甲骨文 (ORCL) 2021 Q2 法說會逐字稿

Welcome to Oracle's second quarter 2021 Earnings Conference Call. Now I'd like to turn today's call over to Ken Bond, Senior Vice President.

Thank you, Erica, and good afternoon, everyone, and welcome to Oracle's Second Quarter Fiscal Year 2021 Earnings Conference Call.

A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation and other supplemental financial information, can be viewed and downloaded from our Investor Relations website. Additionally, a list of customers mentioned on this conference call as well as many others which have purchased Oracle Cloud services or went live on Oracle Cloud recently will also be available from the Investor Relations website.

On the call today are Chairman and Chief Technology Officer, Larry Ellison; and CEO, Safra Catz.

As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business which may potentially affect those forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements being made today. As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-Q and 10-K and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. And finally, we are not obligating ourselves to revise our results or these forward-looking statements in light of new information or future events.

We'll begin with a few prepared remarks, and then we'll take your questions. However, I want to remind everybody we will not be making any comments regarding TikTok. And with that, I'll turn the call over to Safra. Safra?

Hello. I can't hear anything.

Safra, are you on mute?

Yes, I'm here. Sorry. Thanks, Ken, and good afternoon, everyone. As you can see, we had another excellent quarter. As usual, I'll review our non-GAAP results using constant dollar growth rates, unless I say otherwise.

I first want to highlight that since our own migration to Fusion ERP, we've continued to close our books faster and faster. This quarter, we are reporting our results for our entire global operations 10 days after the end of the fiscal quarter. In fact, using Fusion ERP, we submit our 10-K and 10-Q filings faster than any other company in the S&P 500. In fact, 21 days faster than the average. Understanding our business performance sooner is an advantage that we enjoy by use Fusion ERP, and it's one our Fusion customers are rapidly beginning to appreciate.

On to the quarter. So this quarter, revenue was $40 million above the midpoint of guidance, and EPS beat the high end of guidance by $0.04. The impact of currency movement was in line with guidance, meaning that our outperformance reflects both continuing execution on the sales side and disciplined management of our operations.

Operating income grew 12%, our best result in 8 years. Our total cloud services and license support revenues for the quarter were $7.1 billion, up 4% from last year. Over the last 4 years, we have doubled the percentage of revenue that is being derived from our cloud services. That is what's driving our recurring revenue as a percentage of total revenue higher and higher, now reaching 73% of total company revenue. We anticipate this trend to continue as cloud services continue to grow.

GAAP application subscription revenues were $2.9 billion, up 5%, with strategic back-office applications, up 26%, including Fusion ERP, which was up 33%; NetSuite ERP, up 20%; and Fusion HCM, up 24%. Also, retention rates for strategic back-office cloud applications, which are already high, continue to go even higher.

GAAP infrastructure subscription revenues were $4.2 billion, up 3%, with database subscription revenue, up 5%. Consumption revenue was up 64% for Autonomous Database and up 139% for OCI, our cloud Gen 2. License revenues were $1.1 billion, down 5%. So all in, total revenues for the quarter were $9.8 billion, up 2% in USD, up 1% in constant currency. As usual, we've continued to be disciplined in our spending with operating expenses down 7% this quarter.

Non-GAAP operating income was $4.6 billion, up 12% from last year. Obviously, we're delighted with this result as we're continuing to see operating income become a bigger part of our EPS growth.

I continue to have a very high level of confidence that our revenue growth will accelerate as our cloud business continues to become a much bigger portion of total revenue. The operating margin percentage was 47%, up more than 450 basis points from 42% last year and, as I said, our best result since 2012.

The non-GAAP tax rate for the quarter was 18.7%, slightly below our base tax rate of 20% as a result of some discrete items. EPS was $1.06 in USD, up 19%, and up 17% in constant currency, despite interest income being $120 million lower than last year and interest expense being $135 million higher than last year. The GAAP tax rate was 17.8% as a result of some discrete items, and GAAP EPS was $0.80 in USD, up 16% and up 13% in constant currency.

Operating cash flow over the last 4 quarters was $14 billion, with capital expenditures of $1.8 billion and free cash flow in excess of $12.1 billion over the same period.

Q2 operating cash flow was $1.4 billion compared to $0.5 billion last year, with collections especially strong this quarter from a bigger book of business and, to a lesser extent, delayed payments received from customers affected by the pandemic. We now have nearly $39 billion in cash and marketable securities.

