Oracle Q2 2022 Earnings Call Transcript

Quartr
Provided by Quartr
December 8, 2021

There are 10 speakers on the call.

Operator

Welcome to Oracle's Second Quarter 2022 Earnings Conference Call. Now I'd like to turn the call over to Ken Bond, Senior Vice President.

Speaker 1

Thank you, Erica, and good afternoon, everyone, and welcome to Oracle's Q2 fiscal year 2022 earnings conference call. President. A copy of the press release and financial tables, which includes a GAAP to non GAAP reconciliation and other supplemental financial information Vice President of Investor Relations website. Additionally, a list of many customers who purchased Oracle Cloud Services or went live on Oracle President of the Investor Relations website following this call. On the call today are Chairman and Chief Technology Officer, Larry Ellison and CEO, Safra Katz.

Speaker 1

As a reminder, today's discussion will include forward looking statements, including predictions, expectations, estimates or other information

Speaker 2

President and CEO of the Board that might be considered

Speaker 1

forward looking. Throughout today's discussion, we will present some important factors relating to our business, which may potentially affect these forward looking statements. Vice President. 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. Vice President.

Speaker 1

As a result, we would caution you against placing undue reliance on these forward looking statements and we encourage you to review our most recent reports, including our 10 ks

Speaker 3

President and CEO of the

Speaker 1

Board of Directors. And any applicable amendment for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. Vice President. 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.

Speaker 1

Vice

Speaker 2

President.

Speaker 3

Thanks, Ken, and good afternoon, President. I'm pleased to report another quarter of increasing revenue growth as the fastest growing parts of the business continue Vice President of Investor Relations to become a larger percentage of our business. We had a fantastic quarter as total revenue grew 6% in constant currency, President, above the high end of my guidance with broad based outperformance across the company. Q3 revenue growth President. Looks like it will continue even higher, but let me save that for the guidance discussion.

Speaker 3

Earnings were also strong

Speaker 2

President and CEO of the Board of Directors with non GAAP EPS

Speaker 3

$0.09 above the high end of my constant currency guidance. We achieved this outperformance President. Despite the U. S. Dollar strengthening since I gave guidance, as we saw a currency headwind of nearly $100,000,000 Vice President and CEO of the Board of Directors.

Speaker 3

So the USD results, which are excellent and above guidance, are even stronger Vice President. Before I go through the numbers though, I wanted to comment on what we are seeing in the market President that is driving our accelerating revenue growth. As I've mentioned on previous calls, we have highly differentiated strategy from our competitors, where we are the only company able to offer of Industry Specific Cloud SaaS Applications. And of course, our 2nd generation cloud with autonomous database Vice President of the United States are unique in their performance, security and dependability. And because we have decades of President and CEO of the company.

Speaker 3

With the experience in mission critical systems, our customers can depend on us being up and available when they need us. Our unique capabilities are attracting customers, especially as they consider how to conduct their own Vice President of Digital Transformation in the complex industries in which they compete. They want us to know as much about their business as they do, Vice President, whether it's telco, financial services, utilities, retail and many others and to partner with them to modernize. Once the company thinks beyond simple dev test and other rudimentary cloud workloads and move their technology focus to mission critical projects. They invariably turned to Oracle.

Speaker 3

President. Our focus on customer success is driving more references and new opportunities with both existing customers and with entirely new accounts. And of course, we ourselves are an Oracle Fusion full suite user, And I'm sure it is not lost on any of you and it's not lost on our prospects and customers that we are announcing our results President, our Chief Financial Officer, our Chief Financial Officer, our Chief Financial Officer, our Chief Financial Officer,

Speaker 2

our Chief Financial Officer, our Chief Financial Officer, our

Speaker 3

Chief Financial Officer, our Chief Financial Officer, our Chief Financial Officer, our Chief Financial Officer,

Speaker 2

our Chief Financial Officer, our Chief Financial

Speaker 3

Officer, our Chief Financial Officer, our Chief Financial Officer, our

Speaker 2

Chief Financial Officer, our Chief

Speaker 3

Financial Officer, our Chief Financial Officer, our Chief Financial Officer, our Chief

Speaker 2

Financial Officer, President.

Speaker 3

Back to the numbers and from here on, I'll review our non GAAP results using constant dollar growth rates unless I say otherwise. So total cloud services and license support revenues for the quarter were $7,600,000,000 Vice President of the company, up 6% in constant currency and accounted for 73% of total company revenue. Vice President. Total cloud revenues when annualized are now $10,700,000,000 and grew 22% with cloud bookings President and CEO of the cloud revenue growth rate. And as a result, we expect cloud revenue will accelerate Vice President and exit the fiscal year in the mid-20s, potentially higher.

