Oracle Q2 2023 Earnings Call Transcript

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Provided by Quartr
December 12, 2022

Key Takeaways

  • Oracle beat Q2 guidance, delivering total revenue of $12.3 B—25% growth in constant currency—and exceeded EPS expectations despite a 6% FX headwind.
  • Oracle expects organic cloud revenue growth above 30% in FY 2023 constant currency, with Q2 cloud revenues up 48% (including Cerner) and 27% organically.
  • Oracle’s 2nd-generation OCI gains traction with multiple $1 B+ infrastructure contracts, 22,000 infrastructure customers, 55 global regions, and 12 Azure interconnects.
  • Cerner integration is on track, driving operational synergies to achieve typical Oracle margins, and Cerner is accretive to EPS in FY 2023 and Q3.
  • Remaining performance obligation rose 68% in constant currency to $61.2 B, and planned ~$2.4 B quarterly CapEx to expand cloud capacity is expected to scale margins without pressuring operating percentages.
AI Generated. May Contain Errors.
Earnings Conference Call
Oracle Q2 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Welcome to the Oracle Q2 2023 Earnings Conference Call. At this time, all participants are in a listen only mode and please be advised that this call is being recorded. After the speakers' prepared remarks, there will be a question and session. And at this time, I'd like to turn the call over to Mr.

Operator

Ken Baum, Head of Investor Relations at Oracle. Please go ahead.

Speaker 1

Thank you, Bo. Good afternoon, everyone, and welcome to Oracle's Q2 fiscal year 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 our Investor Relations website as well. On the call today are Chairman and Chief Technology Officer, Larry Ellison and CEO, Safra Katz.

Speaker 1

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 ks 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.

Speaker 1

Before taking questions, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra.

Speaker 2

Thanks, Ken, and good afternoon, everyone. Well, simply put, we had an outstanding quarter. Total revenue for the quarter was more than $200,000,000 above the high end of our guidance range And grew 25% in constant currency. Even excluding Cerner, total revenue Grew 9% in constant currency, that's higher than Q1. And on top of a revenue beat this time last year, The strength of the quarter is even more amazing given that the currency headwind was higher than what it was when I gave guidance With 6% for revenue and a $0.095 headwind for earnings per share and yet We still exceeded the high end of my USD guidance for both total revenue and earnings per share.

Speaker 2

And as you can see from the numbers, we continue to experience clear Company specific and product specific momentum. The reasons are many, But it boils down to a few key points of differentiation. 1st, more and more customers Are recognizing our 2nd generation infrastructure cloud as being fundamentally Better architected for higher performance, better security and unmatched reliability versus the older 1st generation hyperscale cloud providers. 2nd, Customers appreciate the flexibility of our service and business model that enables them to deploy our technologies where it serves them best, whether that be in the public cloud, in dedicated regions around the world We're in a true cloud at customer implementation. And third, customers recognize the value of an end to end integrated stack of applications, both horizontal like ERP and HCM Centimeters and supply chain and industry specific applications that focus on their industries.

Speaker 2

And all of it is on our Gen 2 infrastructure, which is designed perfectly for them as they move through. As customers increasingly look To better value out of their technology investments, many discover that Oracle is much better compared to other alternatives. Gartner formerly recognized OCI by moving us to visionary status in its Cloud Infrastructure and Platform Services report for the first time. In addition, last week, We were awarded a JWCC award at the U. S.

Speaker 2

Department of Defense as they also Recognized our capabilities. As all of these differentiators come together and our business continues to accelerate, We expect organic growth for our fiscal year 2023 cloud revenues will be over 30% in constant currency. Now to the numbers. As always, I'll discuss our results using constant currency growth rate. To provide a Full picture, both organically and otherwise, I'm going to go over the revenue results, including Cerner and then some of the revenue results, excluding Cerner, so you can see what's going on.

Speaker 2

Total cloud revenue, now that's SaaS and IaaS, Including Cerner was $3,800,000,000 up 48% in constant currency with IaaS revenue $1,100,000,000 up 59 percent and SaaS revenue of $2,800,000,000 up 45%. Now excluding Cerner, total cloud revenue, SaaS plus IS was up 27% in constant currency at $3,300,000,000 Total cloud services And license support revenue for the quarter, including Cerner, was $8,600,000,000 up 20% in constant currency, driven again by our strategic cloud applications, Autonomous Database and of course our Generation 2 OCI. Application subscription revenues, which includes support were $4,100,000,000 up 35% in constant currency. Infrastructure subscription revenues, which also include support were $4,500,000,000 up 9% in constant currency. Application subscription revenues including support, But excluding Cerner were $3,300,000,000 up 9% in constant currency.

