Oracle's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Oracle (ORCL)

Q3 2012 Earnings Call

March 20, 2012 5:00 pm ET

Executives

Ken Bond -

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

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

Mark V. Hurd - President and Director

Analysts

Jason Maynard - Wells Fargo Securities, LLC, Research Division

Adam H. Holt - Morgan Stanley, Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division

Philip Winslow - Crédit Suisse AG, Research Division

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

Brent Thill - UBS Investment Bank, Research Division

Brendan Barnicle - Pacific Crest Securities, Inc., 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, Amber. Good afternoon, everyone, and welcome to Oracle's Third Quarter Fiscal Year 2012 Earnings Conference Call. A copy of the press release and financial tables, which include 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 present some important factors relating to our business, which may potentially affect those forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from statements 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 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, we'll begin with a few prepared remarks. And with that, I'll turn the call over to Safra.

Safra A. Catz

Thanks, Ken. Well, as you can see, we had a very solid quarter, as new software license revenue was up 7%, $2.4 billion, and that's really on top of the enormous 29% increase last year. As I said last quarter, all we really needed to do was focus on our execution and that we did. We exceeded our forecast for new license guidance, we met our forecast for total revenue and we beat the high end of our EPS guidance. Technology new license revenues were $1.7 billion, up 10% in constant currency, 9% in U.S. dollars. Applications were $658 million, up 3% in constant currency and U.S. dollars. As you recall, we saw 34% growth in apps last year and 21% the year before that. So we're very pleased as we're just starting to see the early benefits of Fusion apps, and we've just closed on RightNow and we’ll close on Taleo in April.

Our license revenue for applications is now 66% higher than it was just 3 years ago as compared to SAP, which is about 32% higher. Geographically, results were very good, as we saw double-digit license growth in the Americas and Asia Pacific, with new license growth of 11% in constant currency and U.S. dollars for the Americas and 11% in JPAC in constant currency, 13% in U.S. dollars. EMEA, not surprisingly given the environment, was essentially flat. But don't forget that a year ago, EMEA reported 19% new license revenue and 47% growth in applications. Once again, the quarter wasn't dependent on any large deals.

Software license update and product support revenues were $4.1 billion, up 8%. Supported cash rates and software renewal rates continue at the usual very high levels. Hardware systems revenue was $869 million for the quarter, due to the continued reduction in some of our defocused product lines. Hardware gross margins were 51% for the quarter. Total revenue for the quarter was $9.1 billion, up 4% in constant currency, 3% in U.S. dollars. We're extremely pleased with our non-GAAP operating income of $4.2 billion, up 8% as we expanded Q3 margins to match a prior record level of 46.4%, and this now includes a hardware business. With operating margins essentially now back at pre-sung levels, I'm sure you want to know where margins go from here. And while I'm not providing specific guidance, we continue to see ample leverage in our business model.

The non-GAAP tax rate for the quarter was 22.5%, and the GAAP tax rate was 20.7%, both of which were below my guidance as a result primarily of an increase in income in subsidiaries and countries with lower rates than the United States. EPS for the quarter grew 15% to $0.62 on a non-GAAP basis. Operating cash flow increased to a record $13.5 billion over the last 4 quarters, while free cash flow grew 36% to a record $13 billion. We have nearly $30 billion in cash and marketable securities, this is after paying for our acquisitions and our $1.7 billion buyback executed in the quarter, where we bought back 59.1 million shares. And again, the board declared a dividend of $0.06 per share.

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