甲骨文 (ORCL) 2011 Q3 法說會逐字稿

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.

Thank you operator.

Good afternoon everyone and welcome to Oracle's third-quarter fiscal-year 2011 earnings conference call.

On the call today are President Safra Catz, President Mark Hurd, and Chief Financial Officer Jeff Epstein.

As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking.

While these forward-looking statements represent our current judgment on what the future holds, these statements are also subject to the risks and uncertainties that may cause actual results to differ materially from statements we make today.

Throughout today's discussion we will attempt to present some important factors relating to our business which may potentially affect these forward-looking statements.

We encourage you to review our most recent reports on Forms 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.

As a result, we caution you against placing undue reliance on these forward-looking statements, which reflect our opinion only as of today.

As a reminder, we are not obligating ourselves to revise or publicly release any revisions to these forward-looking statements in light of new information, or future events.

A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from our Investor Relations website.

Before taking questions from the audience, we'll begin with a few prepared remarks.

And with that, I'd like to turn the call over to Jeff Epstein.

Thank you Ken.

Good afternoon everyone and thank you for joining us.

I will review our non-GAAP financial results, focusing on US dollar growth rates, unless otherwise stated.

This quarter foreign exchange rates resulted in a positive 2% currency effect to both new license revenue and total revenue.

In short, Q3 was another excellent quarter for Oracle.

In the third quarter new software license revenues were $2.2 billion, up 29%, well above our guidance range of 10% to 20% growth.

The Americas grew 35% in US dollars.

EMEA was up 19%, and Asia was up 32%.

With each region up 20% or higher on a constant dollar basis, our results continue to underscore the strength and diversity of our business.

And the quarter was not dependent on any usually large deals.

Technology new license revenues were $1.6 billion, up 27%.

As the Americas grew 40%, EMEA was up 11%, and Asia was up 28%.

Application new license revenues were $639 million, up 34% from last year.

The Americas grew 26%, EMEA was up 47%, and Asia was up at 45%.

Our software license updates and product support revenues were $3.8 billion, up 13% from last year.

Customer support, attach and renewal rates continue at the usual high levels.

Revenues from our hardware system products were $1.0 billion, while revenues from hardware system support were $656 million.

Our services revenues were $1.1 billion, up 23% as we continued to manage this business to profitable margins.

Our total revenues were $8.8 billion, up 36% from last year.

Our non-GAAP operating income was $3.9 billion, up 35%.

The non-GAAP operating margin was 44% for the quarter.

Our non-GAAP tax rate for the third quarter was 25.4%, which was below our guidance, due primarily to the extension and catch-up of United States research and development tax credits.

Our Q3 non-GAAP earnings per share were $0.54, above our EPS guidance range of $0.48 to $0.50.

Earnings per share were up 40% from last year.

In Q3, we repurchased 7.9 million shares at an average price of $31.54 per share for a total of $250 million.

As we have previously discussed, the rate of our stock buyback will fluctuate each quarter, taking into account alternative uses for our cash and our stock price.

Turning to the balance sheet, we have $24.3 billion in cash and investments.

Our days sales outstanding improved again to 46 days compared to 47 days last year, and is a testament to the quality of our receivables, the quality of our customers, and the effectiveness of our collection efforts.

Finally, we generated a record $9.5 billion in free cash flow, and a record $9.9 billion in operating cash flow during the last four quarters.

Now I'll turn the call over to Safra.

Thanks Jeff.

I'll briefly comment on our non-GAAP results for Q3.

I'll then review guidance for Q4 and turn the call over to Mark.

As you can see, we had yet another excellent quarter.

We just continue to execute extremely well.

We easily exceeded the high point of our new license guidance.

We beat the high end of our total revenue guidance, and we beat the high end of our EPS guidance by $0.04.

So far this year we have delivered 38% earnings per share growth in Q1, 33% earnings per share in Q2, and now 40% earnings per share growth in Q3.

And we've got Q4 still to come.

So the real highlight of the quarter, of course, is our 29% growth in software and license growth, which was strong in both technology applications and strong in every region of the world.

