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pww.comOracle Corp., Q1 2011 Earnings Call, Sep 16, 2010 - NYSE:ORCL

NYSE:ORCL

Ken Bond [Executives] 💬

Ken Bond, Vice President of Investor Relations for Oracle, made the following statements during the Q1 2011 Earnings Call:

  1. Introduction:

    • Thanked the operator and welcomed everyone to the call.
    • Introduced himself and the executives present on the call: Larry Ellison, Safra Catz, Mark Hurd, and Jeff Epstein.

  2. Forward-Looking Statements Disclaimer:

    • Reminded listeners that the discussion would include forward-looking statements, including predictions, expectations, and estimates.
    • Noted that these statements are subject to risks and uncertainties that may cause actual results to differ materially from what is being discussed.
    • Mentioned that important factors affecting these statements would be presented during the discussion.
    • Advised listeners to review Oracle’s most recent reports on Form 10-K and 10-Q for a complete discussion of these factors and other risks.

  3. Reminder About Forward-Looking Statements:

    • Emphasized that the statements reflect Oracle’s opinion only as of the date of the call.
    • Stated that Oracle is not obligated to revise or publicly release any revisions to these forward-looking statements in light of new information or future events.

  4. Availability of Financial Information:

    • Mentioned that a copy of the press release and financial tables, including a GAAP to non-GAAP reconciliation and other supplemental financial information, can be viewed and downloaded from Oracle’s Investor Relations website.

  5. Transition to Prepared Remarks:

    • Indicated that the call would begin with prepared remarks followed by questions from the audience.
    • Turned the call over to Jeff Epstein for his opening remarks.

  6. Conclusion:

    • Provided instructions for the telephonic replay of the conference call, including the replay number and passcode.

    • Mentioned that a webcast replay would be available until the close of the market on September 23 on the Investor Relations website.

    • Invited listeners to contact the Investor Relations department with any follow-up questions.

    • Thanked everyone for joining the call and concluded the conference.

Jeffrey Emanuel Epstein [Former Chief Financial Officer and Executive Vice President] 💬

Jeffrey Emanuel Epstein, the Former Chief Financial Officer and Executive Vice President of Oracle Corporation, provided the following details during the Q1 2011 Earnings Call:

  1. Financial Results Overview:

    • Beat the high end of guidance ranges for New License revenue, total revenue, and earnings per share.
    • Q1 was an excellent quarter for Oracle.

  2. New License Revenues:

    • $1.3 billion, up 25%.
    • The Americas grew 33%, EMEA was up 12%, and Asia was up 26%.
    • Technology New License revenues were $937 million, up 32%.
    • Applications New License revenues were $349 million, up 10%.

  3. Software License Updates and Product Support Revenues:

    • $3.5 billion, up 11%.
    • Customer support attach and renewal rates continue at high levels.

  4. Hardware Systems Products Revenues:

    • $1.1 billion.

  5. Hardware Systems Support Revenues:

    • $680 million.

  6. Services Revenues:

    • $1.1 billion, up 18%.

  7. Total Revenues:

    • $7.6 billion, up 50%.

  8. Non-GAAP Operating Income:

    • $2.9 billion, up 27%.

  9. Non-GAAP Operating Margin:

    • 39% for the quarter.

  10. Tax Rate:

    • 24.7% for the first quarter.

  11. Earnings Per Share (EPS):

    • Q1 non-GAAP EPS were $0.42, $0.05 above the high end of the EPS guidance range of $0.35 to $0.37.

  12. Stock Repurchase:

    • Repurchased 10.8 million shares at an average price of $23.13 per share for a total of $250 million.

  13. Balance Sheet:

    • $23.6 billion in cash and investments.

  14. Days Sales Outstanding (DSO):

    • Improved to 45 days compared to 46 days last year.

  15. Free Cash Flow:

    • Generated $8.5 billion in free cash flow during the last four quarters.

