Welcome to Oracle's Fourth Quarter 2018 Earnings Conference Call. Now I'd like to turn the call over to Ken Bond, Senior Vice President. Sir, you may begin.

Thank you. Good afternoon, everyone, and welcome to Oracle's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. A copy of the press release and financial tables, which includes the GAAP to non-GAAP reconciliation and other supplemental financial information, can be viewed and downloaded from our Investor Relations website. On the call today are: Chairman and Chief Technology Officer, Larry Ellison; and CEOs Safra Catz and Mark Hurd. 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 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 publicly release any revisions to 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.

Thanks, Ken. Good afternoon, everyone. We had a terrific quarter and a tremendous number of wins in the cloud, with total revenue growth 1 point above the high end of my guidance, and earnings per share $0.05 above the high end of my guidance. Before further discussing our Q4 results, I'd like to comment on updates we've made to our financial reporting, so as to better describe our business since we introduced the BYOL license initiative to our customers. BYOL, which is bring your own license, allows customers to move their existing on-premise licenses to the Oracle Cloud so long as they continue to pay support for those licenses. BYOL also makes it cost effective for customers to buy new licenses even if those licenses are only going to be used in the cloud. So some of our customers are buying new licenses and immediately deploying them in the cloud. In fact, our largest license sale in the quarter was a cloud license. Other customers, like AT&T in the release, are moving their existing licenses -- excuse me, moving the existing licenses they own to the cloud, while continuing to pay support. Support for licenses that have been moved to the cloud is Cloud Support. As a result, our new License revenue is now a combination of new cloud licenses and new on-premise licenses. Our Support Revenue is now a combination of cloud license support revenue and on-premise license support revenue. To reflect these changes in our business, we have now labeled new software licenses as Cloud License and On-Premise License. And we've combined cloud SaaS, plus cloud PaaS and IaaS, plus software license updates and product support into Cloud Services and License Support. So to say it another way, customers are entering into large database contracts where some of…

Thanks, Safra. I thought for a change I'd just start by listing off cloud wins in Q4. Let's start with ERP. Let me just run through some of these brands: BAE; Baylor University; Cerberus Capital Management; Con Ed; Cox Communications; Danaher; Facebook; General Dynamics; Genuine Auto Parts; Intel; Johnson & Johnson; Kohl's Department Stores; Land O'Lakes; Marsh & McLennan; Mount Sinai Health System; Pernod Ricard; Scholastic Corporation; Siemens; Cleveland Clinic; Time, Inc.; United Parcel. These can be modules. In many cases, we're replacing in for SAP. Some cases, upgrading our user [ base. ] This was a fantastic ERP quarter, and not just in volume, but the quality of the brand. Let me turn to HCM. Before I go into detail, let me just say, every win is versus Workday, full SOP: Akamai; AT&T; Baylor University. As you can tell, that was a dual ERP HCM win. You'll hear a few of those: City of Jacksonville; Con Ed; Delta Dental; First Data; Grupo Televisa; Ingersoll-Rand; Juniper; Lawrence Berkeley National Lab; ManpowerGroup; Mount Sinai Health System, again, a dual win if you will; Noble Energy; Providence St. Joseph Health; Sumitomo Heavy Industries; Sherwin-Williams; Time, Inc.; Toyota Motor; University of Wisconsin; DeBra Technologies. A lot of wins. And I'm -- I have more, I just don't have time. It was that sort of quarter for us. As it relates to platform, 2 very significant ISVs have gone live in production with us. One, Manhattan Industries. And one of the largest networking ISVs of the world have made significant commitments to production and non-production workloads that are now live on our cloud. We beat AWS head-to-head on price, performance and breadth of services for these wins. There's a little bit of mention of AT&T. I thought I'd give you an update on AT&T.…

Thank you, Mark. We've just about finished enabling all of our SaaS, PaaS and IaaS cloud services to run alongside each other in our new second-generation bare metal data centers. This consolidation of all 3 categories of cloud services, SaaS, PaaS and IaaS into a single standard data center, allows us to share assets while giving significant -- while giving a significant economies of scale. As a result, we expect continued expansion of our cloud margin. But just as important, to have SaaS, PaaS and IaaS in the same data center makes it easier for our Fusion customers to extend those SaaS applications using our latest PaaS and IaaS technologies and capabilities. As an example, we recently demonstrated how one of our customers used our mobile service, our cloud global service, our cloud voice service and our cloud machine learning service to extend our Fusion HCM system with an Amazon Alexa voice interface for vacation requests and vacation approval. We've developed these new technologies, machine learning, voice and mobile, so we could voice-enable all of our applications. And we're putting those voice systems, a combination of chat bots, voice, all machine learning-driven, we're putting those voice interfaces as the next generation of our UI for Fusion ERP and Fusion HCM. The technologies that we use to add to voice interfaces to Fusion HCM and Fusion ERP are available as PaaS services in our cloud to our customers. So if there's something they want to add to Fusion ERP or HCM, they could do it using the same tools we use to build the applications in the first place. We think that's a big deal. We think having SaaS, PaaS and IaaS all integrated together in the same data center is a key differentiator between Oracle and our cloud competitors, most of whom are focused primarily on SaaS only or primarily on IaaS only. With that, I guess, we'll open it up for questions.

