Oracle Corporation, Q3 2024 Earnings Call, Mar 11, 2024 - NYSE:ORCL

NYSE:ORCL

During the Oracle Corporation Third Quarter Fiscal Year 2024 Earnings Conference Call, Ken Bond, the Senior Vice President of Investor Relations, made the following statements:

1. Introduction:

   • Thanked the operator and welcomed everyone to the call.
   • Noted that the press release and financial tables, including GAAP to non-GAAP reconciliations and other supplemental financial information, are available on the Investor Relations website.
   • Mentioned that a list of customers who purchased Oracle Cloud Services or went live on Oracle Cloud recently will be available on the Investor Relations website.

2. Participants:

   • Introduced Lawrence J. Ellison, Co-Founder, Chairman & CTO, and Safra Ada Catz, CEO & Director, as participants on the call.

3. Forward-Looking Statements:

   • Reminded listeners that the discussion would include forward-looking statements, including predictions, expectations, estimates, and other information that might be considered forward-looking.
   • Provided important factors relating to the business that may potentially affect these forward-looking statements.
   • Noted that the forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements being made.
   • Encouraged listeners to review the most recent reports, including the 10-K and 10-Q, and any applicable amendments, for a complete discussion of these factors and other risks affecting future results or the market price of the stock.
   • Stated that Oracle is not obligating itself to revise results or forward-looking statements in light of new information or future events.

4. Call Structure:

   • Announced that there would be prepared remarks followed by a question-and-answer session.
   • Turned the call over to Safra Catz for her prepared remarks.

5. Technical Difficulty:

   • Experienced a technical issue during the call and asked the operator to poll the audience for questions after Safra and Larry had completed their prepared remarks.

6. Closing:

   • Thanked the participants for joining the call.

   • Noted that a telephonic replay of the conference call would be available for 24 hours on the Investor Relations website.

   • Turned the call back to the operator for closing.

During the Oracle Corporation Third Quarter Fiscal Year 2024 Earnings Conference Call, Safra Ada Catz, the CEO & Director, provided a detailed overview of the company's performance and outlook. Here is a summary of her statements:

Opening Remarks

• Oracle had an excellent quarter, with revenue and earnings per share (EPS) exceeding expectations.
• Highlighted the strength of Oracle's Infrastructure Cloud (OCI) business, which is driving overall revenue acceleration.

OCI Strength

• OCI is growing much faster than Oracle's cloud competitors.
• Customers choose OCI for its superior price-performance, comprehensive security, and unparalleled support.
• Oracle's AI capabilities are integrated across its Fusion and industry cloud applications and Autonomous Database, enabling customers to drive business outcomes while retaining control of their data.
• Oracle provides deployment flexibility, offering public cloud services, dedicated regions, sovereign clouds, and Alloy (partner cloud).
• Oracle provides multi-cloud offerings, allowing customers to consume Oracle cloud services in the public cloud of their choice.

Q3 Results

• Total revenue was at the midpoint of guidance, and EPS exceeded the high end of guidance.
• Cloud revenue (excluding Cerner) was $4.4 billion, up 26%. Including Cerner, total cloud revenue was up 24% at $5.1 billion.
• IaaS revenue was $1.8 billion, up 49%, and SaaS revenue was $3.3 billion, up 14%.
• Total cloud services and license support revenue was $10 billion, up 11%, driven by strategic cloud applications, Autonomous Database, and OCI.
• Application subscription revenues (including product support) were $4.6 billion, up 10%.
• Strategic back-office SaaS applications had annualized revenue of $7.4 billion, up 18%.
• Infrastructure revenues (including license support) were $5.4 billion, up 13%.
• OCI Gen2 infrastructure cloud services revenue grew 52% with an annualized revenue of $6.7 billion.
• OCI consumption revenue was up 63%.
• Database subscription revenue (including database license support) was up 5%, with cloud database services up 34% and annualized revenue of $1.9 billion.
• Software license revenues were $1.3 billion, down 3%.
• Total revenues for the quarter were $13.3 billion, up 7% including Cerner and up 9% excluding Cerner.

Margins

• Gross margin for cloud services and license support was 77%.
• IaaS gross margins improved substantially year-over-year.
• Gross profit dollars of cloud services and license support grew 8% in Q3.
• Non-GAAP operating income was $5.8 billion, up 12% from the previous year.
• Operating margin was 44%, up from 42% the previous year.

