甲骨文 (ORCL) 2004 Q1 法說會逐字稿

Welcome to the PeopleSoft 2004 First Quarter Earnings Conference Call.

All lines will be in a listen-only mode until the question and answer session of the conference.

This call is being recorded on behalf of PeopleSoft.

Replays of this conference call will be available for seven days following the call by dialing 1-800-774-9244.

There is no pass code needed for the replay.

I will now turn the call over to Bob Okunski, PeopleSoft’s Vice President of Investor Relations.

Sir, you may begin.

Thanks, Amy.

Good afternoon, everyone.

This is Bob Okunski, Vice President of Investor Relations at PeopleSoft.

I would like to welcome you to PeopleSoft’s First Quarter 2004 Earnings Conference Call.

Joining me are Craig Conway, PeopleSoft’s President and CEO, and Kevin Parker, PeopleSoft’s Chief Financial Officer.

Before moving on to comments I would like to review our Safe Harbor language.

Our discussion today may contain forward-looking statements about PeopleSoft’s goals, beliefs, expectations, or predictions for future results.

You are cautioned that these statements are only predictions and may differ materially from actual future events or results.

All of our forward-looking statements are as of the date of this call, and PeopleSoft undertakes no obligation to update or revise them.

The specific forward-looking statements may relate to such matters as the impact of PeopleSoft’s combination with J.D.

Edwards including the integration, the profitability of our operations, and the combined company’s projected financial performance.

Such forward-looking statements are subject to a number of risks, assumptions, and uncertainties that could cause PeopleSoft’s actual results to differ materially from those projected in such forward-looking statements.

These risks, assumptions, and uncertainties include our ability to successfully complete the integration of J.D.

Edwards into PeopleSoft and to achieve anticipated synergies, the cost and disruption to our business arising from the Oracle tender offer, economic and political conditions in the United States and abroad, the ability to complete and deliver products and services within currently estimated timeframes and budgets, the ability to manage expenses effectively, the ability to achieve revenue from products and services that are under development, competitive and pricing pressures, and other risks referenced from time to time in PeopleSoft’s filings with the Securities & Exchange Commission.

Please refer to PeopleSoft’s current Annual Report on Form 10-K for more information on the risk factors that could cause our actual results to differ from expectations.

During the course of this presentation we will also reference certain non-GAAP financial measures.

The company uses non-GAAP financial measures which exclude adjustments related to purchase accounting and restructuring costs and in analyzing financial results because we believe they provide a meaningful piece of information regarding the company’s operational performance.

They also facilitate comparisons to the company’s historical operating results and comparisons to competitors’ operating results.

The non-GAAP financial measures are not prepared in accordance with GAAP principles and may be different from non-GAAP financial measures used by other companies.

Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance in accordance with GAAP.

Reconciliation of GAAP to non-GAAP financial measures is included in our press release today and is also available on our web site at www.peoplesoft.com.

PeopleSoft has filed a solicitation recommendation statement on [Schedule 14D-9] [ph] regarding Oracle’s tender offer.

PeopleSoft stockholders should read this the Schedule 14D-9, including any amendments because these documents contain important information.

This The Schedule 14D-9 and other public filings made by PeopleSoft with the SEC are available without charge from the SEC’s web site at www.sec.gov and from PeopleSoft’s web site at www.peoplesoft.com.

With that, let me turn the call over to Kevin.

Thanks, Bob.

We are pleased with our performance for Q1 as we exceeded guidance for total revenue or met our guidance in all other categories.

We continue to win significant new customers worldwide, generate strong revenues from our installed base, and showed a steady progress in our integration of J.D. Edwards.

Here are some details for the quarter.

Our first quarter license revenue was $131m, consistent with our guidance range given in January.

In Q1 we saw a fairly balanced performance across all of our industry verticals.

A particular windowOf particular note was our education and government sector which showed strong results for the quarter, increasing on a sequential basis, and accounting for approximately 22 percent of our total license revenue.

In Q1 a significant number of our largest deals were with existing customers as they expanded their implementation of PeopleSoft applications.

As a result, new customer license revenue as a percentage of total revenue decreased slightly to 27 percent from Q4, while revenues from existing customers increased as a percentage quarter-on-quarter.

Going forward we expect new customers to continue to contribute approximately 30 percent of our license revenue.

We continued to leverage our cross sell capabilities between product families, closing more than 14 transactions during the quarter, with where an existing Enterprise or Enterprise One customers purchased products from the other product family.

Sales synergies from the combination continue to meet our goals, contributing nearly $12m in license revenues in Q1.

We’re also very pleased in our success with our up selling results for Q1, as the level of up selling to existing customers was the highest it had been in more than two years, accounting for 47 percent of the license revenue for the 100 largest deals in the quarter.

In Q1 we had 24 transactions where customers purchased products from both Enterprise and Enterprise One product families at the same time.

This is a 100 percent increase from the 12 transactions we reported in Q4.

For the quarter we had 25 deals greater than $1m, with one deal exceeding $5m, and one deal exceeding $10m.

We also added a total of 120 new customers for the quarter, up from 72 in Q1 of 2003.

Geographically, the U.S. accounted for 54 percent of the license revenue, and international for 46 percent.

On a year-over-year basis we saw a very strong performance in our enterprise product line, with increases of 17 percent in North America, 21 percent in Latin America, 31 percent in Japan and Asia-Pacific, and 92 percent in EMEA.

Our new business ASP for the quarter was $382,000, down from $477,000 in Q4, as we saw fewer large $1m plus deals during the quarter , and our two largest deals in Q1 were sold to existing customers.

The reduction in ASPs was not the result of any extraordinary discounting practices.

We expect our ASP to return to a normal historical range in the coming quarters.

For the quarter license margins were 91 percent, in line with our Q4 2003 performance.

While our license revenues achieved our guidance, our results would have been even better if not for deals that were received too late to ship in Q1, or deals that slipped into early April.

All of those deals have been shipped in the opening days of Q2.

Our results also reflect more seasonality in Enterprise One, the former J.D.

Edwards side of our business, than we anticipated in the forecast.

While more seasonal than our goal the sequential revenue change was consistent with J.D.

Edwards’ historic seasonality.

