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, operator. Good afternoon, everyone.
A copy
of the press release and financial tables, which includes a GAAP to non GAAP reconciliation and other supplemental financial information and information obtained from our Investor Relations website. On the call today are we
have 30 minutes to questions if you want to, and also to to network with our practitioners who like to do that as well.
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region in Chicago who are giving us a gorgeous day outside to sit inside the room of the universe.
A really strong quarter to finish the year in the face of sort of a wild Europe global economy month closed news cycle. Since we were actually ready and in an effort to permit us to speak more freely, we thought you wouldn't mind if we release today instead. I'm going to focus on our non GAAP results for Q4 and fiscal 2012. I'll then review guidance for Q1 and then turn the call over to Mark and Larry for their comments. With the strengthening U.
S. Dollars, the currency headwind for the new software license for new software license was 5%, which many of you remember is 2 percentage points higher than our guidance. Total revenue saw a similar effect as the currency headwind was higher than expected. As a result, my remarks hereafter reflect constant dollar growth rates unless I tell you otherwise. For the full fiscal year, we delivered 9% new license growth in constant dollars following, of course, a spectacular year last year at 19%.
Our software business surpassed IBM's last year and has now grown at more than double the rate of IBM over the last 5 years. We delivered 11% EPS growth for this fiscal year after reporting 33% last year and we still averaged nearly 20% growth over the last 5 years. Obviously, we couldn't be happier with our Q4 results. The new software license revenue for the quarter was at the high end of my guidance to a record $4,000,000,000 up 12%. We're especially pleased as this was the 3rd consecutive year that we reported double digit growth for the Q4.
On a trailing 12 month basis, our new license growth as reported over the last 5 years is nearly double that of SAP. We continue to see broad based geographic and product momentum as technology new license revenues were $2,700,000,000 up 5% following double digit growth in each of the prior 2 last 2 years. Applications had a fantastic quarter, growing to $1,300,000,000 up 27 percent, this on 16% growth last year. All the regions, including EMEA, reported double digit growth in applications, with North America reporting an amazing 38% growth. Geographically, the quarter was strong and balanced with new license growing 16% in the Americas, 13% in APAC and 2% in EMEA.
And again, the quarter was not dependent on any large deals. Software license update and product support revenues were $4,200,000,000 up 8% on this highly profitable and recurring part of our business. Hardware system revenue was $977,000,000 for the quarter, which was above our guidance. Engineered Systems business is now running at an annual rate of over $1,000,000,000 or so and the growth rate of this business has been nothing short of amazing. Hardware gross margins were 51% for the quarter on lower volume than we had last year.
Total revenue for the quarter was $11,000,000,000 up 5% from last year. In addition to our strong top line performance, we're pleased with our non GAAP operating income of $5,500,000,000 which was 10% higher than last year as operating margins expanded to 50% from 48% last year and the full year operating margin was at 46.2% as we continue to see ample leverage in our business model. The non GAAP tax rate for the quarter was 21.8%. Okay. Sorry, I am not in my regular position.
So I'm just trying to put together what I've got here. So let me move on to guidance. So assuming okay, non GAAP sorry, not ready to go there. Non GAAP EPS for the quarter was $0.82 above our forecast even after considering the favorable tax rate that we're able to put these top line and bottom line results given our size once again demonstrates the strength of our diversified portfolio of enterprise products, the breadth and loyalty of our huge customer base and the strength of our operating model. The fact remains that we have products in the data center, in the cloud and everywhere that customers want to buy.
We now have $30,700,000,000 in cash and marketable securities and operating cash flow increased to a record $13,700,000,000 for the year, while free cash flow increased to 3.1 13 $100,000,000 for the year, up 22% from last year. Over the last 5 years, our free cash flow has grown at an average of 20%, further demonstrating the strength of the business model. As we've always said, we are committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases, prudent use of debt and a dividend. This quarter, we repurchased 87,600,000 shares for a total of $2,500,000,000 for the full year. We repurchased more than 2 7,000,000 shares for a total of nearly $6,000,000,000 The record share repurchases of this year will nearly match those of the last 3 years combined.
