Oracle Corporation (ORCL)

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Oracle (ORCL)

Q4 2011 Earnings Call

June 23, 2011 5:00 pm ET

Executives

Mark Hurd - President and Director

Lawrence Ellison - Co-Founder, Chief Executive Officer and Director

Safra Catz - President, Chief Financial Officer and Director

Ken Bond - Investor Relations

Analysts

Adam Holt - Morgan Stanley

Brent Thill - UBS Investment Bank

Joel Fishbein - Lazard Capital Markets LLC

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. Today's conference is being recorded. At this time, I would like to turn the call over to Ken Bond, Vice President of Investor Relations for Oracle. Please go ahead, sir.

Ken Bond

Thank you, operator. Good afternoon, everyone, and welcome to Oracle's fourth quarter and fiscal year 2011 earnings conference call. A copy of the press release and financial tables, which includes the GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from our Investor Relations website. On the call today are Chief Executive Officer, Larry Ellison; President and CFO, Safra Catz; and President, Mark Hurd.

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 attempt to present some important factors relating to our business, which may potentially affect these forward-looking statements. 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. As a result, we caution you against placing undue reliance on these forward-looking statements, which reflect our opinion only as of today. And we encourage you to review our most recent 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 of our stock. And finally, we are not obligating ourselves to revise our results or publicly release any revisions to these forward-looking statements in light of new information or future events.

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 Safra

Safra Catz

Thanks, Ken. I'm going to focus on our non-GAAP results for Q4 and for fiscal year 2011, then I'll review the guidance for Q1 and turn the call over to Larry and Mark for their comments. As you can see, we delivered yet another exceptionally strong quarter to complete a fantastic year for Oracle. We continue to have a lot of company-specific momentum and we executed extremely well throughout the fiscal year exceeding even our own optimistic expectations quarter after quarter.

For the year, we achieved 25% New License growth in Q1, 21% in Q2, 29% in Q3, and including this quarter, we delivered 23% New License growth for the full fiscal year. Our Software business is now even bigger than IBM's software business. For the year, we delivered 38% EPS growth in Q1, 33% in Q2, 40% in Q3, and including 25% this quarter, we delivered 33% EPS growth for the year, once again, way ahead of the 20% growth we promised.

Our non-GAAP earnings per share for the year were $2.22, well above the consensus estimate of $1.88 when we started the year. And unlike a few of our competitors, we're not delivering this EPS growth by aggressively reducing our share count. Obviously, we're thrilled with our Q4 results. This was Oracle's first $10 billion quarter. New Software License revenue was up 19% to $3.6 billion, accelerating from 14% in Q4 of last year. Currency effects for the quarter were largely as expected. We continue to see broad-based geographic and product momentum as technology and New License revenues were up 18% to $2.7 billion in Q4 and applications grew 22% this quarter to $1 billion, with Asia-Pacific particularly strong, including Japan, which grew during the quarter.

Our North America Applications business passed SAP a while ago, and now, if you exclude Germany, we believe we have essentially caught up to them in Europe. Geographically, the quarter was strong and balanced with New License growing 16% in the Americas, 24% in APAC and 22% in EMEA, and the quarter wasn't dependent on any large deals. Software License Update and Product Support revenues were up 15% to $4 billion. Sun's hardware system revenues was $1.2 billion for the quarter. We're running the Sun business on a more profit-aware model. Compared to Q4 a year ago, we have made a big move away from selling products at a loss or reselling other company's products. Rather, we are focused on selling value-added systems where Sun's differentiation is very clear to our customers. For example, non-Sun storage was down significantly, Sun Storage and Tape grew very well and, of course, Exadata and Exalogic continue to show fantastic growth. This strategy shows up in our hardware gross margins, which were 56% this quarter, significantly higher than the 46% last year. Later this year, I expect the growth of the Sun hardware products to become quite obvious.

Total revenue for the quarter was $10.8 billion, up 12% from last year. In addition to our strong top line performance, we're extremely pleased with our non-GAAP operating income of $5.2 billion, 19% higher than last year as our operating margin extended to 48%. We could be back at pre-Sun operating margins quite quickly as there remains ample leverage in our business model.

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