Professional services revenue which can includes consulting and training revenues were $215m, down nine percent sequentially as a result of seasonality, and were consistent with our expectations for the quarter.

Our utilization rates were down slightly compared to Q4, though our average billing rates were in excess of $180 an hour, consistent with prior quarters.

Q1 maintenance revenue rose 12 percent compared to Q4 to a record $297m after a deferred maintenance write-down of $24m arising from the purchase accounting for the J.D.

Edwards acquisition.

The increase was primarily related to the reduction in acquisition related deferred write-down, realized synergies with prior J.D.

Edwards customers, and continued growth in our installed base of customers.

Excluding the deferred maintenance write-down arising from the J.D.

Edwards acquisition our first quarter pro forma maintenance revenues were $321m, an increase of two percent from Q4.

Our services margin remained strong and consistent with expectations.

Excluding the impact of purchase accounting on deferred maintenance revenue the pro forma margin on service for the quarter was 60 percent, up from 58 percent in the prior quarter.

On a GAAP basis including the deferred maintenance write-down margins were 56 percent for the quarter and up from 52 percent in Q4.

Total revenue for the first quarter of 2004 of $643m exceeded our guidance range of $625m to $635m.

Excluding the impact of deferred maintenance revenue write-down Q1 revenue was $667m.

Our first quarter pro forma operating expenses were $575m, down eight percent sequentially.

Q1 pro forma operating expenses also include $12.8m of expenses related to Oracle’s hostile takeover.

Excluding those costs, our pro forma operating expenses would have been approximately $562m.

In Q1 all Oracle related costs are reflected in G&A.

Q1 sales and marketing expenses were $165m, down 11 percent sequentially primarily due to lower commissions costs incurred during the quarter, in addition to lower T&E expenses.

Sales and marketing expense was 26 percent of revenues, consistent with recent quarters as a percentage of revenues.

Product development expenses were $124m, down seven percent versus Q4 as we recorded an overall reduction in salary expenses related to bonuses.

These savings were partially offset by higher payroll taxes.

As a percentage of total revenue product development expenses were within line with historical averages at 19 percent.

G&A expenses were $59m, up approximately $1m compared to Q4.

As a percentage of revenues G&A was nine percent, up from eight percent in Q4, but consistent with our historical averages.

Our G&A expenses for the quarter include our Oracle defense costs of $12.8m.

G&A costs for the quarter excluding Oracle defense costs declined slightly from Q4 to $46m.

Other income consisting primarily of interest income and foreign exchange gains and losses was $5m in Q1.

Other income increased from the prior quarter primarily as a result of reduced foreign currency impact and increased interest income due to higher cash balances.

Our pro forma Q1 tax rate was 36 percent in line with our guidance, and our GAAP tax rate was 36.3 percent.

Foreign exchange rates had an immaterial impact on our operating results.

Our Q1 pro forma operating income rose 79 percent to $92m, up from $52m as compared to Q1 2003.

Pro forma operating margin as a percentage of revenues was 13.8 percent compared to 11.3 percent in Q1 of 2003.

Had we not been forced to incur costs associated with Oracle’s offer pro forma operating income would have been in excess of $105m, an increase of over 100 percent from Q1 2003.

Now, pro forma operating margin as a percentage of revenues would have been 15.8 percent, or two percentage points higher.

Our Q1 pro forma net income was $62m, an increase of 62 percent from Q1 of 2003.

Q1 pro forma earnings per share were 17 cents, consistent with our guidance of 17 to 18 cents per share given in our January earnings call.

Excluding the Oracle costs our Q1 pro forma net income would have been approximately $70m and our pro forma earnings per share would have been 19 cents.

Reported GAAP results for the first quarter include amounts related to our J.D.

Edwards acquisition for the amortization of capitalized software and other intangibles, and restructuring charges.

The inclusion of these items resulted in GAAP operating income and net income of $33m and $24m, respectively.

On a GAAP basis Q1 net income per share was seven cents.

Our GAAP earnings per share for the quarter were consistent with our guidance of six to seven cents per share.

Excluding the Oracle related costs would have resulted in GAAP earnings per share of nine cents for the quarter.

Focusing on our balance sheet and cash flow, at March 31st our cash and investment balances were $1.6b, up approximately 11 percent from the prior quarter.

The increase in cash is a direct result of our positive operating cash flow driven by our strong cash collection efforts.

Operating cash flow for the quarter increased 55 percent to $116m, compared with operating cash flow of $75m in Q1 of 2003.

We’re pleased with our cash collection efforts for the quarter as our Q1 DSO was an industry leading 53 days, significantly better than our stated goal of 60 to 70 days.

We also anticipate successful completion of our $200m stock repurchase program during 2004.

This is in keeping with our stated goal of maintaining a cash balance of approximately $1b, and continuing to explore ways to utilize our positive cash flow to enhance stockholder value.

Total deferred revenues at March 31st increased $57m to $765m.

Net deferred license revenue was $6m and continued to comprise less than one percent of total deferred revenues.

Deferred maintenance and services revenues were $760m.

As we’ve noted for the last few quarters purchase accounting requires us to write-down the J.D.

Edwards deferred maintenance balance as of the acquisition date.

The amortization of the write-down was $24m in Q1.

Of the original acquisition date write-down of $147m, approximately $125m has been amortized to date with the majority of the balance being amortized during the remainder of 2004.

We expect the Q2 amortization to be approximately $15m.

The deferred maintenance balance will continue to grow as new maintenance agreements are signed, as customers renew their existing maintenance agreements in the coming quarters, and the remaining unamortized balance is recognized over the remainder of the year.

Capitalized software net of amortization decreased by $15m in the first quarter to $219m.

The balance, consisting primarily of acquired capitalized software, is being amortized ratably over five years, resulting in quarterly amortization of approximately $10m to $15m through Q3 of 2008.

Q1 capital expenditures were approximately $15m, down from $19m last quarter due to a reduction in hardware purchases.

In the coming quarters we expect to terminate several synthetic leases we inherited through the J.D.

Edwards acquisition and consolidate those facilities on our balance sheet.

In Q2 we expect the termination of the first of those leases to result in a cash disbursement of approximately $59m and a corresponding increase in our fixed assets.

