Oracle Corp Japan

Ladies and gentlemen, thank you for standing by. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Oracle Corporation third quarter fiscal year 25 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 a second time. Thank you. And I would now like to turn the conference over to Ken Bond, Head of Investor Relations. Mr. Bond, you may begin.

Thank you, Abby. Good afternoon, everyone, and welcome to Oracle's third quarter fiscal year 2025 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 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 the 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 risk 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 any questions, we will 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, this was our strongest booking quarter ever by a huge margin as we added $48 billion to our backlog. Our RPO balance is now $130 billion, up from $97 billion last quarter and up from $80 billion last year. That's a growth of 63% year over year, and this does not include any contracts with Project Stargate. The RPO figure is the leading indicator of demand for our cloud services, while our live data center count and power capacity is the leading indicator of the conversion of RPO to revenue. Speaking of data centers, we marked a milestone this quarter as we crossed into triple digits with our 101st cloud region coming online. It's just a matter of time before we have more cloud regions than all of our competitors combined, reflecting the strategic advantage of our Gen2 architecture, which offers our customers the most flexibility. From a delivery standpoint, the growth of our power capacity under contract is even higher than the growth in the number of data centers. And we expect that our available power capacity will double this calendar year and triple by the end of next fiscal year. As we bring more capacity online, our revenues will clearly accelerate. What we are seeing in the market is that we are the destination of choice for both AI training and inferencing. This is due to the fact that our Gen2 cloud is faster and therefore cheaper than our competitors and also due to our ultra high speed networking engineering that we started decades ago and that is now highly relevant for AI. Taken together, we have numerous structural engineering advantages that distinguishes OCI from our competitors, and as Larry will discuss in more detail. Beyond that, because of the momentum OCI is enjoying, customers are looking at us for many more workloads. Now shifting to Q3 results, I'll be discussing our financials using constant currency growth rate as this is how we manage the business. So here it goes. Total cloud revenue at SAS and IaaS was up 25% at 6.2 billion with SAS revenue of 3.6 in the quarter, up 10% and IaaS revenue of 2.7 billion up 51%, on top of 49%, which we reported last year. Now, as a reminder, the exit from our advertising business last year had the effect of lowering total cloud revenue growth by 2% this quarter. Total cloud services and license support revenue for the quarter was $11 billion. up 12%, driven again by OCI, our strategic cloud applications, and cloud database services. Infrastructure subscription revenues, which includes license support, were $6.2 billion, up 18%. Record-level AI demand drove Oracle Cloud infrastructure revenue up 51% in Q3, And that's 54% when you exclude our legacy hosting. Both a much higher growth rate than any of our hyperscaler competitors. Our infrastructure cloud services now have an annualized revenue of 10.6 billion. OCI consumption revenue was up 57%. Demand continues to dramatically outstrip supply. Now, we do expect that the component delays that have slowed cloud capacity expansion this year should ease in Q1 FY26, so pretty soon. Growth in the AI segment of our infrastructure business was extraordinary. GPU consumption revenue is now nearly three and a half times the size of last year's. Cloud database services, which were up 28%, now have annualized revenue of 2.3 billion. Autonomous database consumption revenue was up 42% on top of the 32% growth reported last year. So again, we have acceleration as we get bigger. As on-premise databases migrate to the cloud, either on OCI directly through public cloud, clouded customer, or DRCC, or through our database at cloud services with Azure, Google, or AWS, we expect the cloud database revenues collectively will be the third driver of revenue growth alongside OCI and strategic SaaS. We are currently live in 18 cloud regions with database at cloud services with our partners and have another 40 planned with Azure, Google, and AWS. Now finally, database subscription revenues, which includes license support, were up 6%. Application subscription revenues, which again, include product support, We're 4.8 billion and up 6% too. Our strategic back office SaaS applications now have