Oralce Reports Q2 GAAP EPS of 25 Cents, Non-GAAP EPS of 34 Cents
Strengthening US Dollar Reduces GAAP EPS by 4 Cents and Reduces Non-GAAP EPS by 3 Cents
Without the $0.04 per share impact of the US dollar strengthening compared to foreign currencies, Oracle's reported Q2 GAAP earnings per share would have been up 11% to $0.29, with total GAAP revenues up 12%, quarterly GAAP net income up 10%, GAAP software revenues up 14%, GAAP new software license revenues up 5%, GAAP software license updates and product support revenues up 20%, GAAP services revenues up 5%, and GAAP operating income up 20%.
Second quarter non-GAAP earnings per share were up 9% to $0.34, and non-GAAP net income was up 8% to $1.7 billion, compared to the same quarter last year. Non-GAAP total revenues were up 6% to $5.7 billion. Non-GAAP software revenues were up 8% to $4.6 billion and non-GAAP software license updates and product support revenues were up 15% to $2.9 billion.
Without the $0.03 per share impact of the US dollar strengthening compared to foreign currencies, Oracle's reported Q2 non-GAAP earnings per share would have been up 18% to $0.37, with non-GAAP net income up 17%, non-GAAP total revenues up 13%, non-GAAP total software revenues up 15%, and non-GAAP software license updates and product support revenues up 21%.
"Our non-GAAP operating income grew 25% in constant currency to $2.6 billion in Q2, resulting in operating margins of 46%," said Oracle Executive Vice President and CFO, Jeff Epstein. "In addition, Oracle generated $7.6 billion in free cash flow in the past twelve months, up 15% over the same period last year."
"We signed our largest on-demand sales force automation contract this quarter," said Oracle CEO, Larry Ellison. "This was just one of several recent wins over salesforce.com. We also sold our first database machine, launching an all new and important business for Oracle."
Q2 Earnings Conference Call and Webcast
Oracle will hold a conference call and web broadcast today to discuss these results at 2:00 p.m. (PST) / 5:00 p.m. (EST). To access the live web broadcast of this event, please visit the Oracle Investor Relations website at http://www.oracle.com/investor. Please hold down your control key while pressing refresh to ensure that the web link is visible.
Supplemental Financial Tables
Supplemental financial materials regarding these results are available on our Investor Relations website at: http://www.oracle.com/investor. To receive these supplemental financial tables and other Investor Relations alerts directly, please subscribe to Oracle's RSS feeds via the RSS link on our website.
"Safe Harbor" Statement:
Statements in this press release relating to Oracle's future plans and prospects are "forward-looking statements" and are subject to material risks and uncertainties. Many factors could affect our current expectations and our actual results, and could cause actual results to differ materially. We presently consider the following to be among the important factors that could cause actual results to differ materially from expectations: (1) Economic, political and market conditions (including the global economic crisis) could adversely affect our revenue growth and profitability through reductions in IT budgets and expenditures. (2) We may fail to achieve our financial forecasts due to such factors as delays or size reductions in transactions, fewer large transactions in a particular quarter, unanticipated fluctuations in currency exchange rates, delays in delivery of new products or releases, or a decline in our renewal rates for software license updates and product support. (3) We cannot assure market acceptance of new products or services or new versions of existing or acquired products or services. (4) We have an active acquisition program and our acquisitions may not be successful, may involve unanticipated costs or other integration issues, or may disrupt our existing operations. (5) Periodic changes to our pricing model and sales organization could temporarily disrupt operations and cause a decline or delay in sales. (6) Intense competitive forces demand rapid technological advances and frequent new product introductions, and could require us to reduce prices or cause us to lose customers. A detailed discussion of these factors and other risks that affect our business is contained in our SEC filings, including our most recent reports on Form 10-K and Form 10-Q, particularly under the heading "Risk Factors." Copies of these filings are available online from the SEC or by contacting Oracle Corporation's Investor Relations Department at (650) 506-4073 or by clicking on SEC Filings on Oracle's Investor Relations website at http://www.oracle.com/investor. All information set forth in this release is current as of December 18, 2008. Oracle undertakes no duty to update any statement in light of new information or future events.
Q2 FISCAL 2009 FINANCIAL RESULTS
EXPLANATION OF NON-GAAP MEASURES
To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures indicated in the tables, which exclude certain business combination accounting entries and expenses related to acquisitions, as well as other significant expenses including stock-based compensation, that we believe are helpful in understanding our past financial performance and our future results. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:
- Support deferred revenue:
Business combination accounting rules require us to account for the fair value of support contracts assumed in connection with our acquisitions. Because these are typically one-year contracts, our GAAP revenues for the one year period subsequent to our acquisition of a business do not reflect the full amount of software license updates and product support revenues on assumed support contracts that would have otherwise been recorded by the acquired entity. The non-GAAP adjustment is intended to reflect the full amount of such revenues. We believe this adjustment is useful to investors as a measure of the ongoing performance of our business because we have historically experienced high renewal rates on support contracts, although we cannot be certain that customers will renew these contracts.
- Stock-based compensation expenses:
We have excluded the effect of stock-based compensation expenses from our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues, we continue to evaluate our business performance excluding stock-based compensation expenses. Stock-based compensation expenses will recur in future periods.
- Amortization of intangible assets:
We have excluded the effect of amortization of intangible assets from our non-GAAP operating expenses and net income measures. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to revenues earned during the periods presented and will contribute to future period revenues as well. Amortization of intangible assets will recur in future periods.
- Acquisition related and other expenses, and restructuring expenses:
We incurred significant expenses in connection with our acquisitions and also incurred certain other operating expenses or income, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Acquisition related and other expenses consist of in-process research and development expenses, personnel related costs for transitional employees, stock-based compensation expenses (in addition to the stock-based compensation expenses described above), integration related professional services, certain business combination adjustments after the purchase price allocation period has ended, and certain other operating expenses, net. Substantially all of the stock-based compensation expenses included in acquisition related and other expenses resulted from unvested options assumed in acquisitions whose vesting was fully accelerated upon termination of the employees pursuant to the original terms of those options. Restructuring expenses consist of Oracle employee severance and other exit costs. We believe it is useful for investors to understand the effects of these items on our total operating expenses. Although acquisition related expenses and restructuring expenses are not recurring with respect to past acquisitions, we generally will incur these expenses in connection with any future acquisitions.
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