You can really see our momentum in our apps business as we continue to take share from SAP.

Applications grew 34% this quarter, off a 21% growth compare from a year ago.

So, over the last couple of years, our new license revenue for applications has grown 53% in constant currency, or about more than 10 times faster than SAP over the same period.

In addition to our strong topline performance overall we also delivered very strong operating margins.

Our operating margins for the quarter was 44%, just about the same as it was last year, except this year includes a full quarter with the hardware business.

This quarter we delivered 55% gross margins on our hardware business.

This is the result of the fact that really under the covers of the hardware number the Sun products are growing and the non-Sun products that are resold -- that we resell are shrinking dramatically.

In addition, we are selling a lot more of the Exadata/Exalogic line.

And remember that these systems are sold at good margins and also pull a lot of software with them, like RACs, partitioning and storage management.

Now as I told you a couple of quarters ago, we are really no longer able to identify the exact contribution Sun has made to our operating profit this year, but based on our results we fully expect to exceed our goal of $1.5 billion in operating profit in the first full fiscal year.

Remember, we paid $5.7 billion for Sun out of cash, and you know had we paid for Sun based on the HP 3 par multiple it would've cost us nearly $140 billion.

Don't worry, we wouldn't do that.

Now finally, let me mention on a more somber note, our sympathies for the ongoing plight of the people of Japan.

We have, of course, instituted our dollar for dollar charitable match.

And fortunately all of our Japanese employees are safe, and our building in Tokyo is essentially undamaged.

And frankly, though it's too early to be definitive.

We do not expect material impact in our Q4.

As we have always said, we are committed to returning value to our shareholders through technical innovation, strategic acquisition, stock repurchases, and prudent use of debt and a dividend.

So, as you've heard, we did announce today a 20% increase to our quarterly dividend, or $0.06 per share.

And this would be the third consecutive fiscal year-over-year increase in our dividend.

Now to the guidance.

As you remember, we had a spectacular Q4 last year, with new license up 15% in constant dollars, and non-GAAP EPS up 30%, and GAAP EPS up 24%.

So, assuming exchange rates remain at current levels, which right now is a positive 5 points, so 5% currency effect on license growth and on total revenue growth, our guidance for Q4 is as follows.

New software license revenue growth is expected to range from 9% to 19% at current exchange rates, or 4% to 14% in constant currency.

Hardware product revenue growth is expected to range from 6% to 12% at current exchange rates, and 2% to 8% in constant currency.

Now, that doesn't include the hardware support revenue.

Total revenue growth on a non-GAAP basis is expected to range from 9% to 13% at current exchange rates, and 4% to 8% in constant currency.

On a GAAP basis we expect total revenue from 10% to 14% at current exchange rates, and 5% to 9% in constant currency.

Non-GAAP EPS is expected to be $0.69 to $0.73 assuming current exchange rates, up from $0.60 last year, and $0.65 to $0.69 in constant currency.

GAAP EPS for the fourth quarter is expected to be $0.56 to $0.60 assuming current exchange rates, up from $0.46 last year, and $0.53 to $0.57 in constant currency.

Now this guidance assumes a GAAP tax rate of 28.5% and a non-GAAP tax rate of 28%.

Of course, it may end up being different.

And in our documents the lower rate we had this past quarter was the result of a number of things, but mostly the catch-up from the R&D tax credit.

There won't be any catch-up in Q4.

Now, with that, I would usually turn this call over to Larry for his comments; however, he is sitting on a jury today on a trial which started two days ago.

So with that, I will turn it over to Mark for his comments.

Thanks Safra.

I won't comment on a Larry jury activity.

And I also apologize for my voice.

It's just the weather a bit out here.

And I guess I've been doing this a long time.

Q3 was just a great quarter.

Revenue and earnings growth both up over 35%.

Customers are energized by our product direction.

And frankly we're just simply executing on all fronts.

The software business continues to grow faster than the market significantly.

We saw strength across all regions, industries, and product segments.

Engineered systems have fundamentally changed the game.