In subsequent quarters we anticipate additional disbursements as we consolidate the remaining synthetic leases on to our balance sheet.

In total the impact will be approximately a $122m increase in our fixed assets between now and yearend.

We do not anticipate there will be a material impact on our P&L as a result.

Turning to the customer assurance program, as of March 31st the maximum potential liability associated with our customer assurance program increased by more than $400m, to approximately $2b.

As appropriate, you’ll see the details disclosed in the footnotes to our financial statements filed with the SEC.

Of course, there is no impact to our financial statements.

As an update to our J.D.

Edwards integration, our headcount at March 31st was 11,779 employees, a decrease of approximately 380 employees from the end of Q4, and down approximately 940 employees since the transaction closed, and on track with our goal of reducing our work force between 750 and 1,000 people following the integration with J.D. Edwards.

These reductions were primarily redundant roles in general and administrative, and infrastructure areas we had identified as part of our integration efforts.

We’re essentially complete with this phase of the plan and anticipate no further significant reductions.

We’re also executing our integration plans across the company as we continue to reduce redundant facilities and combine operations globally.

In our third full quarter as one company we’re actually ahead of our internal plan cost reduction scheduled targets by 13 percent to date.

And we’re very pleased with the results thus far.

I We remain confident in our stated objective of generating approximately $167m to $207m in synergies for the full year of 2004, and we are ahead of our internal schedule in achieving those goals.

I’d now like to turn to our guidance for Q2.

As we look into Q2 it’s clear that our combination with J.D.

Edwards has continued to pay dividends across the company.

Starting the quarter our pipeline remains strong in every region.

Overall, we feel the economy is continuing to improve and the spending environment is improving at the same time.

Given these factors, we anticipate that our Q2 license revenue will be in the range of $150m to $170m, and total revenue in the range of $675m to $695m.

We anticipate Q2 pro forma earnings per share to be in the 20 to 22 cents per share range.

I want to point out that the pro forma EPS guidance we’ve given here does not include any Oracle related expenses.

Beginning in Q2 we’ll begin excluding any external costs arising from Oracle’s offer from our pro forma guidance and results.

Since Oracle announced their hostile offer in June of last year PeopleSoft has incurred more than $55m in external costs defending the company.

That has resulted in a reduction in our pro forma and GAAP earnings per share of over 10 cents per share in that same timeframe.

While we achieved and even exceeded our goals for the company we could have done much better without this burden.

Our original full year guidance for 2004 did not anticipate we would continue to incur those costs, those additional costs beyond Q1.

Yet, as we enter Q2 we remain in the midst of a protracted legal process, forcing us to incur additional expenses.

We’ve reached the point that we can no longer delay other important activities to offset those unwelcome costs.

We currently anticipate those costs to be in the $10m to $12m range for Q2.

As a company, we remain committed to the full year guidance for revenue and pro forma earnings per share we announced in September and reaffirmed in January.

In Q2 we also expect to incur additional acquisition related restructuring charges for severance and for closure of facilities of approximately $6m to $7m.

Including those acquisition related costs, as well as the ongoing amortization with the acquisition, we expect our Q2 GAAP earnings per share to be in the 10 to 12 cent range.

Our GAAP numbers reflect the inclusion of the Oracle related costs for Q2.

In summary, we are pleased with our performance during the quarter as we’ve showed significant progress in many categories.

Our integration with J.D.

Edwards is on plan and on track, and we will look to leverage the power of the combined company as we go through 2004.

With that, I’d like to turn the call over to Craig.

Thank you, Kevin.

Good afternoon.

PeopleSoft continues to deliver as expected.

In Q1 we expected total license, total revenue between $625m and $635m, and we delivered $643m.

We expected license revenue between $130m and $140m, and we delivered $131m.

We expected EPS between 17 and 18 cents, and we delivered 17 cents.

All other guidance was met, as well, including operating margin, DSO, cash, et cetera.

In fact, PeopleSoft has met or exceeded our financial guidance 17 of the last 18 quarters, and as you know, predictability has become a staple of this company for which we’re very proud.

Q1 was generally as expected.

We anticipated the seasonal slowdown generally in line with our industry and peers.

We anticipated continued cost synergies with the acquisition of J.D. Edwards.

We anticipated some management distraction associated with our shareholder meeting, the U.S.

Justice Department decision, and the European Commission decision.

We would like to have had a few things different in Q1.

For example, as Kevin mentioned, there were more than a half a dozen Enterprise One deals that were signed and received during the quarter but could not be built in time, because the J.D.

Edwards product simply takes more time to build the CDs.

Those, of course, were shipped the first day following the end of the quarter.

There was also a large deal that we expected but the customer could not obtain signatures on the contract until the following week.

That was also booked in the first week of April.

Either of those would have moved our license revenue to the upper end of the guidance.

But even without them our financial results were as expected.

Now, looking forward those of you of the half-empty persuasion can certainly find space in the glass.

The economy is improving but improving slowly, and so technology spending is improving slowly.

You’ve heard that from other technology CEOs.

Also, Oracle’s appeal of the Justice Department decision continues to have an impact on our revenue, and will continue to be a distraction for our management team.

You know, to be completely successful in this industry requires complete time and attention.

It requires development meetings, marketing meetings, meetings with customers, with prospects, with analysts, and what we still don’t have, complete time and attention.

We don’t have the use of both arms.

And so I know these things will resonate with the half-empty crowd, but for those of you of the half-full persuasion the glass is at the expected level and could just as easily rise.

Four reasons.

First, remember that we met financial guidance in the weakest quarter of the year, even as the company dealt with a proxy battle, a shareholder meeting complete with various shareholder initiatives, ongoing risk messaging by Oracle to the market, a significant time investment responding to the Justice Department investigation, a significant time investment responding to the European Commission investigation.

None of these things were contemplated when Kevin and I shared our 2004 guidance seven months ago in New York, and yet we continue to meet that original guidance.

Second, we’re now regaining the use of our second arm with the shareholder meeting behind us.

The Justice Department decision behind us.

With the European Commission statement of objection.

And we hope the remaining distractions associated with Oracle will be fully resolved in Q2.

Then in PeopleSoft we’ll have full use of both arms.

Third, with the final resolution of the Oracle matter some amount of deals that have been held or deferred will be released.