annualized revenue of 8.6 billion and we're up 18%. Software license revenues, we're down 8% to 1.1 billion. So all in total revenues for the quarter, we're 14.1 billion. up 8% from last year. Now shifting to gross profit and operating income, the gross profit dollars of cloud services and licensed support grew 10% in Q3. We continue to focus on operating expense discipline, which collectively continue to grow slower, expense discipline, so expenses continue to grow slower than revenue, a trend that I expect will continue. The Q3 operating income grew 9%, and the operating margin was 44%, up slightly from last year. The non-GAAP tax rate for the quarter was 19.9, which was higher than my 19% guidance and lowered EPS by 2 cents. And EPS currency headwind ended up at 4 cents more than I thought would be hurt by currency as currency continued to strengthen. The non-GAAP EPS was $1.47 in U.S. dollars, up 4% in USD, up 7% in constant currency. The GAAP EPS was $1.2 in US dollars, up 20% in USD, up 25% in constant currency. At quarter end, we had $17.8 billion in cash and marketable securities. The short-term deferred revenue balance was $9 billion, up 3%. Operating cash flow for Q3 was $5.9 billion, slightly more than our 5.9 billion in capex as we front loaded some purchases into the quarter. Given the demand that you see in our RPO growth and the additional demand we see in our pipeline, I expect fiscal year 2025 capex will be a little more than double what it was last year at around 16 billion. As always, we remain careful to pace and align our CapEx investments appropriately and in line with booking trade. On a trailing 12-month basis, operating cash flow was up 14% at 20.7 billion and free cash flow was 5.8 billion. As I mentioned, remaining performance obligations, or RPO, is now $130 billion, up 63% in constant currency, and it reflects the growing trend of customers wanting larger and longer contracts as they see firsthand how Oracle Cloud Services are benefiting their businesses. Further, our cloud RPO grew significantly over 90%, and now represents more than 80% of total RPO. And approximately 31% of that total RPO number is expected to be recognized as revenue over the next 12 months. Now, we are and remain committed to returning value to our shareholders through technical innovations, acquisitions, repurchases, prudent use of debt, and a dividend. This quarter, we repurchased nearly a million shares for a total of $150 million, and over the last 10 years, we've reduced the shares outstanding by more than a third at an average price of $54 a share. In addition, we have paid out dividends of $4.4 billion over the last 12 months, And the board of directors increased the quarterly dividend 25% from $0.40 to $0.50 per share today. Before I dive into Q4 specific guidance, I'd like to comment on the financial acceleration we expect to see in the coming years. We now have a clear light of sight to our future revenue growth. We remain very confident and committed to total cloud infrastructure revenue for fiscal year 2025, growing faster than the 50% reported last year, and it will be even faster for fiscal year 2026, likely a lot faster. Our confidence in meeting our $66 billion revenue target for FY26 is now stronger than ever and represents around a 15% growth rate. And more importantly, I now expect that our fiscal year 27 growth rate will be around 20%, which is even higher than I previously guided. Let me now turn to my guidance for Q4 which I'll review on a non-GAAP basis and assuming exchange rates remain the same as they are now, currencies should have a cent to two cent negative effect on EPS and a 1% negative effect on revenue. However, as usual, currency impact may be different, so focus in on constant currency. Total revenues are expected to grow from 9 to 11% in constant currency and are expected to grow from 8% to 10% in USD at today's exchange rate. Total cloud revenue is expected to grow from 24 to 28% in constant currency is expected to grow from 25 to 27 in USD. Non-GAAP EPS is expected to grow from 0 to 2% and be between $1.62 and $1.66 in constant currency. Non-GAAP EPS is expected to grow between negative 1 and positive 1 and be between 161 and 165 in USD. I should mention that my Q4 EPS guidance is negatively impacted by 3 cents plus due to losses recognized from an investment in another company. Lastly, my EPS guidance for Q4 assumes a base rate of 19%. However, as you saw in this quarter, one-time tax events could cause actual tax rates to vary and usually do. And finally, I'm sure this isn't lost on anyone, but we are reporting earnings just 10 days after the close of the quarter. And that's also because there was a weekend. Using Fusion, we continue to file our quarterly and annual financial statements faster than any other company in the S&P 500. And with that, I'll turn it over to Larry for his comments.