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 for Oracle. Please go ahead.
Thank you, Robert. Good afternoon, everyone, and welcome to Oracle's Q2 fiscal year 2013 earnings conference call. A copy of the press release and financial tables, 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 are Chief Executive Officer, Larry Ellison President and CFO, Safra Katz 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 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 ks 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. And finally, we are not obligating ourselves to revise our results or publicly release any revision to these forward looking statements in light of new information or future events. Before taking questions, we'll begin with a few prepared remarks.
And with that, I'd like to turn the call over to Safra.
Thanks, Ken. I'm going to focus on our non GAAP results for Q2. I'll then review guidance for Q3 and turn the call over to Mark and Larry for their comments. As all of you can see, we had a really excellent quarter and we exceeded the high end of our guidance for new software license and cloud software subscriptions. We were at the high end of the range for total revenue and we beat the high end of our guidance for earnings per share.
During the Q2, currency movements reduced new license revenue growth by 1%. They reduced total revenues actually by 2%, net income by 1% and earnings per share by a penny compared to Q2 of last year. So I'll focus on constant currency growth rates unless I say otherwise. Okay, now to the numbers. New software license and cloud revenues were up 18%, including cloud revenue of $230,000,000 for the quarter.
We continue to see broad based strength and balance with double digit growth in all regions. The Americas were up 22%, APAC was up 13%, and EMEA was up 12%. We also saw strength in balance across our software products as database, middleware and applications all saw double digit growth. Software license update and product support revenues were $4,300,000,000 up 8% from last year and were nearly half of total revenue. Support attach and renewal rates continue at their usual high levels.
Hardware system products revenue was $734,000,000 Engineered Systems continued to show excellent growth. For the company, total revenue for the quarter was $9,100,000,000 up 5% from last year in constant currency. Operating expenses were flat with last year and non GAAP operating income was up 10% from last year. And our non GAAP operating margin expanded to 47% from 45% last year. As revenues continue to grow and we manage our business with discipline, we still believe that there remains a lot of leverage in our business model.
Now the non GAAP tax rate for the quarter was 23.5%, better than guidance. EPS for the quarter grew 18% in U. S. Dollars to $0.64 on a non GAAP basis. Without the negative impact of currency, our non GAAP earnings per share would have been $0.65 up 19%.
The GAAP tax rate was 21.3 percent. EPS for the quarter was $0.53 in U. S. Dollars and would have been $0.54 up 26% for the impact of currency. Operating cash flow increased to $13,500,000,000 over the last four quarters, up from $13,100,000,000 last year and free cash flow grew to $12,800,000,000 over the last four quarters, both are record results for Q2.
We now have nearly $34,000,000,000 in cash and marketable securities. And now as we've said before, we remain committed to returning value to our shareholders through our technical innovation, acquisitions, stock repurchases and prudent use of debt at dividend. And this quarter, we repurchased 96 point 1,000,000 shares for a total of $3,000,000,000 in the quarter. Over the last 12 months, we've repurchased nearly 350,000,000 shares for a total value of $10,200,000,000 And earlier this month, the Board declared an accelerated dividend of $0.18 per share for the second, 3rd and 4th quarters, which will be paid out in December. Now to the guidance.
New software license and cloud subscription revenue growth is expected to range from 4% to 14% in constant currency and 3% to 13% in reported dollars. Hardware product revenue growth is expected to range from a negative 10% to flat in constant and reported dollars. And as a result, total revenue growth on a GAAP and non GAAP basis is expected to range from 2% to 6% in constant dollars, 1% to 5% in U. S. Dollars.
Non GAAP EPS is expected to be somewhere between $0.64 $0.68 in both U. S. Dollars and constant dollars, up from $0.62 last year. GAAP EPS is expected to be between $0.51 $0.55 in U. S.
And constant dollars. This guidance assumes a GAAP tax rate of 24% and a non GAAP tax rate of 24.5%. And of course, it may end up being a bit different. Now with that, I'll turn it over to Mark for his comments.
Thanks, Safra. Just a couple of quick comments before I give it to Larry. We had a great quarter in software with new license and cloud subscriptions growth of 18% in constant currency. It was better than we expected with double digit growth in every region as well as database, middleware and apps in particular which grew more than 30%. In the cloud, we had key wins in both CRM and HCM, including AppFabienne Fitch, Emirates Air, Expedia, Macy's, T.
