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Oracle (ORCL -3.03%)
Q2 2022 Earnings Call
Dec 09, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


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 of Investor Relations

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 this 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 amendment, for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock.

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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 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 U.S. 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 a 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. OK, 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 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 data-based cloud services, were up 3% in constant currency. License revenues were $1.2 billion, up 16%, among 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 U.S. dollars, up 14% in U.S. dollars, up 15% in constant currency. During the quarter, we 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 item, 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 acquisitions, stock repurchases, prudent use of debt, and a dividend.

This quarter, we 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 finish solidly in the mid-single digits, 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 U.S. 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 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 between -- 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.

Larry Ellison -- Chairman and Chief Technology Officer

Thank you, Safra. All right. 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 install base into the cloud to dramatically increase the size of their cloud business.

Unfortunately, we didn't have the same option or opportunity, so I think -- to me, I think you're going to find this interesting. So, how big is our on-premise business today? Well, we had 7,500 customers in Oracle on-premise. Their 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 really realize that how -- so now let's migrate over and look at how big is our cloud ERP business today. Well, 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, plenty to come. So, 7,500 of these 8,500 were not running Oracle ERP before we came out with our cloud product. Those are 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 install base has migrated so far. Let me repeat that. 35,500 net new cloud ERP customers we 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, 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're 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, yes, 85% of our current -- 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, it's scale.

At that scale, that's about an 85% margin in that business. And as Safra pointed out earlier 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, we expect to have about 30,000 -- five years from 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? Well, we have -- really, we only have two significant customers -- two competitors, two significant competitors: SAP and Workday. 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 the cloud product, they bought some edge products around the cloud, but they didn't actually rebuild 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. For example, this quarter Petronas, oil and gas -- big oil and gas customer moved over -- I gave a long presentation about a couple of us taking already a couple of hundred pretty good-sized SAP customers.

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 live Workday ERP customers. Try to find any.

So, we're winning almost everything in cloud ERP. We're beating Workday -- I don't know, 98% of the time, we beat Workday. And we're taking customers from SAP's installed base. They're still winning -- holding on to 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 sometimes 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 at Bank of America. So, in general, it's much faster and lower cost to implement our cloud product than to implement, let's say, SAP or even Workday.

But a gigantic difference with SAP. Very easy to use. We have the user interface. There's two aspects.

There's 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. 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.

That's right. They get a new version with some -- 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 feature, depending on the industry you're in, depending on your size, depending on the country you're in, your three most important new features, 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 Services when it was IBM Services, to build these features for them. Now the new model is -- you 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 them a new version, but you get them quickly. And we're the ones that build them.

And they're part of the standard product. They are not some customization that you have to maintain forever. So, they're not expensive. In fact, they're free.

They come with the product. This is radically different than what SAP offers in their -- in 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 by hiring people and customize.

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 in and modify the system, what if they make a 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 then testing 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. Won't be long before when our customers upgrade every three months, they upgrade. And sometimes, they're down for an hour or so, and we're going to -- we're on schedule to deliver zero downtime upgrades.

So, it won't be long now when our customers move to the new version. There'll be no downtime. Nobody else has this. Nobody else is working on.

And soon, all of our applications will be on the autonomous self-tuning maximum security database. I've said this before, what's the most important thing about the autonomous database? The money you save because there's no human labor. No, actually, the money -- it's good. The money you have to save because there's no human labor is good.

But no human labor, no human errors, no security risks, no stolen data. Almost all of the -- not all, but almost all of the data that's been hacked out of other clouds has been happening 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, just like a self-driving car is safer than a car driven by a 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.

OK. 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 industry perspective. Fusion ERP has been around -- 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 investment strategic industries, going forward, in ERP would be banking and healthcare. Maybe not just 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 service 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 -- and 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 that we won. First Bank. In insurance, we won Ameritas, MoneyGram.

