Oracle Corporation

Welcome to Oracle's fourth quarter 2021 earnings conference call. Now I'd like to turn today's call over to Ken Bond, Senior Vice President.

Thank you, Erica. Good afternoon, everyone, and welcome to Oracle's fourth quarter and fiscal year 2021 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. Additionally, a list of many customers who purchased Oracle Cloud services or went live on Oracle Cloud recently will be available from our investor relations website as well. On the call today are Chairman and Chief Technology Officer Larry Ellison and CEO Safa Katz. As a reminder, today's discussion will include default-making 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 the statements being made today. As a result, we caution you in 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 these forward-looking statements in light of new information or future events. Before taking any questions, we'll begin with a few prepared remarks. And with that, I'll turn the call over to Safra.

Thanks, Ken. And good afternoon, everyone. We are again reporting earnings earlier than last year, and with Fusion ERP, we are now filing our quarterly and annual financial statements faster than any other company in the S&P 500. This is possible because of the highly automated and machine learning-enabled system that helps us complete the accounting of financial transactions much more quickly. As you can see, we had a fantastic quarter with revenue nearly $200 million above my guidance. Q4 is really a story of every product, every region, and every metric exceeding expectations. The credit for the excellent full-year results in the quarter goes to our global team of employees who supported our customers without interruption this past year. We were successful by continuing to deliver best-in-class products and services, both infrastructure and applications, to help our customers in their digital transformation. Many who reinvented themselves in real time because of the pandemic. Now, the growth rates we are reporting today are entirely organic, reflecting true non-position-related growth across our product portfolio. Total cloud services and life support revenue for the quarter was $7.4 billion, up 8% in U.S. dollars, 4% in constant currency, driven by fusion, Autonomous Database, and our Gen 2 OCI. Application subscription revenues were $3 billion, up 11% in U.S. dollars and 7% in constant currency. Our strategic back-office cloud applications now have an annualized revenue of $4.4 billion and grew 32% in constant currency for the quarter. including Fusion ERP, which was up 42%, NetSuite ERP up 22%, and Fusion HCM up 30%. Our back-office cloud application revenue is not only bigger than our nearest competitor, but also growing more than twice as fast. Infrastructure subscription revenues were $4.3 billion, up 6% in USD, up 2% in constant currency. Infrastructure cloud services now have an annualized revenue of more than $2.3 billion. OCI consumption revenue, which was up 8%. 103% in constant currency, autonomous database up 56%, and cloud and customer revenue up 50%. Database subscription revenues, including database support and database cloud services, were up 8% in USD, 4% in constant currency. Customers are adopting OCI because of its unique focus on performance and security at the most competitive price. the highly differentiated autonomous database, which was available there, and the flexibility of deploying Oracle Cloud both in our own data center, what we call public cloud, or behind our customer's firewall, cloud at customer. License revenues were $2 billion, up 9% in USD, 5% in constant currency USD. So all in, total revenues for the quarter were $11.2 billion, up 8% in USD, 4% in constant currency. Operating expenses were up 6% in constant currency this quarter as we made significant investments in our cloud business. And while you can see some of the ROI in FY21's revenue growth, we expect the most of the returns will be realized in FY22 and beyond. Non-GAAP operating income was $5.4 billion, up 6% in USD, and the operating margin was 49%. The non-GAAP tax rate for the quarter was 10.7 and below our base tax rate of 20 as a result of some discrete items that hit in the quarter. EPS was $1.54, up 29% in USD, and up 22% in constant currency. By the way, GAAP EPS was $1.37, up 39% in USD, 31% in constant currency. Now, for the full fiscal year, total cloud services and license support revenue was $28.7 billion, up 5% in USD, up 3% in constant currency. Total company revenues for the year were $40.5 billion, up 4% USD, 2% in constant currency. FY21 recurring cloud services and license support revenue as a percentage of total revenue now represents 71% of total company revenue, up from 70% last year, and we