Oracle Q3 2022 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
March 9, 2023
Skip to Questions & Answers
Operator

Good afternoon. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Oracle Corporation's Third Quarter 2023 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] Thank you.

Ken Bond, Senior VP of Investor Relations, you may begin your conference.

Ken Bond
Senior Vice President, Investor Relations at Oracle

Thank you, Emma. Good afternoon, everyone, and welcome to Oracle's third quarter fiscal year of 2023 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 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 the 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 A. Catz
Chief Executive Officer at Oracle

Thanks, Ken. And good afternoon, everyone. Q3 represented another great quarter with continued momentum on the top and bottom-line. But before I get to the numbers, I want to share with you a few thoughts that explain what's behind our continued financial success.

First, our cloud offerings drive operational efficiency. In fact, one of our competitors recently coined the term, the Oracle Playbook, which I absolutely love, because see Oracle Playbook is all about doing more while spending less. As you all know, we started this ourselves over 20 years ago and have kept it up over all these years, resulting in the highest margins in the software business for decades.

Using our own products and services, enables us to increase our investments for growth while also growing profitability, including through acquisitions as well as during our move to the cloud. We are constantly talking with our customers about leveraging Oracle technology to accelerate their speed to market and reduce costs. All the while improving the experience they deliver to their customers.

The combination of Oracle's infrastructure and apps, which is unique in the cloud market, increases the intensity of business transformation. Cloud is no longer about just renting commodity white boxes, it's about velocity and value. We have become the enterprise technology vendor of choice, because we have products and services that help our customers drive cost efficiencies and modernize their businesses.

Second, while AI has been dominating the recent news cycle, the truth is that our fusion and infrastructure customers have been using AI as an integral part of their business for some time. Oracle Fusion with embedded AI enabled customers to close their books in days, not weeks. Oracle AI provides more relevant sales leads, Oracle AI increases infrastructure performance and security with no human intervention. And customers using OCI, get AI as a service to help drive their own business transformation.

Given our scale and our information advantage across industries and technologies, we are constantly training our applications to do more for our customers, whether it's further automating processes, providing critical and timely recommendations, offering insight -- sorry or flagging potential issues. That's real enterprise AI. It's what customers are looking for, it's designed in everything we do and that's what our customers get when they use our platform.

And on our Gen2 OCI platform, the architecture and unique network capability has fast become the platform of choice for many AI companies, because OCI runs workloads faster and time is money in the cloud. So, coming to us saves our customers Money.

Third, customers are putting Oracle's comprehensive set of technologies to work in new and powerful ways to accelerate their businesses. The Uber win with notable because we have yet another example of an industry transforming company concluding that Oracle's Cloud performance and security exceeds that of our competitors and at a price point that represents a sustainable long-term partnership. Uber will use more of our technology to drive value in their own business and you're going to see a rising list of these types of strategic wins pile up in the quarters to come.

Finally, before I move to the numbers and hopefully no one missed this fact, that we are announcing our earnings nine days after the close of the quarter and we expect to file the Q right away. We continue to set the standard in operating efficiency, which helps customers see what's possible when they are working with us.

Okay. Now to the Q3 results. As always, I'll discuss them using constant-currency growth rates to provide a full picture both organically and otherwise, I'm going to go over the revenue results including Cerner and then some revenue results excluding Cerner.

Total cloud revenue, that SaaS plus IaaS including Cerner was $4.1 billion, up 48% in constant-currency, With IaaS revenue of $1.2 billion, up 57% and SaaS revenue of $2.9 billion, up 44%. Now excluding Cerner, total cloud revenue was up 28% in constant-currency a $3.5 billion. Total cloud services and license support revenue for the quarter, including Cerner was $8.9 billion, up 20% in constant-currency, driven again by our strategic cloud applications, autonomous database and our Gen2 OCI.

