Oracle Corporation

Welcome to Oracle's second quarter 2020 earnings conference call. Now I'd like to turn the call over to Ken Bond, Senior Vice President. Ken?

Thank you, Holly. Good afternoon, everyone, and welcome to Oracle's second quarter fiscal year 2020 earnings conference call. A copy of the press release and financial tables, which includes a gapped and non-gapped reconciliation and other supplemental financial information can be used and downloaded from our investor relations website. On the call today are Chairman and Chief Technology Officer Larry Ellison, and CEO Safra Katz. 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 these forward-looking statements. These forward-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 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 finally, we are not obligating ourselves to revise our results or publicly release any revision of these forward-looking statements in light of new information or future events. Before taking questions, we'll begin with a few prepared remarks. With that, I'd like to turn the call over to Safra.

Thanks, Ken. But before I start, I'd like to acknowledge and thank you all for the many, many sincere condolences we received upon Mark's passing. Thank you. They mean a lot to us. As you can see, we had another solid quarter. This quarter, we finished with total revenue growth within my guidance range and EPS at the high end. Cloud services and license support continue to see material growth, and given that it represents more than 70% of our total revenue, it more than upsets declines in some smaller, non-strategic businesses. We continue to be encouraged that our overall revenue growth will further accelerate as we reach the final stages of this ongoing shift in business myth. Of late, I've been spending much more time with customers. The overriding theme I hear is the compelling nature of our technology and how it is critical to the success of their businesses. feature-rich, simple, secure, performant, and priced right. They see Oracle as being strategic to their ongoing operations, and they tell me repeatedly that Oracle is the right partner to run their mission-critical assets, both in the cloud and on-premise. Their comments reinforce our conviction that our product strategy is right. At Oracle, we've upgraded our internal systems to the cloud, and we are sharing our experience with customers by describing the stunning benefits and efficiencies that can be realized from the move. And though we have thousands of customers and references, our own experience adopting Oracle Cloud applications and infrastructure allows us to serve as a unique and knowledgeable advisor to customers who want to know how to go about their own digital transformation. To give you some context, let me share just a few of the many benefits we are seeing in our business. With Fusion ERP Cloud, we are now able to close our books and report earnings in 12 days or less. Many companies don't report their results for weeks. And not only can we get our results out faster, but we've saved money too. By using the AI and processes in Fusion ERP Cloud, we've been able to eliminate more than 30% of our manual accounting activities. And enabled by Fusion HCM Cloud, we have seen employee satisfaction levels soar with all-time high rates for things like hiring and onboarding new employees. We've also made it easier for our managers and employees as Fusion HCM reduces the time needed to complete the talent review process by more than 70%. And separately, we're saving more than 20,000 hours of manager time each year with our accelerated job offer process. In sales, we're using our front office cloud platform augmented with machine learning and our own data cloud to help our salespeople sell more and sell more quickly. With marketing cloud, Campaign planning now takes days rather than weeks. And with built-in machine learning, we've seen a doubling in lead conversion. We automatically capture millions of activities in Sales Cloud each year. And with CPQ Cloud, ordering is much faster and easier, with over 70% of our transactions fully automated. We needed that to handle the increased volumes of transactions as a result of our customers' move to the cloud. In addition, we've adopted the Gen2 infrastructure, including autonomous database, for our custom apps. Our internal IT costs to run these systems are down by millions, while at the same time, We are adopting more than 100 new features each quarter. Here at Oracle, we are going to continue using our own cloud technology as an intelligent automation engine and continue to simplify our business model and processes. In turn, I expect that our revenue growth rates will increase and see even more expense efficiencies. And as a result, I expect that you will see us expand our margins and grow EPS double digits for the foreseeable future. Now on to the numbers. I'll review our non-GAAP results using constant dollar growth rates unless I state otherwise. Currency for Q2 was largely in line with my guidance at nearly 1%. And the fact that the growth rates look the same in a few categories is simply because of rounding. Total cloud services and license support