Speaker 2

SaaS cloud revenue, again excluding Cerner was $2,200,000,000 and was up 16%. Now our strategic back office SaaS applications now have an annualized revenue of $5,900,000,000 And grew 26% in constant currency, including Fusion ERP, up 28% And NetSuite ERP up 29%. As mentioned already, Infrastructure Cloud Services revenue was up 59% in constant currency. Now excluding legacy hosting services, Infrastructure Cloud Services revenue grew 69% with an annualized revenue of 3,800,000,000 including OCI consumption revenue, which was up 88% and cloud and customer consumption revenue, Up 83% and Autonomous Database, up 50%. Software license revenues, including Cerner, were $1,400,000,000 up 23% in constant currency and up 9% without Cerner.

Speaker 2

What is increasingly resonating with customers is that in an environment where IT investments need to have a fast and Tangible return on investment, only Oracle offers customers the flexibility to manage their technology stake, So they can deploy incremental investments where it brings them the most immediate value. It also helps that the purchase of technology licenses from Oracle enables them to move to the cloud As they are ready, effectively providing an on ramp to Oracle Cloud Services. So all in, total revenues for the quarter were $12,300,000,000 up 25% in constant currency. Excluding Cerner's revenue contribution of $1,500,000,000 organic revenue was up over 9% in constant currency. As a reminder, we no longer operate in Russia, causing total revenue growth to be negatively affected by over 1% of growth over last year.

Speaker 2

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 65% Of the total number of cloud services and license support revenue, now it's down to 53% And this is happening because our cloud services are growing much, much faster than license support. By the way, license support grew 4% this year. Additionally, I would note that IS gross margins Improved again this quarter and I expect IS gross margins will continue to improve. In response to accelerating demand, we have continued to build data center capacity. We have seen that as those centers fill up, margins go up like they did this quarter.

Speaker 2

Most importantly, gross profit dollars of cloud services and license support Grew 13% with Cerner and 6% excluding Cerner in Q2. Non GAAP operating income was $5,100,000,000 up 12% from last year. Operating margin, including Cerner, was 41% as we continue to integrate Cerner in the quarter. As we drive Cerner profitability to Oracle levels 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 percentage. Further, I expect that this year will be the trough year for operating margin percentages.

Speaker 2

The non GAAP tax rate for the quarter was 20.4%. I think I guided to 20.5%. So basically It worked out where we thought. And non GAAP EPS was $1.21 in U. S.

Speaker 2

Dollars, Down 1% in USD, up 7% in constant currency. The GAAP EPS was $0.63 At quarter end, we had nearly $7,400,000,000 in cash and marketable securities. The short term deferred revenue balance was $8,700,000,000 up 14% in constant currency. Over the last four quarters, operating cash flow was $15,100,000,000 and free cash flow was $8,400,000,000 with capital expenditures of $6,700,000,000 In addition, we now have 40 Public cloud regions around the world with another 9 being built. In addition, 12 of these public regions interconnect with Azure, giving customers true multi cloud capabilities.

Speaker 2

We also have many cloud customer implementations, dedicated regions and another 9 national security Regions with increasing demand for more as customers want to have their data protected in their country. We are careful to pace our investments appropriately, but need to continue to build to meet are accelerating demand. CapEx this quarter was $2,400,000,000 As we continue to invest in our cloud to meet this accelerating demand with triple digit IaaS bookings growth The last couple of quarters, we now expect to spend about this amount per quarter for the next few quarters as we build capacity for our customers' needs. This level of spend though will not negatively impact our operating margins as we scale. When I talk about accelerating demand, That demand is reflected in the remaining performance obligation or RPO balance, which is now at $61,200,000,000 up 68% in constant currency due to strong cloud bookings as well as to Cerner.

