Welcome to Oracle's First Quarter 2019 Earnings Conference Call. Now I'd like to turn today's call over to Ken Bond, Senior Vice President.

Thank you, Victoria. Good afternoon, everyone, and welcome to Oracle's First Quarter Fiscal Year 2019 Earnings Conference Call. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation and other financial information, can be viewed and downloaded from our Investor Relations website. On the call today are Chairman and Chief of Technology Officer, Larry Ellison; and CEO, Safra Catz and Mark Hurd. As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business, which may affect these forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements made today. As a result, we caution you from placing undue reliance on these forward-looking statements and we encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. And finally, we are not obligating ourselves to revise our results or publicly release any revisions to these forward-looking statements in light of new information or future events. Before taking questions, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra.

Thanks, Ken. Good afternoon, everyone. I'll first go over Q1 before moving on to my guidance. I'll then turn the call over to Larry and Mark for their comments. Once again, we had another solid quarter. Constant currency revenue growth was slightly above the midpoint of my guidance, and earnings per share was $0.03 above the midpoint of my guidance. As in prior quarters, I'll review our non-GAAP results using constant dollar growth rates because that's how we also look at the business. Total cloud services and license support revenues for the quarter were $6.6 billion, up 4% in constant currency. This accounted for 72% of total company revenue, and the bulk of it is recurring revenues. In terms of ecosystems, GAAP applications total revenues were $2.8 billion, up 7% and GAAP platform and infrastructure total revenues were $4.7 billion, up 2%. Drilling in a little. Total cloud revenues grew in all regions, and in terms of product categories, ERP grew in the 30-plus percent; verticals grew in the 40-plus percent; and public cloud PaaS and IaaS grew in the 20-plus percent. Mark will have much more detail when he speaks. Total revenues for the quarter were $9.2 billion, up 2% from last year. Non-GAAP operating income was $3.8 billion, up 3% from last year, and the operating margin was 41%, same as last year. The non-GAAP tax rate for the quarter was 19.1%, slightly below our base rate of 20%. And our non-GAAP EPS was $0.71 in U.S. dollars and up 19% in constant currency. The GAAP tax rate was 10.8%, and GAAP EPS was $0.57 in U.S. dollars and up 16% in constant currency. Operating cash flow over the last 4 quarters was a record $15.5 billion. Over the same 4 quarters, capital expenditures were $1.6 billion [Audio…

Okay. Thanks, Safra. All right. Oracle has 2 strategic products that will determine our future. Our cloud ERP product is the strategic key to our success in the SaaS applications layer of the cloud. And our autonomous cloud database is the strategic key to our success in the IaaS or infrastructure layer of the cloud. Oracle is already #1 in ERP cloud market share with over 20,000 Fusion and NetSuite customers. Customers are buying Fusion ERP to replace their existing SAP on-premise ERP systems, and customers are buying Fusion ERP to replace their existing Workday cloud ERP systems. ERP is the largest segment in the application business. Continuing our rapid growth in the cloud ERP market puts Oracle well on its way to becoming the world's largest SaaS applications company. That's our strategy and current market position in the SaaS layer of the cloud. In the IaaS or infrastructure layer of the cloud, we have the world's most popular and technically most advanced database, the Oracle Autonomous Database. The Oracle Database is so much better than other databases. Even our biggest competitors use it to run their businesses. Salesforce.com uses Oracle to run their sales automation cloud. SAP uses the Oracle Database to run their cloud services and nearly all their on-premise customers. Even Amazon uses the Oracle Database to run most of their business. Now that the Oracle Autonomous Database is running in our second-generation bare metal cloud infrastructure, customers can both lower their labor costs and cut their Amazon bill in half by running the Oracle Database on Oracle Cloud Infrastructure. The Oracle Autonomous Database automatically patches itself while running to prevent data theft. No other database can do that. We think these are compelling advantages, with the Amazon infrastructure business. We think these compelling advantages will allow us to compete very effectively against Amazon in the infrastructure business. Today, we may be behind Amazon in infrastructure market share, but we are way ahead of Amazon in cloud infrastructure technology. We think that will allow us to gain market share in infrastructure in the cloud very, very rapidly. I'll turn it -- with that, I'll turn it over to Mark Hurd.