revenues for the quarter were $6.8 billion, up 3%, accounting for over 70% of total company revenues, and most of this is recurring revenue. Cloud and on-premise license revenues were $1.1 billion, down 7%. as more of our GBU customers order cloud instead of license. In terms of ecosystem, GAAP application ecosystem revenues were $2.9 billion, up 4%, with Fusion apps up in the low 30s, including Fusion ERP, up 38%. and Fusion HCM up 23%. NetSuite ERP was up 28%. Vertical SaaS was up low double digits, while Data Cloud stabilized. On a trailing 12-month basis, more than 90% of our application ecosystem revenue is recurring. Gap infrastructure ecosystem revenues were $5 billion, up 1%, with total database revenue up 1%, highlighted by BYOL and autonomous database revenues, both up over 200%. But off a small base for now, on a trailing 12-month basis, more than three-quarters of our infrastructure ecosystem revenue is recurring. Just a few days ago, we were able to get our first Gen 2 Exadata clouded customer fully deployed and connected. It was done in just four days. Previously, with our Gen 1 architecture, this typically took significantly longer. As a result, we are very optimistic about the impact our Gen 2 clouded customer will have on our business. No other cloud provider has the right technology to actually do this. In terms of geographies, we saw double-digit revenue growth in SAS revenue in all regions except EMEA, with especially strong results in Latin America and Japan. Growth margin for cloud services and licensed support was 85%, down slightly from last quarter due to accelerated investments in our Gen 2 cloud to address higher demand worldwide. As we get to scale, I expect our cloud growth margins will grow higher, driving an acceleration in our gross profit growth. By the way, Our strategic hardware products delivered on-premise, which includes Exadata, grew double digits for the quarter, once again showing that our installed base of customers focused on our world-leading database platform continues to grow. Total revenue for the quarter were $9.6 billion, up 1% from last year. Non-GAAP operating income increased. with $4 billion essentially unchanged from last year, and operating margin was 42%, down from 43% last year. The non-GAAP tax rate for the quarter was 18.8, slightly below our base tax rate of 20%, and EPS was $0.90 in USD, up 13% in constant currency, and 12% in USD. The GAAP tax rate was 17.7%, and GAAP EPS was 69 cents in USD, up 15% in constant currency, 14% in USD. Operating cash flow over the last four quarters was 13.8%. Over the last four quarters, capital expenditures were $1.6 billion, and free cash flow was $12.2 billion. We now have approximately $27 billion in cash and marketable securities, and short-term net deferred revenue balance is $8.1 billion, down 1% in constant currency due to timing differences in customer payments. Also, the prior year deferred balance was affected by our transition to ASC 606, Gross deferred revenue was up over 1% in constant currency and would have been up over 3%, if not for the ASC 606 transition changes. We remain committed to returning value to our shareholders through technical innovations, strategic acquisitions, stock repurchases, and prudent use of debt and a dividend. This quarter, we repurchased 91 million shares for a total of $5 billion. Over the last 12 months, we've repurchased nearly 500 million shares for a total of $26 billion. And over the last five years, we've reduced the shares outstanding by more than 25%. The Board of Directors again declared a quarter of the dividend of $0.24 per share. My guidance today is on a non-GAAP basis and in constant currency. Assuming current exchange rates remain the same as they are now, currency should have a one percent negative effect on total revenue and one cent negative effect on EPS. So for Q3, total revenues are expected to grow one to three percent in constant currency And assuming a 1% currency headwind, total revenues are expected to grow 1% to 3% in USD. Now, I realize that my USD and constant currency revenue guidance sound like they're the same number, but it's just rounding, similar to our revenue growth this quarter. I do expect a currency impact of nearly 1%. Non-GAAP EPS in constant currency is expected to grow between 10% to 12% and be between 96 and 98 cents in constant currency. And assuming a one-cent headwind, non-GAAP EPS in USD is expected to grow between 9% and 11% and be between 95 and 97 cents in USD. Total CapEx for fiscal year 20 is expected to be around $2.2 billion, but it could move higher based on demand for data center growth. My EPS guidance for Q2 and fiscal year 20 assumes a base tax rate of 20%. However, one-time tax events could cause actual tax rates for any given quarter to vary from our base tax rate. But I expect that in normalizing for those one-time tax benefits, tax events, our tax rate will average around 20% in fiscal year 2020. And finally, for fiscal year 2020, I continue to expect that in constant currency, total revenue will grow faster than last year and that we will report double-digit EPS growth for the year. And with that, I'll turn it over to Larry for his comments.