Oracle Corporation (ORCL)

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Oracle (ORCL)

F2Q10 Earnings Call

December 17, 2009 5:00 pm ET

Executives

Ken Bond - Investor Relations

Jeffrey E. Epstein - Chief Financial Officer, Executive Vice President

Safra A. Catz - President, Director

Lawrence J. Ellison - Chief Executive Officer, Director

Charles E. Phillips Jr. - President, Director

Analysts

Adam Holt - Morgan Stanley

Sara Friar - Goldman Sachs

John Difucci - J.P. Morgan

Heather Bellini - ISI

Israel Hernandez – Barclays Capital

Brent Thill – UBS

Kash Rangan - Merrill Lynch

Presentation

Operator

Welcome to today's Oracle Corporation quarterly conference call. Today’s conference is being recorded. At this time, I would like to introduce Ken Bond, Vice President of Investor Relations for Oracle. Please go ahead, sir.

Ken Bond

Thank you. Good afternoon everyone and welcome to Oracle's second quarter fiscal year 2010 earnings conference call. I am Ken Bond, Vice President Investor Relations and with us on the call today are Chief Executive Officer, Larry Ellison; President, Safra Catz; President, Charles Phillips and Chief Financial Officer, Jeff Epstein.

As a reminder, today’s discussion will include forward-looking statements including predictions, expectations, estimates, or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, these statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today.

Throughout today's discussion we will attempt to present some important factors relating to our business which may potentially effect these forward-looking statements. We would encourage you to review our most recent reports on forms 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 our market price of our stock. As a result we caution you against placing undue reliance on these forward-looking statements which reflect our opinion only as of today and as a reminder, we are not obligating ourselves to revise or publicly release the results of any revisions of these forward-looking statements in light of new information or future events.

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 website at www.oracle.com/investor.

We will begin with a few prepared remarks before taking questions from the audience. In today’s conference call we will only be discussing Oracle’s Q2 of fiscal year 2010 results. With that I would like to turn the call over to Jeff Epstein for his opening remarks. Jeff?

Jeffrey Epstein

Thank you, Ken. Good afternoon, everyone and thank you for joining us. I will review our non-GAAP financial results focusing on constant currency growth rates unless otherwise stated.

First, a note about foreign exchange rate movements. In September we told you that using then current exchange rates would increase our Q2 revenue growth by four points compared to constant currency. During the second quarter the US dollar weakened compared to last Q2, increasing our international revenues, expenses and profits when measured in US dollars. As a result, currency movements increased new license revenues by 7%; total revenues by 5%; net income by 7% and earnings per share by 7% or $0.02 per share compared to Q2 of last year.

Now let’s review the income statement. In the second quarter our new software license revenues were $1.7 billion, down 5% in constant currency and up 2% in US dollars. The Americas grew 1%. EMEA was down 11% and Asia declined 8%. Technology new license revenues were $1.2 billion, down 5% in constant currency and up 1% in US dollars. The Americas grew 2%. EMEA was down 10% and Asia declined 10%.

Applications new license revenues were $478 million, down 3% from last year on a constant currency basis and up 2% in US dollars. The Americas grew 1%. EMEA was down 14% and Asia was up 2%. Our software license updates and product support revenues were $3.3 billion, up 7% in constant currency and up 11% in US dollars. These revenues are annual fees that customers pay to receive updated versions of enhancements to their existing products.

Our services revenues were $958 million, down 19% in constant currency and down 15% in US dollars. Our total revenues were $5.9 billion, down 2% in constant currency and up 3% in US dollars.

Operating income was $2.9 billion, up 3% in constant currency and up 9% in US dollars. Our non-GAAP operating margin grew by 280 basis points to 49% in US dollars. This is the highest Q2 operating margin in Oracle’s history as a public company and further demonstrates the success of our operating model. Our tax rate for Q2 was 27.4%. Our Q2 non-GAAP earnings per share were $0.39, $0.03 above the high end of our EPS guidance range of $0.35 to $0.36. This was up 8% in constant currency and up 15% in US dollars. Our non-GAAP earnings per share would have been $0.02 lower had foreign exchange rates remained the same as they were in Q2 of last year.

In Q2 we repurchased 11.6 million shares at an average price of $21.65 per share for a total of $253 million. As we have previously discussed, the rate of our stock buyback will fluctuate each quarter taking into account alternative uses for our cash and our stock price.

Turning to the balance sheet we have $20.8 billion in cash and investments including funds put aside to complete the Sun transaction once all necessary approvals have been obtained. Our day sales outstanding improved again this quarter from 52 days last year to 47 days this year, a testament to the quality of our receivables, the quality of our customers and the effectiveness of our collection efforts.

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