Welcome to Oracle’s Second Quarter 2020 Earnings Conference Call. Now, I’d like to turn the call over to Ken Bond, Senior Vice President. Ken?

Thank you, Holly. Good afternoon, everyone, and welcome to Oracle’s second quarter fiscal year 2020 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. On the call today are Chairman and Chief Technology Officer, Larry Ellison; and CEO, 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 publicly release any revision 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. But before I start, I’d like to acknowledge and thank you all for the many, many sincere condolences we received upon Mark’s passing. Thank you. They mean a lot to us. As you can see, we had another solid quarter. This quarter, we finished with total revenue growth within my guidance range and EPS at the high-end. Cloud Services and License Support continue to see material growth, and given that it represents more than 70% of our total revenue, it more than offsets declines in some smaller non-strategic businesses. We continue to be encouraged that our overall revenue growth will further accelerate, as we reach the final stages of this ongoing shift in business mix. Of late, I’ve been spending much more time with customers. The overriding theme I hear is the compelling nature of our technology and how it is critical to the success of their businesses: feature-rich, simple, secure, performant and priced right. They see Oracle as being strategic to their ongoing operations, and they tell me repeatedly that Oracle is the right partner to run their mission-critical assets, both in the cloud and on-premise. Their comments reinforce our conviction that our product strategy is right. At Oracle, we’ve upgraded our internal systems to the cloud, and we are sharing our experience with customers by describing the stunning benefits and efficiencies that can be realized from the move and know we have thousands of customers and references, our own experience, adopting Oracle Cloud applications and infrastructure allows us to serve as a unique and knowledgeable adviser to customers who want to know how to go about their own digital transformation. To give you some context, let me share just a few of the many benefits we are seeing in our business. With Fusion ERP Cloud, we…

Thank you, Safra. As I’ve said before, there are two key product areas that will determine Oracle’s future in the cloud, Cloud ERP Applications and the Autonomous Database. Being the clear number one in both of these two giant applications and infrastructure market segments, we’ll enable the success of our other application and infrastructure products in adjacent market segments. This is already happening in applications. We have a huge lead in Cloud ERP, with over 7,000 Fusion ERP customers and 20,000 NetSuite ERP customers. Our closest Cloud ERP competitors, Workday, and they claim to have a few 100 ERP customers. Workday’s lack of success in Cloud ERP is creating opportunities for Oracle in Cloud HCM. More and more, we’re seeing HCM as being purchased as a part of an ERP cloud application suite. As a result, today, we have more HCM customers than Workday. And we’re beginning to see that same integrated suite strategy beginning to drive our sales of CX customer experience applications in sales and service and in marketing. SAP never rewrote their ERP applications for the cloud. As a result, SAP’s installed base is very vulnerable. We’ve already replaced and successfully migrated many midsized SAP customers from SAP to Fusion ERP. Importantly, a few months from now, in Q1 calendar year 2020, one of SAP’s biggest customers will go live on Fusion ERP. Many of SAP’s largest customers are already working with us to develop plans to migrate the Fusion ERP. SAP’s customer base is up for grabs. They didn’t rewrite their applications for the cloud. That has created an enormous opportunity for Oracle. We’re already declared number one in the Cloud ERP market as measured in market share and our Cloud ERP business is already growing at a rate of over 30%. By offering a safe…

Thank you, Holly. Thank you, Larry. Holly, if you could please prepare the audience for questions.

[Operator Instructions] And our first question is going to come from the line of Michael Turits, Raymond James.

Hey, good evening, everybody. Safra, it was great to see that you reaffirmed your guidance for the full-year per revenue acceleration and double-digit EPS growth. But with the 3Q guide, it does suggest a very strong fourth-quarter on top of what was the fourth – strong fourth quarter than last year. So can you give us a little bit of visibility into what’s driving that confidence.? And also I know it’s early, but given what that means for fourth quarter, what does it mean in terms of what it implies about fiscal 2021?