Application subscription revenues, which include support were $4.2 billion and up 33% in constant-currency. Infrastructure subscription revenues also including support were $4.8 billion up 10% in constant-currency. Application subscription revenues, including support but excluding Cerner were $3.4 billion, up 8% in constant-currency. SaaS cloud revenue, again excluding Cerner was $2.3 billion and was up 16%. Our strategic back-office SaaS applications now have an annualized revenue of $6.2 billion and grew 25% in constant-currency, including Fusion ERP, up again 28% and NetSuite ERP up 26% this quarter.

As mentioned already, infrastructure cloud services revenue was up 57% in constant-currency and when you exclude our legacy hosting services, infrastructure cloud services revenue grew 65%, with an annualized revenue of $4.4 billion, including OCI consumption revenue which was up 86%, cloud customer consumption revenue up 73% and autonomous database up 50%.

Database subscription revenues, which include database support were up 3% in constant-currency, highlighted by cloud database services which were up 40%. Database subscription revenue is largely made up of on premise database support, but as these databases migrate from on-premise to the cloud and cloud at customer, we expect these cloud database services will be the third leg of revenue growth alongside back-office SaaS and Gen2 OCI cloud services.

Software license revenue, including Cerner were $1.3 billion, up 4% in constant-currency. So, all in, total revenues for the quarter were $12.4 billion, up 21% in constant-currency, excluding Cerner's contribution of $1.5 billion. Organic revenue was up 7% in constant-currency. As a reminder, we no longer operate in Russia, causing organic revenue growth to be negatively affected by 1% of growth over last year.

Shifting to margins. The gross margin for cloud services and license support was 79%, as a result of the mix between support and cloud. Last year, Oracle license support revenue with its mid-90s gross margins, represented about 63% of cloud services and license support revenue. Now because our cloud services are growing so fast, it's down to 55%.

Additionally, I would note that IaaS gross margins improved substantially from last year and I expect IaaS gross margins will continue to improve. While we have continued to build data center capacity, we've also seen our margins go higher as these new cloud regions fill up. Most importantly, gross profit dollars of cloud services and license support grew 13% with Cerner and 6% excluding Cerner.

Non-GAAP operating income was $5.2 billion, up 11% from last year. The operating margin including Cerner was 42% as we continue to integrate Cerner in the quarter, as we drive Cerner profitability to Oracle standards and continue to benefit from economies of scale in the cloud, we will not only continue to grow operating income, but we will also grow the operating margin percentages.

For example, while we have only owned Cerner for three quarters, we have already improved its operating margin by over 5 percentage points compared to before the acquisition. And by the way, I actually expect this year FY 2023, the one we are closing out in one more quarter will be the trough year for operating margins as a percentage, as our margin improvement initiatives play out. The non-GAAP tax-rate for the quarter was 18.4%, and non-GAAP EPS was $1.22 in U.S. dollars, up 8% in USD, up 13% in constant-currency, GAAP EPS was $0.68 in U.S. dollars.

At quarter end, we had nearly $8.8 billion in cash and marketable securities, the short-term deferred revenue balance was $8.6 billion, up 14% in constant-currency. Over the last four quarters, operating cash flow was $15.5 billion and free cash flow was $7.3 billion with capital expenditures of $8.2 billion. Operating cash flow for the quarter was up 11% at $4.3 billion.

The remaining performance obligation or RPO balance is $62.3 billion, up 66% in constant-currency, due to strong cloud bookings as well as Cerner which Larry will discuss in a moment. I would also note that the organic RPO growth rate was 26% in constant-currency, approximately 48% of total RPO is expected to be recognized as revenue over the next 12 months.

Capex this quarter was $2.6 billion, as we continue to build capacity for existing bookings and our customers growing needs. Given the demand, you see reflected in the RPO as well as what we see in our pipeline, I expect that our capex investments will be above where it is right now for the foreseeable future. As always, we remain careful to pace our investments appropriately and in-line with booking trends.

We now have 41 public-cloud regions around the world with another eight being built. In addition, 12 of these public cloud regions interconnect with Azure, giving customers true multi-cloud capabilities. We have many cloud at customer implementations, 10 dedicated regions and another nine national security regions with increasing demand for more.

