Oracle Corporation (ORCL) Earnings Call Transcript & Summary

Why don't we get started? Good afternoon, everyone. Thank you for joining us. For our next presentation, we're obviously pretty excited about it because this is a first for us at the Credit Suisse Healthcare Conference to be hosting technology giant, Oracle, at our conference. And I think many of you obviously know that Oracle purchased Cerner a little while ago and has made a big push into health care. So obviously, they're a very big player now, and we don't really get to see them and talk to them that much. So I'm very excited to introduce my next guest Seema Verma, who is here representing the company. She's had an extraordinary career in health care to say the least. She founded and sold a national consulting firm. She basically worked as a VP for policy and planning for a public hospital, but most notably, obviously, we can't ignore her time where she had one of the longest tenures running CMS from 2017 to 2021. Most notably, may be recognized. She was named one of modern healthcare's most influential person in health care in 2019. She's been published many times, serves on the Boards of Directors of many companies in the past and now, right? I mean just a great career, and we're obviously honored to have her. So I'm Glen Santangelo. For those of you who I don't know, I cover the health care information technology and specialty pharmaceutical sectors here at Jefferies. Ken Bond is with us today, who heads the Investor Relations function for Oracle. So if you have any questions, he's your man or you can come to me. But with that, why don't I -- why don't we just jump right into it and welcome?

So maybe the first question, I guess, that's kind of on everyone's mind is Oracle has been this leadership -- had this leadership positioning cloud applications for a long period of time. And Cerner was always this EHR behemoth that dominated its business. And now the 2 of you guys have kind of come together maybe to uniquely position yourself to address some of the challenges and issues that face health care. And before I dig into some of that in more detail, maybe I would just love to start out as a starting point for everyone for you to maybe give us Oracle's vision within health care. I mean what's the rationale for bringing these 2 companies together and the sort of unique positioning, what does it sort of enable Oracle to do it. So your perspective would be great.

Well, let me start with just a little bit of background on Oracle, right? So most of you think of Oracle as a long history in data management, cybersecurity. There was a lot of movement with our fusion applications, supply chain management, HR, ERP, of course, our cloud applications. And we run a number of applications for a variety of industries. So whether it's restaurant, hospitality, financial services. But when it came to health care, actually, Oracle has been very active. They've been working with clinical trials for a long time. There is also offerings in financial services for insurance companies around their operations. And then there was looking at bringing on Cerner. And so when we look at Cerner, and I'm going to sort of think about the Cerner EHR and now where we're headed, which is the Oracle EHR. But if we look at health care, right, this is something that is a major issue. It's a huge part of the economy, and it has such an impact on government and our daily lives. And I think from Oracle's perspective, approaching health care is very much mission-driven. We have made, I would say, contributions in health care with life sciences and insurance, but bringing on the EHR, the EHR is really the center, I would say, of the health care ecosystem, right? That's where the most basic transaction happens between the patient and the doctor. And I think from our perspective, we look at a lot of the chaos that we have in health care. We've got -- if you think about it, pharmaceutical companies, you've got life sciences and clinical trials over here. You've got the interactions that happen between doctors and patients, and there's a lot of chaos that goes on between payers, government. But Oracle is uniquely positioned because we have assets in all of these different areas, right, just the foundational systems that a business has from cloud, from ERP. Now you bring in the EHR, you bring in what we're doing with clinical trials in life sciences and the EHR, and we have this unique opportunity to really be in the center of the entire ecosystem and bring it together. We had the ability to connect all of the pieces so that we don't have clinical trials over here in clinical care. So the idea that we're trying to do is bring an entire connected ecosystem together.

And I'm sorry, just a follow up on that, just so I'm clear. I mean, I used to follow Cerner a long time ago. And so I'm reasonably familiar with their business, but it obviously felt like much more of a provider-based system where I think you were just kind of making the point that Oracle had some database applications that might have served the life sciences industry. And so now by basically being under one umbrella now you're able to sort of integrate those systems in a way that gives you more of a unique perspective across the provider and life sciences sort of landscapes.