There will be a short-term release from the ban.

And fourth, the public sector, in particular, should resume its normal percentage of our ongoing business.

Now, I suspect that these four things may not convert the half-empty persuasion to the half-full side, but they should be considered.

I know they make us feel very good.

We continue to feel very enthusiastic about our business.

Enterprise applications are a major food group.

All companies have to automate financial management, human resource management, customer relationship management, supply chain management, and manufacturing systems that areif they are manufactured.

All companies continue to upgrade these systems or replace Legacy systems.

When they do, they tend to select an integrated applications approach, and we are the second largest provider in the world of integrated enterprise applications.

We believe it’s a great category.

We announced a growth objective for 2004 that was by far the most aggressive among our peers, and we’re delivering on that plan.

The benefits we anticipated from the acquisition of J.D.

Edwards is are starting to become apparent in our sales and our pipelines.

And the financial synergies are ahead of plan.

We do look forward to returning all of our attention to our business, and that’s happening now.

We have several exciting new product announcements for our Leadership Summit in May, and as Kevin mentioned, we will be investing fully to make those successful in the market.

In summary, we are right where we expected to be.

Operator, I think we’re ready to take questions.

Thank you.

We will now begin the question-and-answer session. (Caller Instructions.)

Eric Upin of Wells Fargo Security.

You may ask your question.

Okay, thanks.

Pleased to see the results, guys.

I wondered if you could just following up with some of your overview commentary, just give us a sense of what inning of the ballgame are you in terms of finalizing integration sales, marketing, architecture, how much more integration work really required before this is truly one company and representing one complete story across the board.

Thanks.

You know, I think it’s generally complete.

The sales organizations have been combined.

There was some account in territory reassignment as we ended Q4 and we began Q1.

That has been completed.

The marketing organizations are reconciled.

The product roadmap, which had been published last year, has been staffed.

New products that were integrations between the Enterprise One and Enterprise product line were completed.

And as a matter of fact, we shipped seven or nine of those in Q4.

So that feeling that you’re still in process with integration, we don’t have any more.

We do have a sense of execution.

And as we prepare for a major event for us, which is the Lleadership sSummit in May when we are scrambling to complete new things.

But, it has been a remarkably well integrated seamless -- I wouldn’t say seamless -- almost seamless combination of the two companies and it’s been right on schedule.

The only thing I’d add to that is that we internally have transformed our from PeopleSoft/ J.D.

Edwards into this is a company with two product lines and two product families.

That transformation’s complete in terms of the way we match the business internally.

Thank you.

Neil Herman of Lehman Brothers.

You may ask your question.

Yes, a couple of questions.

One, if you could talk about what you saw from a competitive environment perspective in the first quarter if you saw any significant changes.

And then, secondly, if you could talk a little bit about the seasonality of your license revenue.

I think clearly, the numbers are fairly back-end loaded.

If you could just give us a sense with respect to your confidence towards the end of the year.

And then, one clarification.

I presume that your guidance for Q2 includes the $67m acquisition-related cost.

Is that correct?

To answer the questions in reverse order, over on a GAAP basis it does.

That’s correct, Neil.

Okay.

I’ll turn it back to Kevin for the back-end loaded part of the question.

On the competitive front, it is more and more and more and more SAP and PeopleSoft.

What’s interesting is that if you saw SAP’s announcement this morning, there was some celebration around strength in the U.S.

With PeopleSoft, the celebration was around strength in [indiscernible]EMEA and Asia.

You know, as Kevin mentioned, we had almost 100 percent increase.

And so, when SAP’s going up very, very respectively respectably and PeopleSoft is going up year-over-year very, very respectively; if the industry isn’t going up quite that amount, somebody is losing market share, and I believe the answer is Oracle.

I think that what we anticipate and I think what our design objective of lining up as a battle group directly across from SAP is turning out to be the case.

In Q1, we had very significant direct winds at SAP sites, which is always a particularly sweet win.

And those include Deutsche Bahn Doichebon in Germany, Saint-Gobain Singlebon in France.

And so, that’s the color commentary I’d give you on competition.

Kevin, on the back-end loaded part of Neil’s question.

You know, as we tried to describe, I think, on a -- we actually saw more seasonality on the J.D.

Edwards moving from Q4 to Q1 than what you would see in our results, but very consistent with what J.D.

Edwards would normally report and a bit less than that on the PeopleSoft side.

And, I think we’re very comfortable with where we are.

I think Q1 is always the most difficult quarter to predict.

It’s always -- you know, particularly from a licensed point of view.

There’s no compelling environmental factor for people to make decisions in Q1, so it’s a more challenging quarter to predict, but I think we’re very confident about where we will be by the end of the year and the year end seasonality is not something that we’re concerned about at this point.

Thank you.

Tad Piper of Piper Jaffray.

You may ask your question.

First, just a clarification because am I to assume then that this flip slip deals [indiscernible]in the quarter were valued somewhere around $16m to $18m?

I have another question.

I’m not sure where you’re inferring that from.

We didn’t describe it.

We said we would have benefited sort of at the higher of the range.

Either one of those two --

Either one of them would have made us at the higher end of the range --

A The combination of that would be somewhere between $8m to $9m each?

That’s probably bigger than I would put in there, but I think the important thing is that they close and they shift.

It’s probably a little bit less than you’re describing.

Okay.

And then, just secondly, in terms of your guidance, one of the things that you mentioned, Craig, was the fact that you believe that there is pent up demand should the Oracle overhang be resolved.

Is some of the back-end loaded nature of the year making bake in some of that assumption that you’ll actually get it resolved and have a number of deals closed and you have any ballpark figure as to -- or your number of deals, et cetera, that may be held up due to the Oracle uncertainty?

Tad, I’ll answer that question in terms of the seasonality.

That was not part of our thinking on, I think it was September 4th in New York when we talked about our revenue looked like for the year.

We actually expected this would be long over by now.

So the seasonality does not reflect or release or a sudden change in the environment or condition that causes that to happen, but really the unrelying underlying seasonality of the business itself.

Yeah, I mean, I would describe it as having kind of a good news/bad news or a plus and minus.