Rowe Price, United Airlines, U. S. Bancorp, Whirlpool and Xerox. A lot of names as we continue to see strong customer acceptance. Our pipeline is growing, our sales teams are ramping and you should plan for us to continue to invest into and to grow the cloud business.
Moving to Engineered Systems, it was another strong exit quarter with over 70% sequential growth in unit bookings. We sold more than 700 Engineered Systems this quarter, great exited wins at China Mobile, Facebook, Samsung, Time Warner Cable and great Xologic wins at Chevron, Vodafone and Walmart. We had a very nice excellent win at Westpac in Australia. I mentioned this because they're moving off DB2 on the mainframe along with EMC storage to Oracle on Exadata and Exologic at very significant savings. Exalytics had its best quarter to date as unit bookings nearly doubled sequentially.
Wins at Activision, City of Chicago, Deloitte and Touche and WellPoint. We continue to see strong growth of Spark T Series accelerate. I mentioned last quarter it was the hottest selling UNIX box in the industry and it grew faster than it did in the previous quarter. And ZFS Storage also saw double digit growth. We had a tremendous quarter in our verticals with growth of over 60% with even better results in Financial Services, Telecom and Retail.
This comes after a strong Q4 and a strong Q1. We've invested headcount in our verticals and we're seeing that show up in significant pipeline growth. Finally, our quota carrying sales force net of attrition has grown more than 3,000 people over the last 6 quarters. And for those of you who care about efficiency and we actually do, we've been able to do this while our operating expenses were essentially flat from last year. Our people are in the market, they're growing pipeline and you're beginning to see it in our strong organic growth this quarter.
With that, I'll turn it over to Larry. Thanks, Mark. Our $7,500,000,000 purchase of SUN has already proven to be the most strategic and profitable acquisition Oracle has ever made. Java, the world's most popular programming language, was a key software asset we acquired when we bought Sun. Today, our Java business is booming, growing over 34% this past quarter.
SUN hardware technology has enabled us to become a leader in the highly profitable engineered systems segment of the hardware business. The rapid growth of highly differentiated products like Exadata and the Spark T4 have consistently quarter after quarter improved the profitability of our overall hardware business. Selling systems loaded with Oracle intellectual property, along with deemphasizing the selling of low margin undifferentiated products like commodity X86 servers and LSI disk storage systems, products that contain no Oracle intellectual property. Those two things have reshaped and downsized our hardware business, while making that business much more profitable. Now that our hardware business is making a substantial contribution to Oracle's record levels of profitability.
We are just about finished with the downsizing phase and the transformation of that business. We're about to start growing our hardware business. In Q3, we'll be turning the corner. And in Q4, we expect the top line growth to go along with continually improving margins. Thank you, Larry.
Robert, we'll go to the Q and A portion of the call now.
We will take our first question from Adam Holt of Morgan Stanley.
Thanks very much and congratulations on a terrific quarter. My question is about Fusion. I was hoping I could drill in a little bit to what you're seeing there. Specifically, what are you seeing from customer adoption? What modules and services are customers aggregating around?
How are deal sizes tracking? What are some of the details you can give us about where you think you are in the Fusion cycle? Thank you. Okay. Well, we're seeing rapid growth in Fusion across the board in CRM and in HCM.
We're at the stage where we're winning the majority of deals and competes against Workday. So probably are the outstanding and most rapidly growing part of our Fusion suite, which you know is ERP, CRM and HCM, the most complete suite of cloud applications available from any supplier. We're beating Workday. I'll turn it over to Mark for specific examples. We're beating them in North America and we're pretty we're almost shutting them out in Europe.
So it's very, very exciting. We're also we also are getting good wins against Salesforce with our Fusion sales automation product. Mark? Yes. I think it's Larry's comments on let's stay on HCM.
We've got the advantage in most of international markets to be the 1st mover. So we're in those markets before anybody. Our product is quite advanced and our wins to Larry's point internationally are just tremendous. So, I won't go into any customer names. We've given you some in the past in Europe, but very rapid there.
Right now, acquisition has been very significant. Again, remember, a lot of right now was U. S.-based. We've now been capable or we've now taken it global. So, our wins globally have been significant.
Same thing in CRM with sales automation. Our product is advancing. I read you some of the wins in the quarter. Just it's been a rapid growth phase for us. And as I mentioned in my script, we're investing into it with more headcount.
Our headcount now is growing in every region and we have a strong belief that more headcount with a great product like what we've got means more growth.
