Q2 2022 Oracle Corp Earnings Call
[music].
Speaker 1: Welcome to Oracle's second quarter 2022 earnings conference call. Now I'd like to turn the call over to Ken Bond, senior vice president.
Welcome to Oracle's second quarter 2022 earnings conference call now I'd like to turn the call over to Ken Bond Senior Vice President.
Thank you Erica and good afternoon, everyone and welcome to Oracle's second quarter fiscal year 2022 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.
Speaker 2: Thank you, Erica. Good afternoon, everyone, and welcome to Oracle's second quarter fiscal year 2022 earnings conference call. A copy of the press release and financial tables, which includes a gap to non-gap reconciliation and other supplemental financial information, can be viewed and downloaded from our investor relations website.
Speaker 2: 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 Katz.
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 cats.
Speaker 2: As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates, or other information that might be considered forward-looking.
As a reminder, today's discussion will include forward looking statements, including predictions expectations estimates or other information that might be considered forward looking.
Speaker 2: Throughout today's discussion, we will prevent some important factors relating to our business, which may potentially affect these forward-looking statements.
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 the statements being made today as a result, we would caution you against placing undue reliance on these forward looking statements.
Speaker 2: These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from the statements being made today. As a result, we would caution you against 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 other risks that may affect our future results or the market price of our stock.
And we encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendment for a complete discussion of these factors and 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 new information or future events.
Speaker 2: And finally, we're not obligating ourselves to revise our results or these forward-looking statements in light of new information or future events.
Speaker 2: Before taking questions, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra.
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.
Speaker 3: everyone. I'm pleased to report another quarter of increasing revenue growth as the fastest growing parts of the business continue to become a larger percentage of our business. We had a fantastic quarter as total revenue grew six percent in constant currency above the high end of my guidance with broad-based outperformance across the company.
Your line.
I'm pleased to report another quarter of increasing revenue growth.
It's growing parts of the business continues to become a larger percentage of our business. We had a fantastic quarter as total revenue grew 6% in constant currency above the high end of my guidance with broad based outperformance across the company Q.
Speaker 3: Q3 revenue growth looks like it will continue even higher. But let me save that for the guidance discussion. Earnings were also strong with non-GAAP EPS $0.09 above the high end of my constant currency guidance.
Q3 revenue growth looks like it will continue even higher but let me save that for the guidance discussion.
<unk> were also strong with non-GAAP EPS nine cents above the high end of my constant currency guidance.
Speaker 3: We achieved this outperformance despite the U.S. dollar strengthening since I gave guidance as we saw a currency headwind of nearly $100 million to revenue and a cent to EPS. So the USD results, which are excellent and above guidance, are even stronger than they appear. Before I go through the numbers, though, I wanted to comment on what we are seeing in the market that is driving our accelerating revenue growth. As I've mentioned on...
We achieved this performance despite the U S dollar strengthening since I gave guidance.
We saw a currency headwind of nearly 100 million to revenue in a sense T. P. S. So the U S D results, which are excellent and above guidance or even stronger than they appear.
For I go through the numbers, though I wanted to comment on what we are seeing in the market that is driving our accelerating revenue growth.
As I've mentioned on previous calls.
Speaker 3: we have a highly differentiated strategy from our competitors where we are the only company able to offer the combination of applications and infrastructure in the cloud. We have best-of-breed capabilities in both infrastructure and apps like HR and ERP, but also a highly differentiated set of industry-specific
We have a highly differentiated strategy from our competitors, where we are the only company able to offer the combination of applications and infrastructure in the cloud.
We have best of breed capabilities in both infrastructure and apps like HR and ERP, but also a highly differentiated set of industry specific cloud SaaS applications and of course, our second generation cloud with autonomous database.
Speaker 3: cloud SaaS applications. And of course, our second generation cloud with autonomous database are unique in their performance.
Unique in their performance.
Speaker 3: security, and dependability. And because we have decades of experience in mission-critical systems, our customers can depend on us being up and available when they need us.
Curator and dependability.
<unk> and because we have decades of experience in mission critical systems, our customers can depend on us being up and available when they need us.
Speaker 3: Our unique capabilities are attracting customers, especially as they consider how to conduct their own digital transformations in the complex industries in which they compete. They want us to know as much about their business as they do, whether it's telco, financial services, utilities, retail, and many others, and to partner with them to modernize.
Our unique capabilities are attracting customers, especially as they consider how to conduct their own digital transformation in the complex industries in which they compete.
I want us to know as much about their business as they do whether its telco financial services utilities retail and many others and to partner with them to modernize once a company thinks beyond simple Dev test and other rudimentary cloud workloads and moves there.
