甲骨文 (ORCL) 2014 Q1 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, Brian.

Good afternoon, everyone, and welcome to Oracle's first-quarter fiscal year 2014 earnings conference call.

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

On the call today, our President and Chief Financial Officer, Safra Catz; and President, Mark Hurd.

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

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

These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today.

As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock.

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

Before taking questions, we will begin with a few prepared remarks.

And with that, I would like to turn the call over to Safra.

Thanks, Ken.

I am going to focus on our non-GAAP results for Q1.

I will then review guidance for Q2 and turn the call over to Mark for his comments.

Larry isn't with us today because he is in an important race for the America's Cup.

I want to start by letting you know that currency in Q1 gave us a 2% headwind for new software license and total revenue, which was more than my guidance last quarter.

So, today, my comments on the quarter will generally reflect constant dollar growth rates.

Q1, for us, was really solid, overall, and quite strong in the Americas.

We're especially pleased with our software results, as total software revenues were $6.1 billion, up 8% from last year.

Software updates and product support revenues were more than 50% of the total Company revenue at nearly $4.4 billion, up 8% from last year.

Attach rates and renewal rates remained at their usual high levels, and software updates and product support continue to power earnings and cash flow.

New software license revenues were $1.7 billion, up 6% from last year.

Looking at GAAP results by region, we saw excellent results in the Americas, with growth of 15% -- that is growth upon a previous year, so that's really very strong.

Asia PAC saw solid growth of 5%, while EMEA declined 5%.

There were some interesting product details that I think bode well for the future.

Exadata software was up over 15%, GoldenGate in memory software was up 30%.

BI Technology and Foundation Suite were up around 10%.

Also strong, was retailing, CRM sales, and applications in North America, generally.

The quarter was not dependent on any one large deal, anything like that, it was just a very solid quarter.

Hardware systems product revenue was $669 million, as older products, like the older M-Series and Netra saw significant declines.

Storage was a more mixed story, with Tape down a bit, SAN down significantly, while network attached storage was up.

The engineered systems customer base continues to expand nicely, Exadata bookings look very good, revenues from Exalytics, SuperCluster, and the Oracle database of clients all grew over 100%.

For the Company, total revenue for the quarter was $8.4 billion, up 4% from last year.

Our non-GAAP operating income was $3.7 billion, which was 6% higher than last year, and operating margin expanded to 45%.

We still believe there remains ample leverage in the business model.

The non-GAAP tax rate for the quarter was 21.8%.

EPS for the quarter grew 12% in US dollars to $0.59 on a non-GAAP basis.

The GAAP tax rate was 17.7%, which was lower than my guidance for last quarter, due to some one-time events and the mix of earnings.

On a GAAP basis, EPS for the quarter was $0.47 in US dollars, which was up 14%.

Free cash flow increased to a record $14.2 billion over the last four quarters, and to an all-time high of $6.1 billion for Q1, up 11% from last year.

We're now on the cusp of generating more free cash flow than IBM.

Just five years ago, we generated roughly 50% the level of IBM's free cash flow over four quarters.

We now have over $39 billion in cash and marketable securities.

Net of debt, our cash position is $15 billion.

As we've said before, we are committed to returning the value to our shareholders through earnings growth, share repurchases, and a dividend.

This quarter, we repurchased 92.8 million shares, for a total of $3 billion.

Over the last 12 months, we have repurchased nearly 335 million shares, for a total of $10.9 billion; paid out dividends of nearly $1.7 billion, for a total that is nearly 90% of our free cash flow; and the Board of Directors declared a quarterly dividend of $0.12 per share.

Now, to the guidance.

I want to remind you that last Q2, new license and cloud revenue increased 18% in constant currency, so this will be a very, very tough comparison.

And, though our pipelines and potential transactions for the quarter look really very exciting, our sales leaders remain very careful about what they are forecasting to us.

New software license and cloud subscription revenue growth is expected to range from negative 4% to positive 6% in constant currency, and negative 6% to positive 4% in reported dollars.

Hardware product revenue is expected to range from negative 9% to positive 1% in constant dollars, and negative 11% to negative 1% in reported dollars.

As a result, total revenue growth on both a GAAP and non-GAAP basis is expected to range from 1% to 4% in constant dollars and negative 1% to positive 2% in US dollars.

Non-GAAP EPS is expected to be somewhere between $0.65 and $0.70 in constant dollars, $0.64 to $0.69 in reported dollars.

GAAP EPS is expected to be $0.51 to $0.56 in constant dollars, and $0.50 to $0.55 in reported dollars.