Thanks, Larry. I'll give you a few numbers and then a few wins in the quarter. First, our apps ecosystem. 91% of our trailing 12-months revenue is now recurring in apps ecosystem with GAAP apps ecosystem now greater than $11 billion in trailing 12-months revenue, up 7% in the quarter. We're growing faster than market with, as Larry mentioned, an enormous opportunity ahead of us. Nearly 2/3 of applications support revenue for Oracle is ERP or HCM, with most on-premise customers at a very early stage of moving those back-office apps to the cloud. I do expect our apps ecosystem to grow roughly double digits for this year. In SaaS, Safra mentioned a few numbers. Let me give you a few more. Overall ERP and HCM now annualized revenue is greater than $2.5 billion. Fusion ERP was up 40% in revenue organically. NetSuite ERP had a spectacular quarter. Revenue is -- I think we've mentioned through previous calls the momentum we've been seeing in NetSuite. We were up 26% in revenue, and bookings were almost up 40%, 39% in the quarter. That follows on a bookings growth that was greater than, call it, roughly 70% for NetSuite in Q4. Our verticals were up 41%, and annualized revenue is now $800 million. Our tech ecosystem in GAAP is now greater than $21 billion on a trailing 12 months basis and Q1 was up 2%. Bring your own license continues to perform well as both Q1 database new license and support revenue were up mid-single digits. Now I'm going to shift to talking about a few customer wins in the quarter. I'm going to try to keep it to a few. But I want to give you a flavor for some of the wins that we've -- on top of what we…

Thanks, Mark. Victoria, if you would please instruct audience on the questions, we'll go ahead and get started with the Q&A portion of the call.

[Operator Instructions] Our first question comes from Kirk Materne with Evercore ISI.

I just have a question for Mark regarding the applications business. Obviously, you spent a lot of time outlining some of the wins this quarter. Can you just unpack maybe a little bit more of your confidence in terms of the business heading into the rest of the year? I'm just kind of curious how much of that comes from maybe some of your existing customers finally moving onto the cloud in terms of the ERP and maybe HCM areas and just your confidence that the improvement in NetSuite you saw this quarter is sustainable as we go forward from here.

Thanks, Kirk. I just don't know what words I can use to get -- to show more confidence in the apps business than what I've done. I think the NetSuite performance is sort of, Kirk, the way I'd describe it, it's sort of the best of NetSuite and the best of Oracle combined. We've had significant -- I think the management team in NetSuite has done a great job. Our attrition is down. We've also been able to supplement the NetSuite sales organization with our traditional recruiting, our traditional college hires. And frankly, they've done a fantastic job incubating them, absorbing them and getting them productive. They probably wouldn't have done this as a public company because of short-term quarterly earnings per share requirements. We invested in them. I think I've mentioned that before, both in R&D and in sales. And to be very blunt with you, it's paid off. In Q4, bookings numbers were spectacular. That translated to Q1 revenue growth. Their Q1 bookings were a little bit ahead of the plan that I had for them. And so again, when you have this sort of bookings growth back to back, we can pretty much predict, not perfectly but pretty close to what the annual revenue is going to be, and I expect that, as I said I think in the Q4 call, they will accelerate their revenue growth from last year to this year, and it's going to be relatively material, call it, 7, 8, 9, 10 points of growth rate. I'm talking about now growth comparisons year-over-year. In the traditional Oracle business, in the Fusion business, I don't know what more I can do than read you this list of customers. I mean, this is just a broad set of customers across regions. And now that we're bringing on both supply chain, as I've tried to mention and outline a few supply chain wins, supplemented by now the maturation in our manufacturing -- the great news about this business is most of the people we compete with aren't in a great position to bring their customers to the cloud. If you will -- I'm saying now, Kirk, the traditional ERP on-premise vendors. So our HCM business, I talked about. So my confidence level on the apps ecosystem is pretty high. 91% of our revenue, as I mentioned, is recurring. So our ability to predict our pipeline, our conversion rates are quite high. The morale of our team -- listen, let me lay -- end it this way. Our team here at Oracle believes their destiny is to win every deal. That's how they believe -- they believe that we're in a position, from a technology perspective, to be in a position to win virtually every deal, and that's the attitude we go into with this. It's a long answer to tell you, confidence on my side is really high. It shows up in our pipeline and our results.