anticipate this trend to continue as cloud services grow and accelerate. Non-DAF EPS for the year was $4.67, up 21% in USD, up 18% in constant currency, marking the fourth consecutive year of double-digit earnings growth. The full-year operating margin percentage was 47%, actually our best results in seven years, and up 245 basis points from 44 last year. Operating cash flows over the last four quarters was a record $15.9 billion, up 21% in USD. Our free cash flows was also a record $13.8 billion, up 19% in USD, with capital expenditures of $2.1 billion during the year. For the quarter, operating cash flow was $4.8 billion, up 34% in USD, and free cash flow was $4.1 billion, up 30% from last year. as in the side, free cash flow would have been about $300 million lower as some capex targeted for Q4 was actually spent in the last two weeks, so in early June. We now have more than $46 billion in cash and marketable securities. The short-term deferred revenue balance was $8.8 billion, up 10% in U.S.C., 5% in constant currency. The remaining performance obligation or RPO balance is 41.3 billion, up 8% in constant currency due to strong bookings. Approximately 60% is expected to be recognized as revenue over the next 12 months. As you've heard me say many times before, we are committed to returning value to our shareholders through technical innovations, strategic acquisitions, stock repurchases, purchase of debt, and dividends. This quarter, we repurchased 107 million shares for a total of 8 billion. Over the last 12 months, we repurchased 329 million shares for a total of 21 billion. Over the last 10 years, we have reduced the shares outstanding by more than 44%. In addition, we paid out dividends of $3.1 billion over the last 12 months, and the Board of Directors declared a quarterly dividend of $0.32 per share. Now to the guidance. Let me first start with my confidence in the continuation of our revenue growth acceleration for fiscal year 2022. As I've said many times over the last two years, our overall revenue growth is continuing to accelerate as our fast-growing cloud business becomes a larger portion of our total revenue. I see total revenue for fiscal 2022 growing faster than fiscal 21 with constant currency revenue growth somewhere in mid-single digits. Given our increasing confidence in revenue growth and our unique and differentiated position in the market, we are going to invest back in the business at a greater rate so we can further accelerate the top line. We also see cloud as being fundamentally a more profitable business compared to on-premise, And as everyone knows, our annual non-GAAP margins of 47%, and that's what we run the business at, are in fact the highest non-GAAP margins of all of our competitors. And we believe that now is the right time to increase our investment to capture market share. As such, we expect to roughly double our cloud cap expense in FY 2022. to nearly 4 billion. We are confident that the increased return in the cloud business more than justifies this increased investment and our margins will expand over time. Let me now turn to my guidance for Q1. I'll review this on a non-GAAP basis and assuming currency exchange rates remain the same as they are now. Currency should be about 2% to 3% positive on total revenue and 3 cents positive on EPS in Q1. However, currency fluctuates and the actual impact could be different. Total revenues for Q1 are expected to grow from 3% to 5% in USD and are expected to grow 1% to 3% in constant currency. Cloud service and license support revenue growth for Q1 will be about the same as Q4 at 4% in constant currency and then climb through the year. As a result of the increased investment in the quarter, non-GAAP EPS in USD is expected to grow between 2% and 6% and go between $0.94 and $0.98. in usc non-gap eps growth in constant currency is expected to be anywhere from negative to positive two and be between nine percent 91 and 95 cents in constant currency now my eps guidance assumes a base tax rate of 19 percent however one-time events could cause actual rates For any given quarter to vary, but I expect to normalize into these one-time events, our tax rate will average around 19 or so. Finally, we want to thank our employees around the world for working so hard and staying focused on our customers and partners during the pandemic. And we also want to send particular thanks and warmest wishes to our employees in COVID hotspots who've been hit particularly hard. months and with whom we have been working very hard to support them, including providing vaccinations. We just want to thank all of you and congratulate you all on a successful year and year end. You have all been remarkable, so thank you. And with that, I'll turn it over to Larry for his comments.