Speaker 3: Once a company thinks beyond simple dev tests and other rudimentary cloud workloads and moves their technology focus to mission-critical projects, they invariably turn to Oracle. Our focus on customer success is driving more references and new opportunities with both existing customers and with entirely new accounts.
Technology focus to mission critical projects, they invariably turned to Oracle.
Our focus on customer success is driving more references and new opportunities with both existing customers and with entirely new accounts and of course, we ourselves are an oracle fusion full suite user and I'm sure. It's not lost on any of you and it's not law.
Speaker 3: And of course, we ourselves are an Oracle Fusion full suite user. And I'm sure it is not lost on any of you. And it's not lost on our prospects and customers that we are announcing our results nine days after the quarter closed because of our systems and their embedded processes. OK.
On our prospects and customers that we are announcing our results nine days after the quarter closed because of our systems and they're embedded processes.
Okay.
Speaker 3: back to the numbers and from here on I'll review our non-GAAP results using constant dollar growth rates unless they say otherwise.
Back to the numbers and 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 $7 6 billion up 6% in constant currency and accounted for 73% of total company revenue.
Total cloud revenues when annualized are now $10 7 billion and grew 22% with cloud bookings growing faster than our cloud revenue growth rate and as a result, we expect cloud revenue will accelerate further.
And exit the fiscal year in the mid twenties.
Potentially higher.
GAAP application subscription revenues were $3 1 billion up 8% organically in constant currency and our highest growth rate in four years.
Fusion apps were up 30% with strategic back office applications now, having annualized revenue of $4 9 billion and growing 30%, including fusion ERP up 35% fusion HCM.
Up 25% and Netsuite ERP up 28%.
GAAP infrastructure subscription revenues were $4 4 billion up 5% and excluding legacy hosting services infrastructure cloud services grew more than 50%.
I expect the infrastructure revenue growth rate will continue to ramp higher through the fiscal year Oc.
OCI consumption revenue, which includes autonomous database was up 86% in constant currency and total cloud at customer revenue was up 45%.
Database subscription revenues, including database support and data base cloud services were up 3% in constant currency.
License revenues were $1 2 billion up 16% amongst our very best quarters over the last 10 years and license growth was not dependent on any mega deals. We saw excellent performance in technology, our vertical businesses as well.
Well as North America, and Latin American region. So all in total revenues for the quarter.
With $10 4 billion up 6% in constant currency.
Operating expenses were up 6% this quarter the gross margin for cloud services and license support was 84% and gross profit dollars grew 5% in constant currency.
I expect the full year growth in gross profit dollars for cloud services and license support will be similar to or better than last year.
Non-GAAP operating income was $4 9 billion up 7% from last year and the operating margin was 47%.
The non-GAAP tax rate for the quarter was 19.2% slightly higher than our base rate of 19 and earnings per share was $1 21 in U S dollars up 14% in U S dollars up 15% in constant currency.
During the quarter, we recognized GAAP acquisition related and other expenses totaling $4 7 billion, which substantially consisted of litigation related charges that will not recur.
They relate to a dispute that arose when we hired my former co CEO in 2010.
As a result of this onetime charge GAAP net income was a negative $1 2 billion.
The GAAP tax rate was 16, 6% due to some discrete items and the GAAP loss was 46 cents per share.
Operating cash flow for the last four quarters was $10 3 billion and our free cash flow over the same period with 7.1 billion. Both results were negatively affected by the litigation charge as I mentioned <unk>.
Capital expenditures for the last four quarters were $3 1 billion and Capex for Q2 alone was $925 million.
We're on track to invest 4 billion in Capex this year.
We now have nearly 23 billion in cash and marketable securities the short term deferred revenue balance.
Is nearly 8 billion up slightly in constant currency from a year ago due to timing differences in customer payments with gross deferred revenue.
Growing 5%.
In constant currency.
The remaining performance obligation or our P. O balance is 37 2 billion up 11% in constant currency due to strong bookings approximately.
At least 59% is expected to be recognized as revenue over the next 12 months.
As we've said so many times before we're committed to returning value to our shareholders through testing.
Through technical innovation strategic acquisitions stock repurchases.
Use of debt and a dividend this quarter, we repurchased 77 million shares for a total of $7 billion and over the last 10 years, we've reduced the shares outstanding by 47% at an average price that's about half the current share price.
The board of.
Directors increase the authorization for share repurchases by an additional 10 billion.
We've paid out dividends of $3 4 billion over the last 12 months and the board of directors again declared a quarterly dividend of 32 cents per share.