The systems actually changed the entire value proposition of both hardware and software, which is why all our competitors are scrambling to react.

In terms of what pays the bills around here, our topline 29% new software license growth stands out.

That software number is broad-based -- technology and applications, every region, our GBUs, each produced constant dollar growth of 20% or higher.

When you look at our apps numbers, 34% growth off of 21% last year's stands out.

Going forward with Fusion, we're going to be the only applications vendor with a modern set of applications built on modern infrastructure.

Last quarter I talked about our industry-focused business units, and I want to do it again.

Telecom, retail, banking, insurance, energy, all had great quarters.

We are the only vendor with industry solutions across a wide range of industries.

For our customers these applications are even more important to ERP, and they position Oracle more strategically with customers.

And of course, Exadata continues to sell itself.

The price performance ratio with Exadata is just off the charts.

When you consider the performance increase is obtainable with little or no reengineering effort to get up and running, it's hard to think of an Oracle workload that doesn't make sense on Exadata.

We saw sequential unit and revenue growth of over 50% in Exadata and Exalogic.

As we head into Q4 we expect to see even higher growth.

The pipeline for Exalogic is building very rapidly, as well with customers billing out their private clouds with both Exalogic and Exadata.

And yes, we are in the cloud.

Whether it's collaborating with Amazon so that customers can launch an entire Oracle software stack on EC2, or whether it's working directly with a very large federal law agency to build out a private cloud, gain a 10X performance increase as they improve their mission and better protect the United States.

Public or private, we are in the cloud.

With Exalogic we have the most high-performance, scalable cloud offering out there today -- Otter, Java, Linux, standards-based, virtualized.

And unlike a lot of cloud offerings, Exalogic is already shipping, and requires no so-called cloud services to get up and running.

We've added over 1,500 sales resources in the last year.

With the strength of our product portfolio, we see opportunities out there, and we think we can get them by hiring more sales resources.

Again, let me close by saying our performance was broad-based, with solid organic growth, strength across all regions, industries and product segments, which together drew a spectacular quarter for Oracle.

With that, I'll turn it back to Ken.

Thanks Mark.

Operator, we will now prepare the Q&A portion of the call please.

(Operator Instructions).

Adam Holt, Morgan Stanley.

Great quarter.

I wanted to ask about the application business in particular.

It looked like it inflected up in the quarter.

And I wanted to understand, are you seeing an acceleration in new projects?

Is it more about upgrading older systems?

And maybe give us an update on Fusion, if you could.

Thank you.

I'll start and then Safra can fill in.

I think it was a strong quarter across the board, Adam.

Europe apps was up a little less than 50% -- 47% I think was the number, so simply huge.

And I think when you compare that with competition, particularly knowing we're going against tough comps.

So, the position we gained was significant.

Now I don't want I want to stick with Europe.

I mean, it was broad-based across -- we had very strong growth in Asia, good solid growth in the Americas.

And again, we got help from our industries as well.

Our growth in the industry business units was again roughly in line [with] Oracle.

Fusion is coming online.

Again, as we've talked before, this is not a rip and replace, it's a modular solution.

Comes on board in various modules.

We are now capable of competing with Fusion today, so we're pretty excited about our position.

Yes, I mean, you know, in answering your question, I would say yes, yes, and I think yes.

Which is it's all of the above, whether it's existing customers buying additional product that they hadn't bought from us before.

Let's say, they used E-Business Suite and buying [On Demand], or they buy one of the other product lines.

So there is not.

There are customers upgrading right now to 12, where they pick up some additional modules in preparation.

And it's folks getting set up to put themselves in a position to take Fusion when they are ready.

So it really is new projects and adding to existing projects.

We did see it turn up sometime last year, and it continues.

It's really the same dynamics we've had for a while, which is customers just buying more and additional modules, etc.

Thank you very much.

Brent Thill, UBS.

Safra, you mentioned Japan is showing no impact right now.

I guess one of the questions is just around the supply-chain impact for the hardware business, if you can just comment on the hardware business itself.