Yes. I think because we have these unique assets, we're very uniquely positioned to solve some of the greatest challenges in health care, right? And if we think about issues like interoperability, right? We've struggled to solve that problem. We should be able to have all of our health care information on our phones. We should be able to share it with whoever we want. We should be able to build a health care record that records all of your interactions from the time you're born throughout your entire life. We should be able to take that data in a de-identified and safe way and bring it to innovators to draw analysis to figure out how can we predict what your health course might be, right? We can take in genetic information and make predictions about health care. We can work with pharma to think about how do we recruit patients in clinical trials. So I think that because we have these -- the footprint in all these areas, we're sort of positioned to solve some of these challenges that we're having. In health care, I mean, from where I sat before, we're spending 25% to 30% of all of our health care dollars on just administrative costs. And so here's an opportunity for tech to come along and really address some of those issues and create efficiencies where we haven't seen them. But in the past, right, you've got players in little parts of the system, there really hasn't been anybody that's been able to fix it all the way around.

It's interesting from your own personal perspective, right? First, at the state and local level and then ultimately running CMS, you've had a front-row seat as to all these issues, right, and interoperability, as you mentioned, has always been one of the greatest challenges. And so when you sort of look since the HITECH Act was passed, for example, in 2010, right here we are 14 years later. What have been some of the biggest advances you've seen across health care, maybe some of the bigger policy battles, challenges like from your perspective, and we've become a reasonable way, but it still seems like we have a long way to go, but would love to get your overall perspective.

Yes. So when it came to the HITECH Act, that was a $36 billion investment that the federal government made and they said essentially encouraging doctors and hospitals to use electronic health records. The problem was that the regulations didn't require interoperability. And so we saw big EHR companies thinking that the data belong to them. So essentially, all we really accomplished with that investment was we used to have a paper filing cabinet, and now we had all the data locked in the doctor's computer, right? So when I got into office, a lot of my focus was on interoperability. I can tell you that not everybody agreed with me, there are a lot of EHR companies, not Oracle or Cerner that really fought that. They really felt like the data belong to them. And I think that type of thinking has really kept the whole American system from innovation, right? So if we think about that data being locked. And probably one of the most clear examples of that is think about the whole COVID pandemic. So here I am, administrator trying to figure out where do we send supplies or where do we send medications. And we couldn't -- we didn't know because we couldn't tell what was happening in all of these hospitals across the country. And so the idea that data belongs to a particular company and that they own it is wrong. And I think that's what we set forth to do during my time at CMS. What I really appreciate about where Oracle is going and what we're trying to do is we recognize that the data belongs to the patient. The other thing with Oracle is our long history in cybersecurity is really important. Our customers appreciate that we said to them, we feel so strongly about cybersecurity and what we can bring to you, we're going to move all of our customers to the cloud at our cost to be able to do that. So interoperability, I think, has been stagnated because we've had companies that have been refusing to play. It's gotten a lot better for those of you that can pull down your lab information on your phones, we're seeing that progress. I think the other -- now we're almost going in the reverse direction where there's all of this data that's available, right? So data is now flowing, but it's in PDFs or there's just a lot of data that's not -- it's duplicated and it's hard for providers at the front lines to actually navigate that. So some of the things that we're working on at Oracle are HDI, our health data intelligence product. So that particular product is building longitudinal health records for patients. And we bring in data to not just Oracle Health EHR data from a particular visit at the doctor, but really to be able to bring in every piece of data. So we're bringing it from Epic, from Athena, from any EMR, and we bring it together holistically to create a longitudinal health record for the patient. And once we have that, we use Oracle's long history and analytics to now start to make sense of that data. So there's all kinds of things that can be done, whether it's risk scores for insurance companies or predictive analytics to say, hey, this patient may have a strong likelihood to wind up in the hospital. There's some early action that can be taken.

But this longitudinal data record that you described, how is that different from an EMR like an electronic medical record, for example, is it different? Because I feel like we grew up with that term, EMR.

Yes. So the electronic health record, when you go to the doctor's office, right, it records that interaction. What doesn't always happen is, well, we don't just go to one doctor, right? We're mobile people, we travel around, you go to this doctor, that doctor. And so having a longitudinal health record brings in all of the data no matter where you are. And so it's comprehensive. So if you're a physician to be able to know all of the medications, all of the services the patient has received and if you think about that, the ability to have that data for pharma, right, in terms of sparking kind of a new generation of drugs and innovation to be able to use that data to be able to identify safety issues to maybe see if we let's say, we have a particular drug that's out in the market to be able to use that data to understand the impact of that drug, right? So we're seeing the government, for example, saying, Hey, we're negotiating drugs. Well, you're going to have to make the case that your drug is effective and it's cost effective and then it's keeping a person out of the hospital, right? So that data becomes really important, and you don't want point-in-time data, you need it to be a longitudinal, you need to be able to follow the patient.