Now the guidance.
I'm going to start by reiterating our expectation that full year 2022 revenue.
Growth will accelerate from 'twenty to 'twenty, one for all the reasons, we've already seen so far this year given the strong performance in the first half.
Now expect that we will see full year total revenue finished solidly in the middle in the mid single digits led by cloud revenue growth exiting the year in the mid twenties.
Cloud is fundamentally a more profitable business compared to on premise and I expect that our operating margins. This year will be the same or better than pre pandemic levels a 44%.
Let me now turn to my guidance for Q3, which I'll provide on a non-GAAP basis. The U S. Dollar strengthened dramatically in November I know you all saw that and assuming currency exchange rates remain the same as they are now which we have no idea if they were.
Or not I expect we will see a currency headwind of 3% for revenue and five cents for EPS in Q3.
Total revenue for Q3 is expected to grow between 6% to 8% in constant currency and grow between 3% to 5% in USD.
The midpoint of the range is 7% and that is higher than the 6%. We just reported in Q2 and higher than the 2% we reported in Q1.
So everything is trending in the right direction.
Cloud services and license support revenue for Q3 is expected to grow between 6% to 8% in constant currency and grow between 3% to 5% in USD.
Non-GAAP EPS for Q3 is expected to grow between two and 6% in constant currency and between and be between $1 19, and $1 23 in constant currency non-GAAP EPS for the quarter is expected to grow between.
Negative two and positive two in USD and be between dollar 14 in 18 and $1 18 in USD.
My EPS guidance.
For Q3 assumes a base tax rate of 19%.
However, one time tax events could cause actual tax rates for any given quarter to be higher or lower but I expected in normalizing for these one time events, our non-GAAP tax rates will average around 19% or so.
With that I'll turn it over to Larry for his comments.
Thank you Safra.
Discuss Oracle cloud ERP status strategy.
So.
How big is our on premise ERP business today.
A lot of the people lots of companies like Microsoft did a great job of moving their entire Microsoft office installed base into the cloud to dramatically increase the size of their cloud business.
And Unfortunately, we didn't have the same the same option or opportunity. So I think it can be.
I think it upon this interesting.
How big is our on premise business today, well, we had 7500 customers.
And Oracle on premise ERP made up an E business suite people soften JD Edwards.
Only 1000.
Of those 7500 move diffusion cloudy Europe.
Uh huh.
Now we have not lost any of these customers to competitors, we expect all of the remaining.
6500 to move to fusion ERP, but it hasn't happened yet that's all upside that's all upside and.
And I think a lot of people don't really really realize that.
So lets valid ballots migrate over and look at how big is our cloud ERP business today.
Oh, right right round round numbers $5 billion a year revenue.
And we have 8500.
And customers.
Remember only 1000 of those 8500 came from our old on premise business.
6500 plenty.
Plenty to come so 7500 8500, we're not running Oracle ERP before we came out with our cloud products those are all new customers.
Add to that the 28000.
That suite customers.
The Oracle has a total of.
35500 cloud ERP customers that are new to Oracle.
<unk> 1000 of our on premise installed base has migrated so far let me repeat that.
35500, net new customers.
Customers, we got in the last few years only 1000 from our installed base.
That's good because thats, what they come into us later on.
How fast is cloud ERP revenue growing about growing about 30% a year.
And so let's look out five years and ask the question.
How big will we be in five years, and I think the numbers you'd be approaching $20 billion in cloud ERP, where the majority of those customers are not people who are migrating our customers that are migrating from oracle on Prem business, but they are migrating from other people's on Prem business, whether it's in <unk>.
Mall company like in for a large company like S&P or a variety of other companies. The vast majority of our cloud ERP customers are not common.
From our installed base they are coming from someone elses installed base.
Again, yes 70.
85% of our curve.
We have are from someone else's install base.
So what are our margins.
And this five year, let's let's say, we're estimating $20 billion cloud ERP business, well at scale and that scale, that's about an 85%.
Margin in that business and as <unk> pointed out earlier call that the cloud business is inherently much more rock.
And much more predictable.
Our old on premise business so.
So we expect five years from now and again these are just estimates.
But but.
But based on our based on growth rates and the size of our current business.
But we expect that about 35 years now 30000 fusion customers was 100000, and that's what customers, bringing in $20 billion at 85% Mark.
Right.
<unk>.
What's happening.
I mean, how are we winning so many new customers where are they coming from who are we competing.
Well, we have really we only have two significant customers.
Competitors with two significant competitors SAP and workday.
And I've said this before.
That did not build a true cloud product and I'm going to explain what a true cloud product is just a minute.