As we've said before, we are committed to returning value to our shareholders through technical innovations, strategic acquisitions, stock repurchases, prudent use of debt and a dividend. This quarter, we repurchased 1.8 million shares for a total of $150 million. In addition, we paid out dividends of $863 million in the quarter and the Board of Directors increased the quarterly dividend 25% from $0.32 to $0.40 per share.

Our financial strategy remains focused on growing non-GAAP operating and pre-tax income, while substantially increasing cloud revenue growth. And given increasing customer interest in our cloud technologies, we will continue to prudently invest to meet this demand.

As a reminder, because now we're going to talk about Q4. Last Q4, we had a spectacular double-digit revenue growth rate, highlighted by 25% constant-currency growth in software license. With our continued migration to the cloud, we expect that we will continue to win big deals that are more subscription driven than license driven. These big subscription wins add to the backlog and are recognized over-time rather than upfront. That is exactly what we want to see as our cloud business continues to see excellent growth.

So now, let me turn to my guidance for Q4, which I'll provide on a non-GAAP basis. Now assuming the currency exchange rates remain the same as they are now, currency would have a 2% negative effect on total revenue and at least 3% plus negative effect on EPS in Q4. But as I say every quarter, the actual currency impact maybe very different by quarter-end.

Okay. Here we go. Total revenues for Q4 including Cerner are expected to grow from 17% to 19% in constant-currency and thus are expected to grow 15% to 17% in USD. Total cloud growth including Cerner is expected to grow from 51% to 53% in constant-currency, 49% to 51% in USD. I expect total cloud growth for Q4, excluding Cerner will be above 30% in constant-currency. I expect growth in operating profit to be double-digit.

As you all know, my non-GAAP tax rate guidance is typically 20.5%. However, our tax rate over the last two years and Q4 has averaged of round 11% and I anticipate that in Q4, the most likely outcome is a non-GAAP tax rate of around 14.5% and we've used this rate in determining our EPS guidance for Q4. Now mind you, that's comparing it to 11% or 10.5% I think last year. Regardless, like past quarters, the actual tax rate for Q4 could be higher or lower and affect our actual EPS.

With that, non-GAAP EPS is expected to grow between 3% and 5% and be between $1.59 and $1.63 in constant-currency. Non-GAAP EPS is expected to grow between 1% and 3% and be between a $1.56 and $1.60 in USD. What I forgot here, anyway. As I've said before, Cerner will be accretive to earnings this year, including Q4.

And with that, I will turn it over to Larry for his comments.

Lawrence J. Ellison
Chairman of the Board and Chief Technology Officer at Oracle

Thank you, Safra. Since June of last year when we acquired Cerner, that business has increased its healthcare contract base by approximately $5 billion. We have signed a diverse set of new and expanding domestic and international customers, including the U.S. Department of Defense, The U.S. Department of Veterans Affairs, Hospital Groups in a dozen U.S. States, multiple hospitals in the United Kingdom, multiple Provinces in Canada, the Australian Defense Forces, multiple hospitals in Puerto Rico and multiple countries in the Middle East. While we are pleased with this early success of the Cerner business, we expect the signing of new healthcare contracts to accelerate over the next few quarters.

Well, the Cerner business has been booking billions of dollars in millennium clinical and electronic health record systems for hundreds of hospitals and ambulatory clinics. The overall Oracle health care application portfolio is actually much broader, covering virtually the entire healthcare ecosystem. Hospitals are also buying the Oracle Fusion ERP system to manage their revenue cycle and from an reimbursements and from insurance companies to patient billing, plus their medical supply chain from ordering to inventory.

Hospitals are buying Fusion HCM to manage their complex high-value workforce of doctors, nurses and technicians. Pharmaceutical companies are buying Oracle Clinical One to manage clinical trials. Government health organization, public health organizations are using aggregated EHR data to monitor infectious-disease and respond to outbreaks quickly and efficiently.

Now I'd like to take a couple of minutes and go over little more specifically some of the Cerner wins since we bought the company. One was a huge win on LabCore and Essentia Health to deploy a single lab information system domain for 96 separate hospital-based labs across 10 states. Another one in Puerto Rico, Auxilio Mutuo is an all new electronic health record footprint to deploy in a 600 plus bed academic private hospital, replacing Altera Paragon with Cerner Millennium.