The short-term deferred revenue balance is unchanged at $8.1 billion. However, the short-term gross deferred revenue grew 6% in U.S. dollars. The difference between the 2 growth rates is due entirely to timing differences in customer payments.

As we've said before, we are committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases, prudent use of debt and the dividend. This quarter, we repurchased more than 68 million shares for a total of $4 billion. Over the last 12 months, we have repurchased 338 million shares for a total of $18.2 billion. Over the last 10 years, we have reduced the shares outstanding by nearly 42%. In addition, we've paid out dividends of nearly $3 billion over the last 12 months, and the Board of Directors again declared a quarterly dividend of $0.24.

Now to the guidance. Again, my guidance today is on a non-GAAP basis and in constant currency. Assuming the current exchange rates remain the same as they are now, currency should have a 1% positive impact on total revenue, maybe even a little bit more like 1.5-ish and potentially, a $0.03 positive effect on EPS for Q3. Total revenues are expected to grow from 1% to 3% in constant currency and are expected to grow between 2% to 4% in USD. Non-GAAP EPS in constant currency is expected to grow 10% to 14% and be between $1.06 and $1.10 in constant currency, and non-GAAP EPS in USD is expected to grow between 13% and 17% and be between $1.09 and $1.30 in USD.

My EPS guidance for Q3 assumes our base tax rate of 20%, but however, as you can see, onetime tax events could cause actual rates for any given quarter to vary. But I expect that in normalizing for these onetime tax events, our tax rate will average this year at 20% or so.

And with that, I'll turn it over to Larry for his comments.

Thank you, Safra. We just completed a great quarter, but the quarter would have been even better if we would have had more -- and we would have had more revenue growth if we had not been capacity constrained in OCI during Q2. There was more demand than we have supply. To remedy this capacity shortfall, we are adding OCI capacity and building new OCI data centers as fast as we can. We are now up to 29 regional data centers around the world, more than AWS. OCI added customers and grew revenue at a rate well in excess of 100% year-over-year in Q2. The Oracle Autonomous Database was up over 60%.

We also introduced several new OCI managed services during the quarter. The most interesting of these new OCI managed services is for the popular open source database, MySQL, featuring an all-new, Oracle-developed, massively parallel query accelerator called [Heat Wave]. MySQL plus Heat Wave processes queries hundreds of times faster, hundreds of times faster than the current version of MySQL by itself and other MySQL-compatible databases, such as Amazon's Aurora. MySQL plus Heat Wave is so much faster, so much easier to use and less expensive than PostgreS, Redshift, Snowflake or any other database available on Amazon AWS.

The amazing thing about Heat Wave is that you don't have to move your data out of MySQL and build a separate data warehouse to get the huge performance gains. You simply take any existing MySQL or Aurora database, run that exact same database on the new MySQL version that includes Heat Wave , and immediately, your queries run hundreds of times faster. You don't have to change a single line of code. It can't get any easier to use than that.

Now I'd like to change subject and talk about our multibillion-dollar application businesses in the cloud. Fusion EPS -- Fusion ERP grew 33% in Q2 to over 7,500 customers. NetSuite grew 21% to over 24,000 customers. We have the top-rated ERP products on both Gartner and IDC.

There is no large-scale enterprise application business in the cloud that's growing as fast as we are. In the coming months, our cloud ERP market leadership will become even more obvious when we announce that several major large-scale SAP ERP customers are leaving SAP and moving to our Fusion ERP cloud. Oracle is the clear market leader in cloud ERP.

Finally, I'd like to talk about our all-new, cloud-based national electronic health record system and health management application suite that Oracle built in response to the COVID-19 pandemic. This system has already been used to register more than 0.5 million people for clinical trials run in the United States for COVID-19 vaccines and therapeutics, such as monoclonal antibodies.

Last month, in partnership with the Tony Blair Institute, we used this same exact national electronic health record system to manage the distribution of yellow fever vaccine in Africa. 7,000 people in Ghana were vaccinated during the first week of the program. We're very proud of that.

We are currently in discussions with dozens of countries around the world to adopt Oracle's new national electronic health record system to modernize their national public health infrastructure, thus enabling efficient COVID-19 vaccine management therapeutic monitoring and diagnostic testing.

Normally, at this point, I'd begin to read a list of notable new customers that we acquired during the quarter. But our new more efficient track will be to provide you with a list of those customers attached to our detailed financial quarterly numbers. So immersively, you will be able to read the list for yourself and no longer will you have to endure me reading it to you.

So with that, I'll turn it back over to Ken.