And we had some major go-lives, huge go-lives at MetLife, Blackstone, and Assurant. We're doing very well in financial services and specifically banking. Health care, 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, large healthcare customers include Kaiser, Cleveland Clinic, Providence St.

Jo. 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 No. 1 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 at your leisure. Let me talk about one other industry before I give my closing remarks, and that's logistics customers. We've become very, very strong with logistics customers.

FedEx was a key win from us, takeaway from SAP. UPS. We have UPS, DHL, FedEx, DP World, TTS. I can go on and on.

We have most of the big logistics companies around the world. And FedEx, which is -- 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 these capabilities, I have a confession to make. We are not -- I don't believe it. 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, I ask the 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, products shipped, delivery tracking, invoicing, and payments right inside the two transacting Oracle Cloud ERP procurement system. Oracle Cloud ERP will soon bring an entirely new level of automation to B2B 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 ecosystem. Thank you. Back to Safra.

Safra Catz -- Chief Executive Officer

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

Ken Bond -- Senior Vice President of Investor Relations

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

Questions & 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 road map 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, and I'm probably missing some. But clearly, there's demand. Otherwise, I know Safra wouldn't be making these investments.

But when a new competitor posts -- Larry, when your main competitor posts 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.

Larry Ellison -- Chairman and Chief Technology Officer

Well again, we have a bunch of things the other guys don't have. We have applications. But I know you don't 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 mashing it up maybe with Salesforce data.

They're doing all of these things. They're doing a combination of big application customers. Bank of America, for example, is doing a combination of running our apps and building bespoke apps around those. So, 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 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 have all the popular stuff around. I mean, obviously, you have Kubernetes and the like. And we have PostgreSQL and the popular databases. We have MySQL, but our version of MySQL is much better than Amazon's version of MySQL.

It's much faster, I mean, more than 10 times faster because of HeatWave. We have this query optimizer they don't have at all. So, our idea is to look at the most popular products, to have recommended development environments and recommended systems, and be able to do things they can't do at all. I think one other -- let me mention 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 improves reliability dramatically. We won'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, in some smaller countries that they can't -- never afford to put a data center in. And we can now put one but two 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. With that, we put in a primary and a backup.

So, 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 it into their data center.

Nobody else can do this. So, we think we -- 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 the other three North American clouds: Google, Amazon, and Microsoft. And the note basically said the one thing we've noticed about Oracle, 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've 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'll 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 Catz -- Chief Executive Officer

Thank you, Brad.

Larry Ellison -- Chairman and Chief Technology Officer

I will not have an answer that long again ever.

Safra 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 a few data centers, not the least of which is Israel, France, and another one in Italy. But the real answer is the fact that I'm sure you've seen Gartner's scorecard where we actually passed Google this year and are higher than where Microsoft, who's 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. 

Larry Ellison -- Chairman and Chief Technology Officer

Yeah.

Safra 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 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 -- Analyst

Hey, thanks for taking my question, and congrats from me as well. I wanted to go back to ERP, and I apologize for that. But I remember when I used to work in the industry, Larry, is that changing an ERP system was like volunteering for a root canal treatment. Kind of you kind of try to avoid it as much as possible.

But if I look at the numbers now, NetSuite had the strongest growth I've seen for 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.

Larry Ellison -- Chairman and Chief Technology Officer

Yeah. Thank you very much. I think we spend a lot of time in automating or install -- installing the product, 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 got more experience. The customers themselves have gotten more experience. So, the cost of putting one of these things in has dropped precipitously. The time it takes to put it in, obviously related to the cost, has also dropped precipitously.

There's 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 to take five to seven years. Now 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 -- 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 it in the next quarter or two in the upcoming releases.

That's a fundamentally different model. It's so much less expensive to have us do it for nothing than to try to do it yourself.

Raimo Lenschow -- Barclays -- Analyst

Perfect. Thank you.

Ken Bond -- Senior Vice President of Investor Relations

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 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 the data center side, capacity expansion isn't just in data center expansion. You could expand within data centers as well. Can you help us think about how we should think about overall capacity 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 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 investment in government, especially United States government-focused 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 continued to make sure we have capacity for customers, and some customers start in one data center.