But as a pea because they didn't build a cloud product they bought.
Edge products around the cloud, but they didn't actually rebuild.
Their software for the cloud.
It's the same old 35 year old software, David So in Europe.
Their goal is simply to hold onto their installed base.
But they are losing customers to us for example, this quarter for China as you know.
Oil and gas big oil and gas customer moved over.
I gave a long presentation about a couple of us taken already a couple of hundred pretty good size.
But so we're doing very well against that and continue to do it well, let's say a winning patrol this and others this quarter.
But work day is very interesting because workday does have a cloud product.
And they've done quite well in HCM.
But they have very few live try to time try to go out and find live workday Europe ratified.
Eddie.
So we're winning almost everything cloud Europe.
<unk> workday.
Nine B I don't know, 98% at the time, we beat workday.
We.
And we're taking customers from Sap's installed base.
They are still holding onto more theyre based and we're taking but we're making it right.
So.
Again, what's going on why are we winning.
Well, we're winning because we have a true cloud product, but it's very very feature rich.
They're in very very has a very low cost of ownership. So it's.
Normally capable.
It's not expensive compared with the old on premise systems.
Our implementations I mean, we got implementations of medium large companies that sometimes takes six months now don't get me wrong.
Someone like Bank of America took a few years.
Yes.
That wasn't a big customer that we want.
And that was just doing the Merrill Lynch divisions took a few years and then hopefully we're going to continue to make progress on the back of a bank of America.
So we have.
In general much faster at lower cost to implement our cloud product and implement let's say <unk>.
Or even work there.
But much fish, but a gigantic differences with S&P.
Very easy to use.
We have the user interface.
Two aspects there is the computer interface. It works on mobile phones, and tablets and things like that and then we have a voice digital assistant you talk to our obligations you talked to all of our applications you asked for reports.
I ask that you ask questions.
It's like Alexa for the enterprise.
All of our apps run on smartphones tablets desktops every app not another handful of apps.
Mobile every single aisle.
On smartphones tablets desktops every single App as a voice interface.
We have.
And this is what I mean by true cloud product we deliver.
A new version of Oracle cloud ERP, 200% of our customers all 8500 customers perfusion.
Every three months right they get a new version with some tier one hundreds or sometimes even thousands of new features.
Every three months they got that.
Now why is that important.
Well I mean, because our customers.
What specifically in different industry. They don't don't want but they don't all want the same thing in future.
Depending on the industry here and depending on your size, depending on the country you're in.
Your three most important new features new features you must have.
Our difference among a lot of different customers. So in the old days with S&P.
Customers built this themselves they went out and hired accenture or somebody else.
IBM IBM services, when it was IBM services and to.
To build these features for them now because the new model.
Don't you don't customize your product you don't have to you. This year list of new features that you need and we'll build them and put them in the next release of it and we can build them faster than you can and you might have to wait three months or four months or five months before you go to a new version, but you get them quickly and.
And where are the ones that buildup.
And they're part of a standard product or not some customization you have to maintain forever. So they are not expensive.
They are free they come with the product.
This is radically different.
Then what <unk> offers.
And what they call their cloud product, which I say is not a true cloud product because they don't have new versus every three months.
They don't have new versions every three years.
And there are so called cloud product.
You did you make all the same modifications you used to make me by higher hiring people it does give us.
That's not the new model, that's not how it works in a real cloud system.
That's a fundamental.
Every time they go in and modify the system what did they make the mistake what do they have a bug that's going to make this system less reliable and more expensive potentially slower that doesn't happen real time.
We the vendor are responsible for enhancing it and then testing.
Ohler cadence and responding to their requirements and delivering things to them in months.
Not years.
We're also on schedule to deliver some some unprecedented new technology.
It won't be long before when our customers upgrading to every three months the outbreak.
And sometimes they're down for an hour or so.
And we're going to we're on schedule to deliver zero downtime upgrades.
So it won't be long now when our customers move to the new version there'll be no downtime nobody else has this nobody else is working on.
And we are seeing.
Soon all of our applications will be on the autonomous self tuning maximum security database.
I've said this before what's the most important thing about the autonomous database.
The money you save because there's no human labor.
Oh, no actually the money it's good.
You have to say, there's no human labor is good but no human labor no human errors.
No security risks no stolen data.
Almost all of the.
Not all but almost all of the data that's been hacked out of other clouds.
Has been half because some human being made a mistake.
Left the port open trading to vulnerability.
You can't do that with the autonomous database, because human beings don't touch it.
It is just like.
A self driving car is safer than a.
Our car driven by human beings.