The original guidance Kevin and I gave in New York in September -- September 4th of ’03, didn’t contemplate at all that we would still be involved in this saga going into Q2 and probably throughout Q2.

However, on a positive side, we also didn’t anticipate that with the release of that distraction, we would get some amount of flushing.

So the honest answer is there’s probably a positive and a negative in there.

And so, I’m not sure if they’ll completely counter balance or not.

But, we are, I think, more excited about the official government seal of approval on the ending of the Oracle saga for what it may bring us in a release from the dam of pent up or deferred deals.

Can you head us down the right direction in sort of either quantifying that in any way in number of deals or any color on the effect it’s had or deals they’re sort of holding in the wings?

Well, again,can’t quantify it for you.

It’s a bit of a moving target.

We identify deals that we think are impacted.

That list continues to grow, but it’s also some of those deals can’t wait.

And they close our competitors.

And so it’s a moving target, but it’s always a positive number.

So, you know, I list it as a positive influence on the year pending the final resolution of the final parts of the Oracle saga.

You know, the Oracle saga has diminished pressure post Justice Department decisions and post European commission statement of objection, but it still hangs there.

And for some customers, particularly in the public sector, it hangs still large enough to defer planned purchasesd for PeopleSoft.

Okay.

So any [indiscernible]closure of those would be over and above current guidance effectively?

Yeah, I think that’s a reasonable conclusion.

You know, that’s a pretty significant “if then[sl1]” too, Tad, so --

Understood.

Okay.

Thanks, guys.

Heather Bellini of UBS.

You may ask your question.

Hi.

Thanks, Craig and Kevin.

I had a couple questions, I guess, following up a little bit on Tad and Neil.

If this -- are you assuming that the Oracle situation gets resolved in the June quarter?

I guess that’s one question.

And the short-term relief, Craig, that you referred to, I’m assuming that’s not -- Kevin wouldn’t let you put that into your Q2 guidance.

And then, I just want to follow up with something.

But, am I right there that you’re not assuming -- (multiple speakers)

[Indiscernible.](multiple speakers) You’re certainly right about the [indiscernible]second point, Heather.

On the first partpoint, it should be additive as we anticipate the final resolution at the end of Q2.

We’ve anticipated final resolutions before that have turned out to drag a bit further on, albeit at a diminished level.

So we continue to be focused on the business plan we announced and focused on it without taking any liberty up or down based on the saga as it winds its way through additional court systems and things.

So the best numbers relative to guidance to concentrate on are the original numbers that we gave and the ones that we are sticking by.

And, I guess my follow up would be this.

I mean, I think people are going to be a little bit surprised by the type of license range that you gave out for the June quarter because you haven’t seen -- you know, last year was a little bit of an anomaly -- you haven’t seen a big increase like that in Q2.

I’d have to unhide some rows in my model.

So, I guess my point is this.

I mean, let’s just assume -- would it be smart to think that you guys would not want to put guidance out that’s aggressive for the second quarter given the fact that we get probably a decision from the judge on the Oracle DOJ ruling sometime in early July?

We’ve I would actually -- Heather, we’ve not tried to handicap that in our plan.

What we’ve said is that we have a business plan in place and we’re working towards that plan from a products, from a market, from a sales perspective.

And, in fact, if you go back and look at our results in Q1 to Q2 of 2003, you’d see a pretty strong sequential change as we move from about 83 to $111m sequentially.

This is not out of the range of that sequential growth.

As you recognize too, at the same time, we described some normal seasonality to the J.D.

Edwards business moving from Q4 to Q1.

We expect that to come back somewhat in the Q2 timeframe.

So there’s a lot of moving parts in there.

But, at no point in time are we trying to handicap -- you know, if a decision’s in June, it’s [indiscernible] X, if the decision in July is whyY, we just have a business plan in place and that’s what we’re executing towards.

Heather, the reason that after much discussion, we tend to just focus on what our business plan is.

That’s what we’ve had to do every quarter since June 6.

And, when we have just concentrated on making or exceeding business plan, taking in stride the ebbs and flows of what Oracle’s strategy is and efforts, we tend -- we’ve been able to deliver on plan.

And quarter-to-quarter, there’s always a level of speculation starting with high speculation in Q2, pretty high speculation in Q3 that we wouldn’t make these numbers.

So that’s why, I guess, we just concentrate on the business plan, and I guess, assume that they’ll there’ll be ebbs and flows relative to Oracle’s acrobatics.

Well, and to get to your guidance for the full year, you would have to expect a pretty nice sequential jump in the third quarter; at least, that’s what it would be implying.

So I guess I’m wondering, are you assuming that by the end of the third quarter, you would have some resolving and that the boost that you referred to would fall into your results?

I think that’s not -- I actually don’t understand the question, but that’s not the way we looked at it, Heather.

The honest answer is and this is the same seasonality we’ve been talking about for quite some time now.

And this is the way we see the year playing out from a business perspective.

And yes, there would be a sequential increase moving from Q2 to Q3.

That’s in line with how we see our pipeline laying out in terms of the traction that we’re getting, in terms of up-selling and cross-selling, which continues to build over time, our product announcements and seasonality and our economic outlook.

That’s really what’s describing that.

We’ve not said well, if it’s -- and again, we’ve not tried to handicap a DOJ or an EU decision in developing the plan.

We didn’t obviously contemplate any of this in September when we did this.

Okay.

Great.

Thank you very much.

Brent Thill of Prudential.

You may ask your question.

Thanks.

Craig, you mentioned lining up more face-to-face with SAP.

And obviously, you’ve got more armor now in the manufacturing segment with J.D. Edwards.

Can you just give us a sense of how that’s enabled you to go into some of these accounts and manufacturing and what are you starting to hear from some of the manufacturing companies in that vertical that you didn’t really have a great presence in before J.D. Edwards?

I would -- you know, in both Q4 and Q1, manufacturing and supply chain management were boosted.

And, when we contemplated the combination of with J.D.

Edwards, there were four dimensions we thought would be beneficial.

One was product and example manufacturing.

One was industries.

One was mid market, and the other one was just scale -- international scale.

On the first two dimensions, manufacturing is probably the best example of a new strength to PeopleSoft, so is asset management and real estate management, by the way.

And, the best example of industry are some of the manufacturing industries.