Speaker 3

GAAP application subscription revenues were $3,100,000,000 up 8% organically in constant currency and our highest growth rate in 4 years. Fusion apps were up 30% President, with strategic back office applications now having annualized revenue of $4,900,000,000 and growing Vice President, including Fusion ERP up 35%, Fusion HCM up 25% and NetSuite ERP, up 28%. GAAP infrastructure subscription revenues President of the Company. Were $4,400,000,000 up 5% and excluding legacy hosting services, Vice President of Investor Relations. I expect the infrastructure revenue growth rate President and CEO of the Board of Directors.

Speaker 3

OCI consumption revenue, which includes autonomous database Vice President of the Company was up 86% in constant currency and total clouded customer revenue was up 45%. Vice President. Database subscription revenues, including database support and database cloud services Vice President of the United States. License revenues were $1,200,000,000 up 16% President and CEO of the company. Amongst our very best quarters over the last 10 years and license growth was not dependent on any mega deals.

Speaker 3

President. We saw excellent performance in technology, our vertical businesses as well as North America and Latin American regions. Vice President. So all in, total revenues for the quarter were $10,400,000,000 up 6% in constant currency. Operating expenses were up 6% this quarter.

Speaker 3

The gross margin for cloud services and license support Vice President. I expect the full year growth in gross profit dollars for cloud services and license support Vice President of Finance and Investor Relations. Non GAAP operating income Vice President of Finance was $4,900,000,000 up 7% from last year and the operating margin was 47%. Vice President. The non GAAP tax rate for the quarter was 19.2%, slightly higher than our base rate of 2019 And earnings per share was $1.21 in U.

Speaker 3

S. Dollars, up 14% in U. S. Dollars, Vice President of the

Speaker 2

Year, up

Speaker 3

15% in constant currency. During the quarter, we recognized GAAP acquisition related and other expenses

Speaker 2

Vice President of the Board

Speaker 3

of Directors, which substantially consisted of litigation related charges President. As a result of this one time charge, GAAP net income was a negative 1,200,000,000 Vice President. The GAAP tax rate was 16.6 percent due to some discrete items and the GAAP loss was $0.46 per share. Operating cash flow for the last four quarters was $10,300,000,000 President and Chief Financial Officer. And our free cash flow over the same period was $7,100,000,000 Both results were negatively affected by the litigation charges I mentioned.

Speaker 3

Capital expenditures for the last four quarters were $3,100,000,000 Senior Vice President and CapEx for Q2 alone was $925,000,000 and we're on track to invest $4,000,000,000 in CapEx this year. We now have nearly $23,000,000,000 in cash and marketable securities. Vice President. The short term deferred revenue balance is nearly $8,000,000,000 up slightly in constant currency from a year ago due to Vice President of the Year. We will now begin the call with the financial results of our financial results.

Speaker 3

We will now begin the call with our financial results. President and CEO of the company. The remaining performance obligation or RPO balance is $37,200,000,000

Speaker 2

Vice President of the Company, up 11%

Speaker 3

in constant currency due to strong bookings. Approximately 59% President, who is expected to be recognized as revenue over the next 12 months. As we've said so many times before,

Speaker 2

Vice President.

Speaker 3

We're committed to returning value to our shareholders through technical innovation, Executive Acquisitions, Stock Repurchases, prudent use of debt and a dividend. Vice President. This quarter, we repurchased 77,000,000 shares for a total of $7,000,000,000 And over the last 10 years, Vice President. We've reduced the shares outstanding by 47% at an average price that's about of half the current share price. The Board of Directors increased the authorization for share repurchases by an additional $10,000,000,000 We've paid out dividends of $3,400,000,000 over the last 12 months and the Board of Directors again declared a quarterly dividend of $0.32 per share.

Speaker 3

President. Now the guidance. I'm going to start by reiterating our expectation that full year 2022 revenue Vice President. Growth will accelerate from 2021 for all the reasons we've already seen so far this year. Vice President.

Speaker 3

Given the strong performance in the first half, I now expect that we will see full year total revenue finish solidly Vice President of the Year in the Mid Single Digits, led by cloud revenue growth exiting the year in the mid-20s. Cloud is fundamentally a more profitable business compared to on premise, and I expect that our operating margins this year Vice President and CEO of the Board of Directors. Let me now turn

Speaker 2

President and CEO of the Board of Directors. I know

Speaker 3

you all saw that. And assuming currency exchange rates remain the same as they are now, Vice President, which we have no idea if they will or not. I expect we will see a currency headwind of 3% for revenue President and $0.05 for EPS in Q3. Total revenue for Q3 is expected to grow between 6 to 8% in constant currency and grow between 3% to 5% in USD. Clearly, the midpoint Vice President of the range is 7% and that is higher than the 6% we just reported in Q2 and higher than the 2% Vice President and Chief Executive Officer.

Speaker 3

We reported in Q1, so everything is trending in the right direction. Cloud service and license support revenues for Q3 is expected to grow between 6% to 8% in constant currency President and grow between 3% to 5% in USD. Non GAAP EPS for Q3 Vice President of the Board of Directors, who will be in the range of $1.19 President and $1.23 in constant currency. Non GAAP EPS for the quarter is expected to grow between President, and I'll turn the call over to Ken Bond, Senior Vice President, and I'll turn the call over to Ken Bond, Senior Vice President, and I'll turn the call over to Ken Bond, Senior Vice President, and be between $1.14 and $1.18 in USD. My EPS guidance for Q3 assumes a base tax rate of 19%.

