Oracle Corporation (ORCL) Q2 2022 Earnings Call Transcript

Oracle Corporation (NYSE: ORCL) Q2 2022 earnings call dated Dec. 09, 2021

Corporate Participants:

Ken Bond — Senior Vice President

Safra A. Catz — Chief Executive Officer

Lawrence J. Ellison — Chairman and Chief Technology Officer

Analysts:

Brad Zelnick — Deutsche Bank — Analyst

Raimo Lenschow — Barclays Capital — Analyst

Keith Weiss — Morgan Stanley — Analyst

Mark Moerdler — Sanford C. Bernstein & Co. — Analyst

Philip Winslow — Credit Suisse — Analyst

Presentation:

Operator

Welcome to Oracle’s Second Quarter 2022 Earnings Conference Call.

Now, I’d like to turn the call over to Ken Bond, Senior Vice President.

Ken Bond — Senior Vice President

Thank you, Erica, and good afternoon, everyone, and welcome to Oracle’s second quarter fiscal year 2022 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 following the call.

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 would 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’re 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

Thanks, Ken, and good afternoon, everyone. I’m pleased to report another quarter of increasing revenue growth as the fastest-growing parts of the business continue to become a larger percentage of our business. We had a fantastic quarter as total revenue grew 6% in constant currency, above the high end of my guidance, with broad-based outperformance across the Company. Q3 revenue growth looks like it will continue even higher, but let me save that for the guidance discussion. Earnings were also strong with non-GAAP EPS $0.09 above the high end of my constant currency guidance. We achieved this outperformance despite the US dollar strengthening since I gave guidance as we saw a currency headwind of nearly $100 million to revenue and $0.01 to EPS. So the USD results, which are excellent and above guidance are even stronger than they appear.

Before I go through the numbers, though, I wanted to comment on what we are seeing in the market that is driving our accelerating revenue growth. As I’ve mentioned on previous calls, we have a highly differentiated strategy from our competitors, where we are the only company able to offer the combination of applications and infrastructure in the cloud. We have best of breed capabilities in both infrastructure and apps like HR and ERP, but also a highly differentiated set of industry-specific cloud SaaS applications and, of course, our second-generation cloud with Autonomous Database are unique in their performance, security and dependability. And because we have decades of experience in mission-critical systems, our customers can depend on us being up and available when they need us.

Our unique capabilities are attracting customers, especially as they consider how to conduct their own digital transformation in the complex industries, in which they compete. They want us to know as much about their business as they do, whether it’s telco, financial services, utilities, retail and many others and to partner with them, to modernize. Once the company thinks beyond simple dev test and other rudimentary cloud workloads and move their technology focus to mission-critical projects, they invariably turn to Oracle. Our focus on customer success is driving more references and new opportunities with both existing customers and with entirely new accounts and, of course, we ourselves are an Oracle Fusion full suite user and I’m sure it is not lost on any of you and it’s not lost on our prospects and customers that we are announcing our results nine days after the quarter closed, because of our systems and their embedded processes.

Okay. Back to the numbers and from here on I’ll review our non-GAAP results using constant dollar growth rates, unless I say otherwise. So total cloud services and license support revenues for the quarter were $7.6 billion, up 6% in constant currency and accounted for 73% of total Company revenue. Total cloud revenues when annualized are now $10.7 billion and grew 22% with cloud bookings growing faster than our cloud revenue growth rate. And, as a result, we expect cloud revenue will accelerate further and exit the fiscal year in the mid-20s, potentially higher.

GAAP application subscription revenues were $3.1 billion, up 8% organically in constant currency and our highest growth rate in four years. Fusion apps were up 30% with strategic back-office applications now having annualized revenue of $4.9 billion and growing 30%, including Fusion ERP up 35%, Fusion HCM up 25% and NetSuite ERP up 28%. GAAP infrastructure subscription revenues were $4.4 billion, up 5%. And excluding the legacy hosting services, infrastructure cloud services grew more than 50%. I expect the infrastructure revenue growth rate will continue to ramp higher through the fiscal year.

OCI consumption revenue, which includes Autonomous Database, was up 86% in constant currency and total cloud customer revenue was up 45%. Database subscription revenues, including database support and database cloud services, were up 3% in constant currency. License revenues were $1.2 billion, up 16% amongst our very best quarters over the last 10 years and license growth was not dependent on any mega deals. We saw excellent performance in technology, our vertical businesses, as well as North America and Latin American regions. So, all-in, total revenues for the quarter were $10.4 billion, up 6% in constant currency.