If you look at some of our very large deals from Q4 and Q1, they have been in large manufacturing companies or large wholesale distribution companies.

For example, in the last two quarters, we have been able to close the two largest wholesale distributors in the world --: [indiscernible]Woolsey and Saint-Gobain.

That is a great example of new armor -- new battle wins in categories that we would not have won.

In fact, the evaluations in both of those cases did not rank PeopleSoft highly when they began more than a year ago, but we wound up winning them and winning both of them in competition with SAP.

We have several customers that were J.D.

Edwards’ manufacturing customers that we have upsold enterprise human resource management to.

But actually, surprisingly, a number of cross sales that went the other way that were PeopleSoft Eenterprise customers that licensed the Enterprise One manufacturing product for a plant level of manufacturing.

So the very first question on the call was something about the integration and the comfort level that it has essentially fully kind of engaged.

We, as well, are I guess breathing a sigh of relief that all of the pipelines for cross selling are open and things are flowing in multiple directions.

There are enterprise licenses flowing to J.D.

Edwards’ accounts, Enterprise One accounts.

There’s Enterprise One licenses -- mostly manufacturing and asset management -- flowing into PeopleSoft customers.

And then, as Kevin mentioned in his remarks, there’s deals that we’re closing where the actual contract includes both Eenterprise and Enterprise One software.

So I feel good, relieved, all the pipelines seem to have things flow through them.

Woolsey -- Saint-Gobain is a great example of wholesale distribution, the two largest companies in that category.

Zale is a good example of cross-selling Enterprise One into a PeopleSoft customer.

Agco AGCO was a great example of selling [indiscernible]into an Enterprise customer PeopleSoft Enterprise HR.

So it seems to be healthy in all directions.

Thanks.

Jim Mendelson of Schwab Soundview.

You may ask your question.

Thanks.

Craig, can you spend just a minute and give a little more color on kind of the sales cycle to the extent that you’re seeing any improvement in the spending climate, you know, various metrics that you might track?.

No, Jim, I may regret saying this; but, I’m not sure the spending environment is much, if any, different from Q4.

The overall economy appears to be improving and companies seem to have returned to normal business practices, but they’re there’s still a high degree of sensitivity to spending.

And so, you’ve had a two-year ultra-high scrutiny of large capital expenditures.

And I would say the IP area of a the company was a prime area that companies looked to to stop or even reduce spending.

And, I’m not sure that has changed.

I’m not sure any of the things that I have seen in Q1 represent any kind of a change.

Now, that’s a bit of a bad news for Q1.

It’s a bit of a good news because eventually, technology spending increases as companies continue to invest.

And so, this morning as I was listening to one of the business television statements, there was some economist talking about increases in hiring.

Inevitably, having to follow eventually from an increase in business, and I think the same thing about technology spending.

But to be honest, I didn’t see any tangible improvement in technology spending in Q1 other than the CIO’s seem to have the responsibility for making the decision once again.

Nevertheless, they continue to be cautious.

I guess another way to ask the question, Craig, is in terms of pipeline growth, are you seeing any signs that the growth of the pipeline as a function of the recovery in the economy --

Yes.

-- is beginning to accelerate?

Yeah, in that respect, yes.

I didn’t make that connection to the overall question.

But, phrased that way, the pipeline has picked up.

And, I guess, you’re right, that would signify an appetite for investing ian infrastructure.

And so, that has been the best news in Q1 as we ended the ending pipeline.

Because you know the pipeline, as you get to the end of a quarter, tends to go down because people close the pipeline, hopefully.

Q1, at the end of the quarter -- Phil [Wolington] [ph]Wilmington has been on this call before, he’s just not here today -- reported an increase in the pipeline as the quarter ended, which is an unusual phenomenon.

Okay.

Thank you.

Adam Holt of JP Morgan.

You may ask your question.

Good afternoon.

You talked about some of the seasonality in the J.D.

Edwards business Q4 to Q1.

Not withstanding normal seasonality, how is J.D.

Edwards if you can still call it out -- how did it track versus your internal plan?

I think, as we look at the internal plan, most of what we focus on is the up-selling and cross-selling opportunities.

And from that point of view, we’re very gratified.

We’re ahead of schedule.

We’re over-achieving our goals.

If you recall, we said we’d do $40m in 2004.

We did $10 in Q4.

We’ve done $12m, I think, in the first quarter and the toughest quarter [indiscernible]of the year.

So we feel as through we’re very much on track in terms of the message that resonates with our customers.

I think in thinking about the overall seasonality, I think it is -- it’s very difficult to handicap and very difficult to anticipate how combining with a company with much different seasonality than yours is, is going to manifest itself in the short term.

And so, from that point of view, it was a bit less than I think we probably expected internally.

Not dramatically so, but I think we also expect it will improve going forward too.

It is a difficult thing to try and guess as to how the patterns of their customers will change over time.

And, I think there were three reasons, Adam.

One, J.D.

Edwards historically had greater seasonality in Q1 than PeopleSoft’s line.

Number two, if you recall Q3 and Q4 of last year, J.D.

Edwards’ revenue disproportionately contributed to our numbers.

In other words, they actually did better as a percent than the Enterprise product line.

So there may have been a bit of depletion as J.D.

Edwards’ product line actually over-performed in Q3 and Q4.

And then finally, as I alluded to in my remarks or one of my answers, we were doing some territory reassignment as the year ended in preparation for the new yearNew Year.

So that might also have contribut4ed to the J.D.

Edwards on a gross basis being a little less.

It was quite a bit more in Q3, Q4.

There may have been a pause to inhale.

The territories were being moved around a little bit.

And their normal seasonality was a bit stronger than -- and historically, was a bit stronger than ours.

And just one question about the maintenance.

Obviously, there’s a natural addition to the maintenance line as you go through the rebilling cycle for what was basically revalued in the acquisition.

Is that the only thing that drove that very strong maintenance number?

Was there anything else in terms of an uptick in renewals and/or pricing change or anything else that may be behind that number?

I think a couple of things.

One is in thinking about it net and gross.

On a net basis, actually, most of the increase was the change in the deferred revenue right write-down down to $24m this quarter, so that accounts for it.

And even on a gross basis, we saw increase in our overall maintenance.

