Analyst Conference Summary


conference date: December 18, 2008 @ 2:00 PM PT
for quarter ending: November 30, 2008 (2nd quarter fiscal 2009)

Forward-looking statements

Overview: Stalled by the economy. Currency exchange rates hurt too.

Basic data (GAAP) :

Revenues were $5.61 billion, up 5% sequentially from $5.33 billion and up 6% from $5.31 billion year-earlier.

Net income was $1.30 billion, up 20% sequentially from $1.08 billion, but flat from $1.30 year-earlier.

EPS was $0.25, up 19% sequentially from $0.21, but flat from $0.25 year-earlier.


For fiscal Q3, 8 points negative impact from currency at today's rates.

New software down 10%. Total revenues up 1 to 4%. Non-GAAP EPS $0.31 to $0.33; GAAP $0.22 to $0.24.

Conference Highlights:

Feels extremely good about Q3 results after taking currency changes into account. Margins are twice as high as peers.

Made largest on-demand sales force automation sale and also sold their first database machine with HP.

Presentation emphasized "constant currency" numbers, which are better % wise than $ numbers, and which are not included in this summary.

Continuing to invest in research while watching costs overall.

There was a $0.04 per share negative impact on earning from the stronger U.S. dollar.

GAAP operating income was up 11% to $2.0 million and operating margin increased 166 basis points to 35%.

Software revenues of $4.48 billion (up 8% y/y) included $1.63 billion in new software licenses (down 3%) and $2.85 billion in license updates and product support. Renewal rates continued to be high. On demand revenues grew 19%.

Services revenue was $1.13 billion, down 2% y/y.

Non-GAAP: net income $1.7 billion, up 8% y/y. EPS $0.34, up 9% y/y. Currency effects were negative $0.03 per share.

Operating expenses of $3.63 billion included: sales and marketing $1.15 billion, software license and product support 257 million, cost of services $939 million, R&D $651 million, general and administrtive $174 million, amortization $427 million, acquisition expenses of $21 million, and $17 million for restructuring. Non-operating income was $8 million. Income tax provsion was $530 million.

$1.8 billion in share repurchases in quarter.

$10.6 billion in cash and investments on balance sheet. Mentioned free cash flow for year, not for quarter.

Currency also had a negative impact on taxes, overwhelming positive impact from R&D credit.

Middleware sales grew strongly, even after correcting for dollar changes. We may have passed IBM in middleware revenues and are growing far more rapidly than them.

In Sales on Demand, we had several wins over

Revenues by geography: Americas $2.90 billion, EMEA $1.88 billion, Asia Pacific $822 million.


Sequential currency impact; maintenance rate? Renewal rates were consistent.

In database and middleware altogether, up 8% in constant currency.

Maintenance details? We have only one level of service, enterprise level. Nothing out of the ordinary in quarter. Our maintenance fees are a tiny part of most company IT budgets.

Application business in recession? Customers are signing up for fewer multi-year contracts. But we have many new applications that customers can add on. We have won some big ERP deals in government vertical.

How did you get such good operating margins in the quarter? The issue is about the mix of our business, not so much cost. The large existing customer subscriber base is very profitable and consistently guides our margins higher.

Close rates? Our pipelines are large and continue to grow. However, Q3 guidance assumes a significantly lower close rate because we want to be thoughtful about economic impact. Might be an overly low assumption.

Currency does have an impact on expenses to, but because our margins are high the impact is greater on revenue than on expenses.

Theme of winning competitive deals? Consilidation and rationalization of the enterprise are a good sales theme. In middleware we just have a better product, so if we can get people to look at it we can win. Domain expertise helps in certain verticals.

R&D sequential drop? Some is currency, the rest is varied, it is not the result of a head count decline. We have a large number of researchers in India, so that is where some of the currency impact helped.

European weakness? Q1 and Q2 are impossible y/y comparisons for applications.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2008 William P. Meyers