Operating expenses were up 6% this quarter. The gross margin for cloud services and license support was 84% and gross profit dollars grew 5% in constant currency. I expect the full-year growth in gross profit dollars for cloud services and license support will be similar to or better than last year.

Non-GAAP operating income was $4.9 billion, up 7% from last year and the operating margin was 47%. The non-GAAP tax rate for the quarter was 19.2%, slightly higher than our base rate of 19% and earnings per share was $1.21 in US dollars, up 14% in US dollars, up 15% in constant currency.

During the quarter, we’ve recognized GAAP acquisition-related and other expenses totaling $4.7 billion, which substantially consisted of litigation-related charges that will not recur. They relate to a dispute that arose when we hired my former Co-CEO in 2010. As a result of this one-time charge, GAAP net income was a negative $1.2 billion. The GAAP tax rate was 16.6%, due to some discrete items and the GAAP loss was $0.46 per share.

Operating cash flow for the last four quarters was $10.3 billion and our free cash flow over the same period was $7.1 billion, both results were negatively affected by the litigation charges I mentioned.

Capital expenditures for the last four quarters were $3.1 billion and capex for Q2 alone was $925 million and we’re on track to invest $4 billion in capex this year.

We now have nearly $23 billion in cash and marketable securities, the short-term deferred revenue balance is nearly $8 billion, up slightly in constant currency from a year ago due to timing differences in customer payments with gross deferred revenue growing 5% in constant currency. The remaining performance obligation, or RPO, balance is $37.2 billion, up 11% in constant currency due to strong bookings. Approximately 59% is expected to be recognized as revenue over the next 12 months.

As we’ve said so many times before, we’re committed to returning value to our shareholders through technical innovation, strategic acquisition, stock repurchases, prudent use of debt and a dividend. This quarter, we’ve repurchased 77 million shares for a total of $7 billion and over the last 10 years we’ve reduced the shares outstanding by 47% at an average price that’s about half the current share price. The Board of Directors increased the authorization for share repurchases by an additional $10 billion. We’ve paid out dividends of $3.4 billion over the last 12 months and the Board of Directors again declared a quarterly dividend of $0.32 per share.

Now, the guidance. I’m going to start by reiterating our expectation that full-year 2022 revenue growth will accelerate from 2021 for all the reasons we’ve already seen so far this year. Given the strong performance in the first half, I now expect that we will see full-year total revenue finished solidly in the middle — in the mid-single-digit, led by cloud revenue growth exiting the year in the mid-20s. Cloud is fundamentally a more profitable business compared to on-premise and I expect that our operating margins this year will be the same or better than pre-pandemic levels of 44%.

Let me now turn to my guidance for Q3, which I’ll provide on a non-GAAP basis. The US dollar strengthened dramatically in November, I know you all saw that, and assuming currency exchange rates remain the same as they are now, which we have no idea if they will or not, I expect we will see a currency headwind of 3% for revenue and $0.05 for EPS in Q3. Total revenue for Q3 is expected to grow between 6% to 8% in constant currency and grow between 3% to 5% in USD. Clearly, the midpoint of the range is 7% and that is higher than the 6% we just reported in Q2 and higher than the 2% we’ve reported in Q1. So everything is trending in the right direction. Cloud service and license support revenue for Q3 is expected to grow between 6% to 8% in constant currency and grow between 3% to 5% in USD.

Non-GAAP EPS for Q3 is expected to grow between 2% and 6% in constant currency and be between $1.19 and $1.23 in constant currency. Non-GAAP EPS for the quarter is expected to grow between negative 2% and positive 2% in USD and be between $1.14 and $1.18 in USD. My EPS guidance for Q3 assumes a base tax rate of 19%. However, one-time tax events could cause actual tax rates for any given quarter to be higher or lower. But I expect that in normalizing for these one-time events, our non-GAAP tax rates will average around 19% or so.

With that, I’ll turn it over to Larry for his comments.

Lawrence J. Ellison — Chairman and Chief Technology Officer

Thank you, Safra. I’m going to discuss Oracle’s Cloud ERP status and strategy. So, how big is our on-premise ERP business today? I mean, a lot of the people, a lot of the companies like Microsoft did a great job of moving their entire Microsoft Office installed base into the cloud to dramatically increase the size of their cloud business. And unfortunately, we didn’t have the same option or opportunity. So I think it’s — I think you’ll find this interesting. So how big is our on-premise business today? Well, we had 7,500 customers in Oracle on-premise or ERP made up of E-Business Suite, PeopleSoft and JD Edwards. Only 1,000 of those 7,500 have moved to Fusion Cloud ERP. Now, we have not lost any of these customers to competitors. We expect all the remaining 6,500 to move to Fusion ERP, but it hasn’t happened yet. That’s all upside. That’s all upside. And I think a lot of people don’t realize that how — so let’s now migrate over and look at how big is our Cloud ERP business today.

