Oracle Corporation (ORCL)

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Oracle (ORCL)

Q1 2014 Earnings Call

September 18, 2013 5:00 pm ET

Executives

Ken Bond

Safra Ada Catz - President, Chief Financial Officer and Director

Mark V. Hurd - President and Director

Analysts

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

Raimo Lenschow - Barclays Capital, Research Division

Joel P. Fishbein - Lazard Capital Markets LLC, Research Division

Brent Thill - UBS Investment Bank, Research Division

Jason Maynard - Wells Fargo Securities, LLC, Research Division

Heather Bellini - Goldman Sachs Group Inc., Research Division

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division

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

Thank you, Brian. Good afternoon, everyone, and welcome to Oracle's First Quarter Fiscal Year 2014 Earnings Conference Call. A copy of the press release and financial table, 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 President and Chief Financial Officer, 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 present some important factors relating to our business, which may potentially affect these forward-looking statements. These forward-looking 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, including our 10-K and 10-Q and any applicable amendment 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 the results or publicly release any revisions to these forward-looking statements in light of new information or future events.

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

Safra Ada 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 Mark for his comments. Larry isn't with us today because he is at an important race for the America's Cup.

I want to start by letting you know that currency in Q1 gave us a 2% headwind for new software license and total revenue, which was more than my guidance last quarter. So today, my comments on the quarter will generally reflect constant dollar growth rates.

Q1 for us was really solid overall and quite strong in the Americas. We're especially pleased with our software results, as total software revenues were $6.1 billion, up 8% from last year. Software updates and product support revenues were more than half of the total company revenue at nearly $4.4 billion, up 8% from last year. Attach rates and renewal rates remain at their usual high levels, and software updates and product support continue to power earnings and cash flow. New software license revenues were $1.7 billion, up 6% from last year. Looking at GAAP results by region, we saw excellent results in the Americas with growth of 15%. That's growth upon a previous year, so that's really very strong. Asia-Pac saw solid growth of 5%, while EMEA declined 5%.

There were some interesting product details that I think bode well for the future. Exadata Software was up over 15%; GoldenGate in-memory software was up 30%; BI Technology and Foundation Suite were up around 10%. Also strong was retailing, CRM sales and applications in North America generally. The quarter wasn't dependent on any one large deal, anything like that, it was just a very solid quarter. Hardware systems product revenue was $669 million, as older products like the older M-series and Netra saw significant declines.

Storage was more a mixed story with TAPE down a bit, SAN down significantly, while network attached storage was up.

The Engineered Systems customer base continues to expand nicely. Exadata bookings look very good. Revenues from Exalytics, SuperCluster and the Oracle Database Appliance all grew over 100%.

For the company, total revenue for the quarter was $8.4 billion, up 4% from last year. Our non-GAAP operating income was $3.7 billion, which was 6% higher than last year, and operating margin expanded to 45%. We still believe there remains ample leverage in the business model.

The non-GAAP tax rate for the quarter was 21.8%. EPS for the quarter grew 12% in U.S. dollars to $0.59 on a non-GAAP basis. The GAAP tax rate was 7-point -- was 17.7%, which was lower than my guidance for last quarter due to some onetime event and the mix of earnings.

On a GAAP basis, EPS for the quarter was $0.47 in U.S. dollars, which was up 14%. Free cash flow increased to a record $14.2 billion over the last 4 quarters and to an all-time high of $6.1 billion for Q1, up 11% from last year. We're now on the cusp of generating more free cash flow than IBM. Just 5 years ago, we generated roughly half the level of IBM's free cash flow over 4 quarters.

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