Oracle Corp., Q3 2007 Earnings Call, Mar-20-2007 - NYSE:ORCL

NYSE:ORCL

Safra A. Catz, Oracle's President and Chief Financial Officer, provided significant insights during the Q3 2007 Earnings Call. Here is a detailed summary of her comments:

Opening Remarks

• She reviewed the strong performance of the quarter, noting that Oracle exceeded guidance across all product lines and geographies.
• New software license revenue was $1.4 billion, up 27% year-over-year, surpassing the guidance range of 16% to 22%.
• She addressed rumors of mega-deals in the quarter, clarifying that there were no deals over $100 million in new license revenue.
• Technology license revenues grew 17% year-over-year, with growth across the Americas, EMEA, and APAC.
• Applications license revenue was $423 million, up 57% year-over-year. Excluding acquisitions, the organic growth was 44%.
• Oracle's applications license revenue grew 69% year-over-year in the Americas, 29% in EMEA, and 89% in APAC.

Products Updates and Support

• Revenue from products updates and support was $2.1 billion, up 21% year-over-year on a non-GAAP basis.
• Oracle achieved the highest renewal rate in its history.

Margins

• Non-GAAP net income from operations grew 27% to $1.8 billion, resulting in operating margins of 39%, slightly up from the previous year.
• Margins are expected to benefit from the scale of newer acquisitions over the next few quarters.

Earnings Per Share (EPS)

• Oracle grew EPS by 31% to $0.25 on a non-GAAP basis, $0.03 above guidance.
• Oracle is delivering earnings growth comfortably ahead of its target of 20% average EPS growth per year.

Tax Rate

• The tax rate for the quarter was positively affected by the R&D tax credit and changes in the mix of profits between lower and higher tax jurisdictions.

Stock Buyback Program

• Oracle bought back approximately 58 million shares at an average price of $17.34, spending about $1 billion.

Cash Flow

• Operating cash flow for the trailing 12 months increased $1.1 billion to $5 billion, while free cash flow increased 29%.

Guidance for Q4

• New Software License Revenues: Expected to be up 5% to 15% year-over-year.
• Total Revenues: Expected to be up 10% to 14% year-over-year on a non-GAAP basis and 11% to 15% on a GAAP basis.
• Non-GAAP EPS: Expected to be $0.34 compared to $0.29 last year.
• GAAP EPS: Expected to be $0.30, up from $0.24 last year.
• Income Tax Rate: Assumed to be 28.2%, down from 30.8% in Q4 last year.
• Stock Option Compensation Expense: Approximately $50 million for Q4.

Closing Remarks

• She handed over the call to Larry Ellison for further comments.

Krista Bessinger, the Vice President of Investor Relations for Oracle, made several announcements and provided structure for the earnings call. Here is a detailed list of her statements:

1. Introduction:

   • Thanked the operator and welcomed everyone to the Oracle Corporation's third quarter fiscal year 2007 earnings conference call.
   • Introduced the executives present on the call: Oracle CEO Larry Ellison, President Charles Phillips, and President and CFO Safra Catz.

2. Forward-Looking Statements Disclaimer:

   • Reminded listeners that the discussion may include forward-looking statements, predictions, or estimates.
   • Cautioned against placing undue reliance on these forward-looking statements, as actual results may differ materially.
   • Noted that Oracle is not obligated to update or revise these statements in light of new information or future events.

3. Important Factors and Risk Factors:

   • Mentioned that Oracle would present important factors relating to the business that may affect predictions during the call.
   • Advised listeners to review Oracle's most recent Form 10-K and Form 10-Q for a more complete discussion of risk factors.

4. Access to Press Release and Financial Tables:

   • Informed attendees that a PDF copy of the press release and financial tables, including a GAAP to non-GAAP reconciliation, can be viewed and downloaded from the Oracle investor relations website at www.oracle.com/investor.

5. Transition to Safra Catz:

   • Turned the call over to Safra Catz for her opening comments.

6. Conclusion and Replay Information:

   • Provided details on how to access a telephone replay of the call, which would be available for 24 hours.

   • Gave the replay number as 719-457-0820, with the passcode 7473378.

   • Mentioned that a webcast replay would be available on the Oracle investor relations website through the close of market on March 27th.

   • Thanked everyone for participating in the call and concluded by turning it back to the operator.

Lawrence J. Ellison, CEO of Oracle, provided the following comments during the Q3 2007 Earnings Call:

1. Praise for Management Team: He expressed pride in the management team and the overall state of the company, noting that Oracle has never been in better shape in terms of its products, management team, and execution.

2. Middleware Growth: Ellison highlighted the significant growth in Oracle's middleware business, stating that new license business grew by 82% in the third quarter. He compared this growth to BEA, which grew by only 8% in its most recent quarter, emphasizing that Oracle is growing more than ten times faster.