Okay. That makes sense. All right. So maybe just all this talk around interoperability. It sounds like we've come pretty far, but maybe we haven't come far enough actually, right? And so then the question is, it makes you ask questions about -- you said one of the challenges during the pandemic is maybe not everybody wanted to share the data. And so it begs the obvious question, okay, who owns this data and how do -- how do you sort of think about that?

Yes. Well, I mean, it's very, very clear that the patient owns the data, right? And there's a regulatory structure in place that protects privacy around patient data. Obviously, security is a very big issue in terms of how we manage data and the patient has to be very clear about how they want that data to be used. When we are using data, obviously, it's de-identified, it's protected, and we make sure that we are adherent and that the health systems that we work with and patients are on board with how we're using the data.

Okay. Investors in the health care space, they've had to deal with a number of cyber incidents across a number of different companies here more recently another database provider, right? I mean, cybersecurity is one of those hot button issues. How do you think about cybersecurity and you think there is advances that like a combined Oracle and Cerner can make in that area specifically?

Yes. Well, this is a huge issue. I mean, I know if I was in my previous seat, I know that this would be occupying a lot of my day. Health care is critical infrastructure for the whole country, right? So we can't afford to have this go down. And I think the recent events really demonstrate how vulnerable we are. And so from Oracle's perspective, we think this is a very important issue, something that, quite frankly, we've been focused on since day 1. We've moved over, I'd say, half of our customers, 1,000 customers, we've already moved to the cloud seamlessly, right? So not only are they getting cybersecurity, but they're getting better performance. We saw that as a high priority years ago. But what we're doing now is we're sort of saying we got to move all of our clients to the cloud. So we're doing that. We said we'll cover that with Autonomous Shield at our cost to do that. But cyber, I think, is important because we are now a connected system, right, because of interoperability, it's that one weak link, right, that could corrupt the entire system. So one of the things Larry Ellison and I wrote an op-ed in the Wall Street Journal and really called this is a time where we need the government to really have some very firm standards. Right now, there are guidelines and there are standards, but they're not required. I think the other thing we have to be conscious of is that when we do -- when the government has requirements, we've got to figure out how do you pay for that because a lot of the smaller companies may not be able to afford that type of infrastructure to make that investment. So we sort of called for the government to take a stronger role and also to provide resources for that.

Another one of the big hot button areas outside of cybersecurity is AI, right? So I'm sure you get that question all the time. And so when you think about the strategy internally, what role does AI have to play? And how do you think about that sort of progressing some of these challenges, right, or curing some of these challenges that you speak about?

Yes. So -- we're doing so much with AI that it just feels like a natural thing, like turning off your alarm clock in the morning, but we're using AI across really every single application that we have. We really see AI as an opportunity to solve some of those core health care challenges, and that's really around that 25% to 30% of administrative costs. If you think about the entire medical record system, and let's say, revenue cycle management is a great example, right? That whole system was created in a time where we had a paper system. But now we have digital health records, right? It's possible that you can look at the digital record and you can generate not only the entire whole claims payment system can be done automatically. So we're really looking for opportunities where AI can reduce manual labor, can make things easier. One of the products that we've come out with is something called our clinical digital assistant. And it can sit in the room with the provider. It can kind of hear the patient-doctor interaction and it's really cool. It can pick up, it can sort of distinguish between casual conversation and clinical discussion and what needs to be recorded in the note, it can decipher between 3 or 4 people talking and it generates the note. And I'll tell you, our doctors just absolutely love it. We're hearing things like, oh, for the first time, I don't have to do pajama time. I actually got to leave at 5:00 and I didn't have to work late. I actually got to go to lunch. So saving the doctors a lot of time and effort. And that's a great example of how we're using AI. We want to use that across the board, right, so that with our products that we're trying to figure out how can we reduce that manual labor, right? A lot of the tedious work that we've asked providers to do or even in the case of like revenue cycle management, there's tons of opportunities there. So I would say across the board, when we think about clinical trials, there's opportunities there where we can use AI to help us with predictive work reducing manual...