Safra Ada Catz [CEO & Director] 💬

Safra Ada Catz, CEO & Director of Oracle, provided comments and details on the Q1 performance and guidance for Q2. Here’s a detailed summary of her remarks:

Q1 Results Overview

  • Outstanding Software License Growth: Oracle achieved exceptional growth in software licenses, significantly exceeding guidance.
  • Company-Specific Momentum: Oracle is experiencing strong momentum across its software and hardware systems businesses. Customers are increasingly recognizing the benefits of integrated solutions from Oracle, preferring them over solutions from multiple vendors.
  • Engineered Systems Benefits: Customers are seeing the benefits of Oracle's engineered systems, such as Exadata, which offer unique value and performance advantages.

Financial Highlights

  • Software License Growth: Outstanding growth in software licenses, with double the high end of guidance actually achieved.
  • Hardware Systems Revenue: Better than expected, particularly considering it was the first time Sun's hardware team had an August close.
  • Gross Margins: Gross margins for systems have improved to over 48%, up from 46% the previous quarter, despite lower volumes in Q1.
  • Operating Margins: Strong operating margins, with Oracle's 39% operating margin being 10% higher than SAP’s, even though Oracle also sells hardware.

Guidance for Q2

  • New Software License Revenue Growth: Expected to range from 9% to 19% in constant currency and 6% to 16% at current exchange rates.
  • Hardware Product Revenues: Expected to be between $1 billion and $1.1 billion in constant currency, or $1.1 billion to $1.2 billion at current exchange rates, excluding Hardware Support revenue.
  • Total Revenue Growth: Expected to range from 43% to 47% in constant currency and 39% to 43% at current exchange rates on a non-GAAP basis. GAAP basis total revenue growth expected between 42% to 47% in constant currency and 38% to 43% at current exchange rates.
  • Non-GAAP EPS: Expected to be $0.45 to $0.47 in constant currency, and $0.44 to $0.46 at current exchange rates, up from $0.39 last year.
  • GAAP EPS: Expected to be $0.28 to $0.30 assuming constant currency, $0.27 to $0.29 at current exchange rates.

Tax Rates and Dividend

  • Tax Rates: Assumed GAAP tax rate of 36.5% and a non-GAAP tax rate of 28.5%.
  • Dividend: Oracle’s board declared a dividend of $0.05.

Closing Remarks

  • Strong Pipelines: Emphasized that Oracle’s pipelines are very strong in both software and hardware, setting the stage for continued success in the upcoming quarter.

Lawrence J. Ellison [Co-Founder, Chairman & CTO] 💬

During the Oracle Corp. Q1 2011 Earnings Call, Lawrence J. Ellison, Co-Founder, Chairman & CTO, provided insights and commentary on various aspects of the company's performance and strategy. Here’s a detailed summary of his remarks:

Opening Remarks:

  • Sun Hardware Business Overview:

    • Oracle has two fundamental goals for the Sun Hardware business: to make it profitable and then to grow the size of the business.
    • Oracle has improved the gross margins to 48.4%, up from around 38% when Sun was managing the business.
    • Oracle aims to further improve gross margins, with a target of around 60%, although it depends on the product mix.

  • Profitability:

    • The Sun Hardware business is already making a substantial contribution to Oracle's overall profitability.

  • Growth Strategy:

    • Oracle plans to double the size of the Hardware business over time by aggressively taking share from competitors like IBM.

Improving Profitability:

  • Ending Unprofitable Businesses:

    • Oracle stopped reselling products that were not profitable, such as Hitachi disks and Veritas NetBackup.
    • Oracle is no longer pursuing high-performance computing deals that are prestigious but unprofitable.

  • Optimizing Operations:

    • Oracle is implementing a single integrated computer system for order management, network support, and field service, which will be completed by January.
    • Oracle is reducing the number of contract manufacturers and locations to simplify operations and negotiate better deals.

  • Direct Shipping:

    • Oracle is directly shipping products from manufacturers to customers, which reduces costs and speeds up delivery.

Growing the Top Line:

  • Innovation:

    • Oracle is leveraging the ZFS Storage Appliance, which integrates hardware and software, as a key product.
    • Oracle is developing more hardware-software combinations, with Exadata as the best-known example.
    • The Exadata pipeline for the full fiscal year is now up to $1.5 billion and growing rapidly.

  • Processor Upgrades:

    • Oracle is upgrading its SPARC processors and believes it can build processors as fast as competitors like IBM and Intel.

