Oracle Corporation (ORCL)

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Oracle (ORCL)

Q3 2011 Earnings Call

March 24, 2011 5:00 pm ET

Executives

Mark Hurd - President and Director

Safra Catz - President and Director

Jeffrey Epstein - Chief Financial Officer and Executive Vice President

Ken Bond - Investor Relations

Analysts

Adam Holt - Morgan Stanley

Brent Thill - UBS Investment Bank

John DiFucci - JP Morgan Chase & Co

Philip Winslow - Crédit Suisse AG

Jason Maynard - Wells Fargo Securities, LLC

Kash Rangan - BofA Merrill Lynch

Presentation

Operator

Good day, everyone, and welcome to today's Oracle Corporation Quarterly Conference Call. [Operator Instructions] At this time, I would like to introduce Ken Bond, Vice President of Investor Relations, Oracle. Please go ahead, sir.

Ken Bond

Thank you, operator. Good afternoon, everyone, and welcome to Oracle's third quarter fiscal year 2011 earnings conference call. On the call today are 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 annual report 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 or the market price on 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 revision 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.

Before taking questions from the audience, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Jeff Epstein.

Jeffrey 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 positive 2% currency effect to both New License revenue and total revenue. In short, Q3 was another excellent quarter for Oracle. In the third quarter, New Software License revenues were $2.2 billion, up 29%, well above our guidance range of 10% to 20% growth. The Americas grew 35% in U.S. dollars, EMEA was up 19% and Asia was up 32%. With each region up 20% or higher 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 $1.6 billion, up 27%. As the Americas grew 40%, EMEA was up 11% and Asia was up 28%. Applications New License revenues were $639 million, up 34% from last year. The Americas grew 26%, EMEA was up 47% and Asia was up 45%. Our Software License Updates and Product Support revenues were $3.8 billion, up 13% from last year. Customer support attach and renewal rates continue at the usual high levels.

Revenues from our Hardware System products were $1.0 billion, while revenues from Hardware Systems Support were $656 million. Our Services revenues were $1.1 billion, up 23%, as we continue to manage this business to profitable margins. Our total revenues were $8.8 billion, up 36% from last year.

Our non-GAAP operating income was $3.9 billion, up 35%. The non-GAAP operating margin was 44% for the quarter. Our non-GAAP tax rate for the third quarter was 25.4%, which was below our guidance due primarily to the extension and catch-up of United States research and development tax credits. Our Q3 non-GAAP earnings per share were $0.54, above our EPS guidance range of $0.48 to $0.50. Earnings per share were up 40% from last year.

In Q3, we repurchased 7.9 million shares at an average price of $31.54 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 $24.3 billion in cash and investments. Our days 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 a record $9.5 billion in free cash flow and a record $9.9 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 Q3. I'll then review guidance for Q4 and turn the call over to Mark. As you can see, we had yet another excellent quarter. We just continued to execute extremely well. We easily 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 by $0.04. So far this year, we've delivered 38% earnings per share growth in Q1, 33% earnings per share growth in Q2. And now, 40% earnings per share growth in Q3 and we've got Q4 still to come.

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