I think I mentioned on [indiscernible]the script it would cleargrew about 2 percent sequentially to about $312m, if I remember correctly.

The majority of that is a very high rate of renewals, new license businesses that they won last quarter that you’re we’re now on a radical ratable basis recognizing maintenance for as well.

And, I think those are the primary reasons.

And, I think we’ve been successful in going back to some of the J.D.

Edwards customers and raising rates as well there too.

So that may account for a little bit of that as well.

All right.

Thank you.

Ross MacMillan of Morgan Stanley.

You may ask your question.

Thanks.

Kevin, just a quick clarification.

Just on the pro forma guidance for Q2, when you say 20 to 22 cents and you exclude the Oracle expense, but you’re actually going to be adding, I think you said 10 to 12m . [Indiscernible]other costs or is that just 22 and you’ll break out the Oracle expenses separately?.

We’ll break out the Oracle expenses separately.

Our pro forma results [indiscernible]as we guided to between 20 and 22 cents per share and that would be excluding Oracle-related costs, which we expect to be about $10m to $12m.

Those Oracle costs would, of course, be reflected in the GAAP results that we gave and in the GAAP forecast we gave.

Right.

Are there some other costs that are coming on?

You sort of intoned that there are’s some things you just need to do.

So I’m just curious, so there’s some other costs coming in to Q2 which are going to effectively fill the GAAP gap up, if you will, between the Oracle expense and -- (multiple speakers)

Well, as Craig mentioned, we’re investing in product development.

We have a variety of new products coming out at the Lleadership sSummit that we want to make sure we’ve got momentum behind.

And, we’ve gotten to the point where we’re having to make choices between paying our lawyers or continuing to run the business, and that’s not a choice that we think is appropriate to make, which is why we’ve broken it out separately.

I should also point out that all of those were Oracle costs and on an inception day basis are all external costs to the company.

We’re not allocating any management time or internal costs to those.

Those are costs that we’ve paid external vendors exclusively.

You’re absolutely right that we will take that $10m, $12m and we will direct to the business.

That’s why I ended with my remarks just saying we’re looking forward to concentrating completely on the business, and that means investing in the products in and not only their development, but their promotion and go to market costs to make them successful.

Great.

And just to follow up.

Just in terms of the [indiscernible]break-out between international and domestic, it looks like clearly sequentially a bigger decline in the domestic business out of Q4.

And, you talked a little bit about what was J.D.

Edwards or Enterprise and Enterprise One’s strength internationally.

Can you just talk about the domestic business and -- ?

Ross, that’s where we saw, I think, the biggest decline in the J.D.

Edwards business --

Right.

-- on a sequential basis.

So by deduction, you come to the -- what, I guess, the answer is in that sense.

And that really reflected of the seasonality as we described it.

And the PeopleSoft Classic or the Enterprise business was in line with our expectations and reflected the seasonality that we expected, and maybe just a little bit less than that now that we look at it.

Generally, a phenomenon with the Enterprise product line generically on all theaters [sic] did pretty well.

The J.D.

Edwards product aligned line in the U.S. was probably disproportionately lower, which brought the U.S. down.

But, when you thought about -- when you think about, you know, what are our high-end product line that competes with SAP for large, complex enterprises that actually had a great quarter.

And the great quarter, frankly, is actually stronger outside the United States, which was tremendously gratifying because if you hope to line your battle group up against SAP’s, you can best judge how well you’re doing by seeing how you’re doing in their back yard.

We did pretty well in their back yard.

Particularly year-over-year.

Great.

Thanks.

John Torrey of Adams, Harness & Hill.

You may ask your question.

Hi, guys.

A couple of questions.

Can you talk about some of the other product areas’ performance that you haven’t talked about in the call.

For example, CRM, financials, HR?

I think in looking at the business, we expected normal seasonality.

On an HR basis, we actually had probably the least amount of seasonality of any component of the HR business [indiscernible]-- you’re thinking about HR in general.

And, if you notice, we said that the HR business and the education and government business were very strong.

It turns out there was a very large deal in the education and government business for HR.

That’s the way it worked out.

The rest of the business, I think really reflected normal seasonality.

We’ve come off very strong results in Q4 for supply chain in and CRM.

We saw those back off a little bit as the seasonality we would expect in the business.

But, I think we’re very pleased with the progress.

Very, very balanced performance and not anything that’s out of the ordinary from my view., Craig., I don’t know if you want to add to that or not.

We had some pretty impressive wins starting with the HR category .

We signed some deals that have some of the largest number of employees being managed by a single system.

Japan Post in Japan has over 600,000 employees.

That puts it at the top of really any large corporation in the management of employees.

There’s a Department of Defense deal that we did that is among the largest number of employees ever to be managed by PeopleSoft in a single system.

So HR continued strong.

I mentioned Supply Chain Management.

You know, the two deals in the last couple of quarters that have been really exciting for Supply Chain Management and Financials were [Woolsley] [ph]Woolsey and Saint-Gobain, the two largest wholesale distributors in the world.

We also had Supply Chain deals with Zale’s and AGCO and FedEx.

Financial Management deals with British Telecomm, Staples.

In the CRM category, I’d say a very exciting deal for us was NEC, which was a direct [indiscernible]Siebel win.

We had add-on deals to some of PeopleSoft’s existing customers like Albertson’s. [Indiscernible]ABN AMRO was a major win as we opened up a newly acquired company by [indiscernible]ABN AMRO to our CRM solution.

So, as Kevin mentioned, I think all the wins were pretty healthy.

They do vary quarter-to-quarter.

I’ve said this in the past and when people have said, well, why don’t you break out these product lines separately, they do vary.

I mean, A, it’s a little difficult because each of our competitors defines products slightly differently in terms of which category they fall into.

And secondly, they vary quarter-to-quarter.

Some quarters will have Supply Chain Management Manufacturing, which is historically our third or fourth largest become our second and first.

Same thing with CRM.

We had a very strong CRM quarter last quarter.

This quarter, it’s more in line with what it’s normally been.

So everything was -- I mean, there were no unpleasant surprises in the individual product lines.

And the pleasant surprises were in the Supply Chain Management and Financials category where we won against SAP in Europe in manufacturing and distribution industries.