Our next question comes from Sarah Hindlian with Macquarie.

Mark, Kirk asked about the apps ecosystem, and you're clearly bullish on that. But can you talk to us a little bit about some of the bookings trends you're seeing in the overall tech ecosystem? And then as a follow-up, Mark, I'd really appreciate it if you could let me know what's going on with Thomas Kurian and provide us with some sort of an update. That would be greatly appreciated.

I got the second question. I think the first question was bookings trends?

It's really around cloud bookings.

Okay. All right. I got it. First, I'd say -- let me try to give you as much clarity as I can. In our next-gen PaaS infrastructure business, we're talking about mid-20s sort of growth rate in bookings. Early days, to sort of Larry's point, but very encouraging in terms of these sort of short-term results we have. When you start seeing, as early indicators, ISVs move, and that's one of the reasons I outlined the ISVs, this is really good news because ISVs are some of the most discriminating -- it's sort of like our GBUs. They're probably the biggest ISV I know of. And their excitement to move to, what Larry's describing as our Oracle Cloud Infrastructure, is how fast can we get that done. And now when you see other ISVs lining up, these are very strong indicators to us of our future as it relates to OCI. And nobody can do what we can do with the Oracle Database on OCI that Larry already mentioned -- already mentioned that. I think I've talked about the SaaS bookings growth. Our bookings overall in cloud for the quarter accelerated on a rate basis. The growth rate accelerated. So that was, obviously, a good indication for us of overall bookings growth. Again, I'm trying to focus you more on the revenue long run, is I think the best indicator of where we are. Bookings to us was a good description before we had revenue. And so what I'm trying to do now is keep you focused on really what the prize is because if the bookings don't translate to revenue, they don't mean anything to us. So we're trying to get very focused on revenue. That has a couple of other aspects to us, which is also our renewal rates, making sure -- our renewal rates, we believe, are continuing to improve if you start looking at our renewal rates as they go forward. So the combination of bookings and renewals going up gives us a better revenue outlook. On Thomas Kurian, which I think was your question, Thomas is a good guy, works awful hard. He's taking a break, and we expect him back.

That's very helpful. Is there a time line on when he'll be back? Or is it just some kind of over the next few months, something along those lines?

Well, I'll stick to what I said. He's taking a break. We expect him to...

Our next question comes from Brad Zelnick with Crédit Suisse.

I've got one for Larry and a quick follow-up for Safra. Larry, with the introduction of autonomous database, you've committed to a more accelerated innovation cycle. And you now have the next major database version 19c just around the corner? How do you envision the newer cadence impacting customer adoption patterns and ultimately, the purchasing cycle?

Well, I think people are moving to the cloud infrastructure. Again, it's very early days. So there are 2 things that are going on. We're delivering our technology in the cloud prior to making it available on-premise, it just allows us to -- it's just easier to get our cloud product out and make it available to a large number of customers for their -- for development of new applications, for the lift and shift of existing applications. So a lot of our customers are now experimenting with a data warehouse here. And there's now an OLTP system that's available for -- with the autonomous database, and they're in the process now of trying it in the cloud. And we've gotten a lot of people that were very, very surprised. We had very positive feedback. I think the strangest one for me was someone who was running exadata on-premise, which is our -- which is, theoretically, the fastest system on which you could run the Oracle Database. They moved it to the Oracle Autonomous Database Cloud, which by the way, also runs on exadata in the cloud, and they got a 5x performance increase. And it's simply that the machine learning tuning for the autonomous database is just better than human beings, and they were shocked. And so now they're moving additional workloads to the Oracle Cloud. I think the fact that we can upgrade these things faster will actually increase the adoption rate. Albeit now, we got to confess, these are pretty early days. Our -- we have tens of thousands of database customers. A lot -- an awful lot of them are now moving their first workload and experimenting with their first workloads in the cloud. Once they get through that process, I think we'll have a very, very rapid migration of workloads from on-premise into the Oracle Cloud.

