Oracle Corporation

Good day, everyone, and welcome to Oracle's fourth 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, Krista. Good afternoon, everyone, and welcome to Oracle's fourth quarter and fiscal year 2024 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 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 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 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. Clearly, we had an absolutely incredible quarter. As you know, Oracle's Q4 is known for customers purchasing large software license contracts to power their businesses. But because of the pivot to the cloud, this Q4 was powered by the enormous demand for our cloud services. And they showed up in RPO, or remaining performance obligations. In Q4, Oracle signed the largest sales contract in our history, led by huge demand for training large language models, as well as record levels of sales for OCI, Autonomous, Fusion, and NetSuite. RPO was $98 billion, up $18 billion from Q3, and up 44% year over year from $68 billion last year. And we are trading one-time non-recurring license revenue in return for much bigger strategic customer commitments for multi-year cloud revenue. from which we expect to further accelerate our revenue growth rate. This is exactly what we've been targeting, and it bolsters my confidence that our overall revenue, earnings, and cash flow performance, as well as our growth rates, will only get stronger and accelerate. In short, this Q4 marks the full emergence of our high growth cloud businesses. Now, I started talking about this tipping point four years ago, and you've seen it continue to play out in our results since then. As a reminder, we accelerated our U.S. dollar revenue growth rate from negative one in fiscal year 20 to plus eight this past year if you exclude Cerner. In addition, EPS has grown at a 10% compounded annual growth rate over that same period. And both operating cash flow and free cash flow, which of course we report on a trailing 12-month basis, were each declining 10% four years ago. This year, they grew 9% and 39%, respectively. Now, customer conversations are now absolutely fully focused on our cloud services, as the results clearly show. So let me give you just a couple of examples, a few examples. First, as you saw, OpenAI selected Oracle to run deep learning and AI workloads on Oracle Cloud infrastructure. Like many others, OpenAI chose OCI because it is the world's fastest and most cost-effective AI infrastructure. In total, we signed over 30 AI contracts for over $12 billion this quarter and nearly $17 billion this year. Second, We continue to expand our work, helping companies use our cloud applications portfolio to reinvent their businesses. As an example, a very large enterprise tech company signed a contract in Q4 for over $600 million, where we will be helping them transform their operations with Fusion to enable them to become more agile, faster growing, and more profitable. May I say, in the process, we will replace out many of our competitors' products. These cross-pillar cloud deals or suite deals focus on business process re-engineering that incorporate multiple cloud applications that no one else can offer. And I want to point out, by the way, that today is day 11 of our new fiscal year, and we are once again announcing our results not only for the quarter, but the year and giving guidance, making us faster than any other public company by a long shot. We are able to do this because of fusion applications. And that is why companies are choosing Fusion and our wonderful teams are showing them the way. And third, I'm pleased to announce that we've signed another multi-cloud partnership, this time with Google. OCI and Google Cloud Network Interconnect is available immediately in 10 regions. And we will be live with Oracle Database at Google Cloud in September, where customers can get direct access to Oracle database services running on OCI deployed in Google Cloud data centers. So what's driving this? Well, it is all about our comprehensive, highly differentiated, and secure cloud offering. Customers have progressed from their initial curiosity about Oracle Cloud into full-blown rollouts. We have the most secure, complete, and cost-effective set of enterprise applications and infrastructure cloud technologies of any vendor. Not only are our cloud technologies vertically integrated to work together, but we offer flexible deployment models like public cloud, multicloud, sovereign cloud, dedicated cloud, or any other way our customers ask us to deliver. And we also offer Oracle Alloy, where Oracle partners become cloud providers offering customized cloud services alongside the Oracle Cloud. Now, I'm now going to dive into the details of Q4 and finish my prepared remarks with how this strength and momentum will impact fiscal year 25 and beyond okay so let's start in q4 the dollar strengthened from the time of my q4 guidance so we saw a one percent currency headwind to total revenue and a one cent currency headwind to eps as usual i'll be discussing our financials using constant currency growth rate because this is how we manage the business Total cloud revenue, that is SAS plus IS, excluding Cerner, was $4.7 billion, up 23%. Including Cerner, total cloud revenue was up 20% at $5.3 billion. And SAS revenue of $3.3 billion up 10%, and IaaS revenue of $2 billion, up 42% on top of last year's 77% growth. Total cloud services and license support for the quarter was $10.2 billion, up 10%, driven again by our strategic cloud applications, autonomous database, and OCI. Application subscription revenues, which includes product support, were 4.6 billion and up 6%. Our strategic back office SaaS applications now have annualized revenue of 7.7 billion, and we're up 16%. Infrastructure subscription revenues, which includes license support, were 5.6 billion, up 13%. Infrastructure cloud services revenue was up 42%. Excluding legacy hosting, OCI Gen 2 infrastructure cloud services grew 44% with an annualized revenue of $7.4 billion. OCI consumption revenue was up 53%. Were it not for continuing supply constraints, consumption growth would have been even higher. Database subscriptions, which includes database license support, were up 6% and highlighted by cloud database services, which were up 26% and now have an annualized revenue of $2 billion. Very importantly, as on-premise databases migrate to the cloud, either to OCI directly or using database at Azure or database At Google Cloud, we expect these cloud database services will be that third leg of revenue growth alongside OCI and strategic staff. Consistent with our strategic direction and reflecting customer preference for cloud services, software license revenues were down 14% to $1.8 billion. So all in, total revenues for the quarter We're $14.3 billion. That's up 4% if you include Cerner, up 5% excluding Cerner. Shifting to margin. The