switch.
It might be good news for future revenue growth.
I would like to be caught short.
So I want to make sure.
Enormous demand frankly.
So this is this is what I always call a high class problem, but we try to make sure that we manage it very very sorry.
Carefully I thought it was worth it to take on quite a bit more inventory.
But it is getting used up there.
And we stay very.
Very focused on it is delivered to our customers the demand that we have.
Stay vigilant.
Where we need it and in the quantities that we need it.
Thank you very much.
Thank you.
Ken we can hear you.
Thank you.
Telephone replay this conference call will be available for 24 hours on our Investor Relations.
That I will turn the call back to the operator for closing.
Thank you for joining today's Oracle first quarter 2022 earnings conference call.
Now disconnect.
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Okay.
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