Speaker 3

Vice President. However, one time tax events could cause actual tax rates for any given quarter to be higher or lower, President, but I expect that in normalizing for these one time events, our non GAAP tax rates will average around 19% or so. With that, President. I'll turn it over to Larry for his comments.

Speaker 4

Thank you, Safra. All right, I'm going to discuss Oracle's So how big is our on premise ERP business today? Vice President. I mean, a lot of the people a lot of the companies like Microsoft did a great job of moving their entire Microsoft Office Vice President of the cloud to dramatically increase the size of their cloud business. Vice President.

Speaker 4

Unfortunately, we didn't have the same option or opportunity. So I think it's interesting to me, I think you're going to find this interesting. So how big is our on premise business today? Well, Vice President. We had 7,500 customers in Oracle on premise or ERP made up of E Business Suite, PeopleSoft and JD Edwards.

Speaker 4

Only 1,000 of those 7,500 have moved to Fusion Cloud ERP. President. Now we have not lost any of these customers to competitors. We expect all the remaining Vice President of Consumer Solutions, and I think a lot of people don't really realize that how the Vice President. I think a lot of people don't really realize that how so let's now let's migrate over and look at how big is our cloud ERP business today.

Speaker 4

Well, round numbers, dollars 5,000,000,000 a year revenue. And we have 8,500 Vice President. 6,500, plenty to come. So 7,500 of these 8,500 were not running Oracle ERP CFO, before we came out with our cloud product. Those are all new customers.

Speaker 4

Add to that the 28,000 Senior Vice. So Oracle has a total of 35,500 Cloud ERP customers that are new to Oracle. Only 1,000 of our on premise installed base President and CEO of the company. Let me repeat that. 35,500 net new Cloud ERP customers we've gotten in the last few years, President and CEO of the Board of Directors.

Speaker 4

Only 1,000 from our installed base. That's going to be coming to us later on. So how fast is Cloud ERP revenue growing about. So growing about 30% a year. And so let's look out 5 years and ask the question, Vice President.

Speaker 4

How big will we be in 5 years? And I think the number is going to be approaching $20,000,000,000 in cloud ERP, where the majority of those customers are not people who are migrating, not customers that are migrating from Oracle's on prem business, but they're migrating from Vice President of the Investor Relations. Other people's on prem business, whether it's a small company like In for or a large company like SAP or a variety of other companies, Vice President. The vast majority of our cloud ERP customers are not coming from our installed base. They're coming from someone else's installed base.

Speaker 4

President. And again, yes, 85% of them are currently that we have are from someone else's installed base. Vice President. So, what are our margins in this 5 year, let's say, we're estimating $20,000,000,000 Cloud ERP Business. Well, at scale, at that scale, that's about an 85% margin in that business.

Speaker 4

And as Zafra pointed out earlier in her comments, Vice President of the cloud business is inherently much more profitable and much more predictable than our old on premise business. So we expect 5 years from now, and again, these are just estimates. Vice President. Based on our based on growth rates and the size of our current business, but we expect to have about 30,000, 5 years now, 30,000 infusion customers President, and I'll turn the call over to Ken Bond, Senior Vice President, Senior Vice President, Senior Vice President, Senior Vice President, President. I mean, how are we winning so many new customers?

Speaker 5

Where are they

Speaker 4

coming from? Who are we competing? Vice President. Well, we have really, we only have 2 significant customers, obviously, competitors. The 2 significant competitors, SAP Executive Officer at Workday.

Speaker 4

I've said this before, SAP did not build a Troupes cloud product, President and I'm going to explain what a true cloud product is in just a minute. But SAP, because they didn't build the cloud product, they bought some Vice President of Edge Products around the cloud, but they didn't actually rebuild their software for the cloud. That's the same old 35 year old software they've been selling forever. President. Their goal is simply to hold on to their installed base, but they are losing customers to us.

Speaker 4

For example, this quarter, Petronas, Vice President. Oil and Gas, big oil and gas customer moved over. We have a I gave a long presentation about a couple of us taking already a couple and Company. But so we're doing very well against SAP and continue to do it well SAP winning Petronas and others this quarter. But Workday is very interesting because Workday does have a cloud product and they've done quite well in HCM.

Speaker 4

But they have very few live, try to find, try to go out and find live Workday ERP customers, Vice President. So we're winning almost everything in Saudi Arabia. We're beating Workday Vice President. I don't know, 98% of the time, we beat Workday. We Vice President and Chief Executive Officer.

Speaker 4

And we're taking customers from SAP's installed base. They're still holding on to more of their base than we're taking, but we're making inroads. Vice President. So again, what's going on? Why are we winning?

