Oracle Corporation

Good afternoon. Thank you for standing by. Welcome to Oracle's fourth quarter 2022 conference call. It's now my pleasure to hand today's conference over to Oracle Senior Vice President, Ken Bond.

Thank you, David. Good afternoon, everyone, and welcome to Oracle's fourth quarter and fiscal year 2022 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 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. On the call today are Chairman and Chief Technology Officer Larry Ellison and Chief Executive Officer 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, and 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 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 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. As you can see, we had an excellent quarter across the board, with total revenue growing 10% in constant currency, the highest organic growth we've seen since 2011, and $240 million above the high end of my constant currency guidance. Earnings were equally strong, as EPS was 20 cents above the high end of guidance. What Q4 demonstrates is that our business is accelerating. A growing list of customers, many new to Oracle, are choosing us for more products and services as they understand the benefits of Oracle technology. Our technology helps make our customers modern, efficient, and more productive. And they got to see that during the pandemic, and now it's very clear. Those customers are then becoming larger Oracle customers. Fusion customers are buying OCI. OCI customers are buying Fusion and NetSuite. Database customers are moving to Autonomous on OCI. Industry vertical customers are going all in on Fusion. We have real momentum all around. Going forward, and despite the macro environment, We continue to expect the revenue growth in our cloud business will accelerate substantially in fiscal year 23. We're also excited about completing the Cerner acquisition. Larry spoke at our Oracle Health Strategy session last week, and he'll give you more details today, and I'll fill in with some numbers. As you can see in the financial statements, The currency headwind this past quarter was 5%, which was considerably higher than the 2 to 3 it was during our last earnings call. Following my regular custom, I'll be reviewing our non-GAAP USD results using constant currency growth rates so you have a clear view of the business as we manage it. Now for Q4. Total cloud services and license support revenue for the quarter with $7.6 billion, up 7% in constant currency, again, driven by Fusion, NetSuite, Autonomous Database, and, of course, Gen2 OCI. Total cloud revenues, that's IaaS plus SaaS, was $2.5 billion in USD, up 22% in constant currency. Application subscription revenues, were 3.2 billion, up 9% in constant currency. Our strategic back office cloud applications now have an annualized revenue of 5.4 billion and grew 24% in constant currency this quarter, including Fusion ERP up 23% and NetSuite ERP up 30%. Infrastructure subscription revenues were 4.4 billion, up 5% in constant currency. Infrastructure cloud services now have an annualized revenue of more than $3.2 billion. And excluding our legacy hosting services, infrastructure cloud services grew 49%, including OCI consumption revenue, which was up 83%, clouded customer consumption revenue, which was up 108%, and Autonomous Database, which was up 29%. License revenues were $2.5 billion, up 25% in constant currency, led by database sales for use in the cloud by major application cloud SaaS companies. As a result, our database business had an exceptional quarter with total database revenue of double digits. So all in, total revenue for the quarter were $11.8 billion, up 10% in constant currency. Operating expenses were up 11% as we continued to invest to meet growing demand for our cloud services. For the quarter, the gross margin for cloud services and license support was 82%, and the gross profit dollars grew 4%. The full year growth of this gross profit was 4%, higher than the 2% we saw last year, and I expect it will be significantly higher in FY23. Though we will continue to invest in growth, we should benefit from economies of scale of running our cloud business as it gets larger. You should keep in mind that our fundamental principle going forward is to grow non-GAAP EPS while accelerating cloud revenue growth. Non-GAAP operating income was $5.6 billion, up 8% from last year, and the operating margin was 47%, once again, higher than all of our competitors. And even while we've been investing aggressively for growth, we've maintained our financial discipline. The non-GAF tax rate for the quarter was 10.1 and below our base tax rate of 19% as we received a benefit from the resolution of some tax matters in Q4. EPS was $1.54 in U.S. dollars, up 7% in constant currency, unchanged in USD. Gap EPS was $1.16, down 8% in constant currency, down 15% in USD. Now, let me go through the full fiscal year, though I've given you some full year numbers so far every once in a while. For the full fiscal year, total company revenues were $42.4 billion, up 7% in constant currency. and our highest annual growth rate in more than 10 years. Total applications revenue grew 8% compared to 5% last year, and total infrastructure revenue grew 7% compared to 2% growth