Oracle Corporation

Good afternoon. Thank you for standing by. Welcome to Oracle's first quarter 2023 conference call. It's now my pleasure to hand today's conference over to Oracle's Senior Vice President, Ken Bond.

Thank you, Josh. Good afternoon, everyone, and welcome to Oracle's first quarter fiscal year 2023 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. 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 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 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. We had an excellent quarter with total revenue growing 23% in constant currency, and beating the high end of our guidance. We also had a great organic quarter with total revenue growing 8% in constant currency. This was on top of a fantastic Q4 last quarter. And as you can see from the numbers, we continue to get excellent returns on the investments we've been making over the last few years in products, infrastructure, and our sales organization. we are seeing company-specific and product-specific momentum. We continue to expect organic revenue growth in our cloud business will accelerate substantially in FY23. The currency headwind this quarter was much higher than the 3% headwind that was present when we gave guidance. It was actually six points even though due to rounding, it may look like 5%. And that's a currency headwind to total revenue. It was, in fact, six points. And yet we still exceeded our forecast on a reported basis, and we beat our constant currency revenue forecast by 200 million. We saw similar currency headwinds in EPS, which had an eight-cent negative effect much worse than the 5 cent headwind present at the time of guidance in June. It's because of the significant and volatile swings in currencies that I always discuss our results using constant currency growth rate, and so that you have a clear view of the business as we manage it. Now to the numbers, and there's a lot here. I'm going to go over the revenue results including Cerner, and then some of the results excluding Cerner, which many of you are focused on. I hope you're pleased with our expanded disclosure this year. So total cloud revenue, that's SaaS and IaaS, including Cerner, was $3.6 billion, up 45% in USD and up 50% in constant currency. With IaaS revenue a smidge under $900 million, and the SAS revenue at 2.7 billion. Total cloud services and license support revenue for the quarter was 8.4 billion, up 20% in constant currency, driven again by Fusion, Autonomous Database, and our Gen 2 OCI. Application subscription revenues, which includes support, were 4 billion. up 37% in constant currency. Again, Q1 cloud application revenue, that's SAS, was 2.7 billion, up 43% in USD, up 48% in constant currency. Infrastructure subscription revenues, including support, were 4.4 billion up 7% in constant currency. And to be clear, that's actually 7% organic growth with no contribution from Cerner. Q1 cloud infrastructure or IaaS revenue was 0.9 billion, up 52% in USD, up 58% in constant currency, again, with no contribution from Cerner. Now the revenue results excluding Cerner. Total cloud revenue, that's IaaS plus SaaS, excluding Cerner, was up 29% in constant currency at 3.1 billion. Organic revenue growth for both IaaS and SaaS was significantly higher than last quarter. Application subscription revenues, excluding Cerner, were up 12% in constant currency. Our strategic back office cloud applications now have annualized revenue of $5.8 billion and grew 33% in constant currency, including Fusion ERP, which was up 38%, NetSuite ERP up 30%, and Fusion HCM up 26%. That means that SaaS revenues excluding Cerner, were 2.2 billion, up 20%. Infrastructure cloud service revenue was up 58% in constant currency. Excluding legacy hosting services, infrastructure cloud services grew 70%, with an annualized revenue of 3.2 billion. including OCI consumption revenue, which was up 103%, cloud at customer consumption revenue, which was up 92%, and autonomous database, which was up 56%. And it's not only that our growth rates are higher than our hyperscale competitors. Maybe you'd expect that because we're the newest and thus the smallest. but our growth rates are increasing as we get bigger. Our second generation cloud launched after our competitors' first generation cloud, and so we've been able to architect it more performantly, more securely, and more sustainably. As a result, as more companies test our cloud, they discover how much better it is on price, security, performance and sustainability. In addition, we now have cloud regions in more countries and cities than AWS and Azure, giving