Analyst Conference Summary


conference date: March 18, 2009 @ 2:00 PM PT
for quarter ending: February 28, 2009 (3rd quarter fiscal 2009)

Forward-looking statements

Overview: Declares first-ever dividend. Revenues holding up well despite the economic environment. But guidance for Q4 was grim.

Basic data (GAAP) :

Revenues were $5.45 billion, down 3% sequentially from $5.61 billion but up 2% from $5.35 billion year-earlier.

Net income was $1.33 billion, up 2% sequentially from $1.30 billion but down 1% from $1.34 billion year-earlier.

EPS was $0.26, up 4% sequentially from $0.25, and flat against year-earlier $0.26.


Expect 12% negative effect on revenue from currency exchange rate.

New software license revenue from negative 5% to negative 15% in constant currency, or negative 17% to 27% at current exchange rates. Total revenue in constant currency from negative 3% to plus 2% y/y; negative 10% to 14% at current exchange rates.

Non-GAAP EPS $0.49 to $0.53 in constant currency; $0.42 to $0.47 at current exchange rates. GAAP EPS $0.41 to $0.45 constant currency, $0.34 to $0.38 at current rates.

28% tax rate assumed.

Conference Highlights:

Characterized results as "spectacular."

Dividend will be $0.05 per quarter.

Earnings would have been better by $0.05 per share if currency exchange rates had remained constant. Revenues were up 12% y/y in "constant currency." Throughout the conference management substituted non-GAAP, constant currency numbers for GAAP numbers.

Revenue from new software licenses was $1.52 billion; software license updates and product support $2.92 billion; services $1.02 billion.

Operating expenses were $3.51 billion, consisting of: Sales $1.05 billion; support costs $256 million; cost of services $856 million; R&D $677 million; general and administrative $192 million; amortization of intangibles $437 million; $27 million acquisition related, and $15 million for restructuring. Leaving Operating Income of $1.94 billion. Interest expense was $154 million, and other income was $24 million. Income tax provision $481 million.

BEA products have been integrated and resulted in $140 million in revenues.

46.4% non-GAAP operating margin, up 510 basis points y/y and the highest Q3 margin ever. Non-GAAP operating income was $2.6 billion; EPS $0.35, up 16% y/y.

86 million shares repurchased at an average price of $16.82 per share ($1.4 billion).

Cash and investments ended at $11.3 billion. $8.0 billion total free cash flow in last 4 quarters.

"We grew faster than SAP in every region around the world." Renewal rates and customer satisfaction are at record highs.

Our fastest growing large business is Fusion middleware. Exadata hardware database system is the most exciting product.


Linearity of quarter? We were on track the whole quarter. We typically do a lot of our business at quarter ends, there was no difference there.

50% margin goal, getting near? 50% margin goal is mainly impacted by the mix of business. Margins should continue to improve as current customers purchase add-on components.

Maintenance revenue and pricing? Nothing special about upgrade and product support business. Just seeing renewals of old customers plus newer customers. Nothing unusual about pricing.

Headcount plans? Depend on acquisitions. We are careful about how much hiring we do; it depends on if we do any large acquisitions.

Growth in Europe and Asia? Economic impact was more severe in U.S. We had management changes in Asia and EMEA that worked out well.

Can you keep growing database revenues? Database is a mature market, but we have good differentiation against the competition.

How conservative is your guidance? Q4 has a dynamic of its own, with higher closure rates than other quarters. But we assumed more normal (like Q1-3) closure rates. We often use lower closure rate assumptions than the actuals turn out to be.

Isn't it a bit dicey to ignore currency exchange rates? No, we manage our business on a constant currency dollar rate. We let currencies do what they do.

SAP? They tend to depend on larger deals. We have a far broader portfolio, so we can even sell some of those products to their own customers. We can continue to take market share from them for years to come. They are not making the right investments in new technologies.

Cost reductions despite level headcount? It is because of currency changes in their paychecks.

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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 2009 William P. Meyers