Yahoo Finance Oracle Corporation (NYSE:ORCL) Q4 2024 Earnings Call Transcript
Oracle Corporation (NYSE:ORCL) Q4 2024 Earnings Call Transcript June 11, 2024
Oracle Corporation misses on earnings expectations. Reported EPS is $1.63 EPS, expectations were $1.65.
Operator: Thank you. 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.
Ken Bond: 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 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 the Investor Relations website. On the call today are Chairman and Chief Technology Officer, Larry Ellison, and Chief Executive Officer, Safra Catz. 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.
Safra Catz : 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 net suite. 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 rates.
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 [0.4] (ph) years ago, and you've seen it continue to play out in our results since then. As a reminder, we accelerated our US dollar revenue growth rate from negative one in fiscal year [2020] (ph) 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 product. These cross-pillar cloud deals or suite deals, focus on business process reengineering 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 launch. 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 rollout. 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, multi-cloud, sovereign clubs, 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 2025 and beyond.
Okay. So let's start. In Q4, the dollar strengthened from the time of my Q4 guidance, so we saw a 1% currency headwind to total revenue and a $0.01 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 SaaS plus IaaS, excluding Cerner, was $4.7 billion up 23%, including Cerner, total cloud revenue was up 20% at $5.3 billion. And SaaS 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 were 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 Gen2 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 [SaaS] (ph). Consistent with our strategic direction and reflecting customer preference for cloud services, software license revenues were down 14% and to $1.8 billion. So all in, total revenues for the quarter were $14.3 billion. That's up 4% if you include Cerner, up 5% excluding Cerner. Shifting to margins. The gross margin for cloud services and license 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 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 license 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 pretax 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 license support revenue, which is entirely subscription-based and accounts for nearly [3/4] (ph) of total revenue was $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] (ph). SaaS 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 payments. 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. 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 plant. Of course, we also have many, many, many cloud customer installations as I mentioned earlier, the sizing and flexibility and -- the size 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 $0.40 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 2024. Also, I will no longer 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 margin, it's not necessary to break it out anymore and 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 2025 cloud infrastructure services to grow faster than the 50% we reported this year. CapEx In fiscal year 2025 will probably be double what it is in fiscal year 2024 -- what it was in fiscal year 2024. Okay. Beyond this fiscal year, I remain firmly committed to our fiscal year 2026 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. Okay. 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 $0.01 or $0.02 negative on EPS in Q1.
However, as you all know, actual currency impact may be more or less, I just can't get 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.
Larry Ellison: Thank you, Safra. I'm going to start by repeating something Safra said. In Q4, Oracle's company-wide RPO increased 44% to $98 billion. In AI alone, we signed contracts with 30 different customers for $12.5 billion in new AI business. These astonishing RPO numbers 44% and $98 billion were driven by massive increases in sales of Oracle Cloud Infrastructure, OCI. So who are the companies choosing to use Oracle Cloud Services and Oracle data centers. Well, here are a few names: NVIDIA, Microsoft, Google, X AI, Open AI, coherent dozens more. In other words, the world's largest cloud companies and the world's most successful and accomplished AI companies choose to use Oracle cloud services and data centers. So can -- so why are they working with Oracle, because Oracle's Gen 2 cloud infrastructure is different.
OCI's area network moves data much faster. And when you charge by the minute, faster also means less expensive. OCI trains large language models several times faster and at a fraction of the cost of other clouds. OCI’s Critical cloud software, the operating system and the database are fully Autonomous. At OCI, human beings do not run the operating system or the database, Autonomous software robots do. No one else has this level of autonomy in the cloud. Eliminating human labor eliminate human error. Almost all cloud security breaches begin with human error, eliminating the possibility of human error is the only way to make certain your cloud data is not stolen. That's it. The most important technology companies in the world are using OCI because it's faster, less expensive and more secure.
Easy to say, not easy to do. Back to you, Ken.
Ken Bond: Thank you, Larry. Chris, if you could please poll the audience for questions, we'll begin the Q&A portion of the call.
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