gross margin for cloud services and licensed support was 77%. This is a result of the mix between support and cloud, in which cloud is growing much faster than support. The gross margin percentages for software software support, and SaaS are consistent with last year. While IaaS gross margins improved substantially, gross margins will go higher as more of our cloud regions fill up. We monitor our expenses carefully to ensure gross margin percentages expand as we scale. To that point, though, the gross profit dollars of cloud services and licensed support grew 8% in Q4. Non-GAAP operating income was $6.7 billion, up 9% from last year. The operating margin was 47%, up from 44% last year, as we continue to drive more efficiencies in our business. Looking forward, as we continue to benefit from economies of scale in the cloud, we will not only continue to grow operating income, but we will also expand the operating margin percentages. The non-GAAP tax rate came out over 1% higher than my guidance at 20.1%, and non-GAAP EPS was $1.63 and GAAP EPS was $1.11 in USD. As a reminder, the non-GAAP tax rate last year was 9.2% and this had an adverse effect on this quarter's EPS growth. Non-GAAP pre-tax income grew 14% in constant currency. So you can figure out that had we had the same tax rate last year as this year, net income would have grown 14%, and EPS would have been up 12% in CD, 11% in USD. For the full fiscal year, total company revenue was $53 billion, up 6%. Total cloud services and licensing support revenue, which is entirely subscription-based, and accounts for nearly three-quarters of total revenue, with $39.4 billion, up 11%. Total application subscription revenues grew 9%, and infrastructure subscription revenue grew 13%. Total cloud services, excluding Cerner, were up 26% to $17.2 billion. SAS revenue excluding Cerner was up 13% to $10.4 billion for the year. IaaS and cloud infrastructure revenue was up 50% to $6.8 billion for the year, with consumption revenue up 66% from last year. Non-GAAP EPS for the full year was $5.56 in USD, up 9% in USD. And the full year operating margin percentage was 44%, up from 42% last year. At quarter end, we had nearly $10.7 billion in cash and marketable securities. The short-term deferred revenue balance was $9.3 billion, up 4%. Over the last four quarters, operating cash flow was $18.7 billion, up 9%, and free cash flow was $11.8 billion, up 39%. Capital expenditures were $6.9 billion. As I mentioned, our remaining performance obligations or RPO is now 98 billion, up 44% in constant currency, and the portion excluding Cerner, if you're curious, was up 60%. We signed several large deals in this quarter, and we have many more, many, many more in the pipeline. Approximately 39% of total RPO is expected to be recognized as revenue over the next 12 months. And this reflects the growing trend of customers wanting larger contracts as they see firsthand how Oracle Cloud services are benefiting their businesses. Now, while we spent $3.5 billion on CapEx this quarter, the $2.8 billion shown in the cash flow statement is lower simply as a result of timing of payment. We are working as quickly as we can to get cloud capacity built out given the enormity of our backlog and pipeline. At this moment, we have 76 customer-facing cloud regions live with 47 public cloud regions around the world and another 19 being built. We have 11 database at Azure Sites Live and more locations with Microsoft coming online soon. And we will have 12 Oracle database at Google Cloud Sites Live this year. We also have 13 dedicated regions live and 15 more planned. We have several national security regions and EU sovereign regions live with increasing demand for more of each. And finally, we already have two alloy cloud regions live with 11 more planned. Of course, we also have many, many, many clouded customer installations. As I mentioned earlier, the sizing and flexibility and deployment optionality of our cloud regions continues to be incredibly advantageous for us in the marketplace. This quarter, we purchased 1.25 million shares for a total of 150 million. In addition, we paid out dividends of $4.4 billion over the last 12 months, and the board of directors today declared a dividend of 40 cents per share. Before I discuss my guidance for Q1 and fiscal 2025, I do just want you to have a couple of notes. The first is that in Q4, we decided to exit the advertising business, which had declined to about $300 million in revenue in fiscal year 24. Also, I will no longer be breaking out the Cerner business in my results. And even though it will begin to grow, modestly throughout the year in both revenue and operating margins. It's not necessary to break it out anymore because it is now operating in a growth mode. Now to guidance. Throughout fiscal year 2025, I expect continued strong cloud demand to push Oracle sales and RPO even higher and result in double-digit revenue growth this fiscal year. I also expect that each successive quarter should grow faster than the previous quarter as OCI capacity increases to meet demand. We believe our momentum, our current momentum, will continue as our pipeline is growing even faster than bookings and our win rates are going higher as well. I expect fiscal year 25 cloud infrastructure services to grow faster than the 50% we reported this year. CapEx in fiscal year 25 will probably be double what it is in fiscal year 24, what it was in fiscal year 24. Okay. Beyond this fiscal year, I remain firmly committed to our fiscal year 26 financial goals for revenue, operating margins, and EPS growth. However, given our strong bookings results, I believe some of these goals might prove to be too conservative given our momentum. We are going to provide you a more fulsome update on all of this at the financial analyst meeting at Oracle Cloud World in Las Vegas in September. OK, let me now turn to my guidance for Q1, which I'll review on a non-GAAP basis. Now, if currency exchange rates remain the same as they are now, currency should have a negative 1% effect on my revenue. And either a penny or two pennies negative on EPS in Q1. However, as you all know, actual currency impact may be more or less. I just can't guess that now. Total revenue for Q1 are expected to grow from 6 to 8% in constant currency, and using the currency situation as it is now, they're expected to grow from 5 to 7% in USD. Total cloud revenue is expected to grow from 21 to 23% in constant currency and 20 to 22% in USD. Non-GAAP EPS is expected to grow between 11% to 15% and be between $1.33 and $1.37 in constant currency Non-GAAP EPS is expected to grow between 10% to 14% and be between $1.31 and $1.35, but this time in USD. My EPS guidance for Q1 assumes a base tax rate of 20%. And as always, one-time tax events could cause the actual tax rates to vary from my guidance. Okay, I know that was long, but with that, let me turn it to Larry for his comments.