Okay.

And just a quick follow up.

I don’t want to get too cute about this.

But when, you affirmed 2004 revenue guidance, you’re also affirming the license range of 700 to 715 that you’ve previously given?

That’s correct.

All right.

Thanks.

I wasn’t trying to be cute about it either.

I appreciate you mentioning it.

All right.

David Hilal of Friedman, Billings Ramsey.

You may ask your question.

Great.

Thank you.

A question on the stock buy back.

First, the 200m that you announced for last quarter, did you complete that?

And you say, again, your goal is to have a billion dollars or so in cash.

You’re well over that.

Should we expect another buy back this quarter?

We actually were never in a position under the 10(b)1810b-18 rules to do any of the original $200m buy back, so that is still what the bBoard has authorized and what the company would hope to complete in the coming months and quarters.

I think there is, a reasonable expectation that again, given our stated objective that we would continue to look at that as a way to enhance shareholder value.

Just as a reminder, we completed the $350m in Q4 and we would look to complete the $200m and then perhaps go back to the Bboard at that point in time and say we are still very healthy, and still very liquid, and we should use that to the benefit of our shareholders.

So to clarify, Kevin, there’s no point in the quarter that you were restricted the whole quarter from buying back stock?

Almost without exception.

That’s correct.

Okay.

And there was a variety of activities going on in terms of the proxy process and all of those things.

And the standard is if the company has material non-public information or is working on something in that vein, they shouldn’t be out in the market buying stock.

And so, we chose to do that.

And then obviously, would follow those rules explicitly.

And, I think that with the proxy contest behind us, with the annual meeting behind us, with all of the filings behind us, that we’re in a much better position going into Q2 to complete that and hopefully, we’ll do that in the coming quarters.

Okay.

And then, I got the ASP for new customers, but what about the Enterprise ASP number?

Well, we don’t break that out anymore, and I think we said we would stop doing that this past quarter.

And, I’m sorry,so I don’t have that at my fingertips.

It’s almost gotten too difficult to calculate as customers buy back and forth across the product lines and they buy combined products at this point.

It’s something that we have a very difficult time tracking and we haven’t put a lot of effort into at this point.

We’re really looking at it in on a combined basis.

Okay.

And then finally, I mean, it sounds like a lot of your things you’re doing regarding Oracle have subsided, but yet, it sounds like you’re still going to spend 10 to 12m again.

Explain that to me, please.

I think it would be hard to over-estimate the number of lawyers involved in this process.

We have outside counsel with a variety of expertise and specialties that are advising the company and advising our Bboard of dDirectors on almost every aspect of it from the EU to the DoAJ to their fiduciary responsibilities and Bboard cCounsel and the Alameda lawsuit is also continuing to wind its way through the court system.

We have litigation going on in Delaware, and it is just an ongoing cost for us.

And so, we expected it to be done by this time.

We had hoped it would be done, but it is obviously not.

They have been with us so long, they almost feel like family.

But, that’s not the reason that we keep them around.

There is a trial beginning in June, although that is a trial between Oracle and the Justice Department.

We will be engaged as witnesses.

The same thing with the European Ccommission.

They had a hearing after the statement of objection.

We were engaged in that.

So we’re not a direct party.

And, I think the good news is as you mentioned, that the management attention and I guess anxiety and frankly, the customer worry has subsided significantly.

The participation in those cases, particularly the Alameda case, which is the case that we have initiated against Oracle for using the approach to harm our business, that one continues in full regalia.

Okay.

Thank you.

Operator, we probably have time for one last question.

Thank you.

Our final question comes from Nathan Schneiderman of Wedbush Morgan Securities.

Sir, you may ask your question.

Thanks a lot. [Indiscernible.]I was hoping it was going to be me.

A couple questions for you.

Kevin, no bottom line effect from FX, but what was the effect on -- how much did that increase revenue and how much did that increase expenses?

You know, I think our revenue basis and expense basis is probably less than 2 percent.

Okay.

When you had that session in September in New York, you guys talked a lot about efforts to improve the professional services margin on the J.D.

EdwardsJDEC side talking about things like competency centers, outsourcing.

Can you give us an update there?

How are you doing with building the professional services business on the J.D.

Edwards side?

It’s work in progress, Nathan.

We have, I think, been successful in propagating our business practices or methodologies to the professional service division that now services the Enterprise One product line.

But, the impact of that we have not seen yet.

So, I guess, it’s work in progress.

We’re very proud of the business model that we have in kindrefined in running professional services.

It’s a margin contributor.

It is very healthy.

It has high utilization.

It has low bench.

It has very, very high customer satisfaction.

Almost no customer contention issues.

And, I think that modeling the Enterprise One professional service group with that we have done.

Seeing the results of that, I think, we’re waiting.

I think [indiscernible] to pick up our [indiscernible] we’ve done a tremendous amount of training.

We’ve brought all those professional service resources on to the PeopleSoft compass methodology, which is our proprietary methodology for engagement, planning and control.

Because the engagements are ongoing, it doesn’t have an immediate impact.

But, we think we’ve made the right progress and we’re still very optimistic about it.

Okay.

And then, final question for you.

On the decision to switch to essential software for your EPTM data integration, can you talk about the motivation for that, how that’s going?

And, I understand there’s a broader reseller agreement.

Can you discuss that?

You know, I’m going to have beg off that question because I’m not well enough informed on it.

I did sit through the presentation.

Ram Gupta is our Eexecutive vVice pPresident of Pproducts and tTechnology.

He was the chief decision-maker on that.

There were -- as in all these decisions having to do with embedded technology -- a technical proficiency difference, as well as a -- well, technical proficiency dimension to the decision and as well as a costs.

So I believe he felt that he had a better technical solution for a more attractive cost.

But that’s the most generic of answers.

And what I would suggest you do is if you’d like an answer to that is call back in to Kevin and Kevin will grab Ram who’s somewhere in the building here and you can get that directly from Ram.

Okay, great.

Thanks so much.

Well, thanks for joining us on the Q1 conference call and we’ll look forward to reporting our Q2 results in July.

Thanks.

Thank you for participating in the PeopleSoft conference call.

Good evening.

[sl1]No quote marks in final transcript.