As you saw in our release, the Board of Directors authorized the repurchase of up to an additional $10,000,000,000 of common stock under our existing share repurchase program in future quarters. The Board again declared a dividend of $0.06 I'm going to move to the guidance. I will say in advance, obviously, I do read the same newspapers you all do and do keep up with the news of the economy, etcetera. And so I have tried to keep that in mind in my guidance regardless of our achievements in the Q4. So assuming exchange rates remain where they are at current levels, which right now is a negative 5% currency impact on license growth rate and on total revenue growth rates.
Our guidance for Q1 is as follows. New software license revenue growth on a non GAAP basis is expected to range, these are in constant dollars, 5% to 15% in constant currency or 10% to 0% to 10% on current rates. On a GAAP basis, we expect new software license growth range to be anywhere from 4% to 14% in constant currency and negative 1% to positive 9% under current rates. Hardware product revenue growth is expected to range from negative 12% to negative 2% in constant currency and negative 17% to negative 7% in current rates and that doesn't include the hardware support revenue. Total revenue growth on a GAAP and non GAAP basis is expected to range from 3% to 6% in constant currency and negative 2% to positive 1% in current rate.
The non GAAP EPS is expected to be anywhere from $0.54 to $0.58 in constant currency or $0.51 to $0.55 at current rates, up from 0.48 dollars last year. GAAP EPS is expected to be $0.40 to $0.44 in constant currency and $0.37 to $0.41 at current rates. This guidance assumes a GAAP and non GAAP tax rate of 23.5 percent. Of course, it may end up being different. With that, I will turn it over to Mark for his comments.
Thanks, Safra. I'll just make a couple of comments and turn it over to Larry. We're lining up to drive even more growth. We've lined up our North American organization to compete with our new application competitors. And just to be clear, we're not lining up our sales force, they are already lined up.
In Q4, we integrated Taleo and right now into North America and had record bookings. In Q4, we lined up territories to be ready on June 1. This is the earliest I'm aware of that we've ever had territories and comp plans aligned. Everyone has a boss, a territory and a comp plan. We've asked Joanne Olson who runs cloud services to run our North American applications business.
Many of you know Joanne, she is one of our most capable executives, all in an order to get prepared to compete and drive more focus and more growth. There are no changes to our tech or hardware sales forces, no changes in any other geographies. We will continue to specialize our sales force against our secular competitors to take advantage of what we believe are significant growth We added 500 sales and pre sales people in the 4th quarter. That makes a net increase of 3,300 people this year. Field and sales attrition are down materially over the past couple of years.
Better news, attrition amongst our top performers is down materially as well. We have the best product lineup in the industry, a great pipeline and sales resources to drive even more organic growth. This year, we added sales resource while managing our expenses. We further specialized our sales force. We also worked to ready the team earlier than ever before to execute for the upcoming year.
In closing, it was not only a strong numerical quarter in licenses, engineered systems and SaaS signings. We did the things that you won't see in the numbers to prepare for future growth. With that, I'm going to turn it over to Larry.
Thank you, Mark. Well, Safra walked you through the numbers and to me the 12% constant dollar growth for new software licenses really stands out. We sold $4,000,000,000 in software for the first time ever and this growth comes off double digit comparisons over the last 2 years. Software had a fantastic quarter on multiple fronts including applications growth of 27% in constant dollars. The Oracle Cloud is now open for business.
And with the addition of RightNow and Taleo, we're already the world's 2nd largest SaaS company with bookings approaching $1,000,000,000 run rate. Human Capital Management had a great quarter with SaaS wins over Workday at UBS, Societe Generale and Vivendi. CRM also had a great quarter with SaaS wins at Green Mountain Coffee, Twist Life and Graco. Our industry focused businesses grew faster than our other software sales this quarter with strength in healthcare, retail and financial services. Over the last 5 years, our GBUs have grown approximately 4 times faster than our other software businesses.
By helping customers automate their strategic industry specific processes, we position Oracle to sell the customer our entire stack of integrated technology. Hardware, another great quarter for Engineered Systems. We came very close to booking as much business this quarter as we did for all of last year for Engineered Systems. Q4 bookings were $274,000,000 In FY 2011, bookings were $300,000,000 for Engineered Systems, very exciting. Both Exadata and Exalogic saw triple digit bookings growth with great wins at PayPal, Deutsche Bank, Telefonica, Facebook and SAP's largest oil and gas customer in Europe.