And of course, as you know, we have nearly I guess, we have more than 100 modules of Fusion. So, we've got products in really most of the pillars are doing very well and we've got customers implementing them right now.
Terrific. Thank you.
We will go next to John DiFucci of JPMorgan.
Thank you. My question is for Mark. Mark, it looks like Europe put up solid results this quarter. It was against the first relatively easy comp in a while, but nevertheless double digit growth doesn't really fit with what we continue to generally hear about the region. Can you talk a little bit about what happened in the region and how sustainable that kind of those kinds of results are?
Well, I don't mean to be trite by it, but I think the only ones around that aren't surprised about Europe is us. We started investing frankly into Europe and headcount in Europe, but year over year ago. And it may seem counter to what most people, the conventional wisdom is, but we decided to grow our headcount as we've talked about globally. I mentioned the amount of scale we've got in headcount. We made a decision in Europe and we hired up early.
A lot of that headcount has now been in place 4 5 quarters, 3, 4 5 quarters. We've seen pipeline result as a result of that. And as a result, we have gained share. Our apps growth in Europe was extremely impressive this quarter. We gained share over SAP and you've seen it happen multiple times.
We have a very strong organization in Europe. I mentioned about the success of HCM in Europe and the quick start we've gotten over there. So, we have a strong group there. I'm not going tell you that we don't see the conversion rates. We see the pressure on the conversion rates, but we're in more deals than we've been before and we see us in a position now where we are gaining significant share.
Okay, great. And if I might, just a quick follow-up for Safra. A question on cash flow. 2nd quarter is seasonally a low cash flow quarter, but the results this quarter were less than we were at least within we had modeled. If you could just comment on that?
Yes. Well, you have to look back actually at both Q4 and Q1. We had really excellent cash flows as a result of collections were very, very, very high. In fact, they were higher, significantly higher than earnings. And so we collected a lot.
So this quarter is just a little bit lower. And in addition, we had $400,000,000 plus in tax payments, which impacts it. So that's really all there is.
Okay, great. And that's actually the delta between the $400,000,000 is delta between what we were looking for and what you did. So thanks very much. Sure. Next question please.
We will go next to Kash Rangan of Merrill Lynch.
Hi, thank you very much. Happy holidays to the Oracle executive team. Mark, you made some comments regarding the sequential unit growth rate in Exadata, 70% sequential growth and a few other things that were discussed. Does this mean that you're tracking well towards the 100% goal that you outlined earlier for Engineered Systems and also the $1,000,000,000 run rate or any puts and takes there? And I guess one question for you, Safra.
The fiscal plus, any comments there with respect to customer behavior as we go into February quarter? That's it for me. Thank you.
Well, thanks, Kash. Happy holidays to you too. I would tell you from an aspirational perspective, we're changing nothing. Our objective is to double the Engineered Systems business. In various quarters, we may be above that or slightly below it.
But generally speaking, that's the trajectory we're on and you're going to see us keep pushing on that. So with that, I'll turn it over to Sabra.
Yes. Well, as you can see in our numbers, folks wanted to spend their budgets, continue to want to spend their budgets. We are having an absolutely wonderful December so far. So what's going on in Washington, I don't know who it's necessarily influencing today, but I can tell you our customers are have been spending money with us even here in December.
That's good to hear, Safra. Hope the debate continues in Washington and actively sell software. Thanks again. Bye.
Thanks, Chad.
And next question from Jason Maynard of Wells Fargo.
Hey, guys. Good afternoon and congratulations. I had a question about sales performance and productivity. There obviously were a lot of questions the last quarter or so about changes to the sales force and sales headcount ramping. And now for 2 quarters in a row, new software licenses done probably better than most on the street have expected.
I'm curious Mark just to get your characterization in terms of productivity ramping for those net new hires and how are you feeling about the back half of the year and delivering, if you will, as you get into obviously your bigger Q4? Thank you.
Well, without making too many forward looking statements, we're talking about Q2 and Q3 forecast. But I mean, in general, I think, Jason, we feel great. I mean, we're a very attractive company in terms of attracting talent. So the first question is, do I think the people we're hiring are great people? We think we're getting the best people in the industry, point 1.
Point 2, we think we're very capable and doing a good job assimilating those people as you know to your productivity ramp. That's a big deal how we train them, how we prepare them, how we get them oriented in terms of being getting them ready to sell and beat competition. As we talked before, we've lined up our sales force. We line them up against our secular competitors. We specialize them.
