Oracle Corporation

Welcome to Oracle's second quarter 2022 earnings conference call. Now I'd like to turn the call over to Ken Bond, Senior Vice President.

Thank you, Erica. Good afternoon, everyone, and welcome to Oracle's second quarter fiscal year 2022 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 the Investor Relations website following this call. 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 the statements being made today. As a result, we would 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 and 10Q 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're not obligating ourselves to revise our results or 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'm pleased to report another quarter of increasing revenue growth as the fastest growing parts of the business continue to become a larger percentage of our business. We had a fantastic quarter as total revenue grew 6% in constant currency above the high end of my guidance with broad-based outperformance across the company. Q3 revenue growth looks like it will continue even higher. But let me save that for the guidance discussion. Earnings were also strong with non-GAAP EPS 9 cents above the high end of my constant currency guidance. We achieved this outperformance despite the U.S. dollar strengthening since I gave guidance as we saw a currency headwind of nearly 100 million to revenue and a cent to EPS. So the USD results which are excellent and above guidance are even stronger than they appear. Before I go through the numbers though, I wanted to comment on what we are seeing in the market that is driving our accelerating revenue growth. As I've mentioned on previous calls, we have a highly differentiated strategy from our competitors where we are the only company able to offer the combination of applications and infrastructure in the cloud. We have best-of-breed capabilities in both infrastructure and apps, like HR and ERP, but also a highly differentiated set of industry-specific cloud SaaS applications. And of course, our second-generation cloud with autonomous database are unique in their performance, security, and dependability aspects. And because we have decades of experience in mission-critical systems, our customers can depend on us being up and available when they need us. Our unique capabilities are attracting customers, especially as they consider how to conduct their own digital transformation in the complex industries in which they compete. They want us to know as much about their business as they do, whether it's telco, financial services, utilities, retail, and many others, and to partner with them to modernize. Once a company thinks beyond simple dev tests and other rudimentary cloud workloads and moves their technology focus to mission-critical projects, they invariably turn to Oracle. Our focus on customer success is driving more references and new opportunities with both existing customers and with entirely new accounts. And of course, we ourselves are an Oracle Fusion full suite user, and I'm sure it is not lost on any of you, and it's not lost on our prospects and customers that we are announcing our results nine days after the quarter closed because of our systems and their embedded processes. Okay, back to the numbers. And from here on, I'll review our non-GAAP results using constant dollar growth rates, unless I say otherwise. So total cloud services and license support revenues for the quarter were $7.6 billion, up 6% in constant currency, and accounted for 73%. of total company revenue. Total cloud revenues when annualized are now 10.7 billion and grew 22% with cloud bookings growing faster than our cloud revenue growth rates. And as a result, we expect cloud revenue will accelerate further and exit the fiscal year in the mid-20s, potentially higher. Gap application subscription revenues were $3.1 billion, up 8% organically in constant currency, and our highest growth rate in four years. Fusion apps were up 30%, with strategic back-office applications now having annualized revenue of $4.9 billion and growing 30%, including Fusion ERP, up 35%. Fusion HCM, up 25%. And NetSuite ERP, up 28%. Gap infrastructure subscription revenue were $4.4 billion, up 5%. And excluding legacy hosting services, infrastructure cloud services grew more than 50%. I expect the infrastructure revenue growth rate will continue to ramp higher through the fiscal year. OCI consumption revenue, which includes autonomous database, was up 86% in constant currency, and total clouded customer revenue was up 45%. Database subscription revenues, including database support and database cloud services, were up 3% in constant currency. License revenues were $1.2 billion, up 16% amongst our very best quarters over the last 10 years. And license growth was not dependent on any mega deals. We saw excellent performance in technology, our vertical businesses, as well as North America and Latin American regions. So all in, total revenues for the quarter, were $10.4 billion, up 6% in constant currency. Operating expenses were up 6%. This quarter, the gross margin for cloud services and licensed support was 84%, and gross profit dollars grew 5% in constant currency. I expect the full year growth in gross profit dollars for cloud services and licensed support will be similar to or better than last year. Non-GAAP operating income was $4.9 billion, up 7% from last year, and the operating margin was 47%. The non-GAAP tax rate for the quarter was 19.2%, slightly higher than our base rate of 19%. and earnings per share was $1.21 in U.S. dollars, up 14% in U.S. dollars, up 15% in constant currency. During the quarter, we recognized GAAP acquisition-related and other expenses, totaling $4.7 billion, which substantially consisted of litigation-related charges that will not recur. They relate to a dispute that arose when we hired my former co-CEO in 2010. As a result of this one-time charge, GAAP net income was a negative 1.2 billion. The GAAP tax rate was 16.6% due to some discrete items, and the GAAP loss was 46 cents per share. Operating cash flow for the last four quarters was 10.3 billion, and our free cash flow over the same period was 7.1 billion. Both results were negatively affected by the litigation charges I mentioned. Capital expenditures for the last four quarters were 3.1 billion, and CapEx for Q2 alone was 925 million, and we're on track to invest 4 billion in CapEx this year. We now have nearly $23 billion in cash and marketable securities. The short-term deferred revenue balance is nearly $8 billion, up slightly in constant currency from a year ago due to timing differences in customer payments, with gross deferred revenue growing 5% in constant currency. The remaining performance obligation, or RPO balance, is $37.2 billion, up 11% in constant currency due to strong bookings. Approximately 59% is expected to be recognized as revenue over the next 12 months. As we've said so many times 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 77 million shares for a total of $7 billion. And over the last 10 years, we've reduced the shares outstanding by 47% at an average price that's about half the current share price. The Board of Directors increased the authorization for share repurchases by an additional 10 billion. We've paid out dividends of 3.4 billion over the last 12 months and the board of directors again declared a quarterly dividend of 32 cents per share. Now the guidance. I'm going to start by reiterating our expectation that full year 2022 revenue growth will accelerate from 2021 for all the reasons we've already seen so far this year. Given the strong performance in the first half, I now expect that we will see full-year total revenue finish solidly in the mid-single digits, led by cloud revenue growth exiting the year in the mid-20s. Cloud is fundamentally a more profitable business compared to on-premise, and I expect that our operating margins this year will be the same or better than pre-pandemic levels of 44%. Let me now turn to my guidance for Q3, which I'll provide on a non-GAAP basis. The U.S. dollar strengthened dramatically in November. I know you all saw that. and assuming currency exchange rates remain the same as they are now, which we have no idea if they will or not, I expect we will see a currency headwind of 3% for revenue and 5 cents for EPS in Q3. Total revenue for Q3 is expected to grow between 6% to 8% in constant currency and grow between 3% to 5% in USD. Clearly the midpoint of the range is 7% and that is higher than the 6% we just reported in Q2 and higher than the 2% we reported in Q1. So everything is trending in the right direction. Cloud service and license support revenue for Q3 is expected to grow between 6% to 8% in constant currency and grow between 3 to 5% in USD. Non-GAAP EPS for Q3 is expected to grow between 2 and 6% in constant currency and be between $1.19 and $1.23 in constant currency. Non-GAAP EPS for the quarter is expected to grow between negative 2 and positive 2 in USD and be between $1.14 and $1.18 in USD. My EPS guidance for Q3 assumes a base tax rate of 19%. However, one-time tax events could cause actual tax rates for any given quarter to be higher or lower. But I expected in normalizing for these one-time events, our non-GAAP tax rates will average around 19% or so. With that, I'll turn it over to Larry for his comments.