And Mark if you could also just give us a quick update on Exadata adoption trends in terms of what you're seeing quarter RAC, half RAC, full RAC from your perspective?

Okay, well we have been working with our suppliers, our subsuppliers, etc.

We've got -- so far it is all fine, frankly, and good news in general.

And we've got, A., both supply, inventories, etc., and we don't actually expect there to be any supply-chain issue at all for us out of Japan.

On Exadata -- that is -- my voice will hold out here -- pretty broad-based.

A good number of quarter RACs in the order, which we look at as very positive in terms of seeing the future.

We did see some adoption of [Dash 8s] in the quarter too, which was again, very encouraging.

We saw repeat buying, which was again very positive for us.

We are now in over 80 countries with Exadata.

So we have a good broad new customer adoption, upgrade cycle, seating of quarter RACs.

And again, as I think we've been very clear, the pipeline is up as well.

Phil Winslow, Credit Suisse.

Great guarter as usual.

I just wanted to dig in a little more on Exadata and Exalogic.

In the press release and on the call you mentioned the bigger -- 50% quarter-to-quarter, which is pretty phenomenal, but now you're expecting even an acceleration from that in fiscal Q4.

What exactly is driving that?

Is it an increasing amount of competitive displacements?

And then also, Mark, when you compare the initial ramp here of Exalogic to Exadata, what are you guys seeing, and maybe what have you learned comparing the two?

Thanks.

On Exalogic -- I'll take that first -- ramp probably as encouraging as Exadata, would be the way I would describe it.

I think we probably learned a bit in terms of training and some things to get us started a little quicker.

But that said, I think you're seeing the same kind of interest, excitement, and adoption that you saw around Exadata.

On Exadata, listen, I don't know how else to say this to you.

It's just good stuff.

There's just no secret here; this stuff works.

And when you show up to a customer, Phil, and say, listen I've got a big opportunity for you.

You can consolidate lots of infrastructure, whether that is servers, whether that is storage.

You can bring it together.

You can get a material change in performance.

Again, I'm not talking about 10% better performance, 20%.

I'm talking better than 2X.

I will give you an example of a law enforcement agency talking about 10X.

I just want to say it one more time -- 10X.

When you show up and tell somebody I can do some something with 10X better performance, and I can do it with our stack of capabilities, i.e., giving you single accountability for service and support, I can save you money while you do it, it's just an extremely powerful value proposition.

So, when you're going into customers that have long -- and you know our history with customers.

We have customers that have long experience with Oracle.

They know the quality of support that they get from Oracle.

And then you show up with this kind of value proposition, it makes for a pretty good meeting.

Kash Rangan, Merrill Lynch.

I've got a bad throat too.

[I'll join your remark there].

One for Safra.

Safra, margins look pretty good -- actually very good.

They're almost to the point where people are -- for a peek in February quarter, without hardware, Safra, how higher can magins go?

And I guess as a part of it, how much leverage is there left in hardware business that can drive the margins higher?

And I will follow up to Mark, thanks.

Well, I think it is becoming clear that we are going to be able to ultimately bring the margins very close, if not even more than they ever were when we were just a software business.

So, we still think there is actually quite a bit of room, to be honest with you.

We're not quite at scale yet.

We do still resell some third-party hardware.

And, so we actually think there is -- it's going to continue to go up.

It will obviously be higher than last year year's Q4.

And ultimately, we don't actually see it topping out yet, or even close.

So, I think we've got a few more -- quite a few more points to go.

And we have a very clear line of sight how to get there.

So things are going to continue to improve.

And I think they've already improved past where people thought they would ever be.

But I think we are going to get there and we're going to pass even that.

That's great.

And Mark for you, the topic of big data to be widely debated by some of your competitors.

It has become more -- there is more awareness of it.

And the results of the competition saying that in the era of big data relational databases are overkill.

I just want you to respond to that and set the record straight.

How does Oracle -- how is Oracle positioned in the era of big data?

What are your options in these puts and takes, broadly speaking?

Thanks.