Distribution:

  • Sales Force:
    • Oracle is transitioning from a partner-focused sales model to a direct sales approach, similar to its software business.
    • Oracle is adding about 2,000 salespeople, including sales engineers and service engineers, without increasing the overall headcount.

Closing Remarks:

  • Exadata and Other Engineered Systems:
    • Oracle is excited about the growth opportunities with engineered systems like Exadata and anticipates exceeding the target of $1.5 billion in operating profit for the fiscal year.

Q&A Session:

  • Exadata Impact on Database Technology:

    • Exadata sales often include both hardware and software components, contributing to the strong growth in the technology software segment.
    • A notable example is the SOFTBANK sale, where three Exadata racks replaced 60 Teradata racks, significantly outperforming them.

  • European Applications Market:

    • Oracle is tracking its Applications business in Europe as a percentage of SAP, noting that it is up to about 50% of SAP's size in Europe.
    • Oracle is winning all retail deals in Germany against SAP, indicating strong performance in industry-specific applications.

  • Database Technology Competitors:

    • Oracle is dismissive of SAP's entry into database technology, particularly with their in-memory database announcement.
    • Oracle has been working on an in-memory database for some time and plans to deliver it before SAP.
    • Oracle believes it will outperform SAP in database technology, as it did in middleware with Fusion Middleware.

Ellison's remarks highlight Oracle's strategy for improving the profitability and growth of its Sun Hardware business, as well as its confidence in competing with rivals in the database technology space.

Mark Vincent Hurd [Former CEO & Director] 💬

During the Oracle Corp., Q1 2011 Earnings Call on September 16, 2010, Mark Vincent Hurd, the Former CEO & Director of Oracle, provided the following comments:

  1. Introduction and Background:

    • Mark expressed gratitude for the opportunity to join Oracle, highlighting his extensive experience in competing against and partnering with the company.
    • He emphasized that his decision to join Oracle was based on the company's clear growth opportunities and strong positioning within the industry.

  2. Industry Positioning:

    • Oracle is well-positioned for the exponential growth in data and digitization, being the leading database and middleware company.
    • Oracle leads in engineered systems, with Exadata as a pioneering product, and is defining the market for highly optimized engineered systems.
    • There is a significant opportunity in industry verticals such as telecom, banking, utilities, insurance, life sciences, and others, where Oracle has a significant lead with its Global Business Units.

  3. Global Presence:

    • Oracle is a large global platform, well-positioned to take advantage of growth outside the United States.

  4. Financial Capacity and R&D Investment:

    • Oracle generated $8.5 billion in free cash flow over the past 12 months and expects to spend over $4 billion on R&D in the current year.
    • Mark assured that the R&D investment is well-spent and will be detailed during the upcoming OpenWorld event.

  5. Q1 Results Overview:

    • Mark praised the 25% license growth in a company of Oracle's size, especially considering the August closing period, attributing the success to the sales organization.
    • He highlighted several end-to-end Oracle wins, where products from applications to technology and systems were sold, citing Vivo, the largest mobile telephone operator in the southern hemisphere, as an example.
    • Technology, both Database and Middleware, showed strong growth, with 32% growth and double-digit growth in every region.
    • Specific examples of wins were provided, such as the New York Police Department for Database, and competitive wins in Middleware with the release of Oracle Business Intelligence 11g.
    • In Applications, key wins against SAP were noted, such as at Mayan Resorts in Mexico and Molina Healthcare of California.
    • Systems also saw growth, with notable wins against IBM in Brazil and Spain, and significant wins at NTT in Japan.

  6. Services Component:

    • Mark addressed the question about the potential expansion of Oracle's IT services component, stating that the future of services lies in automating incidents through software.
    • He explained that Oracle aims to automate processes through software, reducing the need for labor-intensive services, while also partnering with labor-based service companies.
    • Mark emphasized that Oracle wants to support these service companies and partner with them.

  7. Priority Perspective:

    • Mark outlined his priorities, emphasizing profitable growth, taking market share, delighting customers, having the best sales force, and delivering the best service.

In summary, Mark Vincent Hurd provided insights into Oracle's strategic positioning, financial strength, and the strong performance of various business segments in Q1. He also addressed questions about the potential expansion of Oracle's services component and outlined his priorities for the company.

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