So we’ve got everything finally out and available. And as Larry and I both mentioned, we’ve got Cloud@Customer. We have a lot of orders for that, that we have not deployed yet. So we’ve got a lot of demand there. We’ve got Autonomous Database. We’ve got new versions of Autonomous Database on track. We’ve got the entire Fusion suite rolling even – including all of the additional modules have all been continuously upgraded. So we’ve got an immense amount of demand. And we have enormous pipelines and our conversion rates are increasing. And so the pipe has just expanded so dramatically than I know we’re going to have more bookings, but also previous bookings as those deals are ramping up and more users are using the products were very, very upbeat about the second-half. But even more so next year, we believe that the momentum we will have in the second-half of this year will more than carry through to 2021.

Great. Thanks very much.

Sure.

And our next question is going to come from the line of Heather Bellini, Goldman Sachs.

Great. Thank you so much for the time and I’m going to try and get away with two questions. But I guess, the first one, Safra, as you mentioned about license this quarter, it was a little lighter than what, I think, people were expecting. I know we’re talking about a big base. But if there’s anything you could call out in terms of whether it’s the sales force reorg or just macro or whatever in terms of the results in the quarter on that line. And then I know just covering the company for a while, given the lumpiness historically between Q2 and Q3, I know sometimes deals push from one quarter to the next and typically, it’s better to just average those two quarters. But how do you feel about the outlook for the Q3 license number? And then I just have one follow-up, if you don’t mind.

I generally feel very good about the Q3 license number, as you said, it is lumpy. The one thing we do have is that the GBUs, which, of course, not a giant part of our license business, but are significant. They have moved and their cloud products have become available. And I do expect that most of the orders for new services in the GBUs will come through as Cloud Services instead of just plain License. But I don’t think that will be as significant. I do expect that licenses, in fact, will be just fine in Q3 other than the GBU piece.

Okay. And then just my follow-up. I mean, these calls just still don’t feel the same without Mark being on them. And with all due respect to him to his passing just knowing how hard it is going to be to replace him, I mean, is there anything to share with us regarding you getting some – getting someone to kind of help take his place in some of the responsibilities that you’ve taken over?

Okay. This is Larry. I know how to answer that question, because I get the question is, so how’s our search for a second CEO guy? Remember, when we announced two CEOs, the first time was people thought that was a bit odd. And so now people are finding that we have one CEO is a bit odd, two CEOs – so it’s so simple. So let me make it very simple. How’s our search going for the new – for a second CEO, we don’t have plans. We have no plans for having a second CEO, it was an unusual situation, where Mark and Safra were an absolutely fantastic team. But we have complete confidence in our existing management team. We’re doing a lot of recruiting and you’ll see a lot of announcements at the next layer down that we’re hiring a bunch of people at the next layer down who are potential CEOs, when both Safra and I retire and which is not anytime soon. And so we’re going to strengthen the management team, but one of the strategies for strengthening that team is not to hire a second CEO.

Thank you very much.

Next question, please. Thank you, Heather.

Our next question is going to come from the line of Brad Zelnick, Credit Suisse.

Great. Thanks so much. Larry, the momentum in Autonomous Database is fantastic, growing over a 100% in your Public Cloud. But having been in market now for over a year, I know investors are wondering when we might see an inflection in your financial results from Autonomous. And I appreciate many customers are including some of the required database option in their deals. But now that you’re making it available on Gen2 Cloud@Customer. How should we think about the appetite from your installed base? How material can it be to your financials? And is there anything you might compare it to in Oracle’s history?

Well, no. I mean, there – either in terms of a technological breakthrough. Well, I guess, we’re the first commercial relational database.

Wow.