Exologic continues to ramp faster than Exadata And Exalytics, our in memory analytics competitor to SAP's HANA is ramping faster than Exalogic. In Exalytics 2nd quarter, since the product was released, unit bookings are more than double Exalogic and 10 times those of Exadata in their 2nd quarters respectively. ExelioDx may very well be the strongest engineered system value proposition Oracle has yet released and we're not seeing much competition from HANA. We had a great exolytic wins at Toshiba, Sodexo and Thomson Reuters, who also bought Exadata, Exologic and Big Data Appliance Systems during the quarter. While we exceeded our hardware forecast this quarter, our focus remains on returning the overall hardware business to growth in FY 'thirteen.
With that, I'll turn it back over to Ken.
Thank you, Larry. Operator, we could begin the Q and A portion of the call please. Thank
you. And we'll go first to Jason Maynard with Wells Fargo.
Hey, good afternoon, guys. Congrats on the quarter. I'd love to
get a little bit more color
on this transformation into selling Ekso Systems and to get your perspective in terms of how ready willing is the customer for sort of mainstream adoption and how much more work do you have to do in terms of getting all the products lined up in terms of making that, if you will, that call it a mainstream type of push, so we can see Exa become an even greater percentage of the hardware business? Thank you.
Okay, Jason. I'll start then turn it over to Larry for a couple of comments. As Larry stated, our revenue in Engineered Systems more than doubled in dollars year over year and that's with the effect of currency. So we had material growth in Engineered Systems over the course of the year. And I think what you saw in Q4 what we saw in Q4 was some pretty material movements in terms of existing customers buying many more.
And these are brand names, Jason. Brand names buying now instead of 2 or 3 buying 10 20 to the point that it became as big a number as Larry described where in the quarter we frankly almost booked as much as we sold all of FY2011. So I think it's just exactly what you would expect. It's blocking and tackling for us, getting customers to try the technology. It's a disruption to their normal path of business.
Remember all of our Exadata solutions combine servers and Exadata combines storage well as software. And I think the ramp you're seeing is superb and I think you should expect to see it again in 2013. With that, I'll turn it over to Larry.
Yes. Well, again, we expect our Exosystem business to approximately double in the current year. And the systems, while they're very, very fast right now, they're getting even faster as we adopt Intel's latest chips, the latest InfiniBand technology, the latest enlarged flash memory systems. So we're riding that technology curve and improving our Exa systems at a much faster rate than let's say IBM is improving its power systems. So while we're faster than IBM Power now that advantage is going to grow over the coming year and coming years.
This creates 2 interesting opportunities. 1 is for us to become the number one player in high end systems. Again, we expect to exit this current year, selling about the same unit volume in the XL line as IBM sells in their power line. And we think at a somewhat higher unit price. So we think we're going to come very close to moving to the number one position in high end systems.
That is not the end game here. The most interesting part of Exa is not that we just deliver the highest performance of any computer out there. It's that our cost performance is so attractive. Remember, AXA is built out of commodity X86 machines or Xeon server parts. Therefore, we have the ability to not only achieve very high peak performance, but also achieve industry leading cost performance.
And so we think we actually can eat into the commodity business as well as the high end server business. So we think AXA applies not just to high end computing, but up and down the line, which gives us incredible growth potential going forward.
Yes. Jason, just to close when Larry's talking about 2x, we are forecasting a big 2013, again, a doubling effect of engineered systems again. And so listen, you can feel the momentum. We can certainly see it in our pipeline and we can see it in our results and that Q4 was extremely strong for us.
Okay. Next question please. Great. Thank you.
Our next question comes from Heather Bellini with Goldman Sachs.
Hi, yes. Good afternoon. Thanks for taking my question. I had a question following up on Jason's about the AXA product line. This seems to be the Q1 in a while where you guys have been able to really upside surprise and do the high end of the range on the hardware side.
And I'm just wondering specifically what even listening to your comments, what specifically changed this quarter? Is it some of the new exit products ramping? Is it the sales force more comfortable? And also kind of do you guys feel now that you have enough history where you're comfortable with the guidance forecast given I think it was probably a little bit harder business to forecast given you didn't have the history, Safra, that you did with the license business. So I'm just wondering if you could share some thoughts around that.
Thank you.
I'd like to comment. This is Larry. It's really a very, very simple answer. We had a large commodity hardware business that was getting smaller a year ago and a small exit business that was getting larger. Now
as Okay. Thank you very much and good morning to you all. I'm here in Paris alongside with the business. You've seen the press release this morning. The purpose of this call now is to give you some more color on the adjusted EBITDA guidance and to answer, I'm sure, many questions you may have,
again, as we're ramping very rapidly.