I want to remind you that last year we had the benefit of a $145 million acquisition-related benefit for the Pillar earn-out, so excluding that benefit, GAAP EPS, last year, would have been [$0.51].

This guidance assumes a tax rate of 23.5% and a non-GAAP tax rate of 24%.

Of course, it may end up being very different.

With that, I'll turn it over to Mark for his comments.

Thanks, Safra.

Just a couple things to add, our new license executed really as we expected.

The Americas had a solid quarter, as Safra mentioned, 15% growth, with both the US and Latin America growing double digits, and Asia PAC came back strong, with growth of 5%.

Database continues to be very strong, double-digit growth, again, this quarter.

Now, while customer activity in 12c was excellent, it really is the traditional products -- database Options, Enterprise Manager, that drove this double-digit growth, and we have seen that trend in the last three of the last -- or three of the last four quarters.

And cloud, right now, had a strong quarter.

It's really started to hit stride, with great wins at ANA, LinkedIn, Sirius XM Radio, TELUS, Barclays Bank.

We are also really excited about our sales automation Release 7. Not only will be entire Oracle sales force run on Release 7, but we're very excited to bring this to market.

In HCM, our Taleo product had a very strong quarter, with key wins at Honeywell, Emerson, Humana, Xilinx, and DirecTV.

Now, last quarter, we teased you a little bit with announcements we'd make, and then we made them in June.

We announced a deal with Microsoft, enabling customers to run Java in the Oracle database on the Azure cloud, and we would also be partnering with NetSuite on HCM.

Lastly, we announced a comprehensive partnership with Salesforce, where they've chosen to power their cloud using Oracle 12c database and Exadata, amongst other Oracle products.

We expect others to follow suit.

Moving to engineered systems, we had great wins at Eaton, Telecom Italia, ChinaMobile, SunGard, Ingersoll Rand, and Hitachi.

Now, in the last two quarters, we have shipped almost 2,000 systems.

And this quarter, we saw great unit growth north of 60%, as we shipped nearly 800 systems.

Nearly 40% of Exadata systems were sold to new customers, and we expect to grow our business with these customers over time.

We are gaining a material amount of unit market share.

Exalytics, SPARC SuperCluster, the Oracle Database Appliance, all had growth in excess of 100%.

Lastly, our sales [org], in terms of sales people, is up.

We're making investments in productivity to make them sell more.

We're growing faster than our key competitors, and our attrition is down from historical levels, and down significantly from last year.

Now, with that I thought I'd make a couple comments about Oracle Open World, which is next week.

We plan to have roughly 60,000 people at the event in San Francisco from 145 countries.

We expect to have 2 million attendees online.

So, this is going to be the biggest one yet.

We have got a great lineup of speakers.

We have got EMC, Dell -- Michael will actually be there -- we have got Fujitsu, Deloitte, Intel there.

We have got customers, LinkedIn, AT&T, Facebook, electronics arts, Thomson Reuters, New York Stock Exchange, Tesco, Deutsche Telekom -- I could just go on.

It's going to be a great set of people from the industry, as well as customers, a very large attendee base, and we will make some significant product announcements at the event as well.

We will be introducing Oracle 12c In-Memory Database.

We will be talking about it being able to deliver 100x faster application performance using a new architectural approach.

We will be talking about existing Oracle apps that can now run in the Oracle database functionality without change when using this In-Memory capability.

We will have some releases in cloud.

We will talk about -- we'll have some releases in HCM and Talent Management.

We will talk about database as a service -- Java as a service that will be available to our customers.

So, there will be a whole slew of product announcements there that Larry will be talking about Sunday night and will continue on through the week.

We're excited about the upcoming activities at Oracle Open World.

With that, I will turn it back to Ken, and we'll take whatever questions you've got.

Brian, we'll go to the Q&A, now, if you're ready.

Yes, thank you.

John DiFucci, JPMorgan.

Mark, you mentioned the strength in database, and it's reflected in license, but it's also, I think, reflected in margins this quarter.

You mentioned, and I would think it's really too early for 12c to be having much of an impact on the numbers anyway -- you mentioned Options, Enterprise Manager -- I guess the question is, why the strength, right now, in database?

And, how does this business look as you look forward -- the core database with Options?

Yes, the interesting thing, John, first, is we not only had good growth in database, but we also had good growth in database in the US.

So, it was very strong, and it's exactly what you described.

First, it was broad-based across the regions, even with the strong showing in the US, and it was really the options.

