Oracle Corporation (ORCL) Earnings Call Transcript & Summary

Hello. This is John Chevedden for Ken Steiner's proposal. Can you hear me okay?

Yes. I just want to finish by saying that pursuant to the rules of conduct for the meeting, you'll have 5 minutes to present the proposal.

Proposal 6, independent Board Chairman. Shareholders request that our Board of Directors adopt the policy and amend our governing documents as necessary to require that the Chairman of the Board be an independent member of the Board. This proposal allows a reasonable amount of time for implementation. It is important to have an independent Board Chairman as a consistent long-term policy to build up the oversight role of the directors. The following directors received from 23% to 28% in negative votes at the 2019 annual meeting: Bruce Chizen, the lead director; Charles Moorman; George Conrades; Jeffrey Berg; Naomi Seligman; Leon Panetta. The 23% to 28% in negative votes are worse than they seem since Mr. Lawrence Ellison, who controls 35% of the vote, is assumed to have voted in favor of these directors. These directors also controlled 100% of the Executive Pay Committee, 75% of the Nomination Committee and 50% of the Audit Committee. Meanwhile, Ms. Catz, CEO, received $191 million in total realized pay in 2019. Plus there's a long history of shareholders rejecting the excessive Oracle executive pay. 2015, it was 51% rejection. 2016, it was 55% rejection. 2017, 50% rejection. 2018, 46% rejection. 2019, 42% rejection. This is a good reason for the preliminary percentage rejection to be announced live before the close of today's meeting. There is never much variation in the final percentage vote result from the percentage that is known now by the inspector of elections. Most companies have rejection rates of 5% to 10% for the executive pay. The 42% to 45% rejection above is worse than it seems because Mr. Ellison, who controls 35% of the vote, is assumed to have voted in favor of this excessive executive pay. Management uses inconsistent logic in resisting this proposal. Management said that the Board needs flexibility, yet the Board denies shareholders flexibility. Management said shareholders should not have any flexibility whatsoever beyond a strict rigid limit of 20 shareholders who must together own a combined 3% of our company stock, which equals a massive $5 billion of Oracle stock, to work together to nominate a proxy access director candidate. This proposal topic won 44% support at a previous Oracle annual meeting. This 44% support represented overwhelming majority support from the non-insider shares. Please vote yes, independent Board Chairman, Proposal 6.

Thank you. The Board opposes this proposal for the reasons described in the proxy statement. Will the secretary announce the results of the vote?

Thanks, Jeff. This proposal was defeated by a majority of Oracle's shares of common stock present and entitled to vote at this meeting.

I declare that the stockholder proposal regarding an independent Board Chair has been defeated. So it's now approximately 10:25 Pacific Time, and the polls are now closed. This concludes the formal part of the meeting, which is now adjourned. So we are now at the point of the meeting that we provide for general questions and discussion. If you have questions regarding Oracle and its business, please follow the instructions provided on the virtual meeting screen. [Operator Instructions] Please note that our answers to stockholder questions may include expectations, predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they're subject to risks and uncertainties that could cause actual results to differ materially. You should review our most recent Form 10-K and Form 10-Q for a discussion of risks that may affect our future results or the market price of our stock. You are cautioned not to place undue reliance on forward-looking statements, which reflect our opinions only as of today. Please keep in mind that we're not obligating ourselves to update these forward-looking statements in light of the -- of new information or future events.

Thanks, Jeff. Though we may not be able to answer every question, we will endeavor to answer as many stockholder-submitted questions as we can that comply with the meeting rules of conduct and are germane to Oracle's business. As an initial matter, I would note that we will not be answering any questions regarding the TikTok transaction and refer stockholders to our prior public statement.

The first question is that they would like to hear Larry's views on Oracle's overall competitive position today as well as how do you see that changing over the next 5 years.