We've put together some slides for that and we may refer to that. Before I start, however, there's something I would really like to call the large and theaters.
AXA doubles. That's going to move the needle dramatically. So we expect that the hardware story this current fiscal year to be a growth story driven largely by AXA and a growth story not just on the top line, but also great margin expansion to go along with it.
Yes. And Heather to add to Larry's comments, as it relates to EXA itself, we had a pretty linear progression of improvement throughout the year. It might have a little more in 1 quarter than the other on that pure linear view. But Q4 was really I think nothing more than the culmination of a consistently growing pipeline through the year. And even with what we delivered in Q4, we also in Q4 saw our pipeline increase yet again.
So I think it really has been all of the things you described. It's customer familiarity. It's us getting out showing the technology works. We have so many customers that have now not only tried the product, tested the product and now bought the product, implemented the product. It just all plays together.
And I think to Larry's point, we expect a very strong year in Exa in fiscal 2013. Next question please.
Okay. Thank you.
And let me just say one other thing, Heather, that I don't know if we mentioned it on this call so far is that we do expect hardware numbers to be up for the year. So year over year, we do expect them to be positive.
Thank you.
And our next question comes from Philip Winslow with Credit Suisse.
Hi, guys. Great quarter. Just have a question on the applications business. You saw a really strong license growth there this quarter, definitely a pretty substantial snapback over the past couple. Just curious what is driving that reacceleration that applications growth rate?
And then also Larry or Mark, wondering if you could provide any specifics around any sort of cloud wins or fusion wins or kind of early feedback on those 2 that would be great.
On the app side, I'd just make this comment. It was broad based. There is no single region. There is no single deal. And by the way, it was cross pillar, if I can use that word.
It was strength in CRM, strength in ERP, strength in HCM. So it was broad based and I really can't give you a region. And by the way that includes Europe. So it was fairly broad based across pillar and across region. In terms of SaaS wins, I'll turn it over to Larry.
He mentioned a couple and he can talk to you a little bit about some of our progress in the cloud and wins there.
Yes. Well, when we announced the Oracle Cloud a short while ago, we put up a lot of wins against salesforce.com, a lot of wins against Workday. So right now, we're the only major application supplier that has a large business in SaaS and a large business in on premise. So we're really competing in both sides of the business. And I think that's bodes very well for our future.
So depending on the customers are somewhat self selecting. They come in wanting a SaaS solution for HCM. We have something to sell them. They come in wanting a SaaS solution for Salesforce automation or service automation or for that matter financials accounting. We have something to sell them.
We also obviously can deliver that same solution on premise. It just gives us I think a terrific competitive advantage. Both the breadth of what we sell in applications as well as the fact that we offer on premise solutions and in the cloud solution. And let me throw out the last piece is we maybe the most outstanding of all of the application areas. And again, I could like the second one Mark said, it was very broad based.
But perhaps the most outstanding was our industry specific applications, which had a phenomenal Q4. And that's again an area where Oracle differentiates itself against most of its competitors. We have Internet Banking and loan origination in Financial Services. We have healthcare systems. We have retail merchandising systems.
We have a lot of industry specific applications that none of our big name application competitors have.
Big advantage in breadth and depth. I think adding to Larry's point just to brag on our SaaS stuff yet again. We between the HCM release early in the year, as I mentioned in Q4, we integrated Taleo with the HCM team. The wins that Larry described earlier, Satya, the General, UBS just to name a couple, are material wins. Our win rate now has gone up to the point that we're winning most of the deals that we get down into a mano a mano square off with our competitor.
And we did a lot of work in Q4 to get that done. To Larry's point, you saw a ramp up in CRM, sales automation in the quarter as well as we integrated right now into North America as well. So did a lot of work in Q4. And as Larry mentioned in a week ago as we did our cloud launch, the number of wins was significant in the quarter.
Great. Thanks guys.
Next question please.
Our next question comes from Adam Holt with Morgan Stanley.
Great. Thank you. And I'll echo the congratulations on the quarter. My question is about the increase in sales capacity. Mark, I think you mentioned 3,300 people.
Where do you think you are in ramping that capacity? And where are you directing it as you head into next year? And maybe for Safra, how have
you been able to do that
keep sales and marketing roughly flat year on year? Thanks so much.
