Oracle (ORCL) Q1 2025 Earnings Call Transcript

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Oracle (ORCL -1.35%)
Q1 2025 Earnings Call
Sep 09, 2024, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Oracle Corporation Q1 fiscal year 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator instructions] I would now like to turn the conference over to Ken Bond, head of investor relations.

You may begin.

Kenneth Bond — Senior Vice President, Investor Relations

Thank you, Sarah, and good afternoon, everyone, and welcome to Oracle’s First Quarter Fiscal Year 2025 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 our 10-Q and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the marketplace 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 Ada Catz — Chief Executive Officer

Thanks, Ken, and good afternoon, everyone. Before I go to our Q1 numbers, I thought I’d take only a moment to review some of the things that you’ll be hearing about over the next couple of days from Oracle. We are at CloudWorld in Las Vegas, and CloudWorld is where we come together with our customers and partners, share experiences, and showcase our latest products and services. Our customers are our best spokespeople when they share how our technologies transform their enterprises.

The innovations from our labs and research centers in combination with feedback from our customers have helped us build superior products and services. You’ll hear about new cutting-edge features within OCI, Database, Analytics, Fusion, NetSuite, and our industry applications. We will also be showing new capabilities that we’ve been working on for a while, including embedded AI agents in Fusion and those drive productivity and efficiencies for our customers when they’re rolled out. And as an Oracle Fusion customer myself, I take great pride once again in my team’s ability to have us announce earnings and give guidance nine days after the quarter ended.

Many, many of our customers ask us how to replicate our results. And at CloudWorld, we will be having a lot of Oracle playbook conversations this week. You’ve already seen today’s announcement of our partnership with Amazon Web Services, which has now joined Microsoft Azure and Google Cloud in making OCI and Oracle available in their respective clouds. Needless to say, we think our multi-cloud strategy will expand the ubiquity and popularity of our differentiated technologies, especially the Oracle Database.

Larry will share more details in just a moment. But now to Q1, which was clearly another outstanding quarter, with total revenue at the high end of my guidance and earnings per share, $0.04 above the high end of guidance. Currency was essentially in line with my guidance. And as usual, I’ll be discussing our financials using constant-currency growth rates as this is how we manage the business.

Total cloud revenue for SaaS and IaaS was up 22% at $5.6 billion, with SaaS revenue of $3.5 billion, up 10%; and IaaS revenue of $2.2 billion, up 46%, on top of the 64% growth reported last year. As a reminder, we exited the advertising business last quarter, which had the effect of lowering the total cloud applications revenue by 2% this quarter. Total cloud services and license support for the quarter was $10.5 billion, up 11%, driven again by our strategic cloud applications, autonomous database, and OCI. Application subscription revenues, which include product support were $4.8 billion and up 7%.

Our strategic back-office SaaS applications now have annualized revenues of $8.2 billion and were up 18%. Infrastructure subscription revenues, which include license support, were $5.8 billion and up 14%. Infrastructure cloud services revenue was up 46% and up 49% when you are excluding our legacy hosting services. Our infrastructure cloud services now have an annualized revenue of $8.6 billion, OCI consumption revenue was up 56% and demand continued to outstrip supply.

Cloud database services, which were up 23% now have annualized revenues of $2.1 billion. Very importantly, on-premise databases migrate to the cloud, on OCI directly or through our database at cloud services with Azure, Google, and AWS. We expect those cloud database revenues collectively will be the third leg of revenue growth alongside OCI and strategic SaaS. Database subscription revenues, which include database license support, were up 4%.

Software license revenues were up 8% to $870 million, including Java, which saw excellent growth. So all in, total revenue for the quarter were $13.3 billion, up 8% from last year. Shifting to gross profit and operating income. The gross profit dollars of cloud services and license support grew 9% in Q1 as our cloud businesses continue to scale the gross margins of both cloud applications and cloud infrastructure has each been climbing higher.

We continue to display operating expense discipline, Q1 operating income growing 14% and the operating margin was 43%. The non-GAAP tax rate for the quarter was 18.9% with non-GAAP EPS at USD 1.39, up 17% in USD, up 18% in constant currency. The GAAP EPS was USD 1.03, up 20% in USD and up 22% in constant currency. Including in my guidance at the beginning of the quarter was the expected completion of an assessment of the useful lives of our servers and networking equipment, including an increase of the estimated lives from five years to six years effective at the beginning of this fiscal year.