Thank you, Larry. Erica, if we could queue up, I'll start off the Q&A. And just a reminder no questions on TikTok. Thank you.

(Operator Instructions) Our first question comes from Heather Bellini with Goldman Sachs.

Great. Safra, I wanted to go back to your comments from June. On your Q4 call, you talked about what was going on under the hood of your constant currency revenue growth, and you mentioned that the growing businesses were growing at a 30% CAGR, the declining businesses at about a double-digit decline and the stable ones were up 1% to 2%. I'm just wondering, taking a look today and kind of how you're thinking about the future, how is the pandemic changing these growth rates, if at all, especially as OCI and things like Cloud at Customer become even bigger areas of focus for customers?

So the pandemic affects us, in some ways, negatively; in some ways, positively, simply because of our size and the breadth of our customer base affects them differently. And so obviously, our hospitality customers have had a very difficult time of it in the main. Some of our retail customers have done horribly. Some have done very, very well.

What has become very clear to our customers is that those that are digitally forward and that can work also under -- with a lot of automation using a digital tool, using our technology, using the cloud, they are faring far, far better. And as a result, we see change occurring. And you can see it in our ERP SaaS numbers, in our HCM numbers, NetSuite numbers, you can just see that those numbers continue to do very, very well.

And then, of course, our Gen 2 cloud, whether it's compute where many of our customers are using way more than they expected to and, as Larry said, just blowing out our internal forecast such that we will need a few more weeks to really catch up with our demand while we're also expanding globally simultaneously. So we actually believe that this remains very consistent. Obviously, there was uncertainty before because of the pandemic. At this point, I think it's very clear that our business is accelerating. Our stable businesses remain stable. And our shrinking businesses, whether it's nonstrategic hardware or other things, those continue to get smaller.

But generally, the overall revenue number will be showing acceleration even in this pandemic, and I almost feel badly saying, maybe it helped ultimately because many of our customers have realized the importance of using technology to deal with their customers, their employees, their suppliers.

Great. Thank you. And happy holidays to you and your families.

Thank you. You too, Heather.

Our next question comes from Brad Zelnick with Crédit Suisse.

Great. Congrats on a good quarter and strong guidance. Larry, I've got maybe a bigger question -- a bigger picture question for you. I know you appreciate there are generational aspects to IT where, most often, the winner in the last generation isn't the winner in the next. But under your leadership and vision and Safra's operational discipline, Oracle has been an industry leader for over 4 decades by thinking strategically about the future. And today, we hear amazing feedback on Oracle's latest innovations, the actual underlying technology like OCI and Autonomous. And by that alone, it would seem the future is bright for Oracle. But we've also seen in the past that the best technology doesn't always win. What gives you confidence that Oracle can remain successful and appeal to a younger generation, many who think cloud-first and want to move really, really fast?

All right. Well, let me start in 2 areas. I've always said there are 2 key aspects of Oracle's future, one is the Autonomous Database, which is a cloud-only product. It works with Cloud and Cloud at Customer. So it is certainly cloud first. It is the only database that really does both transaction processing and query processing. So query processing were much faster than Snowflake, the market's current darling. And in transaction processing, we're much faster than anybody. So we have a single unified database that is fully autonomous. It never goes down. It patches itself. Nobody else is making claims anything like that.

So we have a vast leadership in -- plus we have, by far, the largest installed base. And our database business continues to grow. Some of our other businesses, our middleware businesses, have declined, but our database business continued to grow throughout the move to the cloud. So we're very confident we're going to hold on to our database franchise. We're convinced that -- I mean, they really don't have any strong competition.

One of -- and you can see there's not a lot of strong competition from Amazon because what's going on with Snow -- if you're curious what's happening with Snowflake, Snowflake is a decent product, a good product, I think. And it's just killing Redshift over at Amazon. So it's doing extremely well. But it doesn't remotely compare to Oracle's Autonomous Database. It doesn't do transactions at all. And in fact, query processing is not even close to assess as the Oracle database. So we're -- but it's much better than what Amazon has. And when it's competing inside of AWS, it does very well. It will kill Redshift. Redshift is not very good. So we think we have a huge lead in database. And -- but no one's trying to do what we're doing. I mean none of the stuff patches itself. None of the stuff never goes down. That's true. The -- okay, that's holding on to our database franchise.

