Q3 2014 Earnings Call Transcript

Transcript Call Date 03/18/2014

Looking at GAAP results by region, the Americas grew 9% with Latin America particularly strong, and EMEA grew 3%, Asia Pacific though declined, with Australia and India both down.

Within software cloud subscriptions were 292 million, up 24% from last year as our cloud business continues to ramp, bookings growth was again much higher than cloud subscription revenue growth. We've been using Fusion accounting for our own financial reporting for two years and revenues for all portfolios of Fusion, including financials, supply chain, HCM, and customer experience grew triple digits.

Now, as our cloud business becomes more material, I want to share how cloud subscriptions effect our financial. Most obvious is that revenue is initially lower as subscription license revenue is recognized over the life of the agreement as opposed to license revenue being taken upfront.

Over time, since we are providing much more than just the software and the updates the revenue is higher. The additional value we are providing is the hardware including our engineered system, the hosting, and the expertise that only Oracle can provide while leveraging the economies of scale that we have.

So, while customers are paying over time, they're using and paying for more Oracle products through cloud subscription. They are paying less in total because they too can benefit from our operating synergies. Net-net, the cloud operating business is attractive for both customers and for Oracle, but especially so given the integration of Oracle hardware, software, and expertise.

For software, database continues to do very well, with Exadata, Exalytics, and business intelligence software products all up more than 30%. Also strong was customer experience or CRM both on-premise and SaaS, as well as our communications and project management verticals. The quarter was not dependent on any one large deal. Hardware system product revenue was $725 million up 10% from last year. Obviously we are pleased to have exceeded our guidance, but it's also nice to report growth. Engineered systems grew more than 30% and this spectacular growth is reflected not only in our hardware growth but also in the very long list of customer wins we had against IBM.

Engineered systems, now accounts for nearly a third of all hardware product sales. Hardware gross margins are down about 2 points because we are packing the newer systems with more memory without raising prices. Hardware support was $600 million up 7% from last year but down sequentially, our normal seasonal pattern.

For the Company total revenue for the quarter was $9.3 billion up 6% from last year. Non-GAAP operating income grew $188 million to $4.4 billion up 6% over last year and the operating margin was 47% again. We believe we can invest for growth and make money as we continue to see leverage in our business model. As I mentioned earlier, included in our non-operating expense is a foreign currency re-measurement loss of $110 million related to our Venezuelan subsidiary. Were it not for this loss, EPS would have been $0.02 higher.

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