All right. I'll start and turn it over to Safra. They are going exactly where you would expect them to go. They're going into SaaS, focused in HCM, very focused in service automation and sales automation. We also have growth in our industry business units, as Larry referenced.
They are growing quite well and they do a great job strategically for us when they grow a material amount of Oracle revenue flows with the industry applications as they go. So we're growing headcount in that area. We've grown headcount in our engineered systems. I've mentioned the pipeline. You see the results in Q4.
We have a focus in both middleware solar where we believe we have a strong competitive lead over competition namely IBM. In addition to that, we feel very good about the alignment of our BI offerings and the release of Exolytics. So all of those areas are focused areas where we're increasing our sales force. And adding to it, most of that work again was done in FY 2012. We are working to increase the productivity as we assimilate those people into the organization this year.
We will still have adds in fiscal year 2013, but most of the hard work was done as part of FY 2012. With that, I'll turn it over to Sankra for her comments on expenses.
Well, what's really been done by Mark and his team is really reshape the sales force that we have a lot more firepower, less staff, less helpers, more folks with quotas and delivering back to us. So as all those folks have are going to full capacity, we're very excited about this next year, but we've really reshaped the sales force during FY 'twelve. And we were able to keep expenses where they needed to be by really changing our ratios.
Great. Thank you.
Next question please.
Next we'll hear from Kash Rangan with Merrill Lynch.
Hi. I'm curious to get your thoughts on the overall macro environment not that Safra has already pointed out that you guys are not economists, but what's the tone of customer conversations like? And I guess follow-up for Safra, how conservative are the close rate assumptions to generate the forecast? And I have a follow-up. Thanks.
I'll let Safford deal with any questions about the macro economy.
Well, Kash, I'm sorry to disappoint you. We have not become economists this quarter. And we don't have any idea what's going to happen. So you've been in this with us a couple of times and so you know that as a general matter, we look at what's going on and try to stay conservative. Who knows, depending on what's happening?
It was a very tumultuous end of May. Some of you remember, we closed our quarter in the I was actually in Europe for part of it as the news was full of a global catastrophe. So we worldwide in the face of this, I'd like to stay conservative, but it may not turn out being conservative depending on the euro, depending on whatever. And of course, we always do feel some level uncertainty as folks run to the dollar. And of course, I've got to keep that in mind also, ultimately, and you guys need to keep that in mind in your models.
The tone from our customers, a lot customers understand the value that we bring to them. We are important and very strong partners for them to reach their own goals. And as a general matter, as you can see the results that our customers vote with their pocketbook and we expect them to do the same this next year.
And if I could, the Engineering Systems layer, to your point, has been on a tear. Can you give us some feel for if the business is going to double again, who are you going to be winning market share against relative to the cast of characters, IBM, HP, Teradata? These are some high end systems companies that come to mind. Just curious if you can give us some color on who you hope to get share from? Thanks.
Well, I think this coming year most of the share will be from the high end guys. So we'll be encroaching on the suppliers of high end servers and the leader of the supplier of high end servers is IBM and then there are specialized players like Teradata. But it's going to be in the high Long term cash, I think it's more interesting. Long term, the Exadata, Exalogix, Exalytics machines because they're built out of commodity parts, deliver again not only allow us to encroach and get become the number one player at the high end and peak performance. I think it will we have a good chance of becoming the number one player in cost performance and that allows us to take share from the commodity guys.
And we're very excited about that prospect for our long term growth of the AXA line. However, for next year, I think the primary competitor is IBM PCers.
Thank you very much.
Operator?
And our final question will come from Brendan Barnickel with Pacific Crest Securities. Thanks so much for taking my questions. Sabrina, I just wanted to follow-up on Kash's question and see if you saw any changes at all in pricing or renewal rates at all during the quarter?
No. Everything stayed really, really strong. It was really kind of 2 stories, meaning what we were seeing on the news and what we were seeing in our business. So everything remained really strong. We had a lot of big renewals, a lot of renewals.
Everything just went business as usual. And it was a great quarter end, I mean, obviously. And everybody remained really, really strong all the way all around the world.
Operator?
That does conclude our question and answer session. I'd like to turn it back to our speakers for any additional or closing remarks.
Okay. Thank you. A telephonic replay of this conference call will be available for 24 hours. Dial 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 the call back to the operator for closing.
And that does conclude today's call. Thank you all for your participation.