And when we open in their countries, 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 -- Analyst

Thank you very much. I'm going to follow up on discussion on OCI Gen2. Oracle's dedicated regions seem to be reasonably unique offerings and a different spin 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.

Larry Ellison -- Chairman and Chief Technology Officer

Yeah. I'll take a crack at that one. Well, everyone says we were late to the party, so we saw what everyone else built. In fact, we built two versions of our cloud, right? We built version 1, which we weren't very happy with.

And then we built our Gen2 cloud. And one of the things that we decided -- as we had a chance to rearchitect it, we were sensitive to -- we needed 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 smallish number of servers, but that's really not it. It's really the -- being able to operate all -- a lot of 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? A lot of other people have tried, but no one else could because he figured out -- he built a software to manage thousands of satellites.

No one else could do it. NASA couldn't do it. Other people couldn't do it. That's why they kind of failed in the past.

Our automation software for rolling out and managing a large number of data centers is a 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 doesn't talk about it because it wasn't easy. It took us a while.

And we were worried -- and we've made a bunch of commitments. And the only way we can meet all those commitments was to have fully automated, lights-out data center, cloud data centers. And 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 large data centers. It's just a different -- it's a different suite of software to do it, to manage it.

Safra Catz -- Chief Executive Officer

Larry, why don't you comment also on the private data centers that are truly -- a full cloud but at customers? So, that's just --

Larry Ellison -- Chairman and Chief Technology Officer

Yeah. A lot of people talk about it. They talk about it. I think it's hilarious.

I mean, I hear people talk about hybrid cloud. So, a hybrid cloud means they're 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 link to a public cloud." That is not a hybrid cloud. We offer the identical hardware, the identical automation software. We'll put a region. It will -- 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 hybrid-y 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 product region back in the public cloud.

They are identical in every way, except for the security protection and firewalls in your private data center. That's a real hybrid cloud. The other guys don't have it.

Mark Moerdler -- Sanford C. Bernstein -- Analyst

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

Larry Ellison -- Chairman and Chief Technology Officer

Thank you.

Operator

Our final question comes from Phil Winslow with Credit Suisse.

Phil 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 was assuming it's being driven by the database business. And then when you think about that in the --

Larry 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 people say, well, that's not cloud revenue. You just license that revenue. Well, it's the Oracle database running all of 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 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.

Phil Winslow -- Credit Suisse -- Analyst

That's great. Well, that partially answers one of my questions. But when you think about that license and your example of their -- for example, like Salesforce, together with just the cloud services and the acceleration you see there, I mean, just that overall business seemed to accelerate during Q2 here and even versus Q1. And when I think about some of the other smaller competitors in the space, they've seen an acceleration as well.

So, I guess, Larry, 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 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 Catz -- Chief Executive Officer

Larry, it's 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're 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.

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 pick Oracle 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.

Larry Ellison -- Chairman and Chief Technology Officer

Yeah. And I would say that as SAP moves their applications to S/4HANA in 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. 

Phil Winslow -- Credit Suisse -- Analyst

Awesome. Thanks, guys.

Larry 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 who have taken their 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. It 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 of Investor Relations

OK. Great. Thank you, Larry.

Phil Winslow -- Credit Suisse -- Analyst

Awesome.

Ken Bond -- Senior Vice President of Investor Relations

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 signoff]

Duration: 56 minutes

Call participants:

Ken Bond -- Senior Vice President of Investor Relations

Safra Catz -- Chief Executive Officer

Larry Ellison -- Chairman and Chief Technology Officer

Brad Zelnick -- Deutsche Bank -- Analyst

Raimo Lenschow -- Barclays -- Analyst

Keith Weiss -- Morgan Stanley -- Analyst

Mark Moerdler -- Sanford C. Bernstein -- Analyst

Phil Winslow -- Credit Suisse -- Analyst

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