The next thing is ERP. SAP forgot to move their ERP system to the cloud. They just built -- they decided instead to go compete with Oracle with HANA. They don't have a cloud product. We have -- if you look at Gartner and SAP, SAP asked to be moved off the Gartner list because SAP was in the lower left-hand corner. They're not even considered a cloud system by Gartner SAP for ERP. So we are -- we have dominant -- we have over 30,000 customers in the cloud, running our cloud ERP systems. Who's second? Workday with a few hundred? I mean it's not close. And that's the largest applications business. That's the largest applications business on-premise, and it will be the largest applications business in the cloud, and we're the overwhelming technology and market leader. So I think those 2 lynchpins, the Autonomous Database and the Oracle ERP in the cloud secure our future.

Now add to that, OCI, which is new for us, we've never been a platform company. We -- Linux is a platform. In the old on-premise days, Linux was a platform, Windows was the most famous platform. There was HP-UX and IBM [Metazone] offering. So there were a lot of platforms. We weren't ever in that business. We were portable and ran on lots of different platforms. Now we have our own platform for the first time. And our platform is competing very well against AWS and Microsoft, and we think we have way better technology on our platform than the other guys. And we're winning lots and lots of customers to our platform. That's an all-new initiative for us to go into the platform business.

So again, we're moving from #2 to #1 in cloud applications. Again, we have the fastest-growing, cloud -- large-scale cloud applications business on the planet. Who has a multibillion-dollar cloud business that's growing at 33%? I mean maybe there's somebody, I don't know who it is. Who has anything like autonomous database technology? And who has a cloud platform that's being picked by some of the most sophisticated technology companies on earth over AWS and Microsoft? So I guess those are the 3 pieces: OCI, Autonomous Database and Fusion ERP in the cloud that gives me confidence that we're going to get our fair share of the new generation of cloud applications and infrastructure.

Our next question comes from Mark Moerdler with Bernstein Research.

Congrats on the quarter. Larry, following up on the last questions, if you don't mind. Given that the world is going to start to vaccinate and we would expect that IT focus could be more on on-premise in the cloud and work from home, I'd like to get a better understanding of what you're seeing and what you're expecting to Autonomous Database running in the cloud and Cloud at Customer, when do you think we see that big inflection we've been hoping for that could drive revenue acceleration?

Yes. So again, the interesting thing about Cloud at Customer, the change in our business model. So you've got to remember, when we sign a huge Cloud at Customer deal and we deliver a bunch of Exadata to a customer, we recognized, let's see, how much revenue, nothing, versus selling a bunch of Exadata. So what's happened -- remember, we're going from selling Exadata machine to delivering them for free and then charging, if you will, rental or usage on the machines as we go from selling hardware to selling Exadata Cloud at Customer.

So our accounting model, you say, well, wow, Oracle's revenue is flat. Well, flat, maybe not so bad, actually it's growing somewhat. But keep in mind, where we used to get paid for Exadata machines right away, we now deliver them at Cloud at Customer, and we have to wait to get those monthly revenues over a 4-year period. So what you're seeing is this change in model, and Cloud at Customer is already doing pretty well. It's just there's a huge lag. There's histories. From the time -- there's a lag from the time we start selling a bunch of these things until all the revenue starts coming in.

So that's what's going on right now where it's already a very successful product. We're selling a lot of them. Our sales are accelerating, but there's this time lag between sales and the revenue, very different than selling a database license or selling an Exadata machine. As we move to the new model, it's a more profitable model long term, but it doesn't have the instantaneous impact. So there's this time lag. And that's what you're seeing.

Our next question is from Michael Turits with Keybanc.

Congrats on the quarter. Larry, you talked a lot about ERP, and that's been a lot of where the messaging has been around Fusion apps. But this has been a really strong year even during COVID, around front office. Can you talk a little bit about your CX business and whether or not you could see acceleration there and particularly how some of your AI capabilities are playing into that, if they are?

Yes. Well, they are actually because we're making -- actually, I've been directly involved with a major push in CX. And we've come out with several new CX products, one of which is our product and references system where we have a product references database that we sell, and we have an AI engine that sits on top of it. And what it does, it tells -- it interfaces to our sales automation system. And it tells customers or it tells salespeople what product they should be selling this particular customer next. It's got a recommendations engine. And it will tell -- it will also tell the salesperson what are the best references when you're selling customer A Fusion ERP. And then it will actually -- go out and find those references and prepare a micro -- a website, a micro site for that prospect to go to.