Speaker 4

Well, we're winning because we have a true cloud product that is

Speaker 2

Vice President of

Speaker 4

the Board of Directors. Very, very feature rich. Very, very has a very low cost of ownership. So it's enormously capable Vice President. It's not expensive compared with the old on premise systems.

Speaker 4

Our implementations, I mean, we've got implementations of Vice President. Medium large companies that sometimes take 6 months. Now don't get me wrong. Someone like Bank of America took a few years. Vice President.

Speaker 4

That was an SAP customer that we won. And that was just doing the Merrill Lynch division, took a few years. And then hopefully, we're going to continue to make progress at Bank of America. So we have Vice President. In general, it's much faster and lower cost to implement our cloud product than this implement, let's say, SAP or even Workday, Vice President.

Speaker 4

But much but a gigantic difference with SAP. Very easy to use. We have the user interface. Vice President. There's 2 aspects.

Speaker 4

There's the computer interface that works on mobile phones and tablets and things like that. And then we have a voice digital assistant. You talk to our applications. Vice President. You talked to all of our applications.

Speaker 4

You asked for reports. You asked questions. And I think it's like Alexa for the enterprise. Vice President. All our apps run on smartphones, tablets, desktops, every app, not a handful of apps are mobile, President.

Speaker 4

Every single app runs on smartphones, tablets, desktops, every single app has a voice interface. Vice President. We have and this is what I mean by true cloud product. We deliver Vice President of Oracle Cloud ERP to 100% of our customers, all 8,500 customers for Fusion Every 3 months. That's right.

Speaker 4

They get a new version with sometimes 100 or sometimes even thousands of new features. President. Every 3 months they get that. Now why is that important? Well, I mean, because our customers Specifically, a different industry, they don't want they don't all want the same new feature.

Speaker 4

Vice President. Depending on the industry you're in, depending on your size, depending on the country you're in, your 3 most important new features you must have Vice President. Our different among a lot of different customers. So in the old days, with SAP, customers built this themselves. They went out hired Accenture or somebody else, IBM Services when it was IBM Services and Vice President.

Speaker 4

Yes, to build these features for them now that the new model is don't customize your product, you don't have to. Vice President. Give us your list of new features that you need and we'll build them and put them in the next release and we can build them faster than you can and you might have to wait 3 months or 4 months Vice President of Finance, Senior Vice

Speaker 2

President of Finance, and I'm going to ask you to give them a new version. But you get them

Speaker 4

quickly, and we're the ones that build them. And they're part of the standard product. They're not some customization Vice President. You have to maintain forever. So they're not expensive.

Speaker 4

In fact, they're free. They come with the product. This is radically different Then what SAP offers in their and what they call their cloud product, which I say is not a true cloud product, Vice President, because they don't have new versions every 3 months. They don't have new versions every 3 years in their so called cloud product. You made all the same modifications you used to make by hiring people and customers.

Speaker 4

President. That's not the new model. That's not how it works in a real cloud system. That's a fundamental and every time they go in and modify the system, President. What if they make the mistake?

Speaker 4

What if they have a bug? That's going to make the system less reliable and more expensive, potentially slower. That doesn't happen with real cloud systems. Vice President. We, the vendor, are responsible for enhancing it and enhancing it on a regular cadence and responding to their requirements And delivering things to them in months, not years.

Speaker 4

We're also on schedule to deliver Vice President of Investor Relations. We won't be long before when our customers upgrade every 3 months they upgrade, Vice President and Chief Executive Officer. And sometimes they're down for an hour or so. And we're going to yes, we're on schedule to deliver 0 downtime upgrades. Vice President.

Speaker 4

So it won't be long now when our customers move to the new version. There'll be no downtime. Nobody else has this. Nobody else is working on And soon all of our applications will be on the autonomous self tuning Maxim Security database. Vice President.

Speaker 4

I've said this before, what's the most important thing about the Autonomous Database? The money you save because there's no human labor? No, actually the money it's good. The money you have to save is no human labor is good, but no human labor, no human errors, No security risks, no stolen data. Almost all of the not all, but almost all of the data that's has been hacked out of other clouds.

Speaker 4

Has been hacked because some human being made a mistake, left a port open, created a vulnerability. Vice President. You can't do that with the Autonomous Database because human beings don't touch it. It's just like a self driving CFO. A car is safer than a car driven by a human being.

Speaker 4

A self driving database is much safer and more secure Vice President, a database that is managed by human beings who make mistakes and cause problems. Vice President. Okay. So I'll stop there and I'm going to slightly turn a little bit and President and CEO of

Speaker 2

the company.

Speaker 4

I'd like to describe what's going on in the marketplace kind of on an from an industry perspective. Fusion ERP has been out for a while and we are beginning Vice President to roll up entire industries. We're adding the features for banking. Vice President. I think on an earlier quarterly call, I said our 2 largest and most strategic industries going forward in ERP would be banking and healthcare, not just ERP, but Company in total would be Banking and Healthcare.