Listen, our stuff works, and it's out there today.

And I think it's easy to make claims.

I think it's easy to do all that kind of -- but in the end we're talking about some customers' most important things that they do, access to information.

And it's serious stuff.

And when you show up with stuff that works, stuff that's available, stuff that can be accessible 24 x 7 -- and that's the key to what we do.

We don't have to show up with a federated set of companies to -- we have one-stop shopping on our vertical integration.

It is our stuff.

It is tested.

It is engineered together.

It shows up in performance.

And it gets supported.

And I can tell you while it may sound simple the way I described it, when you show up at a customer with that type of value proposition, it is differentiated, highly so, and that's what carries the day.

Jason Maynard, Wells Fargo.

I've got one for Mark and then a follow-up for Safra.

First, Mark, you are one year into the Sun deal.

So I'm curious, how is the honeymoon going, if you will?

And what are you hearing from customers so far after 12 months under Oracle?

I'll tell you, based on my time so far, I think clearly one thing -- and I know there is no shot at Sun in the rearview mirror.

But, you know, with Oracle you're certainly taking one issue that did concern some customers, which was the viability of the entity.

You know, was the Company sustainable, was the Company going to be in a position?

Because as you know, many of these customers made commitments and they look to be on this platform for years.

And so when they make those decisions, they want to know that the Company is going to be there and be behind it.

So, point one is sustainability -- I think very positive.

Second, I think as Larry has been very clear, there's more investment going into the technology.

There's more investment into Solaris.

There's more investment into SPARC.

And so from that perspective the investment I think is extremely positive.

Third, you get the leverage and the opportunity to now get optimized software with the hardware.

You can see some technology at the base of Exadata, the base of Exalogic.

And even as we try to do work with our M-series, you can see more opportunity.

So, you combine that with the support capabilities of Oracle, I think what you hear from customers is much more confidence in the overall value proposition.

So I would say positive.

Listen, I don't want to make it sound like we don't have work to do.

This was a company that had been through several years of turmoil.

But when you net it together I think the overall view is very positive, Jason.

Great.

And for Safra, first, thanks for not paying a 3 par multiple for your acquisitions.

We appreciate that.

You're welcome.

But you are kind of spoiling us a little bit here on the margin side, and the hardware margins are continuing to move up.

So I'm just curious, what are the kind of the puts and takes within the hardware business that you're seeing?

And what have you learned now that you have had that piece under your control in terms of how you go to market, and what you focus on selling, and getting rid of the third-party products?

So, what's the color there in that line?

Well, you know there really are a lot of moving parts.

The first thing we needed to address was our supply chain, frankly, and getting it under control, which is now really is.

And really optimizing the size that we are and not being very broadly and widely distributed all over.

So, part of it is the cost, just the cost of the supply chain itself.

Secondly, it's also what we sell.

And it's very important -- the mix of business is important.

It's always -- frankly, it is very easy to sell a couple hundred million more [wedges] in a quarter, and decide not to make any money doing it.

It's very easy.

People will absolutely buy from you things that you are offering too cheaply.

We're not in that business.

We really are in the value business.

We are in the business of selling things that are valuable to customers.

And for them, they have to -- they really understand what it is we are bringing to the party.

So the mix of the business is also very important.

And then finally, just making sure that the way we go to market we really are focusing on what customers care about and what's important to them, and not a lot of kind of extraneous activities that, though you spend a lot of money doing, are not necessarily really meeting the needs of customers.

So, we continue to invest in the things customers care about, which frankly is R&D, support, and high quality.

And some of the software products also, by the way, we got from Sun, Java, etc.

These are areas of importance to our customers, and that's really what we spend money on.

And I think now, actually in Q4, you will finally start to see -- you'll start to see a real growth pattern here for the business, because though we still have some third-party hardware that we are reselling, it's a much smaller percentage than it used to be.

And, if that continues, as now we start to actually really grow the Sun intellectual property hardware platform, that's where margins will continue to improve.

All right, thanks a lot.

Great job.

We have time for one more question.

