Oracle Corporation

Good day, everyone, and welcome to Oracle's first quarter 2024 earnings call. Today's call is being recorded, and now I would like to turn the conference over to Ken Bond. Please go ahead.

Thank you, Lisa, and good afternoon, everyone. And welcome to Oracle's first quarter fiscal year 2024 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. 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. 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. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements 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'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 Safran.

Thanks, Ken, and good afternoon, everyone. As you know, 22 years ago today was a traumatic day for our country. Like many of you, it feels like yesterday when the country lost nearly 3,000 souls, and we at Oracle, we lost 11 employees. I remember exactly where I was when the tragedy unfolded, and it is still so hard speaking about it even all these years later. Today we honor and remember each one of the victims and heroes, and we hope that their memories are a blessing to all of us. Now before I go to our Q1 numbers, I thought it would help to start with some of the things that are going on at Oracle that you'll be hearing about over the next couple of weeks. Next week, we have Oracle Cloud World, which will showcase the latest innovations, including AI on OCI, the progress of Oracle Autonomous Database, our multi-cloud strategy, the use of Oracle Analytics throughout our portfolio to drive better decision-making, and the use of generative AI to differentiate Fusion, NetSuite, and our industry application. Now, CloudWorld is our marquee event each year where current and prospective customers take time out of their busy calendars to join us in person and share their experiences. We know that there are no better spokespeople for our products and services than our existing customers. Our innovation results directly from our development teams interacting with customers to anticipate and build the next generation of products and services. Some of the customers you will hear from next week include NVIDIA, Uber, Ascension Health, Cohere, and many, many, many, many more. You'll also hear from our expanding set of strategic partners that are driving the Oracle ecosystem, and this includes Amdocs, VMware, Microsoft. Overall, it's remarkable the interest we are getting from the ISV community to work with Oracle. There are a lot of discussions going on, and you will see more announcements shortly. From a financial standpoint, we see this customer and partner ecosystem as a leading indicator of our income statement. I've been talking with you about our revenue acceleration for some time now. In Q1, our remaining performance obligations, or RPO, climbed to nearly 65 billion, with the portion excluding Cerner up 11%. We have now signed several deals for OCI greater than a billion in total value. And the first week of Q2, we booked an additional $1.5 billion in business, which isn't even included in the Q1 numbers. Approximately 49% of total RPO is expected to be recognized as revenue over the next 12 months. My point here is that customer momentum is continuing to build. This momentum is turning into bookings, And that gives me the confidence that our annual revenue growth will continue to accelerate moving forward. Now to the Q1 results, which I remind you I am announcing on day 11, only because day 8, when we were ready, was a Friday. And I know none of you like that. So this quarter, we saw a modest currency tailwind. But as always, I'll discuss our financials using constant currency growth rates. Clearly, Q1 was another great quarter, with total revenue at the midpoint of guidance and earnings per share $0.02 above the high end of guidance, and our cloud growth was 29%. Total cloud revenue, SAS and IS, excluding Cerner, was $4 billion. up 29%. Now, including Cerner, total cloud revenue was up 29% also, at 4.6 billion. And with our IaaS revenue at 1.5 billion, up 64%, and SaaS revenue of 3.1 billion, up 17%. Total cloud services and license support revenue for the quarter with $9.5 billion, up 12%, driven again by our strategic cloud applications, autonomous database, and our Gen 2 OCI. Application subscription revenues, which includes product support, were $4.5 billion, up 11%. Our strategic back office SaaS applications now have annualized revenue of 6.9 billion, and they grew 20%. Infrastructure subscription revenues, which includes license support, were 5.1 billion, up 14%. Infrastructure cloud services revenue was up 64%. Excluding legacy hosting services, Gen 2 infrastructure cloud services revenue grew 72% with an annualized revenue of $5.6 billion. OCI consumption revenue was up 91%. Exadata cloud services revenue was up 46%. An autonomous database was up 42%. Database subscription services, which includes licensed support, were up 6%, highlighted by cloud database services, which were up 44%. Very importantly, as on-premise databases migrate to the cloud, we expect these cloud database services will be the third leg of revenue growth alongside strategic SaaS and Gen2 OCI cloud services. Software license revenues were $0.8 billion, down 11% following an amazing Q1 last year of 