Oracle Corporation (ORCL)

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Oracle (ORCL)

Q1 2012 Earnings Call

September 20, 2011 5:00 pm ET

Executives

Safra A. Catz - President, Chief Financial officer and Director

Mark V. Hurd - President and Director

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

Ken Bond - Investor Relations

Analysts

Brent Thill - UBS Investment Bank, Research Division

Adam H. Holt - Morgan Stanley, Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division

Jason Maynard - Wells Fargo Securities, LLC, Research Division

John S. DiFucci - JP Morgan Chase & Co, Research Division

Heather Bellini - Goldman Sachs Group Inc., Research Division

Philip Winslow - Crédit Suisse AG, Research Division

Presentation

Operator

Good day, everyone, and welcome to today's Oracle Corporation Quarterly Conference. Today's call is being recorded. And now at this time, I'd like to introduce Ken Bond, Vice President of Investor Relations, Oracle. Please go ahead.

Ken Bond

Thank you, Anthony, and good afternoon, everyone, and welcome to Oracle's First Quarter and Fiscal Year 2012 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.

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, these statements are also subject to 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.

And we 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 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 A. Catz

Thanks, Ken. I'm going to focus on our non-GAAP results for Q1. I'll then review guidance for Q2, and turn the call over to Larry and Mark for their comments.

As you can see, we delivered another great quarter as we executed well throughout the quarter, including late July and August. Our Q1 results against our June guidance made clear that we continue to have a lot of company-specific momentum. Obviously, we're pleased with the results.

New software license revenue was up 17% to $1.5 billion, building off exceptional growth of 25% in Q1 of last year. We continue to see broad-based geographic and product momentum as technology new license revenues were up 14% to $1.1 billion and applications grew 23% this quarter to $428 million with Europe particularly strong. Geographically, the quarter was balanced with new license growing 10% in the Americas, 20% in APAC and 25% in EMEA.

The quarter was also not dependent on any large deals. Software license update and product support revenues were up 16% to $4 billion. Support attach and renewal rates continue at the usual high levels. Hardware systems revenue was $1 billion for the quarter. This quarter, hardware gross margins were 54%, significantly higher than the 48% last year as we continue to shift the product mix to more profitable products and engineered systems and as we continue to improve our supply chain efficiency.

Total revenues for the quarter was $8.4 billion, up 11% from last year. We matched this top line momentum with business discipline, and we're extremely pleased with our non-GAAP operating income of $3.6 billion, 21% higher than last year as our operating margin expanded to 42% from 39% last year.

We still believe there remains ample leverage in our business model, and we could be back at our pre-Sun operating margins quite quickly. The non-GAAP tax rate for the quarter was 26.5%. EPS for the quarter grew 14% to $0.48 on a non-GAAP basis.

I'll tell you that, really, being able to put up these top line and bottom line results given our size, once again, demonstrates the real strength of our product line, the loyalty of our customer base and the strength of the operating model. We have the products in the market that customers want to buy. And OpenWorld, which starts next month, will only make this even more obvious.

Operating cash flow increased to a record $12.8 billion over the last 4 quarters, with operating cash flow increasing this quarter to $5.4 billion, up $1.6 billion from $3.8 billion in Q1 of last year. Free cash flow grew 46% to a record $12.3 billion over the last 4 quarters. We now have nearly $32 billion in cash and marketable securities.

Now as we said, we are committed to returning value to our shareholders through technical innovation, strategic acquisition, stock repurchases, prudent use of debt and a dividend and we'll continue to be opportunistic. This quarter, we repurchased 27.5 million shares, and the Board of Directors declared our quarterly dividend of $0.06 per share.

Read the rest of this transcript for free on seekingalpha.com