Oracle Corporation

Welcome to Oracle's Third Quarter 2020 Earnings Conference Call. Now, I'd like to turn the call over to Ken Bond, Senior Vice President. Sir?

Thank you. Good afternoon, everyone, and welcome to Oracle's Third Quarter Fiscal Year 2020 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. 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. And with that, I'd like to turn the call over to Safra.

Thanks, Ken. As usual, I'll review our non-GAAP results using constant dollar growth rates unless I state otherwise. As you can see, we had an excellent quarter in Q3 with total revenue growth of 3% in constant currency and EPS of 97 cents in U.S. dollars. Both revenue and EPS were above the midpoint of my guidance even though we saw a strengthening U.S. dollar, which resulted in a negative headwind to total revenue. It was really a remarkable quarter with a lot of product and customer momentum in both applications and infrastructure. The quarter demonstrated the acceleration of revenue that I've been forecasting. Our cloud services and license support business, basically our subscription business, which includes SaaS, IS, and software updates powered our revenue growth. Those subscription revenues for the quarter were $6.9 billion, up 5%, and accounted for nearly 71% of total company revenues, up from 69% last year. License revenues were $1.2 billion, the same as last year. We are seeing a lot of momentum across our applications portfolio with GAAP application subscription revenues at $2.8 billion, up 7%. Fusion Apps were up 32%. Fusion ERP was up 38%. And Fusion HCM was up 27%. NetSuite ERP was up 26%. Vertical SaaS was up high single digits, and Data Cloud was up low single digits. Gap infrastructure subscription revenues were $4.1 billion, up 4%, with total database revenue up 5%, highlighted by BYOL and autonomous database revenues, both up over 150%, but off a small base. As you can see, we've replaced ecosystem revenues with subscription revenues, which will make it easier for you to see the revenue growth rates of the largest part of our business more clearly. You'll still be able to determine the growth rates for our entire software ecosystem by combining subscription and license revenues. Our cloud renewal rates continue to go up. The gross margin for cloud services and license support was 86% up 1% from last quarter. Both SAS and IAS gross margins were up more than 1% from both last quarter and last year. As we continue to get to scale, I expect our cloud gross margins will increase further driving an acceleration in our gross profit growth. Total revenues for the quarter were $9.8 billion, up 3% from last year. Non-GAAP operating income was $4.4 billion, up 3% from last year. The operating margin was 44%, essentially unchanged from last year. The non-GAAP tax rate for the quarter was at 19.1, slightly below our base tax rate of 20%. EPS was 97 cents in US dollars, up 12% in constant currency, and 11% in USD. The GAAP tax rate was 16.4%, and GAAP EPS was 79 cents in USD, up 5% in constant currency, 4% in USD. Operating cash flow over the last four quarters was $13.9 billion. Capital expenditures were $1.5 billion, and free cash flow was $12.4 billion. We now have approximately $26 billion in cash and marketable securities, and the short-term net deferred revenue balance is $7.8 billion, down 1% in constant currency due to timing differences in customer payments. 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. Now, we remain committed to returning value to our shareholders through technical innovations, strategic acquisitions, stock repurchases, prudent use of debt, and a dividend. This quarter, we repurchased 73.5 million shares for a total of $4 billion. And over the last 12 months, we have repurchased 366 million shares for a total of $20 billion. And over the last five years, we have reduced the shares outstanding by nearly 28%. The Board again declared a quarterly dividend of 24 cents per share. The Board of Directors also authorized an additional $15 billion for the repurchase of Oracle's shares. Now, before turning to guidance, I need to say a few words about the impact of the COVID-19 virus. Over the last few weeks, we've observed the growing public concern. We're largely conducting business as usual with some modifications such as using video conferencing and asking our employees to postpone non-essential travel. Likewise, we're seeing other companies take precautionary actions. It's not yet clear what the effect of the virus will have on our customers and suppliers. And as a result, what the impact will be on our business in Q4. So with that backdrop, let me share with you my thinking on the modeling for Q4. The subscription part of our business, cloud and product updates, will continue to grow. And we expect minimal impact from the virus in the quarter, given that much of the subscription revenue is already contracted. Last year, the subscription business was 61% of the quarter. Consistent with the trends over the last year, I expect it to be a larger percentage of Q4 this year. In meeting with my executive team, we reviewed the enormous pipeline of transactional business for Q4. As you know, Q4 is typically a seasonally large quarter for software licenses and, to a lesser extent, hardware. Given the uncertainty in the current business climate, I am going to provide a much wider range in my estimate for total revenue. 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 no significant effect on revenues or EPS. Now, of course, that may change, but that's what it is right now. So, for Q4, total subscription revenues are expected to range between 3% to 5%. in both constant currency and U.S. dollars. Total revenues are expected to range between negative 2 to positive 2 in both constant currency and U.S. dollars. Non-GAAP EPS is expected to grow between 3 to 9 percent and be between $1.20 and $1.28 in both constant currency and USD. Total capex for FY20 is expected to be around $2 billion, but it could vary. My EPS guidance for Q4 and the FY20 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 these one-time tax events, our tax rate will average around 20% for fiscal year 2020. Now in June, assuming the global economic situation has stabilized, I will share with you the basis for my optimism around our revenue growth acceleration for fiscal year 2021. It will be based on the ever-growing portion of our revenue attributable to our faster-growing subscription business. You saw a bit of it in Q3, and it would have been even more obvious but for the early impact of the virus. And with that, I'll turn it over to Larry for his comments.