Again, as you start dealing with some of the issues you see in the market -- take, for example, something as simple as the data growth that you all hear in the industry, 30%, 40% data growth that our customers talk about.

The ability for us to compress that data is a tremendous opportunity and it's an option that you get advanced compression, you can get it with Exadata, that dramatically changes our customers' total cost of ownership.

We had good growth, really across regions, particularly strong in the US, particularly strong in Options.

GoldenGate was very strong.

We had good growth in RAC, Active Data, In-Memory caching.

Security was -- I mentioned this, I think, last quarter too, we had very strong growth, again, in security.

These are turning to be material businesses, John, and I think this is not really the beginning -- I would not call any of this really any significant impact from 12c.

This is really just the core database and the options around the core database.

You mentioned Exadata, so that sounds like -- that Exadata pulls along some of these options too -- that having an effect here --?

Yes, it's all part of one story, John, in the context of -- we've got so much database out there and the issue to drive more performance, more security, drive more compression.

You can get a lot of it with the database as a product, you can get even more of it when you buy Exadata, so it's a strong value prop, John.

Thanks, Mark.

And, if I might, just one quick one for Safra.

Safra, the guidance you gave is a little bit below where the Street is right now.

You mentioned -- you talk about exciting pipelines, I think the word is that you used, but you also talk about managed -- the sales people or sales managers being, I don't know what word you used, but it sounded like being prudent.

I guess, in the past, you've sometimes gauged what that guidance is.

Do you think that is something -- the guidance you have given, is it similar to the conservatives, on that it's prudent, that you normally give?

Is it a little more conservative, or less, or if you can comment on that?

As I always say to you all, I read the same newspapers or read the websites that you all do, and there's a lot of news out there, whether it's coming out from our own government or from Europe, and that influences what we put as a backdrop for our forecast.

Today was a big news day in both directions.

So, we're just trying to -- I think everybody is just trying to stay a little bit -- to have a little bit of room, and we could do significantly better.

But, we still -- even though our pipelines are big, we still have to close all those deals, and I just can't assume that we will.

So, try to just be reasonable about it, be conservative about it, but I just need to take into account a lot of different inputs.

And, I think we -- that is where the guidance range is.

Okay, great.

That's helpful.

Thank you, both.

(Operator Instructions)

Raimo Lenschow.

I had a very [top-level one] -- you guys had a conference call with Salesforce a few weeks ago that focused on joining the different clouds.

A few minutes ago, we had a call from two cloud vendors that want to work closer together, going forward.

Can you talk a little bit about this new environment of vendors having to [pre-integrate] their cloud product?

And also, maybe go on a little bit about Fusion -- it's a more complete solution than what others have, so how is that done and how does that fit into the new world here?

Thank you.

First of all, I think that what you're seeing is that, in fact, customers want systems that are integrated, and that, I think, works to our advantage.

It's significantly easier, obviously, to have very integrated and very seamless integration when you own all the products, as we do.

For those customers that have mixed environments, especially a large install base of one of our competitors, the big benefit, of course, in working with us is that it's all based on our technology.

I think it gets significantly harder when you're talking about almost random companies who are trying to make the experience seamless, when their systems are so very different -- the definitions, the underlying platforms are very different.

For us, we view this as a huge benefit towards us, and we think it's actually powering the strength of Fusion and the interest in Fusion because Fusion actually has a second piece to it, which is it integrates, not only all of our applications work together in Fusion, but they also work with all of your existing Oracle applications in a way that if -- and Fusion, itself, can be deployed, some on-premise, if you'd like, and some in the cloud, and back and forth, in fact.

So, what you're seeing is customers wanting more choice, but better integration, and we're really the only ones who have all the products and the depth and an ability to deliver it in the cloud, in the public cloud, in a private cloud behind their firewall, or in our own -- or on-premise, which is truly about customer choice.

Perfect, thank you.

Joel Fishbein.

Mark, quick question.

As I was going through the numbers, it looked like hardware support is up 5%, against hardware that's down 13%.

Can you give me -- or give us some more color on what's going on there?

Yes, I think, Joel -- I've talked about this in the past.

I think that if you looked historically, when the hardware business was not part of Oracle, the attach of service to a unit -- you sell a unit and then you sell service with it -- historically, pre-Oracle, that was a very low number.

We realigned our business so that, as we've shifted to these very high Oracle-content products, we now attach support all the time.

As a result, the growth of support is not symmetrical with the product growth rate.

So what we do is, having support, now, growing materially faster as we catch up to, what I would argue would be industry norms, in terms of the way you attach support to a product, and it's causing -- I understand your point.