19% growth, which made it a tough compare this year. So in all, total revenue for the quarter were $12. were $12.4 billion, up 8%, including Cerner, up 9%, excluding Cerner. Shifting to margins, the gross margins for cloud services and licensed support was 78%, with IaaS gross margins improving substantially from last year. And while we've continued to build data center capacity, we've also seen our IF margins go higher as these new cloud regions fill up. We monitor our expenses very carefully to ensure our gross margin percentages expand as we scale up. To this point, gross profit dollars of cloud services and licensed support grew 9% in Q1. Non-GAAP operating income was $5.1 billion, up 12% from last year. The operating margin was 41%, up from 39% last year. As we continue to benefit from economies of scale in the cloud and drive Cerner profitability to Oracle standards, We will not only continue to grow operating income, but we will also grow the operating margin percentage. The non-GAAP tax rate for the quarter was 18.8%, and non-GAAP EPS was $1.19 in U.S. dollars, up 16% in USD, up 14% in constant currency. The GAAP EPS was 86 cents in USD. At quarter end, we had nearly $12.1 billion in cash and marketable securities. The short-term deferred revenue balance was $11.1 billion, up 5%. Operating cash flow for the first quarter was up 9%. to seven billion while free cash flow was up twenty one percent to five point seven billion and I expect that we will see very good results in our free cash flow for the rest of the year. Over the last four quarters operating cash flow was seventeen point seven billion up sixty eight percent and free cash flow was $9.5 billion, up 76%. Capital expenditures were $8.3 billion over the last four quarters, and we're clearly beginning to see the cash flow benefits stemming from our cloud transformation. CapEx was $1.3 billion in Q1, as we continue to build capacity for bookings and our customers' growing needs. Given the demand we have and see in the pipeline, I expect the fiscal year 2024 CapEx will be similar to this past year's CapEx. As always, we remain careful to pace our investments appropriately and in line with booking trends, which is why our gross margins are up in our cloud business. We now have 64 cloud regions live with 44 public cloud regions around the world and another six being built. 12 of these public cloud regions interconnect with Microsoft Azure. We also have nine dedicated regions live and 11 more planned. Nine security regions, and 12 EU sovereign regions live with increasing demand for more of each. And of course, we have many, many clouded customer implementations. The cost advantages, sizing flexibility, and deployment optionality of our cloud region continue to make us so compelling in the marketplace to customers. As we've said many, 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 1.3 million shares for a total of $150 million. In addition, we paid out dividends of $3.9 billion over the last 12 months. and the board of directors declared a quarterly dividend of 40 cents per share. Now, before I dive into Q2 guidance, I'd like to share some thoughts on what I see longer term. For my earlier remarks, we have a great line of sight into the trajectory of the business given the bookings momentum. We are extremely confident about our revenue acceleration for the year, even though in any quarter there may be small fluctuations. Because we have far more demand than we can supply, our biggest challenge is building data centers as quickly as possible. In addition, we are in an accelerated transition of Cerner to the cloud. This transition is resulting in some near-term headwinds to the Cerner growth rate as customers move from licensed purchases, which are recognized upfront, to cloud subscriptions, which are recognized ratably. Again, excluding Cerner, I remain committed to accelerating our total revenue growth rate this fiscal year, as well as maintaining our current high cloud growth rates for the year. And as you will hear at our financial analyst meeting next week, we remain firmly committed to our fiscal 26 financial goals. Let me now turn to my guidance for Q2, which I'll review on a non-GAAP basis. If currency exchange rates remain the same as they are now, currency should have a 2% increase positive effect on total revenue, and a 3 cent positive effect on EPS in Q2. However, the actual currency impact may be different. Here we go. Total revenues, including Cerner, are expected to grow from 3 to 5% in constant currency and are expected to grow 5 to 7 in USD at today's rate. total revenue excluding Cerner are expected to grow from 6 to 8% in constant currency and expected to grow 8 to 10% in USD. Total cloud revenue excluding Cerner, again, I give you these numbers so you can see the mainline business, is expected to grow from 27 to 29% in constant currency and it's expected to grow 29 to 31% in USD. Non-GAAP EPS is expected to grow between 5 to 9% and be between $1.27 and $1.31 in constant currency. Non-GAAP EPS is expected to grow between 7 to 11% and be between $1.30 and $1.34 in USD. My EPS guidance for Q2 assumes a tax rate of 19%. However, one-time tax events could cause actual tax rates to vary. And with that, I'll turn it over to Larry for his comments.