Vandalia Health formerly Charleston Area Medical Center consolidated all their EMRs into a single unified domain and added four new hospitals. UHS modernized their revenue cycle, migrated to care aware, to the care aware cloud and for their hospitals and behavior -- and ambulatory clinics. Better Health implemented a complete revenue cycle management for their Health business. The VA deployed our unified electronic health record system to 19 additional sites.

The Department of Defense deployed Oracle Cerner EHR to all the OCONUS locations in the Department of Defense. The U.S. Department of Defense. In the U.K., the National Health Service, Sheffield Teaching Hospital deployed the full suite of Cerner applications across the three additional sites in the Sheffield Teaching Hospital. The Princess Alexandria Hospital also in the NHS, is a 430 bed hospital that added the full Cerner suite. Mubadala Health was the first Cerner Millennium client to move from the Cerner datacenter directly now to the OCI cloud.

As we move our Cerner patients from the Cerner datacenters into the Oracle OCI cloud, we would expect to get much better security, much better reliability, much better performance and dramatically lower our costs of providing that cloud service. OCI is just much more efficient than the Cerner datacenters that we acquired. We've deployed the full EHR footprint -- Cerner footprint to four Sheikh Khalifa Hospitals in the U.A.E with a capacity of 1,200 beds, serving our population of 1.4 million citizens again in the UHA.

The Australian Department of Defense, we delivered acute-care capabilities and deployed an environment for all of the Australian Defense hospitals and field hospitals. In Canada, starting in Nova Scotia, we deployed a one patient one record EHR system across the province for the citizens of Nova Scotia. One patient one record, as you know, I've discussed long-time the fact that patient electronic health records are scattered across every provider they visit, that problem is now being solved in Nova Scotia by having a single unified patient record for every patient regardless of which provider they visit, their records are still all in one place. Same thing on in Niagara Health, a new EHR footprint to support delivery of care of 450,000 citizens again in Canada.

Okay. I'm going to start with that and those are direct Cerner wins since we are -- since we acquired Cerner. But on top of that, we have all of the -- rest of the healthcare suite, which is made up of Oracle ERP, Oracle HCM, Oracle Clinical One to Clinical Trials, Oracle ERP for managing everything from procurement and inventory, the entire supply chain, Oracle HCM for managing the enormously complicated scheduling and paying of their professional workforce to doctors, nurses, technicians, et cetera. We're very strong in this part of the business.

Our customers include the Cleveland Clinic, who use our ERP system in their hospitals and our supply-chain systems, the Mayo Clinic also ERP supply chain and HCM to manage their workforce, Mount Sinai Hospital ERP, SCM and HCM. Providence and St. Joseph's Health ERP, SCM, HCM and actually CX customer engagement. Adventist Health uses Oracle ERP, SCM, HCM and CX Kaiser Permanente a huge Oracle HCM user to manage their workforce, the NHS in the U.K., ERP and SCM.

UnitedHealthcare ERP and HCM. Blue Cross Blue Shield, ERP, SCM, HCM and CX. Humana, ERP and SCM. Highmark Health, ERP, SCM all fusion products or HCM. Health Care Service Corporation you see a pattern here, ERP, HCM and CX. Independence Blue Cross, ERP and HCM. Bright HealthCare ERP.

Now in this past quarter, we had major wins at Ascension Health buying ERP, HCM, SCM and HCM where the primary competitor in HCM was Workday. As we add specific features to manage the healthcare workforce to our HCM product, Oracle becomes more-and-more successful in selling our HCM products within the healthcare ecosystem. So, our win rates are going up dramatically, our sales cycles are going down.

University of Texas Health and San Antonio was a big HCM win there. LabCorp bought ERP and HCM where the competitor in ERP was SAP and we won BlueRock Therapeutics where they bought ERP, SCM and Fusion Analytics warehouse, again, the competitor there was SAP and this by the way as a wholly-owned subsidiary of Bayer AG. So, was a nice to win in a German company -- German owned company, ICU against SAP.