Well, the round number is $5 billion a year, revenue, and we have 8,500 Fusion customers. But remember, only 1,000 of those 8,500 came from our old on-premise business, 6,500 is planning to come. So 7,500 of this 8,500 were not running Oracle ERP before we came out with our cloud product. Those were all new customers. Add to that the 28,000 new NetSuite customers. So Oracle has a total of 35,500 cloud ERP customers that are new to Oracle. Only 1,000 of our on-premise installed base has migrated so far. Let me repeat that, 35,500 net new Cloud ERP customers we’ve got in the last few years, only 1,000 from our installed base. That’s going to be coming to us later on.

So how fast is Cloud ERP revenue growing about? So we’re growing about 30% a year. And so, let’s look out five years and ask the question, how big will we be in five years? And I think the number is going to be approaching $20 billion in Cloud ERP, where the majority of those customers are not people who are migrating, our customers that are migrating from Oracle’s on-prem business, but they are migrating from other people’s on-prem business, whether it’s a small company like Infor or a large company like SAP or a variety of other companies, the vast majority of our Cloud ERP customers are not coming from our installed base. They’re coming from someone else’s installed base. And, again, 85% of that we have are from someone else’s installed base.

So what are our margins in this five-year? Let’s say, we’re estimating $20 billion Cloud ERP business. Well, at scale — at that scales, that’s about an 85% margin in that business. And as Safra pointed out early in her comments, the cloud business is inherently much more profitable and much more predictable than our old on-premise business. So, we expect five years from now — and again these are just estimates, but based on our — based on growth rates and the size of our current business. But we expect that about 30,000 — five years now, 30,000 Fusion customers, plus 100,000 NetSuite customers bringing in $20 billion at 85% margins.

All right. So, what’s happening? I mean, how are we winning so many new customers? Where are they coming from? Who are we competing with? Well, we have — really, we only have two significant customers or two competitors, the two significant competitors, SAP and Workday. And I’ve said this before, SAP did not build a true cloud product and I’m going to explain what a true cloud product is in just a minute. But SAP, because they didn’t build a cloud product, they bought some edge products around the cloud, but they didn’t actually be building their software for the cloud. That’s the same old, 35-year-old software they’ve been selling forever. Their goal is simply to hold on to their installed base, but they are losing customers to us. This — for example, this quarter PETRONAS, oil and gas — a big oil and gas customer moved over. We have a — I gave a long presentation about a couple of — us taken already a couple of hundred pretty good sized SAP customers. But — so we’re doing very well against SAP and continue to do it well — SAP, winning PETRONAS and others this quarter.

But Workday is very interesting, because Workday does have a cloud product and they’ve done quite well in HCM, but they have very few live. Try to find — try to go and find a live Workday ERP customers, try to find any. So we’re winning almost everything in Cloud ERP. We’re beating Workday — 90% — I don’t know, 98% of the time we beat Workday, we — and we’re taking customers from SAP’s installed base. There is still — we are holding onto more of their base than we’re taking, but we’re making inroads.

So, again, what’s going on? Why are we winning? Well, we’re winning because we have a true cloud product that is very, very feature-rich and very, very — has a very low cost of ownership. So it’s enormously capable and it’s not expensive compared with the old on-premise systems. Our implementations — I mean, we’ve got implementations of medium, large companies that sometime take six months. Now, don’t get me wrong. Someone like Bank of America took a few years. That was an SAP customer that we won and that was just doing the Merrill Lynch division, took a few years, and then hopefully we’re going to continue to make progress with Bank of America. The — so we have, in general, much faster and lower cost to implement our cloud product than just implement, let’s say, SAP or even Workday. But much — it’s been a gigantic difference with SAP.

Very easy to use. We have the user interface. There’s two aspects. There is the computer interface that works on mobile phones and tablets and things like that and then we have a voice digital assistant. You talk to our applications. You talk to all of our applications. You ask for reports, you ask questions and I think it’s like Alexa for the enterprise. All our apps run on smartphones, tablets, desktops, every app, not a handful of apps are mobile, every single app runs on smartphones, tablets, desktops, every single app has a voice interface. We have — and this is what I mean by a true cloud product. We deliver a new version of Oracle Cloud ERP to 100% of our customers, all 8,500 customers for Fusion every three months. It’s right. They get a new version with sometimes hundreds or sometimes even thousands of new features. Every three months they get that.