Financial Highlights

• Non-GAAP tax rate for the quarter was 18.9%, and non-GAAP EPS was $1.41, up 16%.
• GAAP EPS was $0.85.
• Cash and marketable securities were nearly $9.9 billion.
• Short-term deferred revenue balance was $8.9 billion, up 4%.
• Operating cash flow over the last four quarters was $18.2 billion, up 18%.
• Free cash flow was $12.3 billion, up 68%.
• Remaining Performance Obligation (RPO) was over $8 billion, with the portion excluding Cerner up 41% in constant currency.
• Capital expenditures (CapEx) for the quarter were $2.1 billion, and expected to be around $7 billion to $7.5 billion for the fiscal year.
• Oracle has 68 customer-facing cloud regions live, with 47 public cloud regions around the world, 11 dedicated region slots, and 13 more planned.
• Oracle has 2 Alloy cloud regions live, with 5 more planned.

Shareholder Value

• Oracle is committed to returning value to shareholders through technical innovation, acquisitions, stock repurchases, prudent use of debt, and dividends.
• Oracle repurchased 4 million shares for a total of $450 million.
• Paid out dividends of $4.4 billion over the last 12 months.
• Board of Directors declared a quarterly dividend of $0.40 per share.

Outlook

• Demand for Oracle's cloud services is strong, and the pipeline is growing.
• Total revenue (excluding Cerner) is expected to accelerate in FY '24 and likely be significantly higher in FY '25.
• Cerner is expected to return to growth next year.
• Committed to FY '26 financial goals for revenue, operating margin, and EPS growth, which may prove to be conservative given the current momentum.

Q4 Guidance

• Total revenues (including Cerner) are expected to grow from 4% to 6%.
• Total revenue (excluding Cerner) is expected to grow 6% to 8%.
• Total cloud revenue (excluding Cerner) is expected to grow from 22% to 24%.
• Non-GAAP EPS is expected to be down 2% to flat, between $1.62 and $1.66.

Closing Remarks

• Reiterated the firm's commitment to delivering on its financial targets.

• Thanked the participants for joining the call.

During the Oracle Corporation Third Quarter Fiscal Year 2024 Earnings Conference Call, Lawrence J. Ellison, Co-Founder, Chairman, and CTO, provided insights on various aspects of the company's performance and strategy. Here is a detailed summary of his comments:

Key Points by Lawrence J. Ellison

1. NVIDIA Contract and AI Infrastructure Business:

   • Oracle signed a significant Generation 2 cloud infrastructure contract with NVIDIA.
   • Oracle's Gen2 AI infrastructure business is experiencing strong growth.
   • Oracle is reengineering its industry-specific applications to fully leverage generative artificial intelligence, particularly in healthcare.

2. AI-Centric Healthcare Applications:

   • Oracle developed new healthcare applications using the APEX application generator and Autonomous Database.
   • The new ambulatory clinic system features a voice interface called the clinical digital assistant, which automates tasks such as generating prescriptions, doctors' orders, and updating electronic health records.
   • The delivery of these AI-centric healthcare cloud applications will enable rapid modernization of customers' healthcare systems and transform Oracle Health and Cerner into a high-growth business.

3. Data Center Expansion and Automation:

   • Oracle is building data centers at a record pace, with some being among the largest AI data centers in the world.
   • All Oracle data centers are identical in design but vary in scale.
   • Oracle's data centers are highly automated, using autonomous Linux and Autonomous Database.
   • Oracle is building 20 data centers for Microsoft and Azure, and additional multi-cloud agreements are being signed.

4. Cerner Integration:

   • Most of Cerner's operations are now running on Oracle Cloud Infrastructure (OCI).
   • Moving Cerner to OCI resulted in significant cost savings.
   • OCI provides a highly secure environment, reducing vulnerability to ransomware attacks.
   • Oracle can now update Cerner applications on a regular 3-month cadence, allowing for the rapid modernization of Cerner's infrastructure.

5. Multi-Cloud Strategy:

   • Oracle expects the era of walled gardens to end, with customers preferring the ability to use multiple clouds that can communicate with each other.
   • Oracle is expanding its multi-cloud initiatives, including partnerships in Japan and with other hyperscalers.
   • Oracle believes this will preserve and expand its franchise in the database market, particularly with the Autonomous Database.

6. Alloy Cloud and International Demand:

   • There is significant international demand for Alloy, Oracle's partner cloud, especially in markets concerned with data sovereignty.
   • Oracle sees strong interest from governments and large companies seeking sovereign clouds.
   • Oracle is negotiating sovereign regions with national governments and expects to have more data centers than all other hyperscalers combined.

7. National Government Solutions:

   • Oracle is providing comprehensive solutions for national governments, including healthcare automation, Internet connectivity, and agricultural planning.
   • Oracle collaborates with Starlink to deliver affordable Internet services to rural areas.
   • Oracle uses AI to create national agricultural maps and assist with food security.
   • Oracle leverages generative AI to help countries harmonize their laws with the EU more efficiently.

These insights highlight Oracle's strategic direction in leveraging AI, expanding its cloud infrastructure, and addressing the evolving needs of its customers, including governments and large enterprises.