We train them to be experts in their products. And as you know that takes time. We generally plan on a 12 month ramp time for salespeople to come in and frankly not to be very productive. If they are productive, then frankly that's gravy for us. And we've seen ramps at, I would say, the speeds we expected or faster.
And as a result, in some regions, I mentioned one in Europe, I would say we have some other regions in the country that actually moved a little bit faster in hiring and you see those show up in the pipelines and you show it up and you see it in the results that we're showing. So, we feel great about the talent we're attracting. We feel great about the assimilation process. And I've got news for you, Jason. We're actually still hiring.
So we plan to hire more because as we specialize the sales force, it actually creates a need for us to have more people. We're hiring in our verticals. We're hiring in cloud. We're hiring in every single region. And again, I'll put out this call, those of you that have talented people that are looking for a great company to join, please send us their resume because we're looking for great folks.
Yes. We're also hiring in BI. I'll give you a whole list. It's true. I mean, listen, just to give you some kind of Larry mentions BI, we've gone in some regions where we've more than doubled our headcount.
By the way, to be clear, that's in the cost structure. We just gave you. So we've done some work to get some other things a little bit more efficient as we've done it, but we've really ramped up. And so this is in our view, this is how you grow. When you have great products, you get great people out there representing the products in the industry.
Let me just say that I think Mark and his team in the field have done an extraordinary job of ramping the sales force without increasing sales expense. So we've dramatically improved the tooth to tail ratio of our field sales organization. And that is we've added salespeople and sales consultants, while getting while downsizing some of the groups whose job was to help. So we specialized our sales force, increased the size of our sales force, added sales consultants, added sales people and kept expenses pretty close to flat. So we have a lot more firepower right now in terms of our distribution organization.
And we're going to keep doing that for at least the next 18 months. So again, we're going to do it very conservatively. We're going to add the capacity without adding the expense. All
right, great. Thank you very much. I appreciate it. Thanks.
And we will go next to Heather Bellini of Goldman Sachs.
Great. Thank you very much. I'm just wondering, Mark, given all the enhancements you made with the release of Fusion, can you share with us the type of attach rates you're seeing of the add ons that are not included in the maintenance payments people are making? And secondly, I guess given the success you're seeing in the cloud subscription revenue line, how should we think about this in terms of the software license update growth rate going forward if at all in terms of
the impact it could have? Thank you.
Okay. First, a lot of questions here Heather. I think first in terms of module attach, I mean these are very early days, right? So module attach in our view is a long term strategy. The fact that we would sell recruiting in HCM and then self succession planning, maybe that even leads to core HR.
So, our attach rate, we look at it over a number of years. So for example, in the quarter, we had some very significant logos. I read only a few of them, where we closed the module. And frankly, as soon as we close the module, we have proposal for another one, another one, etcetera, etcetera. So it's a core part of our strategy in terms of attach.
And I say that in terms of attach a module to module. Your question about subscription rate and I think your point was I think you were trying to tell me how should you think about the growth of it. And frankly, there's a couple of different dynamics to it. And I'm going to let Sanford decide how we're going to talk to you about that because it's a combination of new annual recurring revenue that we measure very closely. And then we measure renewal rates very closely.
But they're frankly 2 separate metrics and then there's a third metric, which is the expansion of an existing customer. So you've got both, I've got the customer, I'm going to expand them. That's one opportunity. The second, I'm just going to renew the customer I've got. And then 3rd, a net new logo.
And the combination of those three create annual revenue. So that's how I'd say we think about it.
Okay. So Heather, I think what you're trying to get to is whether our software update number is going to slow down as people maybe from on premise to cloud. And I think at this point, where we are is that you actually have to kind of understand the scale of these things. Because as a general matter, folks who are already on premise will buy some SaaS modules and as add ons. And to the extent that they are converting from one to the other, the first thing is, as a general matter, we always get more money, so first.
Secondly, I want to just remind you that our support number, the thing we call software licensing updates and product support is $4,200,000,000 In fact, the after the point number, the 260,000,000 dollars That's actually bigger than our SaaS number. So let's say, it's just not going to have material impact. Our renewal rates remain extremely, extremely high. And over the next it took us 30 years to get to $4,200,000,000 As customers convert, we'll theoretically, it might not grow as quickly. But at this point, we've got a long way to go.
I would stay extremely bullish on our high, high renewal rates and expect that number to grow and our SaaS number grow simultaneously at much higher percentages because it's a smaller base. Thank you.