Just to add numbers to Larry's point, I mean, if you looked at the quarter, I said we had mid-single digits growth in database, license and database support. The real driver of that was the options that come along with autonomous database. So multi-tenant Active Data Guard and RAC were really the leading drivers of that growth.

Yes. I'd like to just follow up on what Mark said. People are bringing their own database license to the cloud. So what we're seeing is they want to use autonomous database in the cloud. Autonomous database requires the multi-tenancy option, and it requires real application clustering option. And they're trying it. They try it. They're getting great performance. They're getting terrific availability. They go back and then do a license deal where they acquire the pieces that are missing, of multi-tenancy and Real Application Clusters, and then they lift their entire license from on-premise and move it to the cloud. And we think that's going to be the vast majority of our cloud -- our database cloud customers are going to be taking their existing on-premise license, augmenting it with certain new features required for autonomous database and then buying the infrastructure piece in the cloud while bringing their own license.

Just quickly for Safra. We continue to see you express a strong opinion on the value of your stock, buying back $10 billion worth of shares this quarter and the additional authorization as well. How should we think about the rate and pace of buybacks versus other uses of cash going forward?

We think our stock is an unbelievable buy, so we are buying it back. And I'm not going to tell you exactly how much, but you can see I've got $20 billion in authorization, which I'll use up when I use it. But at these prices with our growing cash flows, with our earnings growing like they are, it seems like an amazing deal to buy our stocks, so we're putting our money where our mouth is, frankly.

Our next question comes from the line of John DiFucci with Jefferies & Company.

My question's for Safra. Safra, cash flow grew last year for the first time in several years. So I guess, 2 questions on cash flow. One, this quarter, operating cash flow was up modestly and free cash flow was flat. Was there anything affecting cash flow this quarter relative to a year ago? And then two -- I'll let -- yes, answer that first.

Yes, so let's do this one at a time. So by the way, operating cash flow was a record, okay, both latest 12 months and in the quarter. A couple of things that move around that I don't know, you wouldn't necessarily have visibility into, which is how much of a tax deduction we get when our employees exercise their options. And compared to last year, there was a $300 million-plus difference, so less of that. In addition, with lower tax rates, you -- the value of that is lower. So I suspect that you're going to see operating cash flows and cash flows in general continue to increase because our business is growing now. And at any one time, you may see some seasonality within the working capital line but -- when we do, for example, a tax payment or something like that. But other than that, you should see an overall line going in an upward direction.

That's my second question. So you answered it.

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

I had a question, Safra, for you given Mark had great comments to say about the cloud business. But I'm wondering, is it safe to assume that the software support revenue is continuing to grow? And then my follow-up question is also if you could share any color on trends that you've seen in short-term deferred revenue in the quarter.

Okay. So yes, you should assume that support is growing. Our base continues to grow. And as far as short-term deferred revenue was, let's see, about $10.35 billion, and the reality is that gross deferred was up about 4%. We netted down quite a bit in the quarter for uncollected invoices. So invoices that had been sent out mostly for Q4 bookings and things like that, which are as yet uncollected, we net down. Other folks don't net down. And so that's our short-term deferred revenue, going great.

One thing on support, Heather, though, just to -- I know you know this but just to be clear, there's multiple things going on inside support. Database support is growing. So it's growing rather nicely, and our renewal rates are inclining slightly. So as you know they're very high. But this quarter, we actually had a slight incline as we did in apps. But apps support revenue is declining and will continue to decline if we do our job because our job is to move them to the cloud, to move them to SaaS. And so when you ask that question, I don't want to give the wrong impression. We're -- if somebody who was looking for every line of support to grow, we're actually working against that.

No, no, I just meant the net of it, like the database support you said is growing rather nicely. Apps is declining but the net of it is that total...

That statement's true. I just want to make sure you know that we're seeing an incline, meaning that if you looked actually at our renewal rates, and I'd like you to know this, that our -- as a percent of what we get canceled, more of that cancellation than ever is moving to our cloud. So actually our net cancellation rate is actually declining in apps as well, but the driver of that is the movement to our cloud. So great you know that. I just wanted to make sure we didn't leave you with the wrong...

But then just to be clear, Mark, did you say that database support attach rate is increasing?

Attach rate's 100%. It's just about renewals in database. Database installed base continues to grow.