Thank you, Larry. Operator, if you please prepare the audience for Q&A. Thank you.

[Operator Instructions] Our first question comes from Brad Zelnick with Crédit Suisse.

Mark, I think it's fair to say everyone's very surprised by 9% database license growth in the quarter. I want to make sure I heard that right, and that overall database ecosystem growth accelerated in Q4, and this is even without autonomous database fully available just yet. So my question, how much of this is just customers purchasing ahead and buying into the strategic road map? Or are there other factors we should consider?

First of all, you got those numbers right, so I'm glad, because I -- it means I said it right. And we did see acceleration in the quarter. And I think it's all of the above. And again, it's back to the point of we've had good demand sort of across the board. And the other point I tried to make, and I went through the numbers relatively quickly, was the option number. The option number in the quarter was mid-double digits, the necessary options to enable autonomous database. And I think, Brad, that's again a key number, and back to the fact that this represents to us whether that shows up in cloud revenue or license revenue. You see it start to show up in both numbers. For example, we had a really cool win in the quarter that I just ran out of time to mention it, Ford. Ford was literally a BYOL customer or a BYOL transaction in the context of it was a combination of license deal and cloud deal that in the sense of cloud, the way we would have historically reported cloud revenue at the same time. And again, as I mentioned in my prepared comments, you're just, Brad, beginning to see the beginning of autonomous database. While we've been talking about it, we went really GA with autonomous database data warehouse in the beginning of Q4, so it's just beginning to show up in our pipeline. So to all of your points, the numbers in Q4 show numerically the progress. And certainly, what we begin to see now in our pipeline is now the technology is literally rolling out. We're in hundreds and hundreds of trials and proof of concepts, and those are of course the beginning stage of all of this. So that -- we're pretty encouraged, and certainly the fact that it showed up in Q4 numbers is encouraging as well.

Excellent. Just a quick follow-up for Safra. Safra, it's great to see double-digit EPS growth back on the table for fiscal '19. Can you just remind us what your assumptions are that get you there, particularly on the buyback?

I don't usually give guidance on the buyback, but we view our stock as very inexpensive, and we're -- we view it as something in the range of where we've been lately.

Our next question comes from the line of Sarah Hindlian with Macquarie.

My first -- my question is for Larry. Larry, what you're talking about is AT&T is clearly rolling out. But the one thing I want to understand better, I'd like to understand a little bit better customer demand and adoption trends, too. But I'd also like to hear a little bit about how more regular annual database updates versus what I would consider historically to be more large and monolithic upgrades, if that can actually change any software buying patterns of the customer and if that's something you're starting to see or thinking about?

Well, let's see. I think, we used to have a real -- let's say, a few years ago, you could expect a major database release every 2.5 years. Something like that was the cycle. Clearly, we're -- and when a new database release came out, that often spurred a certain degree of buying. Now we're -- we -- keep in mind, we still have a major database release coming out periodically, but it's going to come out in the -- because of the cloud now, it comes out a bit more frequently, and a lot of -- the autonomous features are being added very rapidly. For example, we came out with -- I guess, we went GA, as Mark pointed out, GA and autonomous database at the beginning of Q4. We will have our simple -- autonomous transactional OLTP system, we will call it something -- or a combination of OLTP and data warehouse integrated coming out in the next month or so. And then, a couple of months after that, we're going to have the high-performance, high-reliability OLTP system coming out. So some of the -- the autonomous features are coming out at a more rapid rate than some of the more mature features in the database. Those features that are aimed primarily at the cloud are going to be delivered at a higher rate -- I don't -- I hope that answers your question, than we have historically...

Yes, that does. Yes, that does. I appreciate it.

Our next question comes from the line of Phil Winslow with Wells Fargo.

Just a question to the team here. On the Q1 call, you talked about the legacy IaaS business versus the new IaaS business. And then, on the Q3 call, you talked about your legacy SaaS versus the newer SaaS products. And Mark, obviously, you gave some color on the newer ones in your prepared remarks. But hoping you'd just give us a little more detail, sort of just the trends that you're seeing there, call it new versus legacy IaaS and SaaS. And how are you thinking about sort of the criss-cross points there with the newer businesses that are growing quickly, sort of get big enough and keep growing fast enough to sort of offset whatever you're seeing on the legacy front?

Is it for me or for Mark?

Jump ball.

Well...