Our self driving database is much safer and more and more secure than a database that is managed by human beings, who make mistakes.
And.
Cause problems okay.
<unk>.
I'll stop there.
Let me turn a little bit.
Describe what's going on in the marketplace that are on in from an industry perspective.
Using the ERP has been around for a while and we are beginning to roll up entire industries.
We're adding the features for banking.
Yeah, I think on an earlier quarterly call I said, our two largest and most strategic industries.
Going forward in the ERP would be banking and health care not big that maybe not just Europe EBIT for the company in total would be banking and health care.
And we're doing extremely well in those industry.
Uh huh.
Some of our live banking and financial services customers include J P. Morgan.
JP Morgan Bank of America Bank of Europe, Melon, and HSBC State Street that West Santander Macquarie.
I can go on and on and off with a long list of banks all over the world.
But also we have insurance customers USA, a nationwide AAA and again, a lot more I'm not going to lift everybody in fact, yes.
We provide a printed lifts at the end of every quarter of our of our all the all the new wins, we had in the quarter.
And we had a lot of new logos and banking and financial services in Q2, we won Barclays.
Another another big Bank that we want first bank and insurance, we want Ameritox moneygram.
We had some major go lives.
<unk> go lives that Metlife Blackstone and assurance.
Doing very well in financial services and specifically banking.
Health care, the other industries identified as being a strategic.
And above.
On par with banking in terms of the importance of our to our future.
So while it helped our customers include.
Kaiser.
When Glen at Providence, St. Joe I would say that we have a lot of health care wins around the world, but I'd say, our healthcare wins are concentrated more in North America as compared with packet new healthcare wins this quarter Mayo clinic. The number one ranked hospital in the United States Highmark Health Citi Ourself in PPD.
D a.
Again, I can go on and on but we.
We put those out for you and you can read them at your leisure.
Well, let me talk about one other industry before I give my closing remarks, that's logistics customers.
We've become very very strongly with logistics customers.
Actually the key wins have us take away from the SAP at UBS.
We have UBS DHL Fedex.
DP World that says TTS yellow I'd go on and on we have most of the big logistics companies around the world around the world and Fedex, which as you know, but a lot of our companies are through rolling Rolling out Oracle fusion ERP, but Fedex for examples that live in 98 countries.
Well when you get a lots of other industries as well, but I wanted to highlight these three industries.
Because they are essential to our planned at major new capabilities to our cloud ERP.
Before I describe this capabilities I have a confession debate.
We are not I don't believe we are not on our way to building a $20 billion cloud ERP business in five years.
I think it's going to be a lot bigger than that let me explain why.
As more and more companies adopt and run Oracle cloud to Europe.
Ask the question.
What does the B to B procurement transaction look like.
In other words.
Does it work with one Oracle cloud ERP system is.
It's talking to another Oracle cloud ERP system, and placing an order.
We are working in concert with our banking and logistics partners.
To originate purchase financing.
Products shipped.
Delivery tracking.
Invoicing and payments.
Right inside the two transacting Oracle.
<unk> ERP procurement system.
Oracle cloud ERP will soon bring an entirely new level of automation.
<unk> e-commerce.
One that very much resembles the ease of doing business and efficiency.
A b to C e-commerce.
This new ERP automation system, all these new capabilities.
We will dramatically simplify our customers' procurement and supply chain processes.
And as such it represents a huge new opportunity.
For Oracle to grow its cloud ERP ecosystem.
Thank you back to Safra.
Thanks, Larry I think that I think Tim is going to take questions. So.
Yes America, if you could choose the audience. Please.
Ladies and gentlemen to ask a question. Please press star one on your telephone keypad to withdraw your question press the pound key.
Our first question comes from the line of Brad Zelnick with Deutsche Bank.
Okay.
Great. Thank you so much and congrats on a great quarter with accelerating growth.
Are you sure quite a bit with us really really helpful and I wanted to ask you about OCI because we continue to hear great things from customers and I think people understand the oracles cloud is hyper secure highly automated and there's real price performance advantage, but as we think about your product roadmap and what it takes for Oracle to.
Capture more than its fair share of the broader public cloud market. How much are you investing in breadth versus depth, because we just see in this quarter alone by the partnership with Airtel in India Orange in West Africa, New regions in Singapore, UAE branch, and I'm, probably missing something but clearly there's demand otherwise I know SAP.
Or wouldn't be making these investments, but we're not.
Yes.
Larry with your main competitor boasts over 200 services stack, how far should we expect to see you build up the stack competing on functionality.
Continuing to go broad with what you already have thanks.
Well again.
We have a bunch of things the other guys don't have we have applications.