It doesn't look right that hardware support is growing, now, 5%.

I might add, our margins have improved dramatically with the growth rate.

It is because that we, now, have high Oracle-content products, and we are attaching support to those products, regularly, when we sell them.

And, that is causing our hardware support to grow in a way that doesn't align directly to the hardware price.

Now, I can tell it to you another way, Joel.

Once we start growing the top line in hardware, it will even be a further catalyst to hardware support.

Because much of that cost in hardware is support, it is sort of a baseline set of costs to be in the business -- things like parts depots and spare parts -- you'll actually be in a position where you can even make even more margin.

It's really, Joel, just us going back to the fundamentals of running a good hardware support business, and it starts with attaching the service and the support for the product when you sell it, which is what we've done.

Great, thank you.

Brent Thill.

My question is on the general demand environment.

Safra, I think you made a comment that you believe you can do significantly better -- overall tech spending seemed to be pretty positive, yet your guidance, and we certainly respect the tough comp, is really for no license growth.

So, from your perspective, what are the key enablers for you to get back to, what I would assume you would perceive to be, more healthy growth on the license side?

What key building blocks do you have to fill in from here?

We have to execute, and we have to avoid any economic deterioration, or things like that.

Some of those things are out of our control.

We have to execute.

We have to have another quarter like this one, just straight execution, follow a straight line.

I think we have an opportunity to do significantly better.

But, we just want to move forward.

It really does come down for this next quarter to being an extremely difficult comp.

I'd probably put a little different view on your comments.

One, listen, to Safra's point, we read all of our peer groups' results, and to be very blunt, they're not very good.

Depending on who you're talking about, most of their numbers are negative.

So, when you say there's a robust ex-spending environment, I'm not sure whose numbers you're reading, so that's point one.

When you look at scale technology companies, there's some pretty significant headwinds out there, when you certainly look in July through the June readouts.

When you look at this quarter, I would argue, we, again, gained a lot of share, just based on the results we gave you.

I think what we're telling you out there is we see what's out there, we're trying to be prudent and thoughtful in the guidance we give.

I don't think it's as much about the tough comp -- I mean, tough comp is part of it.

There's also 2 points of currency that are involved in the number that got you to zero as well, so that would be my view of it.

Jason Maynard.

I want to talk a little bit more about the hardware business.

Mark, if you could give us a little bit of a drill down into what's going on with the M and that T and how you expect that to play out?

Talk a little bit about what is going on with some of the legacy products?

And, the last question would be, are you still comfortable with seeing some growth this year in the hardware -- overall hardware business -- just on the product side?

Thank you.

Sure, thanks.

Jason, I think we'll see -- we'll have some growth in hardware this year.

I would say your question, which was primarily about the SPARC line, T was okay in the quarter, M was not.

As you know, in Q4-ish timeframe, mid-Q4, we released a new set of M products.

We're pretty excited about them.

We have got a big install base that we can move.

It takes time to get those products certified and tested in customers' environments.

But, that's what happened in the numbers.

We had the strong Exadata unit growth that both Safra and I described, we had very good results in several regions in our storage, if you will, our NAS Storage business.

Tape was unexciting, as it has been for a period of time.

And, the real issue was, again, in the M part of the SPARC line.

That's really the story in hardware.

Heather Bellini.

I wanted to follow up, Mark, a little bit on the response you gave to Brent, just talking about the competitive environment.

I was wondering, specifically, if you could share with us who -- what companies, in particular, are you benchmarking yourself against -- who are you benchmarking yourself against?

How would you -- how do you keep score versus those guys, if you will?

That could take us a while.

I think to start off with, if you're looking by who our competitors are, Heather, we certainly compete in the infrastructure business with IBM.

They would be a competitor.

We certainly would compete to a part of the infrastructure business with EMC, probably to a lesser degree, not so much in that head-on storage business, but the fact that when we're dealing with data and management of data, you can see competition from that perspective.

In the applications business, clearly SAP, on a global basis, they would be a competitor.

And then, in addition to that, you have competitors, I'd say, even like Salesforce and Workday.

Now, albeit that they are mostly North American, and that they are mostly in one process, Workday in HR and Salesforce in sales automation, we still view them as competitors.

Now, I could go down a slew of others in various product groups, but those would be the big ones that I would describe to you, Heather.

Rick Sherlund.

The headcount -- you're up about 9% in Americas, year over year, and you're up about 3% in the rest of the world.

You showed good license growth in the Americas.

I'm curious what's behind the headcount growth in Americas versus the rest of the world?