Speaker 4

And we're doing extremely well in those industries. Vice President. Some of our live banking and financial services customers include JPMorgan, Bank of America, Bank of New York Mellon, HSBC, State Street, Vice President, Santander, Macquarie. I can go on and on and on with a long list of banks all over the world. But also we have Insurance customers USAA, Nationwide, AAA and again and a lot more.

Speaker 4

I'm not going to list everybody. In fact, Yes. We provide a printed list at the end of every quarter of our all the new wins we had in the quarter. Vice President. We had a lot of new logos in banking and financial services in Q2.

Speaker 4

We won Barclays. President. That was another big bank that we won, First Bank and Insurance, we won Ameritas, MoneyGram. And we had some major go lives, Vice President. We're doing very well in financial services and specifically banking.

Speaker 4

Healthcare, the other industry I identified as being strategic and above the and on par with banking in terms of the importance of our to our future. So live healthcare customers include Kaiser, Cleveland Clinic, Providence St. Joe. I would say that we have a lot of healthcare wins around the world, but I'd say our healthcare wins Senior Vice President and CEO of the United States Vice President. Hi, Markel, Syneos Health and PPD.

Speaker 4

Again, I can go on and on, but again, we Print those out for you and you can read them in your leisure. Let me talk about one other industry before I give my closing remarks and that's logistics customers. We've become very, very strong with logistics customers. FedEx was a key win from us, take away from SAP. UPS, Vice President.

Speaker 4

We have UPS, DHL, FedEx, DP World, SSTTS, I can go on and on. We have most of the big logistics companies around the world, President and CEO of

Speaker 6

the Board of Directors,

Speaker 4

which is but a lot of our companies aren't through rolling out Oracle Fusion ERP. FedEx, for example, is now live in 98 countries. We're winning in lots of other industries as well, but I wanted to highlight these three industries Vice President, because they are essential to our plan to add major new capabilities to our cloud ERP system. Before I describe those capabilities, I have a confession to make. We are not I don't believe it anyway.

Speaker 4

We are not on our way President of the company's building a $20,000,000,000 cloud ERP business 5 years. I think it's going to be a lot bigger than that. Let me explain why. As more and more companies adopt and run Oracle Cloud ERP, ask the question, What does a B2B procurement transaction look like? In other words, Vice President.

Speaker 4

How does it work when 1 Oracle Cloud ERP system is talking to another Oracle Cloud ERP system Vice President and Placing an Order. We are working in concert with our banking and logistics partners President, to originate purchase financing, product shipments, delivery tracking, Invoicing and payments right inside the 2 transacting Oracle Chairman. Entirely new level of automation to B2B Commerce, one that very much resembles the ease of doing business and Efficiency of B2C E Commerce. This new ERP automation system, President. All these new capabilities will dramatically simplify our customers' procurement and supply chain processes.

Speaker 4

Vice President. And as such, it represents a huge new opportunity for Oracle to grow its cloud ERP ecosystems. President. Thank you. Doctor.

Speaker 4

Safra.

Speaker 3

Thanks, Larry. I think Ken is going to take questions.

Speaker 1

Yes. Marika, if you could choose the audience, please.

Operator

President. President. Our first question comes from the line of Brad Zelnick with Deutsche Bank.

Speaker 2

Vice President. Great. Thank you

Speaker 6

so much and congrats on a great quarter with accelerating growth. Larry, you shared quite a bit with us, Really, really helpful. And I wanted to ask you about OCI because we continue to hear great things from customers. And I think people understand Oracle's cloud is hyper secure, highly automated and there's real price performance advantage. But

Speaker 2

Vice President. As we think about your product roadmap and what it takes

Speaker 6

for Oracle to capture more than its fair share of the broader public cloud market, How much are you investing in breadth versus depth? Because we just see in this quarter alone, like the partnership with Airtel in India, President of Orange in West Africa, new regions in Singapore, UAE, France, and I'm probably missing some. But clearly, there's demand, otherwise I know Safra wouldn't be making these Investments. But when your main competitor boasts over 200 services up the stack,

Speaker 7

Vice President. How far should we expect to

Speaker 2

see you build up the stack competing on

Speaker 6

functionality versus continuing to go broad with what you already have? Thanks.

Speaker 4

President. Well, again, we have a bunch of things the other guys don't have. We have applications. So but I know you want to talk about this, yes, you want to talk about infrastructure. Vice President.

Speaker 4

We think of those as 2 separate businesses, but of course they're not. I mean everyone who is running Oracle ERP Is building data warehouses on top of their ERP data. They're mashing it up maybe with Salesforce data. They're doing all of these things. They're doing a combination.

Speaker 4

President. Our big application customers, Bank of America, for example, is doing a combination of running our apps and building bespoke apps around those. So This is a huge opportunity for us that our other infrastructure customers other infrastructure providers don't have. Vice President. We've often had the discussion, do we want to support 10 databases or do we want to support 30 databases?