I know you want to talk about how you want to talk about infrastructure.
You know, we think of those as two separate businesses, but of course, they're not I mean, everyone who is running Oracle ERP.
Is it building data warehouses on top of their ERP data, they're matching it up maybe with Salesforce data Theyre doing all of these things they are doing a combination or big application customers Bank of America. For example is doing combination of running our apps and building bespoke apps around those so that this is a huge opportunity.
For us that our other infrastructure customers other infrastructure providers don't have.
We.
We've often had the discussion do we want to support 10 databases or do we went out of support 30 databases and do we want to have every single service that lets say an Amazon has.
And I think you know our view is.
We want to have.
Some really good choices, but not every single choice on the menu we want it we want to have all of the popular databases, but not some of the obscure databases.
So we are not going to we're not going to try to feature match every single thing that they do we will however.
Development environments. They don't have it all so if you're if you're building a data warehouses on top.
Of our fusion ERP or on top of fusion HCM or on top of net suite. We have a whole set of tools that makes that easy for you over over on the infrastructure side of our business. So we have some of them. We have some we do we have all the popular stuff around I mean, obviously, you have kubernetes and the like.
But and we have post graphs and you know the popular databases.
We have my sequel, but but our version of my sequel is much better than Amazon's version of bicycle.
Much faster given that I mean more than 10 times faster because we have this query optimize where they don't have it all so our idea is to look at the most popular products to have a recommended development environments and recommended systems.
And be able to do things they can't do it all I think one other let me, but let me mention one it is one of the fundamental differences in our strategy versus their strategy. They are building a small number of very very large data centers.
Our strategy is to build a large number of smaller less expensive data centers, we think that we think that it is.
Cruise reliability dramatically, we won't have this giant data center going down it reduces the blast radius.
What happens when things go down.
You know lets goes down.
It allows us to go into sovereign nations.
Some smaller countries that they can't get never afford to put a data center and we could not one but two to a primary and a backup data center and sovereign countries that care about data sovereignty.
We can put a complete cloud I don't mean just database.
A complete cloud.
At a at a customer like MRI and <unk> in Japan.
And.
And we did that would that would be put in a primary and a backup. So we could if people want to run our cloud of a large financial institution wants to run our cloud.
Inside their firewall inside their data center, we can do that and how would that cloud differ from the cloud that we run into public it won't defer at all.
We could make that small enough we can that we can fit it into their datacenter nobody else can do this.
So.
We think we are and then let me close with.
I note that I'm going to paraphrase from a very large telecommunications company.
Who uses our cloud and all of the all the other three north American clouds.
<unk> Amazon and Microsoft.
And the note basically said.
The one thing we've noticed about Oracle Oracle's cloud is that it never ever goes down.
We can't say that about any of the other clouds. We think this is a critical differentiator.
You know availability another critical differentiator is security, where we have where the only way you can achieve security I promise you. This is drew as drew autonomy.
If you have human beings deploying and tinkering with your systems. They can make mistakes that expose your data.
The only way, we've been able to solve that problem.
As to get human beings out of out of the equation no human beings no human error.
No human malice.
So we think we have a bunch of differentiators.
And we'll be able to compete very very effectively with security reliability combination of apps and infrastructure autonomy and a bunch of others. Other thing. The other guys just will not be able to do.
Yeah.
Alright, that's super helpful. Thank you again and congrats.
Okay.
No.
I will not have an actually got long again ever.
[laughter], Brad Youre not going to believe this I've got more to add to that answer so first of all.
If you missed a few data centers, not the least which is Israel, France and another one in Italy, so well, but the real answer is the fact that I'm sure you've seen Gartner scorecard, where we actually passed Google This year and are higher than where Microsoft who's been in this.
Longer than us was a year ago, but in addition that scorecard doesn't even measure the capabilities. We have in handling very large databases, which of course, we do uniquely of all of the other hyperscale. So it's all very interesting.
We have things in addition to application in the infrastructure world that they can not handle.
And that is just put us in an incredible position and that's why customers are coming to us alright I will.
I'll stop right there.
Thank you so much.
Our next question comes from Raimo <unk> with Barclays capital.
Yeah, Hey, Thanks for taking my question then the congrats from me as well I wanted to go back to ERP and I apologize for that but.
I remember when I used to work in the industry, Larry changing into ERP system worth like voluntary for we'd come off treatment just kind of your commentary.
And as much as possible.
If I look at the numbers no Netsuite had the strongest group I see for Forever I think.
Fusion ERP is accelerating so what's going on in the industry in terms of kind of like the pressure or the willingness to do it now thanks for that and congrats again.