I'm taller, so I'll start. But I think you hit it right, Phil. I mean, listen, just to give you an example, I gave you 2 wins. I named Manhattan and a new ISV that's, I think, I used the term big networking company. That's a brand-new app to the Oracle cloud. Brand-new. Remember, brand-new app to Oracle, let me start with that. App wasn't running on Oracle, we've moved it to Oracle as well as to the Oracle Cloud. So you have a couple of different dynamics here. Yes, there's some legacy stuff and what you would think of as the traditional reporting that we use, but we're in the top of the first inning of all this. To Larry's point, we released autonomous database in April. It's showing up in trials and POCs, not in the numbers even that you're seeing here. We're getting new ISV wins that are just net new to Oracle, in addition to bringing our existing customers to Oracle. So again, we're in the law of small numbers here relative to the entire company that have tremendous upside here. But the key thing for us has been getting our products in the market, the next generation that I mentioned that I gave you a statistic on, the 45% growth rate in our next-gen PaaS infrastructure business and -- for the year. And that's obviously the next gen of it, and that's at the very embryonic stage, Phil, of the beginning of this. So -- and these wins are now just these trials and POCs, the example of the ISVs, they've yet to really just to start to boost revenue because you've got to start with the work and then you start moving to production. In fact, [ they have ] already moved -- just begun to move a couple of their customers to the Oracle Cloud as part of this. So we're at the very early phase of this, and the lines will cross obviously relatively soon here.

Our next question comes from the line of Heather Bellini with Goldman Sachs & Co.

I wanted to ask a little bit about BYOL and Oracle Cloud infrastructure. And Mark and Larry, I know you guys touched on this a little bit in your prepared remarks, but can you give us a sense of where we are in the migration to BYOL? And I guess, in particular, can you give us a sense of the momentum within your enterprise accounts using these technology rights in the cloud? And how do you see the slope of this adoption curve as you look ahead?

Well, I think, again, maybe the most interesting fact in the quarter was our very largest deal in terms of the new license purchase was we know the intent of this particular customer, and the intent was to deploy 100% of it in the cloud immediately. So we're seeing -- and I guess we've mentioned AT&T 35x now on the call as an example. But they're an example of a very -- one of our largest customers that really has an intent to move the majority of their Oracle data into the cloud. That's just a gigantic swing, but AT&T's unusual because they're such a large -- had so many large Oracle databases. But many of our other customers, now that we have BYOL, can move their Oracle database license off to on -- from on-premise into our cloud, and they just pay basically for the incremental infrastructure cost, and they continue paying support on what becomes a cloud license. That's a very attractive value proposition for our customers. And we see -- large numbers of our largest customers are very interested in beginning that migration process.

Our next question comes from the line of Raimo Lenschow with Barclays.

Can I double click on licenses again? The -- you have tough comps because Q4 last year was strong on licenses. So -- and I know last quarter, you kind of talked about some delays on the apps, on the vertical apps side. So can you talk a little bit about like how we got to the number that we have there now between bring your own licenses, but also how to play dumb on the upside?

Well, without sounding trite, we just sold more. And I think, at the end, it's a combination of what we said. I mean, you're exactly right. Q4 last year was a very good, strong quarter for us. So it was, if you will, a tough comp. But to Safra's opening comments, the quarter was strong for us really across every line. I mean, the only thing that really hurt us in the quarter, to be honest with you, if you look at the income statement, was currency. We went in expecting to get 3 points, we got 2. We wound up being on top of that. And so it was just a solid quarter, and I really don't have any, Raimo, discrete stories to tell you to give you more flavor. I -- obviously, the database ecosystem was strong, and clearly, the options within -- we accelerated database growth in the quarter. Database options within the context of it, particularly those that enable autonomous data warehouse were strong in the quarter. Our apps license did decline, right, in the quarter. We expected that. But frankly, it was actually relatively stable. So one, if you will, because the user base is still the scale that it is, our apps license was declining, but better than I expected within the context of that decline, if that makes sense. And so it just -- obviously, the quality of the brands on the bookings side, which don't show up in actually the income statement, was just, I don't want to say it was unexpected. It was just pleasant to see it all come through. And I just want to double-click on the NetSuite booking. The NetSuite booking, while it is what we hoped, it's so great to see because it's been such a fabulous acquisition for us. The team has done a great job. We've invested. And it showed up numerically in the bookings and that will show up in the revenue as we go forward to '19. So as I go through the quarter, and we haven't mentioned our expense structure, we just -- we've got a lot of leverage there as well, and so just as I look through the line just from an operating perspective, it was a very solid quarter. Maybe more than you wanted in your question, Raimo.

Well, also, Raimo, let me just add, we launched BYOL at the very end of Q2. And this really opened up a lot of EULAs and PULAs for our customers who are very interested in being able to deploy in the cloud and on-premise. It's of particular value to them. And so there are literally billions of dollars involved in these agreements. And many, many customers. It is very widespread and it really showed up in Q4. And it shows up in all the quarters, but of course, after BYOL, it really showed up in Q4.