The very beginning, that’s kind of created Oracle Corporation, right? So that we had the very first commercial relational database. We had one before IBM did or anyone else did. So that traded – that turned this company from an idea into the company that manages most of the world’s information. So I would say, Autonomous Database is that same kind of thing. It’s – it is so much different, so much favored to use, so much more reliable than anything else that’s in the market. I think everyone is going to use it. Virtually, everyone is going to use it. Now that said, it is – it takes a while when you introduce an all new products. The good news is, we have a huge installed base here. It takes a while for that – for us to shift a, if you will, a next-gen technology and get people comfortable with it and using it. And that first year, we’ve seen a lot of early adopters. But the early adopters are now in the thousands. And we think eventually the only database will offer, it’s Autonomous Database. It will replace everything else. And by the way, at Autonomous Database, it’s only available in Q4. If we put a cloud in – if we put our cloud in your data center, that’s our Exadata machine and our Middleware machines and all of that is in our storage in your data center and our Public Cloud. So it – we think it will be consumed in one of those two ways and that will replace our entire base. So it means that our existing database business from a financial standpoint will more than double or triple or triple probably is a reasonable estimate to look out. Now, of course, when you are in your business, it’s all about timing. And I wish I could tell you exactly how much will sell over the next 18 months. That’s kind of tricky. Now we don’t have that many data points. We have four quarters of data points. And then the first couple of quarters, it was so new. So we really only have a couple of quarters of data points. All I’ve been saying is none of us ever seen an adoption rate like this before.

Fantastic. Thank you, Larry.

Our next question is going to come from the line of Phil Winslow, Wells Fargo.

Hi, great. Thanks for taking my questions. Just wanted to focus in on the applications business. Obviously, you saw a nice tick back up here quarter-to-quarter in terms of the year-over-year growth rate. I guess, the question to Safra and I guess, Larry, too. What do you think about the sort of the different curves that buildup that business? Obviously, you’ve talked about in the past some of the headwinds from things like Data Cloud and then also some of the wins that we saw on your Fusion, Fusion ERP and NetSuite this quarter? Where are we when we stack all those curves together? Are we past for those headwinds and we’re now looking at sort of acceleration from here? In other words, Q1 was a trough or just help us kind of, Larry, take that up, if you could?

So let me get started and then Larry can add when he needs to add. So first of all, the Data Cloud has stabilized. I don’t know if it will stay that way, but that was a very significant headwind for us. In that whole business, it has completely stabilized. It grew ever so slightly. Additionally, the adoption in our ERP Cloud is now such that it’s in the thousands. We’ve many, many references. And what happens in our business is that, once you are sort of obviously referenceable, it becomes much, much easier for other potential customers to move ahead. One of the things that had been to some extent leading to a wait-and-see attitude by some historically business suite customers was the adoption of first availability and now adoption of supply chain. Our supply chain now has many, many customers, and so more of our customers are willing and interested in moving. Remember, every single quarter, a 100-plus new features become available. And some of those have been must-have features for extremely happy customers in the business suite. Simultaneously, as Larry mentioned, SAP customers have realized that SAPs’ offerings are not cloud offerings. If you use SAP’s technology, you don’t get a 100 new features every quarter. There’s a simply a hosted offering, which means that we are the obvious choice for customers who are – who want to go through and really adopt a digital approach in their business. And so for us, this is going to be success leads more success. It’s an incredibly virtuous cycle. And as Larry mentioned, what it also means is that additional modules are going with and that’s clearly showing up in our other segments and, of course, HCM, which is obviously a match and then ultimately, the front-office, where we’ve got a lot of new technology rolling out that is being adopted.

Yes. I think a lot of SAP’s – again, in the mid-market, where we are replacing a lot of SAP customers and we’ve got them live and we have references. But right at the very impacts of SAP’s customer base, they’re top 50 customers around the world. They’re – looking at this one particular implementation that where we expect to go live in March of next year. And I would describe them as rooting for us. They want to have an alternative to a billion-dollar SAP upgrade. SAP end-of-life, their current stuff in 2025. So if you’re a big SAP customer, you’ve got to make it – that some people have bought – actually bought ahead, actually bought as we’re having in the cloud with no plan – with no really good plan to implement it. It’s a five-year implementation. They’re getting price quotes of a billion-dollars for the upgrade. Imagine going from your existing SAP system, taking out Oracle and replacing HANA and that’s the only change. Basically, that’s the only change and it’s hosted. It’s not cloud. There is no cloud. Anyway, I want to say, well, it’s easy for Oracle and say, go to SAP’s website and try to find the SAP Cloud for ERP. I mean, you can find it for the stuff they bought. You can find it for Callidus, which is on one cloud. You can find it for Ariba, which is on another cloud. You can find it for little SurveyMonkey, and all the stuff that they bought. But they forgot. They forgot to write ERP, that’s your business and they forgot to rewrite ERP there. There are projects that they had to do that whole business by design fails, they canceled it. So there is no cloud option for SAP customers. They…

Thank you, Larry.