our customers more choices for their sovereign data. And finally, many of our customers appreciate how flexible our service and business model is. All of this is amazing our customers. And I can't wait to share the stage with some of them at Oracle Cloud World in October. Now, to license revenues, including Cerner, we're $904 million, up 19% in constant currency, led by database options and Java. Total database revenues were up 3% in constant currency. So all in, Total revenues for the quarter were $11.4 billion, up 23% in constant currency. Excluding Cerner revenue of $1.4 billion, organic revenue was up 8% in constant currency. In addition, I want to point out that since we no longer operate in Russia, this negatively affected revenue by over one point of growth. Had we not left, actually our growth rate would be over 9% this quarter. Operating expenses were up 34%, mainly due to adding in Cerner's expenses and the mix of our business. The gross margin for cloud services and licensed support was 81%, and the associated gross profit dollars grew 15% with Cerner and 7% excluding Cerner. In fact, the gross margin percentage on IF increased dramatically in the quarter. Non-GAAP operating income was 4.5 billion, up 10% from last year. And I expect that we'll see strong operating income growth again in Q2. The operating margin, including Cerner, was 39%, which is lower than in the past since we only just began to integrate Cerner in the quarter. As we drive Cerner and its profitability to Oracle standards and continue to benefit from economies of scale in the cloud, we will not only continue to grow margin dollars, but also grow margin percentages significantly. The non-GAAP tax rate for the quarter was 19.4, slightly above the guidance rate. And non-GAAP EPS was $1.03 in U.S. dollars, unchanged in USD, and up 8% in constant currency. GAAP EPS was $0.56 in U.S. dollars, down 34% and down 26% in constant currency. That's our GAAP EPS. Over the last four quarters, operating cash flow was 10.5 billion and free cash flow was 5.4 billion with capital expenditures of 5.2 billion. For the quarter, operating cash flow was 6.4 billion and free cash flow was 4.7 billion with capital expenditures of 1.7 billion. At quarter end, we had 11.2 billion in cash and marketable securities, and the short-term deferred revenue balance was $10.5 billion, up 11% in constant currency. The remaining performance obligation or RPO balance is $60.7 billion, up 62% in constant currency due to strong bookings as well as the addition of Cerner. However, I would note for you all that the organic RPO growth accelerated to 22% in Q1 from 17% in Q4. Approximately 49% of total RPO 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, and prudent use of debt and our dividend. This quarter, we repurchased 7.5 million shares for a total of $559 million. In addition, we paid out dividends of $3.4 billion over the last 12 months, and the Board of Directors today declared a quarterly dividend of $0.32 per share. Our fundamental principle is to grow non-GAAP EPS while substantially increasing cloud revenue. And given our increasing confidence, we will continue to prudently invest as there's strong demand for our cloud services. Now, let me turn to my guidance for Q2, which I will provide on a non-GAAP basis. Now, we are assuming the currency exchange rates remain the same as they are now. That's not a prediction. That's just giving it to you as a translation as it currently is. In that case, currency should have a 5% to 6% negative effect on total revenue and at least a 7% negative effect on EPS in Q2. As I say every quarter, the actual currency impact may be different by quarter end. My EPS guidance for Q2 assumes a tax rate of 20.5, which is up from 19.2 last year. However, one-time tax events could cause actual tax rates for any given quarter to vary. So now to guidance. Total revenues for Q2, including Cerner, are expected to grow from 21 to 23% in constant currency and are expected to grow from 15 to 17% in USD. Total cloud growth, again, including Cerner, is expected to grow from 46 to 50% in constant currency, 42 to 46% in USD. I expect the total cloud growth for the fiscal year excluding Cerner will be above 30% in constant currency. Non-GAAP EPS growth is expected to grow between 1% to 5% and be between $1.23 and $1.27 in constant currency. Again, due to currency headwind, non-GAAP EPS is expected to decline 1% to 5% and be between $1.16 and $1.20 in USD. As I've said before, Cerner will be accretive to earnings this year, including in Q2. And with that, I turn it over to Larry for his comments.