Our next question comes from the line of Kirk Materne with Evercore ISI.

Kirk?

Kirk, we can't hear you. Kirk, going once, twice. Operator, next question please.

Our next question comes from the line of Michael Turits with Raymond James.

I think it's probably a question for either Mark or for Larry. Can you talk a little bit about how customer demand for database in the cloud is evolving, both for new workloads and for existing workloads, and how the balance is working out by whether or not they're choosing BYOL or Database as a Service?

Well, they're overwhelmingly -- at least against early days, because BYOL has only been around a couple of quarters, it's overwhelmingly BYOL because -- for new workloads and for shifting existing workloads. I mean, Oracle has -- a majority of the world's databases are Oracle databases. We're larger than IBM and Microsoft combined, who are second and third. And we have a lot more to -- and we have much bigger databases than they have and all of that. So there's just a huge inventory of information inside of these databases that needs -- and we have huge customers who would like -- that own licenses for all of this stuff. And they want to move -- not move all of it at once. I mean, AT&T has actually made a commitment to move all of it in a relatively short term. Other customers are moving, but not as rapidly. And they are buying additional options for their existing licenses, so they can move into the cloud and take advantage of autonomous services. So let me explain the situation. So you want to move 10% of your databases from on-premise into the cloud and you want to use the autonomous database. Well, the autonomous database requires that you have the multi-tenant option and the real application cluster option. So you might have database -- you might have some database licenses but might not have licensed those options. So you go ahead and enter into, what, a EULA or PULA, PULA one of these large license agreements. You add these additional options and maybe additional database licenses, and then when you have those additional options, you then -- that makes it possible for you to take advantage of the autonomous database services. Though if you don't want to use the autonomous…

Our final question comes from the line of John DiFucci with Jefferies and Company.

And my question, I think, is probably best fit for Safra. So Safra, we understand how the separation of cloud and on-premise sales sort of gets blurred with the flexibility you allow your customers with BYOL. So I think, from a high level, we all understand why you changed the way you report. But how do you get investors comfortable that this also is not obfuscating any cloud weakness? Especially like when I look -- and I know we don't have a long-term deferred revenue, but the deferred revenue looks a little bit -- it was below what we were looking for. I'm just trying to anticipate questions I'm going to be hit with tomorrow. And frankly, looking at your stock, I mean when you put the headline numbers, the stock popped. And I know you may not be looking at it minute by minute, but then when the details came out, it actually dropped. So I think that might be something, one of the reasons anyway.

All right. So let's cover everything. So first of all, there is no hiding. I told you the cloud number, $1.7 billion. You can do the math. You see we are right where we said we'd be, no surprises. Margins up sequentially, shows business is doing well. Cloud billings, strong. Nice and strong. You can hear that. You can hear it from what we're talking about as far as net deferrals. Gross referrals are actually up 5%. So this is just a collection thing with timing, and you'll see that quarter to quarter, especially Q1 from Q4. So this is not -- nothing surprised here. We don't have any bad news. In fact, what we're telling you is, in fact, that the way to understand our business better, especially with so many customers taking licenses and support that -- licenses that are supported, that we were counting and calling on-premise. When in fact, they are not deploying them on-premise, it would be -- it's simply not so. And so we want to explain to you and make sure you understand and have enough understanding of the business to see that our customers are both buying licenses and using licenses they have, which are currently being recorded as on-premise and support. They're using those, in fact, in the cloud. And that's something that's, of course, what they were designed for, frankly, and what we're very excited about. So I think between all the information I've given you, it's quite clear that we had a superb quarter and we're expecting the same next quarter.

That's helpful, Safra. But if you could just remind us when you refer to gross deferrals versus net deferrals, I know that you, Oracle, is probably more conservative than, I think, any company we cover in your reporting of deferred revenue. But if you could hit that quickly, that would be great.

Yes. I mean, from the gross deferrals, what we do is we subtract the uncollected, which is obviously a very big number at the end of Q4. Think about it. So that's all that's going on there.

John, just Mark. I'd add, there is just no story in the gross short-term deferral story.

Exactly.

I mean, this is a nothing burger. And I'm telling you that the gross deferrals were right on where we thought. This is, just to -- there's just nothing here.

Okay. That's really helpful.

Thank you, John. A telephonic replay of this conference call will be available for 24 hours. Dial-in information can be found in the press release issued earlier today. Please call the Investor Relations department with any follow-up questions from this call and we look forward to speaking with you. Thank you for joining us today. And with that, I'll turn it back to the operator for closing.

Thank you for joining today's Oracle Fourth Quarter 2018 Earnings Conference Call. We appreciate your participation. You may now disconnect.