Speaker 2

I will also note that the organic RPO growth rate In constant currency, accelerated to 28% in Q2, up from 22% last quarter And approximately 48% of the total RPO is to be recognized as revenue over the next 12 months. Now as we've said before, I know you're tired of me saying it, but I will, 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 6,100,000 shares for a total of $448,000,000 In addition, we paid out dividends of $863,000,000 in the quarter and the Board of Directors declared a quarterly dividend of $0.32 per share. Our fundamental principle is to grow non GAAP EPS while Substantially increasing cloud revenue growth and given our increasing confidence, we will continue to prudently invest as there is strong demand for our cloud services. So now let me turn to my guidance for Q3, which I'll provide on a non GAAP basis.

Speaker 2

Using currency exchange rates as they are right now, Currency should have a 4% negative effect on total revenue and at least a $0.06 Negative effect on EPS in Q3. As I say every quarter, the actual currency impact may be different by quarter end, but we've got to use the number, so we're using the number right now. Total revenues for Q3, Including Cerner are expected to grow from 21% to 23% in constant currency and are expected to grow from 17% to 19% in USD. Total cloud growth, including Cerner, is expected to grow from 46% to 50% in constant currency And 43% to 47% in USD. I expect the total cloud growth for the fiscal year, Excluding Cerner will be above 30% in constant currency.

Speaker 2

Non GAAP EPS is expected to grow 9% between 9% 13% and be between 1 point $23 $1.27 in constant currency. Again, due to currency headwinds, non GAAP EPS It's expected to grow between 4% 8% and be between $1.17 $1.21 in USD. And as I've said before, Cerner will be accretive to earnings this year, including in Q3. My EPS guidance for Q3 assumes our base tax rate of 20.5%, which is up from 19% last year. However, one time tax events could cause actual tax rates for any given quarter to vary.

Speaker 2

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

Speaker 3

Thank you, Safra. Okay, I'm going to go over primarily I'm going to go over customers' new wins in infrastructure And then customers and wins and go lives in applications. But I'm going to start with infrastructure. So During Q2, we signed multiple customers to contracts exceeding $1,000,000,000 infrastructure contracts exceeding $1,000,000,000 Let me be clear. Multiple customers signed contracts for $1,000,000,000 worth of infrastructure.

Speaker 3

So Given that's been added to our backlog, we expect our infrastructure business to continue to grow very, very strongly into the future. We now have 22,000 infrastructure customers. We have a total of 55 regions. That's public regions plus national security regions And the other kinds of regions. And that's more than AWS or Microsoft or anybody, which may surprise some people.

Speaker 3

Gartner, as Safra mentioned, moved us into the Visionary Quadrant for the first time. So let me just Start naming specific customers and give you a flavor. I'm going to name large customers, small customers. I'm going to focus a little bit on a bunch on international customers To let you know that our investment in data centers all over the world is really paying off. So our customers Include big customers include FedEx, Deutsche Bank, Tokyo Stock Exchange.

Speaker 3

Let me take a moment to emphasize Tokyo Stock Exchange. We're the only ones running a major stock exchange and this is Tokyo is not the only one because our cloud is Very secure and extremely reliable. It doesn't go down. In fact, my favorite quote from a big phone company in the United States was The difference between Oracle's cloud and the other clouds are simply that Oracle's cloud doesn't go down. I think that's a very important issue when you have enterprise applications like the stock exchange, where you can't ever do that.

Speaker 3

Fujitsu is another big customer. Vodafone, a phone company similar has a similar problems. If you're a phone company, the phone system can't go down. Vodafone, Deutsche Telekom, Enbridge, Kaiser, a huge healthcare company primarily in the United States. NVIDIA has moved and a bunch of others have moved lots of AI, artificial intelligence and machine Machine learning workflows to the Oracle Cloud because it turns out we're really good at that.

Speaker 3

We're better than that than any of the other clouds, which may surprise some people. Schneider Electric, Telecom Italia, Verizon and lots, lots more. I'm not going to just list them all. We published a big list atoracle.com and every quarter we add new customers to that. So in the quarter, we added United Airlines database wins in the quarter.

Speaker 3

United Airlines migrating all flight operations to the Oracle Exadata Cloud. Albertsons, again, moving to the exited cloud service database. Mitsui in Japan, again, moving the other databases to Oracle. Again, This is the beginning of a very major, very large business for us as our database franchise moves primarily from on premise into the Oracle Cloud. Persol Career, a big professional services company in Japan migrating to moving the Oracle databases to the cloud.

Speaker 3

Unimiq, Curitiba and LAD Healthcare Once again moving their databases to the Oracle Cloud, Penske Truck Leasing, using autonomous moving to autonomous database. HomeServed PLC in the U. K. Government agency is moving the Autonomous Transaction Processing Systems. So they're not just moving an existing Oracle database to the cloud.