ICU Medical expanded their HCM for vascular therapy in oncology. Dexcom, ERP, EPM, SCM. Sitel ERP, EPM, SCM a winner per se over SAP. We had some huge go-lives in the quarter. Providence Health, a huge SCM customer rolled-out to 12 additional ministries. The National Health Care in the U.K. Supply -- I have all the trust hospitals are all now live with ERP. Baptist Health Care have now 10,000 employees live on HCM. Texas Children's Hospital, 21,000 employees live on HCM. Kelsey-Seybold Clinics are now completely live in HCM, I can go on and on. But rather than doing that, I'm just going to turn it over -- back over to Safra.

Ken Bond
Senior Vice President, Investor Relations at Oracle

Thank you, Larry. Emma, if you could please poll the audience for questions.

Skip to Participants
Operator

Thank you. [Operator Instructions] Your first question today comes from the line of Mark Moerdler with Bernstein. Your line is now open.

Mark Moerdler
Analyst at Sanford C. Bernstein

Thank you very much and congratulations on the really good quarter. With the slowdown we're seeing across so many IaaS past vendors over the last couple of quarters and especially this quarter, why has OCI Gen2 held up so well? You have born in the cloud customers which seeing weakness elsewhere enterprises, is it simply low-price, is it performance, is it you're at the right time in the economic cycle to be capturing new customers, is there some dynamics around expiry credits that you're that are driving this. The difference is to stark. I think it's really important. So, the more color you can give the better. Thanks.

Lawrence J. Ellison
Chairman of the Board and Chief Technology Officer at Oracle

All right. I'd like to take a crack at that. So, I'll start by chat with Jensen at NVIDIA, he and I had a very interesting conversation. Oracle's Gen2 Cloud is quite different than the other hyperscalers. We have a RDMA network, a non-blocking RDMA network, our network is very much faster than the other guy's network. What this means is, if you're running a large group of NVIDIA GPUs and a cluster, doing a large AI problem at Oracle, we can build these AI clusters and these NVIDIA GPU clusters and run them. We can build those things dynamically, because we use our standard network supports the clustering, the large clustering of GPUs and allows them to communicate very quickly. So, we can create these groups of GPUs, we can marshal them together.

The other guys can't do that. They can build clusters, but they actually literally are physically building a new cluster, you're building new hardware. Our existing hardware standard network allows us to group these things together dynamically, these GPUs together dynamically to attack AI problems. No one else can do that. So we have a lot of business, a lot of new AI companies are coming to Oracle, because we're the only ones who can run their workloads. And by the way and we are cheaper, but we also work faster and we are cheaper.

Let me give you an example where we use it ourselves. We have a partnership in healthcare, back to this healthcare thing. We have a partnership in healthcare with MD Anderson Hospital. And one of our independent software vendors called Ronan, where we built these AI -- disease-specific AI modules that make recommendations to doctors about care and then what they really say at MD Anderson, if we see a patient with these symptoms, this is how we respond. And that's a big AI model, that's built by MD Anderson working with Ronan running in the Oracle Cloud.

And we've actually shown or I should say MD Anderson has actually shown. If you use this system, you reduce hospital admissions and readmissions by 30%. That's a stunning number. People talk about ChatGPT being really cool, because they can write my high school essay for me. Well, how about reducing hospital readmissions at MD Anderson by 30%, you decide which is more important. But AI is fabulous stuff, yes, and ChatGPT is very cool.

There are other applications other than generative language in these large language models. We've really focused on healthcare in the last year or so since the acquisition of Cerner and are working diligently with others to apply AI to healthcare and especially the management of the complex diseases like cancer. This is a cancer AI system. But we're also doing wellness heart disease et-cetera down the road.

We think our so -- our platform runs AI very, very well, because we create these clusters of GPUs, that work -- that can attack big problems very quickly, we do it economically then we build the applications on top of that. We provide the service to a lot of the startups in the AI world. This is one example of where we're just way ahead of the other hyperscalers in terms of our network and our ability to do AI.