Speaker 4

Vice President. And do we want to have every single service that, let's say, an Amazon has. And I think our view is Vice President. We want to have some really good choices, but not every single choice on the menu. Vice President.

Speaker 4

We want to have all of the popular databases, but not some of the obscure databases. So we are not going to try to feature match Every single thing they do. We will, however, have development environments that they don't have at all. So Vice President. If you're building data warehouses on top of Fusion ERP or on top of Fusion HCM or on top of NetSuite, Vice President.

Speaker 4

We have a whole set of tools that makes that easy for you, over on the infrastructure side of our business. So we have some Vice President. We have some we do we have all the popular stuff around. I mean, obviously, you have Kubernetes and the like. Vice President and we have Postgres and the popular databases.

Speaker 4

We have MySQL, but our version of MySQL is much better than Amazon's President of Bicycl. Much faster, I mean more than 10 times faster because of HeatWave. We have this query optimizer, they don't have it all. Vice President. So our idea is to look at the most popular products, to have recommended development environments and recommended systems, Vice President and be able to do things they can't do at all.

Speaker 4

I think one other let me mention one of these one of the Vice President of Finance and Company. Fundamental differences in our strategy versus their strategy. They are building a small number of very, very large data centers. President. Our strategy is to build a large number of smaller, less expensive data centers.

Speaker 4

Vice President. We think that improves reliability dramatically. We won't have this giant data center going down. It reduces the blast radius Vice President of Investor Relations. What happens when things go down?

Speaker 4

Less goes down. It allows us to go into sovereign nations, Vice President of Investor Relations. Some smaller countries that they can't never afford to put a data center in. And we could not put 1, but 2 to a primary and a backup data center In sovereign countries that care about data sovereignty, we can put a complete cloud. I don't mean just database cloud.

Speaker 4

I mean a complete President of Cloud, at a customer like NRI in Japan. Vice President. And we did that. In fact, we put in a primary and a backup. So we can if people want to run a cloud, if a large financial institution wants to run our cloud Executive Vice President of the United States.

Speaker 4

Inside their firewall, inside their data center, we can do that. And how will that cloud differ from the cloud that we run-in the public? It won't differ at all. We can make that small enough that we can fit it into their data center. Nobody else can do this.

Speaker 4

Vice President. So we think we and then let me close with a note that I'm going to paraphrase from a very large telecommunications company, who uses our cloud and all the other 3 North American clouds, Google, Amazon and Microsoft. And the note basically said, Vice President. The one thing we've noticed about Oracle Oracle's cloud is that it never ever goes down. President.

Speaker 4

We can't say that about any of the other clouds. We think this is a critical differentiator, availability. President. Another critical differentiator is security where we have where the only way you can achieve security, I promise you this is true, Through autonomy, if you have human beings deploying and tinkering with your systems, President. They can make mistakes that expose your data.

Speaker 4

The only way we've been able to solve that problem Vice President of Finance and Company. No human beings, no human error, no human malice. Vice President. So we think we have a bunch of differentiators, and we'll be able to compete very, very effectively with security, reliability, Vice President of the Company, a combination of apps and infrastructure autonomy and a bunch of other things the other guys just will not be able to do.

Speaker 6

That's super helpful. Thank you again and congrats.

Speaker 4

President. I will not have an answer that long again ever.

Speaker 3

Brad, you're not going to believe this. I've got more to add to that answer. So, first of all, Vice. You missed a few data centers, not the least of which is Israel, France and another one in Italy. So, but The real answer is the fact that I'm sure you've seen Gartner's scorecard where we actually patched Google this year And are higher than where Microsoft, who's been in this longer than us, was a year ago.

Speaker 3

But in addition, That scorecard doesn't even measure the capabilities we have in handling very large databases, which of course President. We do uniquely of all the other hyperscalers. So it's all very interesting, but we have things

Speaker 2

Vice President. In addition to application

Speaker 3

in the infrastructure world that they cannot handle. And that has just put us in an incredible position, and that's why customers are coming to us. All right. I will stop right there.

Speaker 6

President. Thank you so much.

Operator

Our next question comes from Raimo Lenschow with Barclays Capital.

Speaker 7

Hey, thanks for taking my question and congrats from me as well. I wanted to go back to ERP and I apologize for that. But Vice President. I remember when I used to work in the industry, Larry, changing an ERP system was like volunteering for a root canal treatment. You cannot try to avoid it as much as possible.

Speaker 7

If I look at the numbers now, NetSuite had the strongest growth I've seen forever, I think. Fusion ERP is accelerating. So what's going on in the industry in terms of kind of like the pressure or the willingness to do it now? Thanks for that and congrats again.

Speaker 4

Yes. Thank you very much. I think we spend a lot of time in automating our installing the product, Vice President, making it very easy to configure, having I think our President. The consulting infrastructure, the implementers around our products now are much more experienced. The products have gotten much better.