Speaker 3

They're upgrading from our on premise Oracle database to our autonomous database, which is only available in the cloud. Iberia Express, BigTelco, Same thing moving to Autonomous Data Warehouse. They just the idea is the Autonomous Data Warehouse Make database administration very simple. In fact, it's entirely automated. There is no database administration.

Speaker 3

Delgado Taxi again in APAC, a smaller company again moving their databases to our autonomous system. MaxiTrans, big transportation company in Australia, same thing, Autonomous Transaction Processing. The Skrull, a big Japanese wholesale company autonomous moving to autonomous database. Banco Safra, but this is by the way, this is not our CEO does not own a bank. This is not an internal she did not buy our database, but there's a big bank in Latin America called Bank of Safra and they're moving all their mission critical apps to OCI as is Bradesco And same thing, Yorkshire Building Society in the U.

Speaker 3

K, again autonomous data warehouse and Nestle, A food giant in EMEA is moving their analytics systems to autonomous data warehouse. And there is that's such a huge customer. Okay. I mentioned A couple of calls ago that we have a new version of our MySQL open source database and we added a new ultrafast query process They're called HeatWave to MySQL and that's doing extremely well. We have a number of companies Doing that migration, Medallia into now, Credit Club, It's a long list of people that are moving to MySQL to take advantage of the fact that our query processor in our version of MySQL is 100 times faster, I really mean that and that we have all the benchmarks, we publish all the benchmarks and we publish the source code of the benchmarks So you can duplicate those results 100 times faster than the queries than the Amazon equivalent called Aurora, Aurora, Amazon's version of MySQL.

Speaker 3

As Safra mentioned earlier, Our partnership with Microsoft Azure is going extremely well. We have a number of companies running applications in And then Azure is connected to OCI. So the database is in OCI and the application is in Azure. The Belgium Railways is 1, Honeywell in the United States, Petrena is the big Energy and utility company, telecom Italian Mobile, but that multi cloud system is doing extremely well. And Microsoft and we think that is the future of cloud.

Speaker 3

We think the future of cloud is not 4 walled gardens, AWS, Microsoft, Google and Oracle, we think those clouds are all going to interconnect And then customers will pick the most appropriate service for their particular needs and mix and match between the clouds. Okay. A lot more. A major city in the Southwest, which I'm not allowed to mention, is literally migrating everything to OCI. Lambda, which is a big AI machine learning specialist company It's moving the bulk of their workloads to OCI using NVIDIA GPU and our fast our very, very fast network to interconnect them.

Speaker 3

And this is a pattern. Lambda is doing that, latent Space is doing that. NVIDIA themselves are doing that. So you're seeing a lot of machine learning and artificial intelligence workloads Moving from other clouds to OCI because we're faster and again in the cloud business Faster when you charge by the minute, faster means cheaper. Give me one second.

Speaker 3

Alexa, be quiet. Sorry about that. I think Jeff Bezos did that. Okay. So Minnesota State Colleges and Universities, National Institute of Health, these are all new Cloud customers, new infrastructure cloud customers, Sierra Nevada Brewing, again from very large to Medium sized companies are moving to OCI and lots of them.

Speaker 3

Twist Biosciences It is moving Healthcare, again, AI workloads to OCI using NVIDIA GPUs. AIA Life Insurance Company, a A big financial services company again is moving to OCI and database is OCI. In India, UHIR Pradesh Power Corporation, a giant utility is moving all of their metering and billing applications to OCI. Wenwin Intelligent Information Technology is moving their IoT platform from AWS to OCI Yes. And they're also using MySQL HeatWave.

Speaker 3

Algar Telecom, Brazilian Stock Exchange, Claro, again, big media telco moving to OCI, Ntell, Unimed Curitivo, large healthcare company in Latin America moving to OCI, Vivo, Again, moving to OCI Banco de Chile, Ebanks, another financial services company, Rabobank, DP World, the transportation logistics company in the Middle East, Austin Transit Partnership, a municipality in Texas, they are a perfect an interesting customer because They've been using Oracle ERP and EPM and our applications for a long time. Now they're moving their infrastructure to OCI. Oman Telecommunications, a huge French telecommunications company, I'm not Alaa as I mentioned, they're moving to OCI. Oxford Nanopore, a big gene sequencing company It's moving from AWS to OCI, where they're going to store our gene sequencing, but they're not only just store gene sequences They also do analytics to figure out if this what they've sequenced is a new version of COVID-nineteen or another pathogen, it's a pathogen they've never seen before, extremely important application for World Health. REIT exhibitions, Saudi Ministry of Media, Eco Bank Financial Services and EMEA, Globemed Limited, Morrison's, a big retail operation, again, all moving to OCI, HDFC Bank and Wafi Bank.