Let me point out one last AI thing. The Oracle Autonomous Database, it doesn't have any database administrators, it's completely self-driving. The Oracle Autonomous Database is self-driving, because it is driven, it is an AI module that is the DBA. We replaced the DBAs with AI inside of our own cloud. The Oracle Autonomous Database actually it runs all the databases inside of the administrative part of our cloud, keeps track of all of our users, our billing, all of those things, recovery datasets, all of that stuff is now done using AI and our autonomous database.

So, we're a huge consumer of AI, we're a huge vendor of AI GPU capacity, clustered capacity. We've build AI modules in healthcare and people are coming to us. And NVIDIA is often recommending us as the best cloud for AI and this is a good time to be there.

Mark Moerdler
Analyst at Sanford C. Bernstein

Perfect. Thank you.

Operator

Your next question comes from the line of Mark Murphy with J.P.Morgan. Your line is now open.

Mark Murphy
Analyst at J.P.Morgan

Thank you, Larry. My question was very much related to that, but maybe from a slightly different angle. I'm wondering if you could drill into the opportunity that you do see on the generative AI side. We are repeatedly hearing that companies are running those kinds of models on OCI. NVIDIA is moving some of those workloads to the Oracle Cloud and through the other concept being that these AI models are so data hungry and then you have all the data already contained in the Fusion Applications. I am curious if that piece of it, the generative AI piece is something that you see lining up as a growth driver that is material overall on the entire business.

Lawrence J. Ellison
Chairman of the Board and Chief Technology Officer at Oracle

The answer is absolutely yes. There is actually more demand for AI processing, then there is available capacity. So -- and we're the only ones, again, that can dynamically -- and by the way and were short. We are expanding as fast as we can. It's really interesting, it's an exciting opportunity, but it's challenging when there is more demand than supply. But the great -- the difference with us is our standard network allows us to group together these GPUs and have them attack these problems, whether it's a medical diagnostic problem or it's a generative language problem, like ChatGPT.

So, we have a lot of ISVs, seeking us out because we have -- not only do we have the most cost-effective solution, we can make the solution available to them very quickly, because it runs on our standard network. So, they can -- we can create a cluster for them, they run their workload and the moment their workload is through running, we can reallocate that cluster or break that cluster up and allocate it to other users. The other guys can't do that.

Mark Murphy
Analyst at J.P.Morgan

Thank you.

Lawrence J. Ellison
Chairman of the Board and Chief Technology Officer at Oracle

They can't do it dynamic way.

Ken Bond
Senior Vice President, Investor Relations at Oracle

Thank you. Next question please Emma.

Operator

Your next question comes from the line of Derrick Wood with TD, Cowen. Your line is now open.

Derrick Wood
Analyst at TD, Cowen

Great. Thanks for taking my question. And I'll echo my congratulations, especially on sustaining very high OCI growth. Larry, one area we've been doing more work on is, how cloud vendors can help transform the telco market, including migrating their IT infrastructure and their network operations to the public cloud, which should lead to greater efficiencies and also give them a more effective platform to roll-out new 5G and edge application services?

I know you guys touched on this a bit at last year's Analyst Day, but I was just hoping to get an update on how you're thinking about that telco opportunity with the Oracle stack, especially with OCI who some of the telco operators you're partnering with? And how you see this playing out over the next couple of years?

Lawrence J. Ellison
Chairman of the Board and Chief Technology Officer at Oracle

Yeah, this is an exciting business for us. I mean, we're actually creating dedicated datacenters for Vodafone. I'm not sure how many we've already built as yet, but if you will, Vodafone is moving a substantial part of their business into the Oracle Cloud. And again, we have this ability to build datacenters for customers and those datacenters are OCI datacenters that we run for them, but they are dedicated to workloads at a particular customer. Nomura -- the first of them we've built a few years ago in Japan for Nomura. And they have a primary and now they have a backup, they run the Tokyo Stock Exchange on that. And they sell it in financial services in Japan, but that is -- that's an OCI datacenter that we built for Nomura where they are reselling their capabilities.