Yeah. Thank you. Thank you very much.
But you know we spent a lot of time and automating our install installing the product.
Making it very easy to configure.
Having a I think our you know the consulting infrastructure the implementers around our products now are much more experienced the product has gotten much better are the people who've got more experienced the customers themselves have gotten more experienced.
So the cost of putting one of these things in has dropped precipitously. The time. It takes to put it is obviously related to the cost has also dropped dropped precipitously.
The Theres just no comparison.
To the way it used to be the way. It is now well the way it used to be a customer bought his own unique computer configuration.
And added some.
Some modifications to the ERP system and install that over a period of I mean, it wasn't unusual back in the day for that SAP implementation that five to seven years.
I know it sounds crazy, but some of them and cost billions and billions of dollars.
Now.
For a medium sized companies six months is not unreasonable to get you get you live on it maybe not your entire business, but financials and procurement and a big chunk of your business. We can get live very very quickly at a very very low cost. So it's just a totally different world and then it's then the other thing I mentioned well over time.
Customers are not encouraged to go ahead and build their own extensions. If you need an extension tell us what you need and maybe we can schedule in the next quarter or two and in the upcoming releases. That's a fundamentally different model and there is so much less expensive to have us do it for nothing than to try to do it yourself.
Perfect. Thank you.
Next question please.
Our next question comes from Keith Weiss with Morgan Stanley.
Excellent. Thank you for taking the question guys and really impressive quarter.
I think Brad had a really good point earlier that investors are more and more looking at sort of your capex intentions and looking at data center count frankly, as a leading indicator of growth for Oracle.
So you can update us on that and maybe digging into that data center side capacity expansions isn't just in data center expansion, if you could expand within data centers as well.
US think about how we should think about overall capacity.
River through both data center expansion and extending their existing data centers.
And to really capture all of these investments that you're making.
Yeah.
I guess I'll take that I'll get started with that well first of all the public database and data centers are the ones that we announced that are up and running of course, we have many in the offing. We also have as Larry talked about our private regions for certain customers.
But in addition, we've made very significant investment in government, especially in the United States government focused data centers and I'm sure you've seen that we've been invited to submit or J W. E T.
We also have data centers at different levels of security.
For different government requirements are in the other countries and those we don't generally announce so you don't see those what you do see is the fact that we have invested ahead of revenue.
And we invest when we see revenue potential we have been rolling out on track. So we feel very good about it we have just continued to make sure we have capacity for our customers and some customers starting one.
Data center and when we open in their country, they moved to those and that's working out for us.
He has a lot of demand worldwide, and where youre going to see us making this investment.
As I've as I've guided for the whole year.
Okay.
Super helpful. Thank you.
Yeah.
Our next question comes from Mark Miller with Sanford Bernstein.
Thank you very much.
Follow up on the discussion on OCI Gen. Two.
Oracle's dedicated regions seem to be reasonably unique offerings and a different spend on the hybrid cloud, which is the largest hyperscale providers are not offering can you explain how you're able to deliver this successfully and with good margins and what why others cannot and can you give us any sense of how large do you see that opportunity.
Thanks, Yeah, I'll I'll take a crack at that one well everyone. Since we relate to late to the party. So we saw what everyone else built exactly built two versions of our cloud right rebuilt version, one, which we werent very happy with and then we built a gen. Two our gen two cloud.
And one of the things that we decided you know as we have had a chance to re architect it.
We were sensitive to we needed special Hiseq is Super high security zones for government, we need to we need to build a lot of data centers.
And we and the magic to building a lot of data centers is twofold.
One is the.
Compressing the software to a smaller number of servers, but that's really not it it's really the autumn at being able to operate all a lot a lot of smaller data centers.
Without people or with very few people think about what would Elon musk did with his satellite system. I mean, what why is why was he able to build a low earth orbiting satellite system and nobody else, but a lot of other people who have tried but no one else good because he figure it out he built the software to manage.
ZIP satellites.
No one else could do at NASA couldn't do it ought to be able to do it that's why they kind of failed in the past.
We are automation software for rolling out.
In managing a large number of data centers is very different software that you would build for managing a small number of super large data center.
Where you had a lot of people.
So we've relied much more heavily on automation to do this in separate himself about it because it wasn't easy you know it took us a while.
And we were worried about you know and we've made a bunch of commitments and the only way we can meet all of those commitments. Once you have fully automated lights out data centers cloud data centers.
And are we.
We the team did a fantastic job prioritizing that automation and that's odd of that automation software is what allows us to have a large number of data centers rather than a small number of large data centers. It's just a different it's a different suite of software to do it to manage it.