Are you ramping sales headcount, or what's happening there?

It is nothing more than the run rate that comes, so imagine, as we have talked over the several quarters, there is not a big bump sequentially, per se, as it is just the run rate of the hiring.

As I've said before, we were quicker to higher in Europe, which is what really has helped us in Europe.

While Europe was not fantastic for us in Q1, over the past several quarters, they have gained a lot of share in Europe.

One of the reasons for that has been the fact that they have simply been in more deals.

They've been in front of more customers.

We were slower to ramp in the US, although to your point with your numbers, we have begun to, and that shows up in the run rate that turns into this year-over-year comp rate.

And, it has shown up by the fact that when you look at our US numbers, over the past couple quarters, we are beginning to see some of that same affect that we saw in Europe.

Walter Pritchard.

Mark, I'm wondering if you could talk about -- you did have a better performance, it seems like, from a sales-execution perspective in Q1.

I'm wondering if you could talk about what changes you've made in the sales organization with execution in the fiscal '14, here, what are the early months of that?

Thanks.

We really made no changes in fiscal '14.

So as we said, last year, we made changes over a year ago, and one of our objectives, going into '14, was to make a minimal amount of changes.

Before we went into 2014, we had all our territories deployed, our quotas deployed, we really looked to change almost zero territories, and keep the territories the same as they were the year before.

We kept our specialization the same as the year before.

So as a result, we wound up, really, ready to go in the very early part of the quarter.

And, I think we talked about this on the last conference call, but it was a big thing for us to have our quotas deployed and our territories defined, everybody knew their boss, very early in June, and you could see it had, in the end, some [affect] for us.

There really were not many changes in the sales force.

And, it's also shown up in, frankly, our attrition is down, which is helpful as well, because we have performers.

And, when you have to have attrition, you have to change the territory when someone attrits, and the fact that the attrition down is helpful to us in that respect as well.

Kash Rangan.

Mark and Safra, could you talk about -- it's been a couple of years since you finished up Taleo and RightNow.

And, a, I wonder if you could give us your thoughts on how you view the growth ops for these two product lines, albeit (inaudible), but they are still important.

If you could address that?

Also, I think the one story that is not told is the vertical-specific applications.

There has been a focus on HR and [CR], which I completely get, but you guys have been historically very strong in vertical applications.

I am curious to get your thoughts on how you see a growth ops in verticals, and how are they doing, et cetera?

Thank you.

RightNow has done very well for us.

When you look at the overall market position, to the earlier question, today, we're really number one in service automation.

We haven't talked about (inaudible), but we're really number one in marketing automation.

When you look at what's gone on and when you look at the web commerce space, our products like ATG Endeca, we're number one in commerce server in the overall customer experience space.

When you line those up, we have a very powerful offering in that whole customer experience -- broader customer experience area.

RightNow was strong in the quarter -- I would argue, we grew in RightNow in the quarter against a very tough comp.

Our toughest comp in RightNow in the quarter was Q1 and we had growth in Q1, and we were very encouraged by that.

Particularly, Kash, the growth, globally, we've had good global traction with RightNow.

Taleo had a good quarter, very good growth in Taleo in the quarter, so we were excited about that as well.

They are both market leaders, leading recruiting app, and again, leading service automation app.

Verticals, we've told the story many times, we've had a tremendous run in retail.

We've really, I hate to use the term, [rolled up] the retail industry, but we're in the process of really going retailer to retailer to retailer with merchandising, planning, our point-of-sale capabilities, and being able to really be, we think, the leader in the retail applications marketplace.

We've made investments over the past couple quarters, in additional products and communications industry, with our acquisitions at Tekelec and Active Packet, and the collection, now, we have between our [building] assets and those assets, make us a leader, now, in the communications industry as well.

We're doing the same thing in utilities, we're doing the same thing in banking, the same thing in healthcare, so it is a critical strategy for us.

The great news is, when we win in these industries, all of Oracle wins.

We win at the database layer, we win at the middleware layer, we win at the hardware layer, so it's a very key strategy for us.

We've made investments in those areas to try build from an acquisition perspective and with more distribution as well.

Thank you, Mark.

In closing, a telephonic replay of this conference call will be available for 24 hours.

Dial-in information can be found in the press release issued earlier today.

Please call the Investor Relations department with any follow-up questions from this call, and we look forward to speaking with you.

Thank you for joining us today, and with that, I'll turn it back to the Operator for closing comments.

Ladies and gentlemen, that concludes today's conference call.

We thank you for your participation.