Vodafone is again another example of someone who are building dedicated data -- these are OCI datacenters that we run there, in our constellation of datacenters. They look like all the other OCI datacenters. They are automated like all the other OCI datacenters. So, we take advantage of those economies of scale and that skilled labor that run them and a lot of it is AI, but a lot of it -- we still have human beings.

We've done that for Vodafone, the same thing to DISH Networks entry into telephony is enabled by similar architectural approach using OCI. I can go on and on, but it's one of our industry's of emphasis, and I think you'll see us -- and that's going to be a huge area of growth for us as telcos. We've always been very strong in telcos and now they're beginning to move to the cloud and we're seeing some major commitments from some of our largest customers around the world.

We're also seeing financial services companies taking slightly different point-of-view, but where they want to keep things if you will quote on-premise, but since we can build a an OCI region and dedicate it to a bank. There -- we're doing more, if you will, call it, clouded customer where we built a dedicated regions for our financial services. Nomura was an example.

Nomura in Japan, but there are other examples where we build these clouds for banks. So, I mean a huge industries moving to the cloud in a slightly different way than other industries, not moving to public-cloud, but rather preferring to have these dedicated regions. So, it's just their applications in this cloud. We have the ability to do that. Again, Amazon does not and Microsoft does not and Google does not.

Derrick Wood
Analyst at TD, Cowen

Great. Thank you.

Operator

Your next question comes from the line of John DiFucci with Guggenheim. Your line is now open.

John DiFucci
Analyst at Guggenheim

Thank you. I think this question is for Safra. We've heard a lot about your committed cloud mega deals, but you sometimes have talked about pure consumption or pay-as-you-go deals. Other vendors that employee the pay-as-you-go model such as Mongo and even Snowflake to some extent, who had been getting a ton of traction in the market, have either seen or they anticipate dramatic slowdowns. We haven't seen anything like that in your results at all and certainly not in your guidance, but can you talk about your exposure to such deals and how they're progressing?

Safra A. Catz
Chief Executive Officer at Oracle

So, as Larry was touching on it. We have many, many enterprise customers, phone companies, banks, governments who make commitments to us as part of their move to cloud. So, we do have some pay-as-you-go customers, but the bulk of our revenue. First of all, our SaaS revenue, as you know, you implement an accounting system, you're not going to pay less tomorrow, you still have to run your accounting system. So, the SaaS side of the business, again, is fully committed.

And then because we have so many important enterprise customers who are bringing basically their crown jewels into our cloud and had been waiting really for us to be in the position to receive those, They want to have a two way commitment. They want to know that we have the capacity for them and they want to get a slightly better price.

So first of all, if those that go into the public-cloud, whether it's Telecom Italia or Verizon or some of these others, they obviously would like a better price. So, they make commitments to come in. Usually committing less than they expect to use and almost always over using more than they expected. However other customers have clouded customer as Larry mentioned or other different arrangements.

The alloy arrangement where we have a combination with a telco or a datacenter provider. Those are all committed and so we're very strong in the commitments from our customers. And by the way, they want to make sure, we have available capacity back for them, because many of them get rid of their datacenters when they are finished. And that's the ultimate goal for them, they don't want to be running back and forth. These aren't toy workloads. These are critical workloads for their business and they want to know that they've got a place to put those.

John DiFucci
Analyst at Guggenheim

So the commitment is lot of these sounds like these people are committed to ramping-up to the full capacity of their datacenter and not until they do that, do they shutdown for the most part their datacenter replacing?

Safra A. Catz
Chief Executive Officer at Oracle

Yes.

John DiFucci
Analyst at Guggenheim

Okay.

Safra A. Catz
Chief Executive Officer at Oracle

Hey, just so that we're clear here, pay-as-you-go at Oracle is less than 5% of our business. Okay? And is that clear?

John DiFucci
Analyst at Guggenheim

Okay. That's very clear. Thank you very much, Safra.

Safra A. Catz
Chief Executive Officer at Oracle

Okay.

Operator

Your last question today comes from the line of Brad Zelnick with Deutsche Bank. Your line is now open.