Now, why is that important? Well, I mean, because our customers want — specifically in different industry, they don’t want — they don’t all want the same new future, depending on the industry you’re in, depending on your size, depending on the country you’re in, your three most important new features you must have are different among a lot of different customers. So in the old days, with SAP, customers built this themselves. They went out and hired Accenture or somebody else IBM, IBM Services, when it was IBM Services, and to build these features for them. Now, the new model is, don’t customize your product, you don’t have to. Give us your list of new features that you need and we’ll build them and put them in the next release and we can build them faster than you can. And you might have to wait three months or four months or five months before you get in a new version, but you get them quickly and we’re the ones that built them. And they’re part of the standard product, they are not some customization, you have to maintain forever. So they are not expensive. In fact, they’re free. They come with the product. This is radically different than what SAP offers and they are — and what they call their cloud product, which I say is not a true cloud product, because they don’t have new versions every three months. They don’t have new versions every three years in their so-called cloud product.

You make all the same modifications you used to make with by hiring people and customizing. That’s not the new model. That’s not how it works in a real cloud system. That’s a fundamental. And every time they go and modify their system, what if they make the mistake, what if they have a bug, that’s going to make the system less reliable and more expensive, potentially slower, that doesn’t happen with real cloud systems. We, the vendor, are responsible for enhancing it and enhancing it on a regular cadence and responding to their requirements and delivering things to them in months, not years.

We’re also on schedule to deliver some unprecedented new technology. We won’t be long before when our customers upgrade — every three months they upgrade and sometimes they are down for an hour or so. And we’re going to — we’re on schedule to deliver a zero downtime upgrades. So it won’t be long now when our customers move to the new version. There will be no downtime. Nobody else has this. Nobody else is working on this. And we’re — and soon all of our applications will be on the autonomous self-tuning maximum security database.

I’ve said this before, what’s most important thing about the Autonomous Database? The money you save, because there is no human labor. No, actually, the money — it’s good, the money you have been saving, because there’s no human labor is good, but no human labor, and no human errors. No security risks, no stolen data. Almost all of the — not all, but almost all of the data that’s going to hacked out of other clouds, it has been hacked because some human being made a mistake, left the port open, created a vulnerability. You can’t do that with the Autonomous Database, because human beings don’t touch it. It just like a self-driving car, it’s safer than a car driven by human being. A self-driving database is much safer and more secure than a database that is managed by human beings who make mistakes and cause problems. Okay.

So I’ll stop there and I’m going to slightly turn a little bit and describe what’s going on in the marketplace kind of on an — from an industries perspective. Fusion ERP has been out for a while and we are beginning to roll up entire industries. We’re adding the features for banking — I think, on an earlier quarterly call, I said our two largest and most strategic industries going forward in the ERP would be banking and healthcare, not — may not just the ERP, but for the Company in total, will be banking and healthcare. And we’re doing extremely well in those industries.

Some of our live banking and financial services customers include JPMorgan, Bank of America, Bank of New York Mellon, HSBC, State Street, NatWest, Santander, Macquarie, I can go on and on and on with a long list of banks all over the world, but also we have insurance customers, USAA, Nationwide, AAA, and again a lot more. I’m not going to list everybody. In fact, we provide a printed list at the end of every quarter of our — all the new wins we had in the quarter. And we had a lot of new logos in banking and financial services in Q2. We won Barclays. That was another big bank and we won FirstBank [Phonetic]. In insurance we won Ameritas, MoneyGram and we had some major go-lives, huge go-lives with MetLife, Blackstone and Assurant. We’re doing very well in financial services and specifically banking.

Healthcare, the other industry I identified as being strategic and above the — and on par with banking in terms of the importance of our — to our future. So live healthcare customers include Kaiser, Cleveland Clinic, Providence St. Joe [Phonetic]. I would say that we have a lot of healthcare wins around the world, but I’d say our healthcare wins are concentrated more in North America as compared with banking. New healthcare wins this quarter, Mayo Clinic, the number one ranked hospital in the United States, Highmark Health, Syneos Health and PPD. Again, I can go on and on, but again, we print those out for you and you can read them in your leisure.