I mean, as you know, there are some publicly traded revenue cycle providers, right? And it's a focus. People pay attention to that. But back from my days to current Cerner, I don't remember them being a meaningful player in revenue cycle, is that something...

Not true. We just have our Revele, revenue cycle management tool, and I think it's early innings, but it's a great tool. I think our customers that are using it have been very pleased with it, and they're starting to see the impact because we are bringing things like AI and those that are using it are starting to see the impact to their bottom lines.

Perfect. All right. We touched on earlier in the conversation, the COVID crisis and your time at CMS, rather, I'd be remiss if I didn't ask about the policy. And I'm kind of curious as to what you see maybe changes coming on that front that may be -- may have an impact in terms of new regulations or just how you think that could -- any new regulations or policy changes could change the industry as we think about it today.

Yes. I think when it comes to health care, there -- it's a lot more bipartisan than I think people appreciate. And if we kind of look at the hot topics, we already discussed one of them, cybersecurity, right? That's something that I think the government is focused on, they're trying to figure it out as well. They're taking a lot of input from industry to figure out how do we address cybersecurity. AI is also an issue that we see government trying to figure out. They want to encourage the innovation, but there's also some things that the government is concerned about, right? We want to make sure that when we put AI-driven technology out there that has been trained on the appropriate number of interactions or so they want to make sure that they have more clarity and information. But I think we're seeing a lot of iteration around cybersecurity around AI. There's always the issues that government is going to be focused on when it comes to cost and quality and access Medicare Advantage, taking a lot of interest as well.

All right. Well, we have a couple of minutes left. And maybe if we can just, I want to give you an opportunity to sort of summarize your thoughts and what message you want to leave with the investment community here today. But it kind of seems like that -- again, it's a little bit less transparent to us in the health care world, but it seems like Oracle is doing a lot in terms of database management with longitudinal data record, doing a lot to push the cybersecurity goals down the field, making advances in AI and revenue cycle management and interoperability and all these things you talk about. But how would you sort of summarize this, what message do you want to leave for the investors today on sort of Oracle's mission...

Sure. Like I said, our focus really is that high-level mission of trying to solve and resolve some of these long-standing challenges that we've had in health care. Those challenges have become even more concerning with an aging population, a limited workforce. So we're having to do more with less. And in order to survive that and in order for our health care system to be more sustainable, we have to become more efficient. And so we're bringing AI across the board to all of our applications. We're trying to make the EHR much easier to use, as I heard me talk about, our clinical digital assistant, right? So if we know that we can free up time for providers. But if we're really trying to solve the problems in health care around efficiency, that goes way beyond an electronic health record. So we're starting to think about what are the interactions or what are the things in the health care system that are driving up costs, we think about, let's say, the high cost of drugs. This is why we're focused on clinical trials and thinking about how can we make the whole clinical trial system and process go faster, quicker, cheaper. So for the very first time, right, you've got -- we have 2 applications, right, clinical trial systems, electronic data capture for clinical trials, and we have an EHR. How do we bring those together? How do we use the EHR to recruit patients or we can tell providers right on the front end, hey, your patient is eligible for all of these clinical trials? And then how do we make the clinical trials easier? We shouldn't have people having to put data into a clinical trial system and type it over here on their EHR and then I have to type it over here, how can we make that data move quickly and easier? So across the board, I would say, we're trying to marry up clinical trials, clinical care, but we're looking at really every single interaction from the very beginning, that base transaction, the clinical trial, revenue cycle management, all the different pieces.

Okay. Perfect. Well, we're just about out of time, and this was a big fault on my part, I was supposed to read a safe harbor statement before we started. And I just want to read it, but I don't think we've violated anything here. I wanted to read, please note that Oracle will be announcing earnings next week for anybody who's interested. And they're currently in their quiet period. And as a result, Seema was limited in terms of the topics that she could discuss and will not -- and we were not going to take any questions from the audience. And unfortunately, she can't take any questions following the presentation. So for that, I apologize. Sorry, I did that reverse order, but I don't think we've violated anything related to next week's earnings. So with that, thank you, everybody. Seema, thank you very much, I really appreciate your thoughts.