We'll take our last question from John DiFucci, JPMorgan.

Thank you.

Actually, I just have two quick ones.

The first one is really specific to Oracle.

Software license has been better than expectations for the last several quarters.

But this quarter you put out software license that's much better than what seasonal trends have been.

And I'm talking seasonal trends if you back out foreign exchange and you back out acquisition effects.

And as you know, as Mark mentioned, software license is really the core of Oracle.

And you have got a lot of core, I guess, right now but that's where your bread is buttered.

And, from my calculations you typically do, when you back out foreign exchange and acquisitions, do sort of flattish license revenue from second to third quarter?

And this quarter it was up close to 10%.

I'm just wondering what do you owe that to?

What's happening?

What was different this quarter?

Is something happening in the environment or is this something -- is it more Oracle specific?

I would say from -- and, Mark, please comment.

We definitely have Company-specific momentum.

The Oracle customer business center is constantly packed.

Customers are very interested in our new offerings.

Customers are -- you know, are in a position to make investments and they are making them with us.

There's no question that we are becoming more important, more popular with our customers.

I think we've really consistently delivered on our promises.

And they are buying more, whether they are buying software to go with Exadata, or they're buying more applications, or they are buying -- you know, they are making standardization decisions in the middleware area, we are just seeing more and more repeat buying, increased buying.

I can't comment on the economy; we never do.

But we definitely have at least customer-specific momentum really on all fronts, as Mark said in what he spoke.

I have a hard time adding to that.

I think, one, I would be very careful not to take any abstraction to the macro economy based on what we're doing.

I think we have now a broader portfolio.

And when you have customers who are generally happy, and when you go in -- and then you have customers who believe in our technology, and when you can show up with incremental opportunities for the customer to add to that portfolio, that's where that growth comes from.

And we have the opportunity now to cross-sell many things to the same customer.

And when you do that, and you have a relationship with the customer, and you deliver for the customer, you get more at-bats.

And when you do that, going back to get -- the best place to get the second order is the place you got the first.

And, I think that's what you see in Oracle today, an opportunity for us in many accounts.

And we saw it again in Q3.

Customers that we saw in Q2 showed up again in Q3 with opportunities for us to do different things than we did in Q2.

And to Safra's point, we now show up with capabilities like Exadata, Exalogic.

We can help a customer build out a private cloud.

We can help a customer with their analytics solutions, their OLTP solutions.

We can help them with their vertically specific solutions in their industry, plus their software and application infrastructure.

It gives us -- and when you add the hardware mix to it, we just have a lot of opportunities to cross-sell.

And I will say on the other side of it, because of the portfolio, we are looking to add to our sales force.

We are looking to add reps, and if you know of very -- any of you on this call that know of quality, talented, people, please send them my way.

We'll do that, Mark.

But if I might just add one quick last one here.

And I know, Safra, you said you don't like to comment on the economy, but you do have a unique perspective, given the mass and the success of Oracle.

We continue to wonder about the macro backdrop in Europe.

And Oracle continued to put up good numbers there.

And this quarter shows the best constant currency growth so far this year against what looks to be the toughest comp so far this year.

So can you comment on what you expect to see in this region going forward and how that affects your guidance?

I really can only extrapolate from our most recent experience.

Things look very good for us as a company.

And at least what we have people appear to want to buy.

So, so far so good.

We are optimistic.

You know, we are always very conservative; we don't lose our heads.

But you know things have been going very very well.

Q4 is -- we had a fantastic Q4 last year, so we have a tough compare, but we remain extremely optimistic.

Thank you.

Nice job.

This concludes the question-and-answer session.

At this time I would like to turn the conference back to Ken Bond for any additional or closing remarks.

The telephonic replay of this call will be available for 24 hours.

The replay number is 888-203-1112 or 719-457-0820, and the passcode is 807-3687.

Please call the Investor Relations department with any follow-up questions from this call.

We look forward to speaking with you.

Thank you all for joining us today.

And with that, I'll turn the call back to the operator for closing.

This does conclude today's conference.

We thank you for your participation.