Let me talk about one other industry before I get my closing remarks and that’s logistics customers. We become very, very strong with logistic customers. That’s actually the key win for us, take away from SAP, UPS. We have UPS, DHL, FedEx, DP World, SH [Phonetic], TTS, Yellow, I could go on and on. We have most of the big logistics companies around the world, around the world. And FedEx, which is — but a lot of our companies aren’t through rolling out Oracle Fusion ERP, but FedEx, for example, is now live in 98 countries. We’re winning in lots of other industries as well, but I wanted to highlight these three industries because they are essential to our plan to add major new capabilities to our Cloud ERP system.

Before I describe those capabilities, I have a confession to make. We are not — I don’t believe anyway [Phonetic]. We are not on our way to building a $20 billion Cloud ERP business in five years. I think it’s going to be a lot bigger than that. Let me explain why. As more and more companies adopt and run Oracle Cloud ERP asked a question, what does a B2B procurement transaction look like? In other words, how does it work when one Oracle Cloud ERP system is talking to another Oracle Cloud ERP system and placing an order? We are working in concert with our banking and logistics partners to originate purchase financing, product shipment, delivery tracking, invoicing and payments right in the side the two transacting Oracle Cloud ERP procurement system.

Oracle Cloud ERP will soon bring an entirely new level of automation to B2B e-commerce, one that very much resembles the ease of doing business and efficiency of B2C e-commerce. This new ERP automation system, all these new capabilities will dramatically simplify our customers’ procurement and supply chain processes. And as such, it represents a huge new opportunity for Oracle to grow its Cloud ERP ecosystems.

Thank you. Back to Safra.

Safra A. Catz — Chief Executive Officer

Thanks, Larry. I think Ken is going to take questions. So…

Ken Bond — Senior Vice President

Yeah. Erica, if you could queue the audience, please?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Brad Zelnick with Deutsche Bank.

Brad Zelnick — Deutsche Bank — Analyst

Great. Thank you so much, and congrats on a great quarter with accelerating growth. Larry, you shared quite a bit with us, really, really helpful, but I wanted to ask you about OCI, because we continue to hear great things from customers and I think people understand Oracle’s Cloud is hyper-secure, highly automated and there’s real price performance advantage. But as we think about your product’s roadmap and what it takes for Oracle to capture more than its fair share of the broader public cloud market, how much are you investing in breadth versus depth? Because we just see in this quarter alone, like the partnership with Airtel in India, Orange in West Africa, new regions in Singapore, UAE, France, I’m probably missing some, but clearly there is demand, otherwise, I know Safra wouldn’t be making these investments. But when your main competitor boasts — Larry, when your main competitor boasts over 200 services up the stack, how far should we expect to see you build up the stack competing on functionality versus continuing to go broad with what you already have? Thanks.

Lawrence J. Ellison — Chairman and Chief Technology Officer

Well, again, we have a bunch of things the other guys don’t have. We have applications. So, by the way, I know you want to talk about OCI, you want to talk about infrastructure. We think of those as two separate businesses but, of course, they’re not. I mean, everyone who is running Oracle ERP is building data warehouses on top of their ERP data. They’re matching it up maybe with Salesforce data. They’re doing all of these things. They are doing a combination. Our big application customers, Bank of America, for example, is doing combination of running our apps and building bespoke apps around those. So that this is a huge opportunity for us that our other infrastructure customers — other infrastructure providers don’t have.

We’ve often had the discussion, do we want to support 10 databases or do we want to support 30 databases? And do we want to have every single service that, let’s say, an Amazon has? And I think our view is, we want to have some really good choices, but not every single choice on the menu. We want to have all of the popular databases, but not some of the obscure databases. So we are not going to try to feature match every single thing they do. We will, however, have development environments they don’t have at all. So, if you’re building data warehouses on top of a Fusion ERP or on top of Fusion HCM or on top of NetSuite, we have a whole set of tools that makes that easy for you over on the infrastructure side of our business. So, we have some — we do — we have all the popular stuff around. I mean, obviously, you have Kubernetes and the like. But — and we have Postgres and the popular databases. We have MySQL, but our version of MySQL is much better than Amazon’s version of MySQL, much faster. I mean, more than 10 times faster, because we have this query optimizer, they don’t have it all. So our idea is to look at the most popular products, to have a recommended development environments and recommended systems and we’re able to do things they can’t do at all.