Lawrence Joseph Ellison — Chairman and Chief Technology Officer

Well, I couldn’t thank you more for the question because I have two things I’m talking about a CloudWorld on Tuesday. One is multi-cloud and the other is security. And let me announce right here, we’re done with passwords. The idea is utterly ridiculous.

They’re easily hacked. The more difficult they are to remember, the more likely you are to write them down, the more likely they are to be stolen. Everything done to make passwords better has made them worse. It’s a terrible idea.

So we’re getting rid of passwords entirely. This is the way log on is going to work. I’m going to type in larry.ellisonoracle.com, the computer is going to look at me and say, “OK, Larry, we’re done. Why would I type in Safra can recognize me.

My kids can recognize me. You’re telling me the computer can’t recognize me in and log me in? This is ridiculous. So we’re not — no more passwords. Those have got to go.

There are other things we can do to secure network communications, and we have this new technology actually goes live in our cloud this week called Zipper, it’s called Zero Trust Packet Routing, that I’ll be talking about. And it guarantees the — while biometric authentication will guarantee that you are who you say you are when you log in. So, we’ll know so users — fraudulent users will find it very difficult to infiltrate our systems with biometric authentication. And by the way, there are keys on the keyboard that will look at your fingerprint.

It depends on how — if you want face recognition plus fingerprints, all voluntary. You don’t have to do it if you don’t want to. But certainly a whole bunch of people prefer biometric authentication. That’s why Google Pay is popular and Apple Pay is popular.

So it’s from my convenience. I don’t want to remember passwords. Look at me and recognize me and log them in. Don’t ask me to type in some stupid 17 letter password, that someone can steal.

There is that. The Zero Trust packet routing actually authenticates you from the user all the way to the data. And we’ve greatly simplified network security by separating it from network configuration. That’s another thing I’m going to talk about.

But by the way, let me go back to automation. Automation is more of a security issue than it is an efficiency issue. Automated cars, self-driving cars will kill a lot fewer people every year than human drivers. They don’t get drunk.

They don’t go 135 miles an hour. Automation is a safety issue and a security issue. Almost all cyberattacks begin the same way with human error. If there is no Oracle database administrator as there isn’t with the autonomous database, the DBA cannot make a configuration mistake that exposes your data.

you can’t have a human being involved if you want to make your data secure. Autonomy is a huge portion of it. And the fourth piece of security that I’ll talk about is code generation. When you generate a computer program rather than hand write it in Java, hey, we’re the owners of Java or I don’t know.

Maybe the Supreme Court said we’re not the owners of Java. I’m not sure. I’m not sure what it even means. I’m not a lawyer.

But if the computer generates the program rather than a human being writing it, the computer will not generate security vulnerabilities. They will not generate something called state which means your application can’t fail over automatically in case your data center loses power or burns down or something like that. Code generation is a huge portion of next-generation security. Zero trust packet routing is another important one biometric authentication and automation are the four key attributes to winning the cyber war.

It’s going to be our defensive robots against their robots, and we have to have better technology on the defensive side than they currently have on the offensive side because they are winning. I mean every year, there’s more successful cyberattacks. And you know what the FBI says when you’re attacked, “Pay the ransom. There’s nothing we can do about it.” Well, that’s not very encouraging.

I have an idea. Let’s keep the ransom money, but implement next-generation technology that makes it much harder for cybercriminals. And by the way — and it’s not so bad with cyber criminals now compared to what state actors have the ability to do. So we have to harden our computer systems.

We have to make them more secure. The good news is there is a whole new generation of AI-based security systems like biometric authentication, like zero-trust packet routing that we can use to stop these attacks, but we have to actually deploy the technology.

Brad Zelnick — Analyst

Amazing. Larry, look forward to learning more this week in Vegas.

Kenneth Bond — Senior Vice President, Investor Relations

Thank you, Brad. Thank you, Larry. A telephonic replay of this conference call will be available for 24 hours on our investor relations website. Thank you for joining us today.

And with that, I’ll turn the call back to Sarah for closing.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Kenneth Bond — Senior Vice President, Investor Relations

Safra Ada Catz — Chief Executive Officer

Lawrence Joseph Ellison — Chairman and Chief Technology Officer

Ken Bond — Senior Vice President, Investor Relations

John Difucci — Analyst

Safra Catz — Chief Executive Officer

Larry Ellison — Chairman and Chief Technology Officer

John DiFucci — Analyst

Mark Murphy — Analyst

Raimo Lenschow — Analyst

Mark Moerdler — Analyst

Derrick Wood — Analyst

Brad Zelnick — Analyst

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