Oracle Corporation (ORCL)

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Oracle Corporation (ORCL)

F2Q2011 Earnings Call

December 16, 2010 5:00 pm ET

Executives

Ken Bond - VP, IR

Larry Ellison - CEO

Safra Catz - President

Mark Hurd - President

Jeff Epstein - CFO

Analysts

Brent Thill - UBS

Heather Bellini - ISI Group

Adam Holt - Morgan Stanley

John DiFucci - with JPMorgan

Mark Murphy - Piper Jaffray

Sarah Friar - Goldman Sachs

Kash Rangan - Bank of America/Merrill Lynch

Phil Winslow - Credit Suisse

Presentation

Operator

Good day, everyone, and 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, Oracle. Please go ahead, sir.

Ken Bond

Good afternoon, everyone, and welcome to Oracle's second quarter fiscal year 2011 earnings conference call. With us on the call today are Chief Executive Officer, Larry Ellison; President, Safra Catz; President, Mark Hurd; 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 the 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 affect these forward-looking statements.

We encourage you to review our most recent reports on Form 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 to vary or the 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 any revisions to 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 Investor Relations website. We will begin the call with a few prepared remarks before taking questions from the audience.

With that, I'd like to turn the call over to Jeff for his opening remarks.

Jeff Epstein

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

This quarter, foreign exchange rates resulted in a negative 2% currency effect to both new license revenue and total revenue. In spite of this headwind in both U.S. dollars and constant dollars, we beat the high end of our guidance range for new license revenue, total revenue, and earnings per share with record earnings per share for the second quarter. In short, Q2 was another excellent quarter for Oracle.

In the second quarter, new software license revenues were $2.0 billion, up 21%. The Americas grew 32% in U.S. dollars, EMEA was up 5%, and Asia was up 21%. With each region up double digits on a constant dollar basis, our results continue to underscore the strength and diversity of our business and the quarter was not dependent on any unusually large deals.

Technology new license revenues were $1.4 billion, up 21% as the Americas grew 36%, EMEA was down 1% in U.S. dollars, but up 7% in constant dollars; and Asia was up 27%. Applications new license revenues were $579 million, up 21% from last year. The Americas grew 26%, EMEA was up 23%, and Asia was down 1%.

Our software license updates and product support revenues were $3.7 billion, up 12% from last year. Customer support attach and renewal rates continue at the usual high levels. Revenues from our hardware systems products were $1.1 billion, while revenues from hardware system support were $686 million. Our services revenues were $1.2 billion, up 24% as we continue to manage this business to profitable margins. Our total revenues were $8.6 billion, up 47% from last year.

Non-GAAP operating income was $3.8 billion, up 33%. The non-GAAP operating margin was 44% for the quarter. Our non-GAAP tax rate for the second quarter was 28.5%. Our Q2 non-GAAP earnings per share were $0.51, $0.05 above the high end of our EPS guidance range of $0.44 to $0.46. Earnings per share were up 33% from last year.

In Q2, we repurchased 9.1 million shares at an average price of $27.35 per share for a total of $250 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 $24.8 billion in cash and investments. Our day sales outstanding improved again to 46 days, compared to 47 days last year. And is a testament to the quality of our receivables, the quality of our customers, and the effectiveness of our collection efforts. Finally, we generated $8.7 billion in free cash flow and a record $9.1 billion in operating cash flow during the last four quarters.

Now, I'll turn the call over to Safra.

Safra Catz

Thanks, Jeff. I'll briefly comment on our non-GAAP results for Q2 and then I'll review the guidance for Q3, and turn the call over to Larry and Mark.

As you can see we had another excellent quarter on top of a truly amazing Q1. We, as Jeff mentioned, exceeded the high point of our new license guidance. We beat the high-end of our total revenue guidance and we beat the high end of our EPS guidance to by $0.05. Even excluding a payment for legal fees, we beat the high end of our EPS guidance by $0.04.

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