I think one other — let me mention one of this — one of the fundamental differences in our strategy versus their strategy. They are building a small number of very, very large data centers. Our strategy is to build a large number of smaller, less expensive data centers. We think that it improves reliability dramatically. We don’t have this giant data center going down. It reduces the blast radius of what happens when things go down, less goes down, it allows us to go into sovereign nations, some smaller countries that they can’t — never afford to put a data center in and we could not put one but two, a primary and a backup data center, in sovereign countries that care about data sovereignty. We can put a complete cloud. I don’t mean just database cloud, I mean, a complete cloud at a customer like NRI in Japan and we did that. We put in a primary and a backup. So we can — if people want to run a cloud, if a large financial institution wants to run our cloud inside their firewall, inside their data center, we can do that. And how will that cloud differ from the cloud that we run in the public? It won’t differ at all. We can make that small enough. We can fit [Phonetic] it into their data center. Nobody else can do this.

So, we think we have — and then let me close with a note that I’m going to paraphrase from a very large telecommunications company, who uses our cloud and all of — all the other three North American clouds: Google, Amazon and Microsoft. And the note basically said, the one thing we’ve noticed about Oracle’s Cloud is that, it never ever goes down. We can’t say that about any of the other clouds. We think this is a critical differentiator availability. Another critical differentiator is security, where we have — where the only way you can achieve security, I promise you this is true, is through autonomy. If you have human beings deploying and tinkering with your systems, they can make mistakes that expose your data. The only way we have been able to solve that problem is to get human beings out of the equation. No human beings, no human error, no human malice. So we think we have a bunch of differentiators and we will be able to compete very, very effectively with security, reliability, combination of apps and infrastructure, autonomy and a bunch of other things the other guys just will not be able to do.

Brad Zelnick — Deutsche Bank — Analyst

Got it. That’s super helpful. Thank you, again, and congrats.

Safra A. Catz — Chief Executive Officer

Thank you, Brad.

Lawrence J. Ellison — Chairman and Chief Technology Officer

[Speech Overlap] I will not have an answer that long again ever.

Safra A. Catz — Chief Executive Officer

Brad, you’re not going to believe this, I’ve got more to add to that answer. So, first of all, you missed the few data centers, not the least of which is Israel, France and another one in Italy. So — but, the real answer is the fact that I’m sure you’ve seen Gartner scorecard where we actually passed Google this year and are higher than where Microsoft, who has been in this longer than us, was a year ago. But in addition, that scorecard doesn’t even measure the capabilities we have in handling very large databases, which, of course, we do uniquely of all the other hyperscalers. So, it’s all very interesting. But we have things in addition to application in the infrastructure world that they cannot handle.

Lawrence J. Ellison — Chairman and Chief Technology Officer

Yeah.

Safra A. Catz — Chief Executive Officer

And that has just put us in an incredible position and that’s why customers are coming to us. All right. I will — we will stop right there.

Brad Zelnick — Deutsche Bank — Analyst

Thank you so much.

Operator

Our next question comes from Raimo Lenschow with Barclays Capital.

Raimo Lenschow — Barclays Capital — Analyst

Hey. Thanks for taking my question, and congrats from me as well. I wanted to go back to your ERP and I apologize for that. But I remember when I used to work in the industry, Larry, the changing in ERP system was like voluntary for a root canal treatment, kind of you try to avoid it as much as possible. But if I look at the numbers, now NetSuite had the strongest growth by fee forever, I think. Fusion ERP is accelerating. So what’s going on in the industry in terms of kind of like the pressure or the willingness to do it now? Thanks for that, and congrats again.

Lawrence J. Ellison — Chairman and Chief Technology Officer

Yeah. Thank you very much. I think we spend a lot of time in automating our install — installing the products, making it very easy to configure, having, I think, our — the consulting infrastructure, the implementers around our products now are much more experienced. The products have gotten much better. The people have gotten more experience, the customers themselves have gotten more experienced. So, the cost of putting one of these things in has dropped precipitously. The time it takes to put in, obviously, related to the cost has also dropped precipitously.

The — there is just no comparison to the way it used to be, the way it is now. Well, the way it used to be, a customer bought his own unique computer configuration and added some modifications to the ERP system and installed it over a period of, I mean, it wasn’t unusual back in the day for an SAP implementation, say, five to seven years. I know it sounds crazy, but some of them — and cost billions of dollars. Now, for a medium-sized company, six months is not unreasonable to get you live on it, maybe not your entire business but financials and procurement and a big chunk of your business we can get live, very, very quickly at a very, very low cost. So it’s just a totally different world.

And then the other thing I’m going to mention one more time. Customers are not encouraged to go ahead and build their own extensions. If you need an extension, tell us what you need and maybe we can schedule in the next quarter or two in the upcoming releases. That’s a fundamentally different model. And it’s so much less expensive to have us do it for nothing than to try to do it yourself.