Next question, please.

Our next question is going to come from the line of Mark Moerdler, Sanford Bernstein.

Thank you very much for taking my questions. Autonomous Database sounds like, it’s really starting to gain traction. Given the shift of sales personnel to selling Autonomous, can you give us some more color specifically? Specifically, are you seeing the customers buying the required modules as license or they including it with the cloud? Are you seeing changes in the size of the customer, size of the pipeline, the time it takes from customer interest to adoption. Any of that would be really appreciated?

Okay, I’m happy to do that. I think the most interesting thing that’s going on is, we’ve decided to take, if you will, in AWS approach to selling Autonomous Database in the cloud. So we almost prefer selling our $30,000 deal to a $100,000 deal, because in a $30,000 deal, we can close in four weeks. So we think the way to sell Autonomous Database is to get it installed on a project in one of our customers, get it going, help them become successful. And then once they under – once they actually get their hands on Autonomous Database and they have working app, they have working projects, working data warehouses, working transaction processing systems, you start some new land and expand. So we’re selling thousands and thousands of small deals. And some of those deals are already coming back as larger deals. But our approach, again, is to – and most of it is not BYOL, because they’re small. I mean some of it is. Not – yes, some of it is BYOL, but the majority is not BYOL. It was interesting in the early days in ERP. When we had ERP, people moving our e-business suite customers. No, they were new logos. In the early days in Cloud ERP for us, they were new logos. Believe it or not, we’re actually seeing new logos and database. But again, most of them are our customers, but they’re not using their existing licenses. They’re going ahead and using a standard cloud and license, what we call [indiscernible]. They pay us as we get. You pay for what you use. I mean, it’s the promise of the cloud. And we’re getting in thousands of these, because we think the best selling techniques for Autonomous Database is try it, get it running, watch it backs itself up. It upgrades itself. It tunes itself. It configures itself. There’s nothing like it. We just got to win those hearts and minds. And the way to do that is go wide across our entire customer base. That’s what’s going on. And again, it’s working very, very well. I think it’s working very, very well, because we’re seeing just beginning to see the first people coming back and going from $30,000 a month to $600,000 a month.

Great. Next question, please?

Our final question for today will come from the line of Kirk Materne, Evercore.

Yes. Thanks very much and thanks for taking the question. Safra, I was just wondering if you could comment on just sort of the geographic landscape for you all. It looked like Europe was perhaps a little bit softer in your other geographies this quarter. Maybe that’s just macro. I was wondering if you could just add a little bit color on sort of what you’re seeing across the different theaters? Thanks.

Yes. This quarter, EMEA only grew in the single digits. Some of the other regions did grow in the high double digits, some very high double digits. And I think there’s nothing really special going on one way or the other. Some of it’s just the way the quarter falls out for them. But overall, our business remains very strong. And I think that next quarter could be completely different. So it was – it’s really nothing. We’re not seeing a massive change even month-over-month or quarter-over-quarter from what it looked like. Obviously, there are some regions doing very, very well for a number of different reasons as they get to roll out new capabilities. We’ve got a lot of – we’ve got data centers opening and have opened very, very successfully in Latin America and in Asia and in Japan. And so we’ve got a lot of usage and increase in some of those areas, which helped explain some of the big growth in some of those areas. But EMEA, I think, we will see – there’s nothing special, in particular. I have no real color to add and we’ll see what happens after today’s selection in the UK.

Sounds good. Thank you.

Thank you, Safra. 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 to you. With that, I’ll turn the call back to Holly for closing. Thank you.

Thank you for joining us for today’s Oracle’s second quarter 2020 earnings conference call. We appreciate your participation. You may now disconnect.