Next question please.
And we will take our next question from Brendan Barneyco of Pacific Crest Securities.
Thanks so much. Saffir from
your comments it sounded like you guys are seeing a year end budget flush, which is pretty encouraging. Are you noticing any changes in pricing or the pricing environment?
Things are going very, very well, obviously. Things are going well. Folks want to close deals. Folks want to close deals in November. They want to continue to close deals now in December.
It's good. So far, so good. No negative impact on pricing. Pricing remains very good for us all around. Remember, we have deepest, broadest product line in the industry.
Really, no one has everything we have. And as a result, customers, when they come and buy from us, they often buy many things. And as a result, I think they're happy with their pricing and we're happy with their purchases.
Next question please, please.
And we'll take our next question from Mark Murphy of Piper Jaffray. Yes.
Thank you very much. From what you've described, it sounds like the database business is performing well and that there's really been no let up there. But the 12C product cycle is coming here soon and we've heard it described as a very big leap forward. So I'm just wondering how should we think about the impact of 12C of that product cycle in terms of what it means both for the industry and also for your database revenue growth?
Well, I think the big component of 12c is the fact that it's the first database really designed for the cloud. In other words, we moved the multi tenancy feature out of the application and down into the database layer, which gives people much better capability, much better security. And we think a lot of people who a lot of companies like salesforce.com or NetSuite are customers who want to take advantage of Oracle 12c. It will make their businesses much more efficient. It will make their customers much more secure and much more reliable.
They'll get better performance and so on. So we think it will greatly enhance our own cloud offering. We think it's very attractive to our customers who are putting in their own private clouds. So our enterprise customers are often are installing private clouds rather than doing more traditional database implementations in their data centers. So the key component or the key feature of Oracle 12c is the fact that it moves multi tenancy down into the database layer.
We think it will help our cloud business. It will help all of the cloud companies that depend on the Oracle database and will be very, very attractive to our enterprise customers. So I think it will drive growth. It will drive growth of the Oracle database for the next several years.
Yeah. I wouldn't model anything short term into it because, as you know, our customers who are paying for license updates and product support are entitled to the product as part of that. And over time, they upgrade to it over multiple years. But because of the additional features, we do think that it makes us even more competitive. And we actually expect to continue to gain market share as we have for the past 20 years.
Yes. Just on the quarter too on the database business, we had big growth. We had good solid growth in every region. And we did it across not just the core database, but also our options. And we've had a release of Enterprise Manager that's had quite a positive impact too.
We've had solid growth in Enterprise Manager. So when you look across every region and you look across each of the three core elements of our database business, we had strong growth in the quarter.
Thank you very much.
And we will take our final question today from Brad Ryback of Stifel Nicolaus.
Great. Thanks a lot. Mark, you mentioned during the prepared remarks that verticals were up about 60% year over year. Could you give us some color around that? Is that a function of just the increased coverage, product set, taking market share?
Thanks. Yes. I think I mean, listen, we put a lot of effort into our verticals. We're a strong believer as a team in this strategy that when we actually solve a customer's problem, their business problem, those are discussions we're having at the CEO level. And the implication it has strategically for us as well as the customer is huge.
So not only do we get the opportunity to get that growth in the vertical business that you're describing, but the pull it has across our entire product line is material. So I think in addition, we've invested a lot of R and D. We've made some acquisitions. We feel great about our position in communications. Our position in retail, our performance in retail has been outstanding, just outstanding.
The implications had across our entire product line has been profound in terms of just the growth that it's driven. We've made big investments in financial services, big investments not just in product, but also in scaling out our sales force. So those 3 are very big industries in terms of just the total spend. I guess service is probably the biggest when you take manufacturing about from being sort of segmented into multiple industries. And so those 3 have been very big for us.
We've made investments in utilities, which we saw growth in utilities again in the quarter. We've seen growth in healthcare in the quarter as well. And then I would say overall, just to finish it, we've had it, we've invested in growth, our pipelines are up. And not only we feel good about the quarter, we're optimistic about the verticals as we go forward as well. Thanks.
And that does conclude today's question and answer session. I'll now turn the call back to Ken Baughn for closing remarks.
Thank you, operator. 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, and we look forward to speaking with you. Thank you for joining us today.
And with that, we'll close the call, operator.
Thank you. And this does conclude today's conference call. Once again, we would like to thank everyone for your participation and have a wonderful day.