Brad Zelnick
Analyst at Deutsche Bank Aktiengesellschaft

Excellent. Thank you so much for taking my question. Larry, as I think about the strong momentum in Cerner, expanding the contract base by $5 billion and your expectations for the business to accelerate. Can you parse through the drivers in terms of new logo win rates versus the expansion and cross-sell you're doing with Fusion, for example?

And then also, Larry, you touched on the idea of a single medical record. People have been talking about this for decades. When does it become clear that Oracle is helping improve the quality of care and saving lives? And I've got a quick follow-up for Safra kind of roll-out.

Lawrence J. Ellison
Chairman of the Board and Chief Technology Officer at Oracle

Well, I think there are two things. One is the system we're putting in for that DoD and for the BA, is one patient, one record. So that's a model. The one going into Nova Scotia is the same, we are bidding on a huge contract for the NHS. So these contracts are enormous and the responsibility to go along with the contracts are also enormous. But our system -- that's our system works. Our standard system that we have built is one patient, one record in the database.

So if you visit Stanford and UCLA and Mayo Clinic and Cleveland Clinic, even if you go to four different providers for a variety of different issues, all of your data will be in one database. All your patient data will be in one place, immediately accessible in a time of emergency or it's just a routine visit to the doctor, that's how our system is architect protected, that's how we're delivering it to customers, right now it's attracted a lot of attention.

Actually, it's not only much better for the patient, but helps deliver a better good -- doctors better information, deliver better outcomes, but it's also less expensive to do it that way in every hospital, maintaining their own system, the cloud, rather it's better patient share a system in the cloud. And integrate their data for the benefit of the patient.

Saving lives, this is exactly what is doing -- what's happening with our partner at Ronan and our partner at MD Anderson and another partnerships I could go into in more detail and I'm happy to, but not on this call. These disease specific AI modules where -- and the telemedicine modules that we're delivering allows a patient in a community hospital in Montana, they get the benefits of the wisdom of the best specialist -- cancer specialists at MD Anderson Hospital in Texas or Memorial Sloan Kettering doc in New York or Mass General doctor who is gone at Harvard Medical School.

The fact that the we're now using AI and telemedicine and instrumenting these diagnostic devices. So the docs --- in the community hospital we have diagnostic devices that the Harvard faculty member at Mass General can look at and then we inspect the AI module to gather much better information and with that better information, I have the best mines and AI real mines and artificial intelligence processing that information and prescribing, hopefully, the best procedure or the best medication for that particular patient, which translates into reducing readmissions to the hospital as they did at MD Anderson and ultimately saving lives.

Brad Zelnick
Analyst at Deutsche Bank Aktiengesellschaft

Thank you so much for that Larry. The mission is so important. If I could just sneak in a quick one for Safra to follow-up. Safra's 30% organic cloud growth for the year implies significant acceleration in Q4. What supports your confidence in delivering that? Thank you so much.

Safra A. Catz
Chief Executive Officer at Oracle

Well, remember, as I told you, we have dropped a large number of datacenters. And as they become available, we have customers waiting to get started and use them. So, we have commitments from customers to quite an enormous amount of consumption and so they've basically been waiting for us. We've taken awhile in all these different countries to open these datacenters and make them available to our customers. And so we know they are actually very inpatient to use the capacity as it becomes available and we just have a lot of momentum and a lot of commitment from our customers and a lot of enthusiasm around our offerings. And so that's how the math works.

Brad Zelnick
Analyst at Deutsche Bank Aktiengesellschaft

Excellent. Thank you.

Ken Bond
Senior Vice President, Investor Relations at Oracle

Thank you, Brad and Safra. A telephonic replay of this conference call will be available for 24 hours on our Investor Relations website. Thank you for joining us today.

With that, I'll turn the call back to Emma for closing.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Ken Bond
    Senior Vice President, Investor Relations
  • Safra A. Catz
    Chief Executive Officer
  • Lawrence J. Ellison
    Chairman of the Board and Chief Technology Officer
Analysts

Alpha Street Logo