last year. Clearly, our revenue growth accelerated this year as investments into our cloud businesses are paying off. Total cloud services and license support revenue for the year was $30.2 billion, up 6%. Total cloud services were up 22% to $10.8 billion. Non-GAAP EPS was $4.90 in USD, up 5% in USD, up 8% in constant currency. The full year operating margin percentage was 46%, up 2% from pre-pandemic levels, and down a little bit, down 1% from last year. Operating cash flow over the last four quarters was $9.5 billion, and free cash flow was $5 billion. with capital expenditures of 4.5 billion during the year. For the quarter, operating cash flow was 4 billion and free cash flow was 2.6 billion. At quarter end, we had nearly 22 billion in cash and marketable securities, but that's lower now that Cerner has closed. The short-term deferred revenue balance was 8.4 billion, up slightly in constant currency. The remaining performance obligation or RPO balance is 46.6 billion, up 17% in constant currency due to strong bookings. Approximately 57% is expected to be recognized as revenue over the next 12 months. 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 8 million shares for a total of 600 million. In addition, we paid out dividends of 3.5 billion over the last 12 months, and the board of directors declared a quarterly dividend of 32 cents per share. With the completion of the Cerner acquisition, which happened after the end of Q4. Actually, I guess last week. We've added about $15.8 billion of debt, and we anticipate retaining our investment-grade credit rating, meaning that for the time being, we're going to focus on reducing our debt balance while continuing our share repurchases at current levels In addition, I don't believe the dividend will be impacted at all. Once the debt level has declined, we'll reexamine share repurchase levels. Now to the guidance. We feel very optimistic about our business momentum, and we also recognize that there is increasing macro uncertainty right now. In addition, since we ceased operations in Russia in March and made other adjustments in the region, We have factored out around 100 million per quarter from guidance that we used to receive from these customers. Taking all that into account, I do expect our cloud business, which grew 22% this year, will organically grow more than 30% in constant currency in FY23. Cloud service and licensed support will also see growth acceleration and could well see double digit organic growth. As I said earlier, our fundamental principle is to grow EPS while accelerating cloud revenue growth. Given our increasing confidence in organic revenue growth, we will continue to prudently invest back in the business and you can already see the returns in our performance. Revenue growth accelerated from 2% in FY21 to 7% this year. Clearly, there's strong demand for our cloud services, and we intend to capitalize on it. As such, I expect our CapEx spend will be higher in FY23 to meet the demand. We expect to add another six regions in fiscal 2023 in addition to the 38 cloud regions across 20 countries that we have already serving our customers. I also want to share how we will be running Cerner, since it will impact their contribution to Oracle going forward. We are already working actively to build and implement world-class healthcare cloud capabilities. Larry will go over that. This means that we are reviewing their entire product portfolio to identify areas where we can include Oracle technology rather than third-party products, as well as moving them to OCI. These efforts will deliver a more stable, secure, and innovative product portfolio for customers while using less third-party products. We remain confident in our ability to grow Cerner's top line and bottom line faster then they were able to do so on their own as these changes are implemented. Now let me turn to my guidance. I'll review Q1 on a non-GAAP basis, and if currency exchange rate remain the same as they are now, currency should have a 3% to 4% negative impact on total revenue and maybe 5% to 6% negative effect on EPS in Q1. However, actual currency impact may be different. Total revenues for Q1, including Cerner, are expected to grow from 20% to 22% in constant currency and are expected to grow 17% to 19% in USD at today's exchange rate. As with past acquisitions, I've added conservatism for the Cerner revenue contribution to account for the transition. For Q1, total cloud excluding Cerner is expected to grow from 25 to 28% in constant currency and is expected to grow from 22 to 25% in USD. As I mentioned above, for fiscal year 2023, Total cloud excluding Cerner is expected to grow over 30% in constant currency. Total cloud growth in Q1 including Cerner is expected to grow from 47% to 50% in constant currency, 44% to 47% in USD. Non-GAAP EPS is expected to grow between 6% to 10% and be between $1.09 and $1.13 in constant currency. Non-GAAP EPS is expected to grow between 1% to 5% and be between $1.04 and $1.08 in USD. And as I've said before, Cerner will be accretive to earnings this year, including Q1. My EPS guidance for Q1 assumes a base tax rate of 19%. However, one-time tax events could cause actual tax rates for any given quarter to vary. And with that, I'll turn it over to Larry for his comments.