Speaker 3

I'm going to stop there, but We published a long list, but there's tremendous momentum and large number of customers From all over the world, very large and medium sized companies moving to OCI And the business is growing very strongly as Saka pointed out in the numbers. Okay. And in the back in applications, I'll try to do this quickly. We're just winning in the back office. We have 22,000 customers in infrastructure and in the cloud.

Speaker 3

We have 11,000 Fusion ERP and HCM customers alone in applications, just Fusion customers. We have 11,000 now. We have probably close to 30,000 NextSuite customers on top of that. So we have a lot of customers in applications. We've been in the applications cloud business for longer than we've been in the infrastructure at Google Cloud Business.

Speaker 3

We're extremely strong in healthcare. Cleveland Clinic, Mayo Clinic, Mount Sinai, Providence St. Joseph, Adventist Health, Kaiser Permanente, National Health Service in the UK, long list of providers, that's a partial list, are using Oracle ERP supply chain and HCM applications. But it's not just the clinical providers that are using in our systems. The payers, the healthcare payers.

Speaker 3

So again, as we tackle healthcare with in conjunction With our Cerner acquisition, we're not just automating providers, we're also automating payers. We're also automating Pharmaceutical companies as they do clinical trials, we're trying to automate the entire ecosystem, not just a fraction of it. So I mentioned the list of providers and payers, UnitedHealthcare, Blue Cross Blue Shield, Humana, Highmark Health, Healthcare Service Corporations, Independent Blue Cross, Bright Health, so payers as well as providers. We're extremely strong in that. I mean we again, I'll just leave it with extremely strong.

Speaker 3

Healthcare wins in the quarter In Q2, Cigna, a huge payer win. Emirates Health Services, A big provider win where we beat SAP, Cross Country Health Services where we beat Workday and SAB. Henry Schein is a provider of healthcare products for and there we won their data that but again it is the entire healthcare infrastructure that we are focusing on as we try to automate healthcare systems around the world. Go lives, go lives in the quarter. Tenet Health had 65 hospitals, 235,000 They went live on HR payroll and recruiting.

Speaker 3

Cleveland Clinic is It's going live. I know it's called Cleveland Clinic, but they also they own hospitals all over the place. They've gone live in a bunch of regional hospitals in Florida. University of Chicago Manate Medical Center has gone live, Baptist Health Care has gone live, 12 hospitals with 26,000 employees, Lakeview Center has gone live in the quarter. So we're just getting stronger and stronger in Healthcare.

Speaker 3

And so let me move on to Financial Services or other Another industry that we deem very, very strategic and key to Oracle's future is financial services, specifically banking. And we're very, very strong there. Bank of America in terms of ERP, HCM, supply chain, Our customers include Bank America, JPMorgan Chase, Citigroup, Bank New York Mellon, Vanguard, Santander, TD Bank in Canada, HSBC in the UK, UBS, Credit Agricole, Societe Generale, Credit Suisse, Sumitomo, Mitsui, Macquarie Bank, it's a long, it's a partial list. We are extremely strong in the banking sector. And what you're going to see in Oracle ERP with our strength in the banking sector Is we will be offering loan origination for B2B Commerce.

Speaker 3

One of the things we're doing with the new version of Oracle ERP is if you if you're a customer that's buying something and you have Oracle ERP And you are a company that's selling something and you have Oracle ERP. The way that trend that The transaction will occur. It will be entirely automated within the cloud. So you'll Submit a purchase order. The buying ERP system will submit a purchase order to the selling ERP system.

Speaker 3

And if you need to borrow money, we will originate a loan with 1 of our banking partners. If The product has to be shipped. We will schedule the shipping and track the shipment with 1 of our logistic partners. And our ambition here is to completely automate B2B Commerce between buying and selling companies that are running Oracle Cloud ERP and manage all of the financing and insurance and logistics associated with that transaction. We do a really good job I think of automating B2C transactions, Amazon does that extremely well.