Okay. Let's see, Oracle's in 2 specific businesses. We're in the cloud application business. We're either the largest or second-largest application supplier in the cloud. Oracle and Salesforce are 1 and 2 in that area, and we're an infrastructure supplier in the cloud. So I'm very happy that -- and Oracle is unique in the fact that we are the only company, the only major cloud player that competes in infrastructure where our primary competitors are Amazon, Microsoft and Google, and applications in the cloud where our primary competitor is salesforce.com, we're the only major cloud company that competes in both of those areas. As I say, we're doing extremely well in applications. We are, by far and away, the #1 provider of cloud applications for ERP. Our 2 products, Fusion ERP and NetSuite ERP, are 1 and 2 in the cloud ERP business. So we have a very substantial market share and a lead over -- a huge lead over our nearest competitor in back-office applications. We are also Salesforce's #1 competitor in the front office with our cloud products. So in applications, we're doing exceedingly well. We've been doing exceedingly well for some time. We are newer to the infrastructure business, but we have some conspicuous wins to be proud of over the last 12 months. The most interesting and the most well-publicized was the fact that Zoom, which had been running on AWS and Google and looked at moving some of their capacity to Microsoft, chose Oracle to expand during the pandemic. And right now, Oracle holds enormous numbers of meetings with tens of millions of people on Zoom every single day from the Oracle -- from Oracle cloud data centers. In fact, Oracle runs more Zoom meetings than any other cloud. We run more Zoom meetings than AWS. We run more Zoom meetings than Zoom runs out of its own cloud. There are a number of other examples where we're doing extremely well in high-performance computing and infrastructure. Most of the major car companies use Oracle for high-performance computing. We're very strong in that market. In videoconferencing like Zoom, a company called 8x8 moved all of its capacity out of Amazon and into the Oracle Cloud. So we have made very, very substantial progress in the infrastructure business. We've retained a leadership position in cloud applications. So I think we're positioned for still more growth, both in infrastructure and applications. And once again, I'll repeat, we are the only cloud company that competes in both infrastructure and applications.

Thank you, Larry. The next question states, "You've mentioned several times in the past that the autonomous database is the most important product in the company's history, except possibly for the original database. Can you help us understand why?"

Well, the autonomous database is a unique piece of software. It's an autonomous system. Autonomous systems are things like self-driving cars, where you don't tell it how to do something. You tell it what you wanted to do. You say, "Take me to 33214 Pacific Coast Highway in Malibu." The car then figures out how to do that. You're not involved in navigating the car from where you currently are to the destination. You simply tell it where you want to go, and it gets there. So there's no opportunity for human beings to make an error when driving the car and navigating the car to that location. Autonomous systems famously take the labor out of the process. So you're not driving the car. There is no wheel. There are no pedals. You don't drive the car. So there's no human labor. If you take the human labor out, you also take out human error. Autonomous cars are much safer than cars driven by human beings. So you will see a whole new generation of autonomous taxis from people like Tesla and others. Well, this notion of autonomy also applies to software. To run the Oracle database properly, you have to be a very skilled and trained IT professional. It's an enormously powerful system, but it's also -- again, it also takes a lot of time -- it takes years to become proficient in running the database in an optimal way, in the best possible way. What the Oracle autonomous database does is it takes all the labor out of running the system. If you need more storage capacity, it automatically goes out and gets more storage capacity and without any human intervention. If there's a security vulnerability that occurs in the database, the database automatically heals itself. It automatically applies a security updater, what's sometimes called a patch, to fix the security vulnerability. It does that without any human intervention at all. The database backs itself up. The database tunes itself. So when you build the -- when you first roll out an application and a human being tunes the system and a nonautonomous system, it runs optimally for a while. And then a human being has to come back and retune it as the database grows, and the access patterns change. That's not true in an autonomous database. The autonomous database constantly performance tunes itself without any human intervention. The autonomous database takes the human labor out of the system, saving you enormous amounts of money. And perhaps even better, by taking the human labor out, it eliminates human error. So people can't make mistakes. The great thing about that is if you look at all of the problems Amazon has had with its database technology in AWS, the problems have been caused by human beings misconfiguring those systems, thereby creating a security vulnerability. Therefore, you see companies like Capital One losing tens of millions, tens of millions of employees -- of their customer records and credit card numbers and social security numbers and things like that and Amazon. And that's because of human error. A human being made a mistake and misconfigured their system at Amazon. Amazon says, "That's not our mistake. That was the mistake of the people at Capital One. They made a configuration error." Our approach to solving that problem is to say human beings should not configure complex IT systems like a database. The computer should automatically or more precisely autonomously configure itself. If the computer autonomously configures itself, there are no human errors. You cannot make a configuration error. And you solve all of these security problems that are caused by either a human error or human mischief. In fact, it's the only way to solve those security problems. So the reason I say the Oracle autonomous database is the most important new technology ever since the original Oracle database is we are the only ones that have pretty comprehensively solved the problem of data security in the cloud by taking human beings out of the process, so there cannot be human error, and there could not be human mischief.