Speaker 4

The people have gotten more experience. Customers themselves have gotten more experienced. So the cost of putting one of these things in has dropped precipitously. The time it takes to put it in is obviously Related to the cost, it's also dropped precipitously. There's just no comparison Vice President.

Speaker 4

To the way it used to be, the way it is now. Well, the way it used to be, a customer bought his own unique computer configuration and added and some modifications to the ERP system and installed it over a period of I mean, it wasn't unusual back in the day for an SAP implementation to take 5 to 7 years. Vice President. I know it sounds crazy, but some of them it costs 1,000,000,000,000 of dollars. Now Vice President.

Speaker 4

For a medium sized company, 6 months is not unreasonable to get you live on a maybe not your entire business, but financials and procurement and Vice President. A big chunk of your business we can get live very, very quickly at a very, very low cost. So it's just a totally different world. And then the other thing I'm going to mention one more time. Vice President.

Speaker 4

Customers are not encouraged to go ahead and build their own extensions. If you need an extension, tell us what you need and maybe we can schedule it in the next Vice President of Investor Relations. That's a fundamentally different model in terms it's so much less expensive to have us do it for nothing Vice President. Then to try to do it yourself.

Speaker 6

Perfect. Thank you.

Speaker 7

Next question, please.

Operator

Our next question comes from Keith Weiss with Morgan Stanley.

Speaker 6

Excellent. Thank you for taking

Speaker 5

the question guys and really impressive quarter. I think Brad had a really good point earlier that investors are more and more looking at sort of your CapEx intentions and looking at data center accounts, frankly, as a leading indicator of growth for Oracle. So I was hoping you could update us on that. And maybe digging into that data center side, Senior Vice President. Capacity expansions isn't just in data center expansions, you could expand within data centers as well.

Speaker 5

Can you help us think about how we should think about overall capacity Vice President and CEO of the Board of Directors. Thank you. Thank you. Thank you.

Speaker 2

Thank you.

Speaker 3

I guess I'll take that. I'll get started with that. Well, first of all, the public Database and data centers are the ones that we announced that are up and running. Of course, we have many in the offing. Vice President.

Speaker 3

We also have, as Larry talked about, private regions for certain customers. But in addition, Vice President. We've made very significant investment in government, especially United States government focused data centers. And I'm sure you've seen that we've been invited to submit for the JWCC. We also have data centers at different levels of security for different government Vice President of the Board of Directors and those we don't generally announce.

Speaker 3

So you don't see those.

Speaker 2

Vice President. What you

Speaker 7

do see is the fact that we

Speaker 3

have invested ahead of revenue, and we invest when we see revenue potential. Vice President. We have been rolling out on track, so we feel very good about it. We have just continued to make sure we have capacity for customers and some customers start in one data center. And when we opened in their countries, they moved to those and that's working out for us.

Speaker 3

We have Vice President. A lot of demand worldwide and you're going to see us make these investments as I've guided for the whole year.

Speaker 6

Thanks, Jenny. Super helpful. Thank you.

Operator

President. Our next question comes from Mark Moerdler with Sanford Bernstein.

Speaker 8

Thank you very much. I'm going to follow-up on Vice President. The discussion on OCI Gen 2. Oracle's dedicated regions seem to be reasonably unique offerings And a different spin on the hybrid cloud, which the largest hyperscale providers are not offering. Can you explain how you're able to deliver this Successfully and with good margins and why others cannot?

Speaker 8

And can you give us any sense of how large do you see that opportunity? Thanks.

Speaker 2

Vice President.

Speaker 4

Yes, I'll take a crack at that one. Well, everyone says we're late to the party, so we saw what everyone else built. In fact, we built 2 versions of our cloud, right? We built version 1, which President. As we had a chance to re architect it, we were sensitive to we needed special super high security zones for government.

Speaker 4

Vice President. We need to build a lot of data centers and the magic to building a lot of data centers is twofold. 1 is Vice President. Compressing the software to a smallish number of servers, but that's really not it. It's really the autumn at being able to operate all a lot of Smaller data centers, without people or with very few people.

Speaker 4

Think about what Elon Musk did with his satellite System. Why was he able to build a low earth orbiting satellite system and nobody else and a lot of other people have tried, but no one else could? Because he figured out he built a software to manage thousands of satellites. No one else could do it. NASA couldn't do it, other people couldn't do it.

Speaker 4

That's why they kind of failed in the past. We our automation software for rolling out Vice President and Managing a large number of data centers is very different software that you would build for managing a Small number of super large data center where you had a lot of people. So we've relied much more heavily on automation President and CEO of the Board of Directors to do this and Saporito is all about it because it wasn't easy. It took us a while and we were worried about and we've made a bunch And the only way we could meet all of those commitments was to have fully automated lights out data center, cloud data centers. Vice President.

Speaker 4

And we the team did a fantastic job prioritizing that automation. And that's Board. That automation software is what allows us to have a large number of data centers rather than a small number of large data President. It's just a different suite of software to do it, to manage it.