Speaker 3

Walmart does that extremely well. But we don't do a great job of automating B2B transactions. And that's what Oracle Oracle's ambition is to do that. And we're in a great position because we are so strong in Cloud ERP. So it's an Oracle system that's an Oracle procurement system on one end of that transaction.

Speaker 3

It's an Oracle order management system. On the other end of that transaction, we have very strong partners in finance, insurance and logistics. So we can completely automate the entire transaction. Where B2B transactions begin to look like B2C transactions, They're fully end to end automated and that's a huge new business for us and our partners. Okay.

Speaker 3

Let's see. Financial Services wins in the quarter. We've added M and T Bank, TD Bank, Daiwa Securities, Hilltop Holdings, Farmers Insurance, Nexi, which is where we replaced SAP At Nexi, it's an Italian bank. We replaced SAP at TD Bank. Let's see what else.

Speaker 3

Financial Services go live, AM Trust, BlackRock, a big go live. They are They have $10,000,000,000,000 of managed assets. Oracle now has 9 of the top 10 asset management firms running on the Oracle Cloud ERP. First Rand Bank, a bunch of other banks. I don't want to take up all the time, so I'm going to stop there.

Speaker 3

We have a lot more data on our website that will Tell you that we'll enumerate still more customers that we acquired in this very strong second quarter and that went live in the Q2. With that, I'm going to turn it back over to Saffron.

Speaker 1

Thank you, Larry. Bo, if you could prepare the audience for Q and A, appreciate it. Certainly, Mr. Baughn.

Operator

We'll take our first question today from Brad Zelnick of Deutsche Bank.

Speaker 1

Great. Thanks very much for taking my question and congrats on the solid results. Larry, Oracle has a rich history of being a price performance leader in Just about everything it does, but technically speaking, why exactly does OCI have an inherent cost advantage And how sustainable is that advantage? Thanks.

Speaker 3

Well, maybe the most interesting thing is we have a much faster network than anybody else. We have a fundamentally different network than any of the other cloud providers. We have what's called an RDMA network that we had to build Because our Exadata machines and our database actually glued together a lot of computers. And when you had a single database application that could run on 1 computer or it could run on a cluster of computers, 2 computers, 4 computers, 8 computers, whatever, so that there was no single point of failure. It would be one of the beauties of the Oracle database, one of the big The differences between the Oracle database and other databases is that the Oracle database, a single application could run on multiple computers.

Speaker 3

If one of those computers would fail, The application would keep running. It was fault tolerant. It would tolerate a failure of a machine. Other people don't have that. The but in order to do that, we had to make our network.

Speaker 3

If we're going to have a cluster of 4 machines running a single database app, We have to make that network between those four machines very fast and that's called an RDMA network. It means that one computer can Immediately access the memory of another computer without going through an interrupt. It's a very fast way to interconnect computers and have them act as a group. We built that for our entire cloud. So we could run our database, our Oracle real application cluster database on any of the computers in our cloud.

Speaker 3

Now because we built this hyper fast network, It turns out it has more utility than just running the Oracle database. So if you're running a cluster of computers doing a Simulation, a car crash simulation, that was one of the first applications people noticed ran much faster on Oracle. And now a much bigger application, I noticed, ran much faster on Oracle was neural networks and machine learning workloads run much faster on Oracle. So because our network is just intrinsically much faster and there are also there are security and reliability advantages to go along with that. So our network is configured.

Speaker 3

We actually have all of our computers actually have 2 networks. I'm not going to go into all the details. But our computers are fundamentally different than any other cloud company. We have 2 networks, one of which is on the Internet. I'd say one of which interconnects all of our customers' computers and the other which It's our, if you will, our control network where our and computers that run our cloud control software, which is isolated from the customer software.

Speaker 3

So the customer can't tamper with our cloud control software. They can't get control of it. And we can't see the customer's data. That is unique to Oracle. But the because we have the 2 networks And because one of the networks is RDMA, we just run much, much faster, much more reliably than they do.

Speaker 3

And it's A fundamental advantage that they can't compete with unless they rebuild their cloud from scratch.

Speaker 4

Thank you, Larry.

Speaker 5

Next question please.

Operator

Thank you. We'll take that question now from Bill Winslow of Credit Suisse.

