Oracle Corporation

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

Thank you, Holly. Good afternoon, everyone, and welcome to Oracle's fourth quarter and 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 from placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendments for 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, and good afternoon, everyone. I know that many of you listening to this call are still working under unusual circumstances because of the pandemic. A lot has happened since our March 12th earnings call when we were all still conducting business as usual. Within a couple of weeks, the mitigation response to COVID-19 reached levels that few could have imagined. Overall, we found ourselves working with our customers, and we believe we have weathered the pandemic well and we're pleased with our overall performance in the quarter. To start, we successfully transitioned our global workforce to working from home, and our employees rose to the occasion. They focused on their jobs. building technology, selling technology, and most importantly, helping our customers with some of the challenges that have come with this pandemic. Whether it was supporting systems for federal loan programs with partners or helping states get unemployment checks out or supporting the national Red Cross systems around the world handle the massive volume spike or helping HHS the CDC, and other health authorities around the world, or supporting over 100 clinical trials that were hurriedly stood up. We were there to help our customers, and I think we are much closer to them as a result. There are many, many, many more stories like this, and they all underscore how proud I am of our employees and customers as we're all actively engaged in the ongoing fight against COVID-19. In addition, we decided to provide training and certification on Oracle Cloud Infrastructure and Autonomous Database through Oracle University free of charge to all who wanted it. We saw a huge surge around the world in demand with hundreds of thousands of individuals across 150 countries being trained and certified on Oracle's latest technology. Now we entered Q4 with an enormous pipeline of transactional business. As the quarter progressed, we saw a drop off in deals, especially in industries most affected by the pandemic. As countries begin reopening their economies, many of these discussions have already resumed. Since these were not losses to competitors, we believe that most of this business will ultimately be booked. And while some customers have deferred projects, we're also rapidly building new pipeline with customers that are moving their on-premise workloads to the cloud. COVID-19 created challenges that forced companies to reconsider how they work in the cloud, including looking to us as an alternative to AWS and Azure. As we engaged with these customers, they found OCI was more performant than our competitors, more secure, less expensive, and easy to use, making OCI now a serious part of the infrastructure discussion. We are also seeing this on the application side of the business. As many customers entered the pandemic unprepared, and are now showing renewed interest in modern cloud applications with mobility, social, and machine learning built in. Moving to the numbers, I'll review our non-GAAP results using constant dollar rates. Unless I say otherwise, keep in mind for your USD model that the strengthening of the U.S. dollar in the quarter resulted in an unexpected currency headwind as there was a flight to quality, which is the U.S. dollar. The incremental currency headwind was more than $200 million to total revenue and two cents to earnings per share, both negatives. Total cloud services and license support revenues for the quarter were $6.8 billion, up 3% from last year, and accounted for 66% of total company revenue, up from 61% last year. GAAP application subscription revenues were $2.7 billion, up 3%, with Fusion Apps up 31%. Fusion ERP was up 35% and Fusion HCM was up 29%. NetSuite ERP was up 25% and Vertical SaaS was up 7%. GAAP infrastructure subscription revenues were 4.1 billion up 3%, with database subscription revenue up 6%, which is up from 5% last quarter. License revenues were $2 billion, down 21%, after being up 15% last Q4. All-in total revenues for the quarter were $10.4 billion, down 4%. As we saw the pandemic begin to take hold, we acted swiftly to lower our operating expenses by 8%. Non-GAAP operating income was $5.1 billion, down slightly from last year, and the operating margin was 49%, up 2% from last year. As a reminder, to take advantage of very favorable interest rates, We issued $20 billion in debt in the quarter, and the added interest expense, which lowered EPS by 3 cents, was not in my early March guidance. The non-GAAP tax rate for the quarter was 16.6, below our base tax rate of 20%, as a result of some discrete items. And EPS was $1.20 in U.S. dollars, up 3% in U.S. dollars, of 5% in constant currency. As I mentioned, currency had a negative 2 cent impact on EPS. The GAAP tax rate was 15.7, also a result of some discrete items, and GAAP EPS was 99 cents in U.S. dollars, down 8% in USD, and down 5% in constant currency. Now, for the full fiscal year, total cloud services and license support revenue was $27.4 billion, up 4%, and accounting for 70% of total company revenue, up from 68% last year. Total company revenue for the year was $39.1 billion, up slightly in constant currency. Non-GAAP EPS, was $3.85 in USD, up 9%, and up double digits for the third consecutive year at 11% in constant currency. The full year operating margin percentage was up slightly at 44%, and I expect we will see record margins in the coming years as our revenue growth accelerates and we benefit from greater scale in the cloud. Operating cash flow over the last four quarters was $13.1 billion. During Q4, we saw delays in customer payments due to the pandemic