[ Revenue growth ].

Our next question comes from the line of Mark Moerdler with Sanford Bernstein.

Got a question for you. Cloud services and license support was slightly less than what The Street had expected. Can you drill in, help us better understand, if you had weakness, where that weakness was? Was it maintenance? Was it PaaS? Was it IaaS? Was it SaaS? How should we think about that? I'd appreciate.

Well, I think most of -- any kind of what miss from the numbers you have was that, in fact, there was really just some currency difference between when I gave my guidance and when -- and what it ended up being. So it was basically double the negative that I was expecting in the quarter.

I would say -- so to be very blunt with you, I would say relative to Safra's point, when she gave the guidance, when we sat in the room, relative to that number on that line that you're talking about, Oracle's performance in Q1 beat that number. Now the implication of currency during the quarter moved on us from the time we mentioned it to the time we reported. So I don't -- again, back to -- I don't know what's in everybody's model, but relative to our view, we did better in that line than we did based on our forecast at the beginning of the quarter.

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

Mark, you highlighted mid-single-digit growth in database license and support. Just a competitive question for both you and Larry here. What are you seeing just in the competitive environment, in database in particular, because we obviously get questions about NoSQL players and what ACID compliance means there with some of them achieving that. And then you have cloud vendors as well such as Amazon with them announcing bringing RDS on-premise. So just competitive environment there, that would be great.

Again, we think we have a very, very large lead in technology. Now there's other -- there might be a reason why you decide to use a database that's not as good. If you're committed to the Amazon Cloud and you're getting a lot of stuff at the Amazon Cloud and Amazon sells Redshift or -- Amazon sells a number of different databases, right? Aurora is actually the MySQL database that we're responsible for. So people don't -- people say, okay, I'm going to use whatever Amazon has on the cloud and there are -- a number of people do that. And that happened to us in the previous generation when a lot of people chose to use Microsoft database because at the time -- it was the easily available with Windows. So we do see that. We weren't -- we're not the only database around. However, in terms of technology, if you want the highest performance, if you want the highest reliability, if you want the highest security and if you want the lowest cost, whether that performance translates into cost, the reason we're much -- the Oracle Database is much cheaper than the Amazon database is because Amazon charges per minute. We charge per minute. If we can do more in 1 minute -- twice as much in 1 minute than they can, we're half the price. So we think while people will go to the Amazon Cloud and buy whatever is there as part of the Amazon infrastructure, anyone who's actually shopping for the best database in terms of reliability, in terms of ease of use, in terms of lowest cost, they're all going to pick Oracle.

Yes. Phil, numerically, just to end it. If you're growing mid-single digits, you have half the market and the market's growing 3, I don't know, we must have gained 1 point of share. So it's just all the points we talk about, I mean, we just -- all these different names you mentioned, and Larry talked about the technical part, numerically, it's just hard to dispute the evidence that, over the past year, 2 years rolling in quarters, we've just gained share.

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

Michael Turits. Mark, question for you on the vertical markets. How are they doing? And how are we doing in terms of moving those vertical applications to cloud? And how do you expect that to impact the cloud growth rate?

Well, I think the vertical businesses are continuing to make -- I made a comment in my script about their growth in SaaS being in excess of 40% for the quarter, so that's a good number. They've also now to the point where their SaaS business is bigger than their license business. So in terms of the pivot from an applications perspective, they've done, I think, a good job. Their license business, within that license business, there's another opportunity for us to do more of hosting, if you will, some of that business on our OCI cloud. Again, I mentioned earlier, they're about the biggest ISV in the world from an applications perspective, and they are perhaps the absolute best ISV test case you could ever have for the applications running in OCI. And they are beginning that move to OCI or, if you will, our next-generation cloud infrastructure. And it's going quite well. So if there's a combination of the SaaS growth, which is now 40%, as I described, and then the movement of some of those applications to our OCI, if you will, a -- sort of a hosting part of the business, both going well. So our verticals are growing. Their license business, by the way, still allows us to grow support for our vertical businesses, so overall, quite healthy. I hope that helps.

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

Thank you for joining today's Oracle First Quarter 2019 Earnings Conference Call. We appreciate your participation. You may now disconnect.