So we are enhancing our sales automation which, heretofore, sales automation really has not been about automating sales. Sales automation, which was pioneered by salesforce.com, sales automation is all about opportunity management and forecasting. Our new sales automation is all about giving salespeople tools, enabling them to sell more. It automatically generates proposals. It automatically generates reference list. It automatically generates micro sites. It automatically generates recommendations of what the salesperson should be selling to this customer next, what module. So these are the kind of products, what we call automated lead generation and qualification built into the selling system, the product reference system.

We also have another new product that's coming out in CX, which we think is very important, which is the ability to launch an advertising campaign from a computer console without going through ad agencies. It's funny, this disintermediates the ad business, so that you can, again, target -- let's say, we're selling Fusion ERP to an oil company, a large oil company, and we want to advertise to people in that oil company, the decision makers, the CEO, the CFO, people in accounting, all of that, we can then launch an ad campaign targeting those people and with references for Fusion ERP. So rather than when they log on to look at Google News, rather than them seeing ads for Nike shoes where they were recently browsing the website, they're going to see ads for Oracle Fusion ERP. So we have an ad system.

So we're doing a bunch of that -- by the way, no one is doing this but us. We're the only one that's doing this ability to target people and launch ads from a console. We're the only ones that -- I mean people do it on the consumer side but not on the B2B side. We're doing that on the B2B side. We're the only ones that are using the recommendation engine the way that we are not only to recommend what to sell next but who the best references are and actually preparing the micro site for the prospects to examine those references.

So I think the CX is a huge opportunity for us. The fact that we have CX linked to our ERP, we have front office linked to our ERP, linked to our HCM system, it's a huge advantage that we have front office, we have HCM, we have back office, we link it all together. It's much more valuable when you have all the front office and back-office data in a single database. It allows you to do the kind of innovative things we're doing in the front office. So again, that's -- you're going to see a major improvement in our portfolio in the front office over the coming months.

Our final question comes from Raimo Lenschow with Barclays.

Congrats from me as well. You guys have been very good and disciplined. So you wouldn't kind of build data centers just for the sake of building data center. So if I look at the momentum here, like 14 new this year, at 29 now, going up to 38 in a few months. Can you talk a little bit about what you're seeing there? What's kind of driving that momentum because that's super impressive.

Larry, do you want to take it?

Safra, do you want to...

Well, let me -- you go ahead, Larry. Go ahead.

All right. We're just seeing demand for our products all over the world. Our data -- we're going to 1 data center, an OCI data center, that runs not only all of our technology, like Autonomous Database and our high-performance computing, all of that stuff, but it runs all of our applications as well. So we're seeing demand for these products all over the world, and we are going into more countries. We've decided -- our strategy is, because we have a large existing business, we have a large existing installed base, we believe we just have to get into more countries than someone -- than Amazon, let's say, because we have to serve those countries where we have a large installed base, like Indonesia, let's say, which is a very big country, but a lot of people don't have data centers in Indonesia.

Israel, I mean, it's very important to get a good data center in Israel. Some of the cloud companies has been late to get there. We think that's a very important marketplace. So we think we have been building as fast as we can, but we've been trying not to build ahead of demand. And we were doing a pretty good job actually until this last quarter where demand was actually turned out to exceed our ambitions, where our plan for growth, though it's a very ambitious plan, still on the demand side, we have some large customers that just wanted more capacity than we could supply. And that bit us in Q2. Hopefully, it will be -- as Safra said, we're probably a month or 2 away from correcting that and getting ahead of that curve. But we just see right now there's more demand than we can supply. So we're going -- as I said, what are we doing? We're going as fast as we possibly can.

Yes. Let me just add a couple of things. One is we have upped our capital spending plans because the demand is so strong that we've increased it by probably this next quarter, probably be 50% higher than this last one just to keep everything going and growing. I also want to point out that some of our customers do not want to go into a big public data center but for different reasons, regulatory reasons or others, one have Cloud at Customer, and that's very important that we are able to offer that. And in addition, some of them have extremely a large requirement and are basically a private region. Those aren't in the numbers you were mentioning as far as data center build-outs, but that's another area where we are expanding and consumption is increasing at very, very large rate. So we're very busy here just keeping up with demand.

Thank you, Safra. A telephonic replay of this conference call will be available for 24 hours. Dial-in information can be found in the press release issued earlier today. Please call the Investor Relations department with any follow-up questions from this call, and we look forward to speaking with you. Appreciate you joining us today. With that, I'll turn the call back to Erica for closing.

Thank you for joining today's Oracle's Second Quarter 2021 Earnings Conference Call. We appreciate your participation. You may now disconnect.