as some customers suffered financial hardships. We worked with those customers and we expect that these payments will be collected in full over the course of this fiscal year. Capital expenditures for the year were $1.6 billion and free cash flow over the last four quarters was $11.6 billion. We now have more than $43 billion in cash and marketable securities. The short-term deferred revenue balance is $8 billion. Now, that's down 3% in constant currency due to timing differences in customer payments, which were more pronounced this quarter because of COVID-19. But I want to remind you, gross deferred revenue was up 3% in constant currency. As we've said before, we're committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases, prudent use of debt, and a dividend. This quarter, we repurchased nearly 107 million shares for a total of $5.2 billion. Over the last 12 months, we've repurchased 361 million shares for a total of $19.2 billion. Over the last 10 years, we have reduced the shares outstanding by nearly 40%. In addition, we have paid out dividends of 3.1 billion over the last 12 months, and the Board of Directors again declared a quarterly dividend of 24 cents per share. Now, before moving to guidance, I'd like to restate what I said on our Q2 and Q3 earnings call, which was that our business is expanding and our revenue is accelerating and our relationships with customers is broadening. But for the timing of the pandemic, we had every reason to believe that this momentum would have carried forward to Q4. And though delayed by a few months, we believe the pandemic has actually focused customers more clearly on the need for for the modern technology, which are uniquely at the core of Oracle's offerings. We are confident in our growth because our mix of business is becoming increasingly favorable. Our revenue is now clearly in one of three distinct groups, one growing, one stable, and one declining. What I see is that while overall revenue growth has averaged around 1% to 2% over the last few years, underneath the growing businesses have grown at a 30% compound annual growth rate. The declining businesses averaged almost double-digit declines, and our stable businesses were up 1% or 2%. We are now at a point where our growing businesses are now larger than our declining businesses. And this favorable shift will inevitably drive revenue acceleration going forward. Second, I believe our SaaS business momentum will increase as our very large installed base of application customers continue to move to the cloud. And as we take share from our on-premise competitors, SAP for one, that do not have a true SaaS offering. Our products are modern, secure, performant, mobile, and importantly, highly referenceable. As more of these ERP workloads move to the cloud, we believe that they will move to Oracle Fusion. Third, we have four decades' worth of Oracle database applications, which have only recently started to move to the cloud. These databases contain the most mission-critical and valuable information of our customers. Now, with autonomous database, they have a place to go where they get far better technology at a lower price. For those who care about security, performance, and cost, the autonomous database will be the standard that everyone else is measured against. The Autonomous Database runs on Oracle Cloud infrastructure in our public cloud and in a customer's own data center with Cloud at Customer. The Autonomous Database is without question our most significant database release and will absolutely drive revenue acceleration going forward as it grows. Lastly is the momentum in OCI that I've already mentioned. We're thrilled that once companies see our differentiated OCI technology, they become believers. This is evidenced by the fact that annualized consumption revenue for Gen 2 OCI grew over 140% in Q4. By the way, the ACR for autonomous database grew nearly 70% in Q4. These two are getting to be a large number. Across all these product categories, industry analysts are universally recognizing our technology innovation and leadership in the cloud. Pick your favorite independent publisher, whether it's Forrester, Gartner, or IDC, or any others, you will see Oracle in the upper right of every chart. In summary, it's the continuation of leading technologies, favorable mix shifts in our existing businesses, and higher growth rates from our growing businesses that give me the confidence that our revenue growth will accelerate this year. Now to the guidance. My guidance today is on a non-GAAP basis and in constant currency. Currency is extremely volatile, as you've all seen. And it is clear what happened in Q4. However, assuming current exchange rates remain the same as they are now, though I'm not projecting that, I'm just telling you, currency should have a negative 1% effect on total revenue and 1 cent negative effect on EPS in Q1. Total revenues are expected to grow from 0 to 2% in constant currency. And assuming a 1% currency headwind, total revenues are expected to grow from negative 1 to positive 1 in USD. Non-GAAP EPS in constant currency is expected to grow 5 to 9%, and between 85 and 89 cents in constant currency. And assuming a 1 cent headwind, non-GAAP EPS in USD is expected to grow between 4 and 8%. and be between 84 and 88 cents in USD. My EPS guidance for Q1 assumes a base tax rate of 20%. However, one-time tax events could cause actual tax rates for any given quarter to vary. But it's expected in normalizing for these one-time tax events, our tax rate will, in fact, average around 20%. Now, given the – I have taken into account as much as I can the uncertainty related to the pandemic. Now, I'm not going to be providing guidance for the entire fiscal year 2021, but as I said earlier, I have a high level of confidence that our revenue will accelerate as we move on past COVID-19. And with that, I'll turn it over to Larry for his comments.