Speaker 6

Hey, thanks for taking my question and congrats on another strong quarter. And really 2 metrics jumped out to me this quarter. First was IaaS revenue Accelerated at 59% from 58% and then 39% in the prior 2 quarters. And organic RPO growth also accelerated at 28%, Pretty phenomenal this quarter from 2022 2017 in the prior two quarters. Can you just give us sort of a breakdown of what's driving this continued strength compared to some of your cloud competitors in the past and IaaS world That have experienced decelerating growth in recent months.

Speaker 6

Are there any workloads in particular that are driving the relative strength of OCI?

Speaker 2

I don't know, Larry, if you want to take it or I take it.

Speaker 3

You can take it. I mean, The workloads, I just said the workloads, AI and machine learning is a huge is exploding. NVIDIA, NVIDIA, the people who provide the GPUs for most AI workloads They're moving a huge amount of stuff to the Oracle Cloud and a bunch of other companies that are doing that. But that's one new one. I mean, obviously database, but I'll let that question really just belong to Safra.

Speaker 2

Well, it's really across the board to be fair. We've got high performance computing. We've got most of the auto companies doing their simulations And then we have Oracle workloads, Autonomous Database and other workloads. We have extremely broad, Just extremely broad moves. I think I told you in previous quarters that even of course, our growth rates are higher Because we're smaller, but yet as we grow, we're actually accelerating because Of exactly the features that Larry covered in the last question, customers are coming to us Often not expecting the phenomenal results.

Speaker 2

And remember, time is money on the cloud. So if you're more performant, it is much less expensive, whether it's Oracle workloads Or straight compute or storage or other workloads. The other thing is you have to understand that Our cloud of customers, our national security regions, all of those are being contracted and we are clearly the choice For governments to maintain their sovereignty over their data, we can land a center very quickly And they have a and they fill up very quickly. So, we really have it coming from all areas. And then of course, our applications business, Larry basically said it.

Speaker 2

I mean, we're it And we're winning consistently, deal after deal, both as Our E Business Suite and PeopleSoft and J. D. Edwards customers moved to us, but also SAP installations Choosing us over what they had before. So it's just on all fronts, frankly.

Speaker 6

Great. Well, it's awesome to see everything that you've been talking about the past couple of years playing out. So keep up the great work.

Speaker 2

Thank you.

Operator

Thank you. We go next now to John DiFucci of Guggenheim.

Speaker 3

Thanks for taking my question. Larry, thanks For the answer to that first question, that's actually something we've been thinking about. That's going to help as we dig into better understand the benefits of OCI. But it's amazing to hear the core differentiation of RAC continues to drive differentiation even 20 years later. My question It's actually for Safra.

Speaker 3

Safra, you mentioned your flexible business model in your prepared remarks and which is unique. BYOL, you were A pioneer in doing that. And license was surprisingly strong again. Can you talk in a little more detail about what's really driving that license strength?

Speaker 2

So contrary to I think the fears, the people always have, the Oracle database is still the biggest part Of license by far. So most important part, the database remains strong because customers understand that they can BYOL, Well, bring your own license and they can have coverage whether they're on premise, in the cloud or moving in between the 2. So again, really always the big number. But we've got growth rates that are very strong in analytics. We have growth rates that are super strong in Java.

Speaker 2

We have growth rates that are strong in the industries areas, Some of our industries applications. And then, so I want to make sure I gave you the numbers both ways. With Cerner, We have growth rate of 23% because of course you have the Cerner license. Without Cerner, it's 9% growth. So even without Cerner, we have license growth after a very strong growth rate A full year ago in license.

Speaker 2

So again, big dog is of course technology, that's the bulk of it, But we've got a few industry apps and a little bit of Cerner. And it just remains just super strong.

Speaker 3

Okay. That makes sense. It sounds like a lot of things are working together here. Thank you. Thank you very much.

Speaker 4

Absolutely.

Operator

And we'll go next now to Mark Moerdler at Sanford Bernstein.

Speaker 4

Thank you very much for taking the question. I really appreciate the ability to ask the question and congratulations on the quarter. Two related questions on Surna. Safra, where are we on the Surna integration process as well as taking out the costs and where do you think You can drive those long term costs over time. And Larry, we heard a lot of great futures at Oracle World about Surna and what you can do in healthcare.

Speaker 4

Interesting to hear what progress you've made recently. Thanks.