I don't want to comment also.
Also on the you know on the private data centers that are truly well cloud, but at customer so yes.
Bill will talk about it they talk about I think it's hilarious.
People talk about hybrid cloud.
Our hybrid cloud means there's someone's public cloud and then whatever you have in your data center is the hybrid this is ridiculous that's not a cloud.
You know.
People say well that's the most common cloud there is whatever whatever you got plus some linked to a public cloud, but it's not a hybrid cloud.
We offer.
Denticle hardware the identical automation software, we'll put a region.
It will it runs all of our apps runs all of our services 100% of them.
And we'll put it in your data center, we can do that now because we.
We can run that.
We can run the automation software to run that on your floor behind your firewall, we can build that so it's true so our notion of the hybrid cloud is.
Basically the same thing.
But it is located on your data center floor behind your firewall with high speed network, interconnect, where youre comfortable and feel safe.
Safer than if you were in the public cloud that's the only hybrid anything about it otherwise its exactly the same thing you can move a workload from the public from a public cloud into your into your private private region in the back of your probably but reaching back to the public cloud. They are identical in every way except for the secured.
Production is in firewalls in your private data center.
It's a real hybrid cloud the other guys don't have it.
That makes a lot of sense I really do appreciate and congratulations on the strong quarter.
Thank you.
Yeah.
Our final question comes from Phil Winslow with credit Suisse.
Hi, guys. Thanks for taking my question and congrats on a great quarter and outlook.
In a quarter, where not a lot of numbers jumped out at me. The one that jumped out to me. The most was the license growth year over year ought to go back nine years my model to find a quarter there was actually higher than this one.
Obviously, when I think about license for Oracle I'd always assume its being driven by the database business and then what do you think about that by the way.
I'm really glad you said that that's what it is I mean, I mean think about it I mean.
Marc Benioff over at Salesforce Dot com they run they run their business their cloud business entirely on Oracle now.
People say well that's not cloud revenue you just license that revenue what does the Oracle database running all of Salesforce is cloud.
And we don't count it and you're right, we don't count that as cloud revenue, we count that as license revenue, but is it is that modern class a is that a modern cloud application I think so but again the license stuff is being driven by the by the use of our database and some very large clouds.
Oh.
That's great that partially answers one of my question, but when you think about that license in your example of their for example, like Salesforce together would just be the cloud service is a big celebration you see there I mean, just that overall business it seemed to accelerate.
During Q2 here, even even versus <unk> versus Q1, and if you think about some of the other smaller competitors in the space, There's an acceleration as well. So I guess, what my question is Theres excuse me something going on in the data world.
You know the data infrastructure stack, and obviously with Oracle moves it would be at your scale. These percentages.
He seems to be something going on so what is that and how do you think about the sustainability of those drivers.
Yeah.
Okay.
You are me, we're going to talk about data I mean listen this is not new news in that what is going on is getting insights from data being able to capture large amounts of data and analyzing it and of course, that's coming and so much of it is the new Oracle.
We're the ones, who can handle high performance high reliability requirements and the Oracle database continues to grow but in addition, we have the other technologies that are also doing very well Java continues to be incredibly strong and it's.
Leading application development environment, so, but remember when people buy the Oracle database licenses they can bring those to a cloud on that.
Dairy economical way to operate and really what's going on is huge amounts of data growing exponentially on when it's important data, especially go do you want to use for analysis for data warehousing for transactions, you're gonna pick Oracle.
And nine times out of town and so.
This is this is great for us and of course as more and more businesses just good.
<unk>.
That's just draws more of our technology.
Yeah, and I'll say that.
S P quote.
There are.
Applications to ask for Hana in the cloud and if they do what I call hosting and they called cloud are the vast majority of those S. A P. P databases do not run Anna.
Wherever in 95% of them still run Oracle.
Awesome. Thanks, guys.
It's a big business for us even though it.
Even when it migrates to the cloud I mean, Amazon has customers have taken their data Oracle database licenses and they're running those oracle database licenses in the cloud.
So license does not mean on premise and license does not mean the cloud. It can it you know it's it's a it's.
It's a bit of a it's a mixed bag right some of that license revenue and most of the new license revenue is is on its way to the cloud.
Yeah.
Okay.
Great. Thank you Larry.
A telephonic replay of this conference call will be available for 24 hours on the Investor Relations website. Thank you for joining us today and with that I'll turn the call back to Erica for closing.
Yeah.
Thank you for joining today's Oracle's second quarter 2022 earnings Conference call. We appreciate your participation you may now disconnect.
Yeah.
Yeah.
Okay.
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