Thanks, Larry. So the last question we had is ask how you see the ERP market changing over the next few years, especially in light of recent competitor announcements?

That's another question for me?

Yes.

How do I see the market changing. I see the market getting bigger and bigger and bigger as people are migrating to the cloud. The amazing thing, the amazing opportunity that's in front of Oracle is SAP never built -- SAP is the leader of -- in the previous generation of ERP systems. SAP was the largest on-premise ERP supplier, ERP system supplier. We were #2 to SAP in the previous generation of on-premise applications. As we migrate ERP -- ERP customers move from on-premise systems to cloud systems, Oracle gives them a couple of options: one that we built and one that we bought. So for larger companies, we built an ERP system called Fusion. For smaller companies, we acquired an ERP system called NetSuite. So we have 2 offerings in the -- 2 true cloud offerings for ERP. SAP has none. SAP never moved their ERP software to the cloud, creating a gigantic opportunity for Oracle. Think about it. Our #1 competitor for on-premise ERP didn't show up in the cloud. Now SAP, don't get me wrong, SAP bought a bunch of what we call edge products for the cloud. They bought Ariba for procurement. They bought SuccessFactors for human resources. They bought Concur. They bought a few -- but these are little edge applications all around the ERP system. But they never ever rewrote their ERP system for the cloud. That's truly extraordinary. Their ERP code that they're selling right now is that 35-year-old code that they had -- the bulk of it is a 35-year-old code written in a proprietary language called ABAP, never ever designed for the cloud. I mean, they'll host it for you. They'll put it on a computer and host it in a data center for you, but it is not true cloud software. We update our cloud software, our ERP cloud software every 3 months. You get new features and new functions, and we continuously improve the product. That's just the characteristic of true cloud software. They don't do any of that. They don't do any of that. The -- so they have abandoned their position -- or excuse me, they never really moved to the cloud. I guess they haven't abandoned it. They're still competing. But they don't have a true cloud system, which allows us to go in and take vast swaths of market share every quarter. And we're doing extremely well against SAP. Those with the most have the most to lose. SAP was the winner in the on-premise ERP wars, and they don't even have a product in the -- in cloud ERP. They have the stuff we call faux cloud or what's called hosting. So we have this enormous opportunity to go from the number -- overall #2 supplier in ERP, which we were in the on-premise world, to the #1 supplier, where we -- of ERP, where we are in the cloud world. That is true right now. We have around just under 30,000, 30,000 cloud ERP customers. It's an amazing number, 30,000. Our closest competitor has a few hundred, and our closest competitor is not SAP. So we have the opportunity to really dominate the ERP business in the cloud as SAP's overall installed base erodes because of their failure to move to the cloud. So I'm very optimistic this will be a source of growth and profits for Oracle this year, next year and the next several years as the world finishes this migration from on-premise to the cloud.

Great. Thanks, Larry. That concludes the question-and-answer session of -- part of the meeting. I'll pass it back to Jeff Henley.

Ladies and gentlemen, thank you for attending today's meeting, and be well.

Good job, everybody.