3. Trailing 12 Months Growth: Over the trailing 12 months, Oracle's middleware business grew by over 60% on average, compared to BEA's 12% growth over the same period. He noted that it took Oracle over five years to catch and surpass BEA in middleware, a milestone he is proud of.

4. Linux Support Business: Ellison discussed the early stages of Oracle's Linux support business, mentioning that the support service is up and running well. Partners such as Dell, HP, and CDW are reselling Oracle Enterprise Linux. Oracle has signed several support contracts, including displacing Red Hat at Yahoo! and other customer sites.

5. Strategy in Applications Business: He discussed Oracle's battle for market share with SAP in the applications business. While SAP focuses on expanding into ERP for smaller, mid-sized companies, Oracle's strategy is to develop a single ERP system, Fusion, which will be available on demand for companies of all sizes. Oracle aims to sell industry-specific software to the same large and mid-sized companies it currently serves with ERP and CRM solutions.

6. CRM Market Share: Ellison emphasized Oracle's market share gains in the CRM market, which is growing faster than the ERP market. Oracle is the number one player in CRM and is gaining share, while SAP's growth is slower.

7. Margins and Strategy: Oracle's margins are increasing, unlike SAP's, which have decreased due to its expansion strategy. Oracle believes it can grow margins and the top line simultaneously with the right strategy.

8. Industry-Specific Software: Oracle's banking and retail software businesses had strong quarters. The retail business, in particular, delivered exceptional results. Oracle plans to expand into other industry-specific software markets, leveraging its existing customer base.

9. Application Market Share: Oracle gained applications market share in the quarter, with application new license business growing by 57% compared to SAP's 7% growth. Oracle's average growth over the last four quarters was 61%, while SAP's was only 10%.

10. Closing Remarks: Ellison expressed confidence in Oracle's ability to catch and surpass SAP in the overall applications business, citing the company's strong performance and strategic direction.

During the Oracle Corporation's Q3 2007 earnings call, Charles E. Phillips, Oracle's President, provided several insights and updates. Here is a detailed summary of his remarks:

Core Database

• Momentum: Momentum in the core database business has been fueled by customers adopting multiple options around the database.
• Deployment Configuration: An increasingly common deployment configuration includes RAC (Real Application Clusters), Automatic Storage Management (ASM), and Enterprise Manager (EM).
  • RAC: Clustering of less expensive machines into grids.
  • ASM: Managing and positioning storage.
  • EM: Managing the entire environment.
• Performance: Oracle set three new world record benchmarks in the quarter, ranging from 41% to 206% faster than the competition.
• Enterprise Manager: A new version of Enterprise Manager was launched, up 46% in the quarter.
  • Enhancements: Now manages other application servers and databases, networks, and storage devices. Also, proactively manages the entire Oracle stack, making configuration changes based on collected information.

Middleware

• New Release: Oracle released 10g R3, which includes over a thousand new features.
• Patents and Awards: Oracle has 275 patents and has won over 191 independent awards in the past 18 months for its middleware products.
• Customer Adoption: Nearly 85% of Oracle's middleware customers own the latest two releases.
• ISV Partnerships: Oracle has over 5,000 ISVs, with 48 new ones added in the last quarter. 250 of the top 500 global ISVs are certified on Oracle's middleware.

Business Intelligence

• Growth: Business intelligence more than tripled in the quarter.
• Sales Force Expansion: Oracle has more products and more sales representatives in its specialized sales force.
• New Release: A new release of business intelligence solutions was shipped.
• Gartner Recognition: Oracle was added to the Magic Quadrant from Gartner in business intelligence.

Applications Area

• ERP Releases: Five new releases of ERP applications were announced on one day, following through on Oracle's applications unlimited commitment.
• Industry Areas:
  • Retail: Had a "blowout" quarter, up over 90%.
    • Key wins included Abercrombie & Fitch, Michael’s, and Home Depot Supply Chain.
  • Communications: Two telcos in Europe are going end-to-end Oracle, including billing, provisioning with Metasoft, Siebel customer care, PeopleSoft financials, field service, HR middleware, and the Oracle database.

Key Customer Wins

• Cisco: Purchased applications, middleware, database, and management tools over a multi-year period.
• Citrix Systems: Purchased CRM and the BI suite.
• Cummings: Purchased 42 modules across the entire ERP suite, a large win against SAP in the automotive sector.
• Subaru of America: Bought G-Log for purchase planning and freight settlement.
• Demantra: Won at Mattel Toys.
• Wiles: A complete SAP replacement. Based in Germany, near SAP’s headquarters, Wiles purchased mySAP ERP 2004 and deployed it in Germany and France. They preferred Oracle's superior functionality, cost of ownership, and architecture.

Closing Remarks

• Pipeline and Close Rates: Charles expressed confidence in the pipeline and close rates for the upcoming quarter, noting the team's focus and strong performance.

• Vertical Applications Success: He highlighted the success in vertical applications and the opportunities for further expansion and growth in these areas.