Raimo Lenschow — Barclays Capital — Analyst

Perfect. Thank you.

Ken Bond — Senior Vice President

Next question, please.

Operator

Our next question comes from Keith Weiss with Morgan Stanley.

Keith Weiss — Morgan Stanley — Analyst

Excellent. Thank you for taking the question, guys, and really impressive quarter. I think Brad had a really good point earlier that the investors are more and more looking at sort of your capex intentions and looking at data center count frankly as a leading indicator of growth for Oracle. So, I was hoping you could update us on that. And maybe digging into that data center side, capacity expansion isn’t just in data center expansion, you could expand within data centers as well. Could you just help us think about how we should think about overall capacities to deliver through both data center expansion and expanding those existing data centers to really capture all of these investments that you’re making?

Safra A. Catz — Chief Executive Officer

I guess, I’ll take that. I’ll get started with that. Well, first of all, the public database and data centers are the ones that we announced that are up and running. Of course, we have many in the offing. We also have, as Larry talked about, private regions for certain customers. But in addition, we’ve made very significant investments in government, especially United States government focus data centers and I’m sure you’ve seen that we’ve been invited to submit for the JWCC. We also have data centers at different levels of security for different government requirements in other countries and those we don’t generally announce. So you don’t see those. What you do see is the fact that we have invested ahead of revenue and we invest when we see revenue potential. We have been rolling out on track, so we feel very good about it. We have just continue to make sure we have capacity for customers and some customers start in one data center and when we open in their country, they move to those and that’s working out for us. We have a lot of demand worldwide and you’re going to see us make these investments as I’ve guided for the whole year.

Keith Weiss — Morgan Stanley — Analyst

Outstanding. Super helpful. Thank you.

Operator

Our next question comes from Mark Moerdler with Sanford Bernstein.

Mark Moerdler — Sanford C. Bernstein & Co. — Analyst

Thank you very much. I’m going to follow up on the discussion on OCI Gen2. Oracle’s dedicated region seem to be reasonably unique offerings and a different spend on the hybrid cloud, which the largest hyperscale providers are not offering. Can you explain how you’re able to deliver this successfully and with good margins? And why others cannot? And can you give us any sense of how large do you see that opportunity? Thanks.

Lawrence J. Ellison — Chairman and Chief Technology Officer

Yeah. I’ll take a crack at that one. Well, everyone says we’re late to the party, so we saw what everyone else built and exactly built two versions of our cloud, right? We built version one, which we weren’t very happy with and then we built Gen2 — our Gen2 Cloud. And one of the things that we decided — as we had a chance to rearchitect it, we were sensitive to — we need a special high — super high security zones for government. We need to build a lot of data centers. And the magic to building a lot of data centers is twofold. One is, compressing the software to a smallest number of servers, but that’s really not it. It’s really the automate — being able to operate all — a lot of the smaller data centers without people or with very few people. Think about what Elon Musk did with his satellite system. Why was he able to build a low earth orbiting satellite system and nobody else — when a lot of other people have tried, but no one else could, because he figured that — he built a software to manage thousands of satellites. No one else could do it. NASA couldn’t do it, other people can’t do it. That’s why they kind of failed in the past.

We — the — our automation software for rolling out and managing a large number of data centers is very different software that you would build for managing a small number of super large data center, where you had a lot of people. So we’ve relied much more heavily on automation to do this and Safra talked about it, because it wasn’t easy. It took us a while. And we were worried — and we’ve been made a bunch of commitments and the only way we can meet all of those commitments was to have fully automated lights out data centers, cloud data centers. And we — the team did a fantastic job prioritizing that automation and that automation software is what allows us to have a large number of data centers rather than a small number of the large data centers. So it’s just a different — it’s a different suite of software to do it, to manage it.

Safra A. Catz — Chief Executive Officer

Larry, why don’t you comment also on the private data centers that are truly a full cloud but at customer. So [Speech Overlap]

Lawrence J. Ellison — Chairman and Chief Technology Officer

Yeah. This is — a lot of people talk about — they talk about — I think it’s hilarious. I hear people talk about hybrid cloud. So, a hybrid cloud means, it’s someone’s public cloud and then whatever you have in your data center is the hybrid. This is ridiculous. That’s not a cloud. People say, well, that’s the most common cloud there is. Whatever you got, plus some linked to a public cloud. That is not a hybrid cloud. We offer identical hardware, the identical automation software, we will put a region. It runs all of our apps, runs all of our services, 100% of them and we’ll put it in your data center. We can do that now, because we can run that — we have the automation software to run that on your floor behind your firewall. We can build that, so it’s true.