Speaker 3

Barry, why don't you comment Board. Also on the private data centers that are truly a full cloud, President, but at customer. So

Speaker 4

Yes, that is a lot of people talk about they talk about I think it's hilarious. I hear people talk about hybrid cloud. Vice President. So a hybrid cloud means there's someone's public cloud and then whatever you have in your data center is the hybrid. This is ridiculous.

Speaker 4

That's not a cloud. Vice President. People say, well, that's the most common cloud there is, whatever you got plus some link to a public cloud. That is not a hybrid cloud. We offer the identical hardware, the identical automation software.

Speaker 4

Vice President. We'll put a region. It runs all of our apps, runs all of our services, 100% of them. And we'll put it in your data center. We can do that now because we can run that.

Speaker 4

We can run we have the automation software to run that on your floor behind your firewall. Vice President. We can build that. So it's true. So our notion of a hybrid cloud is basically the same thing, Vice President, but it's located on your data center floor behind your firewall with high speed network interconnects where you're comfortable and feel safe, Vice President of the United States.

Speaker 4

Safer than if you were in the public cloud. That's the only hybrid y thing about it. Otherwise, it's exactly the same thing. You can move a workload from the public from a public cloud into your private region and the back out of your private region back in the public cloud.

Speaker 2

Vice President. They are

Speaker 4

identical in every way except for the security protection and some firewalls in your private data center. That's a real hybrid cloud. The other guys don't have it.

Speaker 8

That makes a lot of sense. I really do appreciate and congratulate on the strong quarter.

Speaker 4

President. Thank you.

Operator

Our final question comes from Phil Winslow with Credit Suisse.

Speaker 9

President. Hi, guys. Thanks for taking my question and congrats on a great quarter and outlook. In a quarter where a lot of numbers jumped out, I mean the one that jumped out to me The license growth year over year, I had to go back 9 years. My model defined a quarter that was actually higher than this.

Speaker 9

And obviously, when I think about license for Oracle. I would assume it's being driven by the database business. And then when you think about that By the way, I'm

Speaker 4

really glad you said that. That's what it is. I mean, think about it. I mean, Mark Benioff over at salesforce.com, they run their business, their cloud business entirely on Oracle. Now we do it.

Speaker 4

People say, well, that's not cloud revenue. You just licensed that revenue. Well, it's the Oracle database running all of Salesforce's cloud. Vice President. And we don't count and you're right, we don't count that as cloud revenue.

Speaker 4

We count that as license revenue. But is that modern cloud application? I think so. But again, the license stuff is being driven by the use of our database in some very large clouds.

Speaker 9

That's great. That partially answers one of my questions. But when you think about that license and your example of that, for example, like Salesforce together with just The cloud services and the acceleration you see there. I mean, just that overall business seemed to accelerate during Vice President. And I'm thinking about some of the other smaller competitors in the space, they've seen acceleration as well.

Speaker 9

So I guess sort of my question is, there Seems to be something going on in the data world, the data infrastructure stack. And obviously, when Oracle moves at your scale at these percentages, There definitely seems to be something going on. So what is that and how do you think about the sustainability of those drivers?

Speaker 2

Vice President.

Speaker 7

Larry, it's

Speaker 3

either you or me. We're going to talk about data. I mean, listen, this is not new news in that what is going on is Getting insights from data, being able to capture large amounts of data and analyzing it. And of course, that's and so much of it is in Oracle. We're the ones who can handle high performance, high reliability requirements.

Speaker 3

And the Oracle database continues to grow. But in addition, we have the other technologies that are also doing very well. Java continues to be incredibly strong and is leading application development environment. So but remember, when people buy the Oracle database licenses, they can bring those to our cloud. And that's a very economical way to operate.

Speaker 3

And really what's going on is huge amounts of data President and CEO of the Board of Directors. And when it's important data, especially data you want to use for analysis, for data warehousing for transactions. You're going to pick Oracle and 9 times out of 10. And so This is great for us. And of course, as more businesses just digitize, This just draws more of our technology.

Speaker 4

Yes. And I'll say that as SAP quote moves their applications to S4HANA in the cloud and they do what I call hosting and they call cloud. The vast majority of those SAP databases do not run ANA. Way over 95% of them still run Oracle. Awesome.

Speaker 4

Thanks, guys. It's a big business for us even when it migrates to the cloud. I mean Amazon has customers that have taken their Oracle database licenses and they're running those Oracle database licenses in the cloud. So license does not mean on premise and license does not mean the cloud. It can It's a bit of a it's a mixed bag, right?

Speaker 4

Some of that license revenue and most of the new license revenue is on its way to the cloud.

Speaker 6

President. Great. Thank you, Larry.

Speaker 1

A telephonic replay of this conference call will be available for 24 hours on the Investor Relations website. Thank you for joining us today. And with that, I'll turn the call back to Erica for closing.

Operator

President. Thank you for joining today's Oracle's Q2 2022 earnings conference call. We appreciate your participation. You may now disconnect.

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Earnings Conference Call
Oracle Q2 2022
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