Speaker 2

Sure. So Mark, we've owned Cerner for about 5 months. And I will tell you that they continue to do better than we had projected internally. So we're very, very happy, but we are still at the beginning. We don't want to do anything that will damage the business.

Speaker 2

And of Of course, we're very, very focused on those customers, but we are already having some level of savings. But ultimately, just so that you understand, our expectation is we will run them at typical Oracle margins. So we've got quite a way to go. And I think over the next couple of quarters, you'll see continued improvement As we've done some of our operational integration and simultaneously, I think they continue to over perform for us. So we are doing this in a Very careful way, so as not to put any issues for our customers and making sure they're successful.

Speaker 2

On the technical side, Larry, that's for you.

Speaker 3

Yes. Well, actually on the technical side, of course, what we're trying to do is build National not just provider systems. In other words, what Cerner did Primarily in competition with Epic is the automated hospitals. And yes, we want to automate hospitals in Clinics and doctors offices and do that. We certainly want to automate providers.

Speaker 3

But we're layering on top of that We want to do national public health. We are doing national public health systems. I mentioned Oxford Nanoport. That's an early warning system to detect the next pathogen that could lead to a pandemic. These global public health systems need to be built.

Speaker 3

And we are in discussions with not companies, but countries about Building and deploying global early warning systems, so we're going to detect the next pathogen that threatens To turn into a pandemic, we can catch it early enough that we can prevent it from being a pandemic. God forbid there is another pandemic that we have up to the Minute up to the second data about how that country's infrastructure is managing the hospitalization rates and Vaccination rates and all of those things, so we can better deploy and manage our resources during the pandemic. So we don't have a repeat of the things that went on during COVID-nineteen. So I expect, Safra just got back from visiting some prospective Customers that are countries that we will be signing contracts with a number of countries To build these national systems and these contracts are enormous. I mean, absolutely enormous and there will be several of them.

Speaker 3

So as I said in my note in the press release, The scale of this healthcare opportunity is unprecedented, but so are the responsibilities to go along with it. We have to we as humanity has to do a better job of delivering healthcare to people than we have done historically. And we can never have a repeat of the COVID-nineteen pandemic. And I think there is this worldwide sense of urgency and national consciousness about Getting a new generation of systems out there that help us at first prevent and then manage our health care Better pandemic and better manage our healthcare systems. As far as I know, Oracle is the only company in the world that's trying to address this issue.

Speaker 3

And we're about to sign up a number of countries that will work with us on doing just that.

Speaker 5

Excellent. Thank you so much.

Operator

Thank you. And we'll take our final question this afternoon from Raimo Lenschow at Barclays.

Speaker 5

Hey, thanks for squeezing me in. One quick question. If you think about the global environment, usually it's not the time to look at In the olden days, I remember when I was at PwC, it wasn't a time to kind of look at your back office systems, but you're kind of growing really nicely. NetSuite is Actually kind of outgoing now Fusion a little bit. Can you talk a little bit about the drivers and what you're seeing out there?

Speaker 5

Thank you.

Speaker 2

Yes. Let me start that. Larry, you can add If you want. So I want to remind you that we are global, right, which includes whether we're in Europe and in the United States, But we're also in the Gulf States and really in Asia, different parts of Latin America. And there are always Companies that get to the point where their business, they cannot afford To keep using their older systems.

Speaker 2

They spend too much using them. They spend too much running them. And they are actually holding them back and they know that. And I think one of the things many companies learned during COVID Was those companies that did not get on some sort of a track to get a digital connection with their customers, employees And suppliers that were at a huge disadvantage. And so that momentum Continues and it is possible that in any individual country or location There could be some little slowdown here or there and yet there are other countries and industries that are doing incredibly well And they view this as critical.

Speaker 2

When customers move to SaaS, they end up spending less, But also have much better capabilities to sell more, to work with their employees and their Suppliers, of course, as I said, they're customers. So that momentum has started, has started, And it just continues very, very strongly. And again, we are global. So even when there are some issues in some regions, We're in other regions that are doing phenomenally well right now.

Speaker 5

Okay. Thank you.

Speaker 1

Okay. Thank you, Safran. 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 it back to Bo to close the call.

Operator

Thank you very much, Mr. Bond. Ladies and gentlemen, that will conclude Oracle's Q2 2023 earnings conference Again, we'd like to thank you so much for joining us and wish you all a great remainder of your day. Goodbye.

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