So our notion of a hybrid cloud is basically the same thing, but it’s located on your data center floor behind your firewall with high-speed network interconnects where you’re comfortable and feel safe, safer than if you were in the public cloud. That’s the only hybridy thing about it. Otherwise, it’s exactly the same thing. You can move a workload from the public — from a public cloud into your private region and then back out of your private region back in the public cloud. They are identical in every way except for the security protection is in firewalls in your private data center. That’s a real hybrid cloud. The other guys don’t have it.

Mark Moerdler — Sanford C. Bernstein & Co. — Analyst

That makes a lot of sense. I really do appreciate and congratulate on the strong quarter.

Lawrence J. Ellison — Chairman and Chief Technology Officer

Thank you.

Operator

Our final question comes from Phil Winslow with Credit Suisse.

Philip Winslow — Credit Suisse — Analyst

Hi, guys. Thanks for taking my question and congrats on a great quarter and outlook. In a quarter where a lot of numbers jumped out, I mean, the one that jumped out to me the most was the license growth year-over-year. I had to go back nine years in my model to find a quarter that was actually higher than this. And obviously when I think about license for Oracle, I would assume it’s being driven by the database business and then when you think about that in the [Speech Overlap]

Lawrence J. Ellison — Chairman and Chief Technology Officer

By the way, I’m really glad you said that. That’s what it is. I mean, think about it. I mean, Marc Benioff over at Salesforce.com, they run their business, their cloud business entirely on Oracle. Now, we do — people say, well, that’s not cloud revenue. You just licensed that revenue. Well, the Oracle database running all of the Salesforce’s cloud and we don’t count — and you’re right, we don’t count that as cloud revenue, we count that as license revenue. But is that modern — is that a modern cloud application? I think so. But again, the license stuff is being driven by the use of our database in some very large clouds.

Philip Winslow — Credit Suisse — Analyst

That’s great. And that partially answers one of my question. But when you think about that license in your example of — for example like Salesforce together with just the cloud services and the acceleration you see there. I mean, just that overall business seem to accelerate during Q2 here and even versus Q1. And when I think about some of the other smaller competitors in the space, they’re seeing acceleration as well. So, I guess, sort of my question is, there seems to be something going on in the data world, the data infrastructure stack and, obviously, when Oracle moves at these — at your scale or at these percentages, there definitely seems to be something going on. So what is that? And how do you think about the sustainability of those drivers?

Safra A. Catz — Chief Executive Officer

Larry, either you or me, we’re going to talk about data. I mean, listen, this is not new news. In that what is going on is getting insights from data, being able to capture large amounts of data and analyzing it and, of course, that’s coming and so much of it is in Oracle. We are the ones who can handle high performance, high reliability requirements and the Oracle database continues to grow. But in addition we have the other technologies that are also doing very well. Java continues to be incredibly strong and it’s leading application development environment. So — but remember, when people buy the Oracle database licenses, they can bring those to our cloud. And that’s a very economical way to operate. And really what’s going on is huge amounts of data growing exponentially and when it’s important data, especially data you want to use for analysis, for data warehousing, for transactions, you’re going to take Oracle and nine times out of 10. And so, this is great for us. And, of course, as more businesses just digitize, this just draws more of our technology.

Lawrence J. Ellison — Chairman and Chief Technology Officer

Yeah. And I would say that, as SAP Cloud [Phonetic] moves their applications to S/4HANA and the cloud and they do what I call hosting and they call cloud. The vast majority of those SAP databases do not run HANA. Way over 95% of them still run Oracle.

Philip Winslow — Credit Suisse — Analyst

Awesome. Thanks, guys. [Speech Overlap]

Lawrence J. Ellison — Chairman and Chief Technology Officer

It’s a big business for us even when it migrates to the cloud. I mean, Amazon has customers that have taken their data — Oracle database licenses and they’re running those Oracle database licenses in the cloud. So license does not mean on-premise and license does not mean the cloud. They can — it’s a bit of a — it’s a mixed bag, right? Some of that license revenue and most of the new license revenue is on its way to the cloud.

Ken Bond — Senior Vice President

Okay. Great. Thank you, Larry.

Philip Winslow — Credit Suisse — Analyst

Awesome.

Ken Bond — Senior Vice President

A telephonic replay of this conference call will be available for 24 hours on the Investor Relations website. Thank you for joining us today.

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

Operator

[Operator Closing Remarks]