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Financial News Details

Oracle Reports GAAP EPS of $0.51; Non-GAAP EPS of $0.63

December 16, 2015

Cloud SAAS and PAAS Revenues Up 34% in U.S. Dollars and Up 39% in Constant Currency

REDWOOD SHORES, CA -- (Marketwired) -- 12/16/15 -- Oracle Corporation (NYSE: ORCL) today announced fiscal 2016 Q2 results. The strengthening of the U.S. dollar compared to foreign currencies had a significant impact on results in the quarter. Total Revenues were $9.0 billion, down 6% in U.S. dollars and unchanged in constant currency. Cloud plus On-Premise Software Revenues were $7.0 billion, down 4% in U.S. dollars and up 2% in constant currency. Total Cloud Revenues were $649 million, up 26% in U.S. dollars and up 31% in constant currency. Cloud software as a service (SaaS) and platform as a service (PaaS) revenues were $484 million, up 34% in U.S. dollars and up 39% in constant currency. Cloud infrastructure as a service (IaaS) revenues were $165 million, up 7% in U.S. dollars and up 11% in constant currency. Total On-Premise Software Revenues were $6.4 billion, down 7% in U.S. dollars and unchanged in constant currency. Total Hardware Revenues were $1.1 billion, down 16% in U.S. dollars and down 10% in constant currency. Total Services Revenues were $861 million, down 8% in U.S. dollars and unchanged in constant currency.

Operating Income was $3.0 billion and Operating Margin was 33%. Non-GAAP Operating Income was $3.7 billion and non-GAAP Operating Margin was 41%. Net Income was $2.2 billion while non-GAAP Net Income was $2.7 billion. Earnings Per Share was $0.51, while non-GAAP Earnings Per Share was $0.63. Without the impact of the U.S. dollar strengthening compared to foreign currencies, Oracle's reported GAAP Earnings Per Share would have been 5 cents higher and non-GAAP Earnings Per Share would have been 6 cents higher.

Short-term deferred revenues were $7.0 billion, up 3% in U.S. dollars and up 9% in constant currency compared with a year ago. Operating cash flow on a trailing twelve-month basis was $12.9 billion.

"We're very pleased with our non-GAAP EPS of $0.63, beating the mid-point of guidance by 4 cents despite a stronger than expected currency headwind," said Oracle CEO, Safra Catz. "We grew our SaaS and PaaS revenue 38% in constant dollars this past quarter, and we expect that revenue growth rate to accelerate to nearly 50% in Q3 and close to 60% in Q4. This rapid increase in our cloud revenue will help drive our SaaS and PaaS cloud gross margins from 43% in Q2 to approaching 60% in Q4 and drive significant EPS growth in Q4."

"It was a very strong growth quarter for our cloud business, with SaaS and PaaS bookings up 75% in constant currency and billings up 68% in U.S. dollars," said Oracle CEO, Mark Hurd. "We did 100 Fusion HCM deals and over 300 Fusion ERP deals in the quarter. We now have more than 1,500 ERP customers in the cloud -- that's at least ten times more ERP customers than Workday."

"We are still on-target to sell and book more than $1.5 billion of new SaaS and PaaS business this fiscal year," said Oracle Executive Chairman and CTO Larry Ellison. "That is considerably more SaaS and PaaS new business than any other cloud services provider including salesforce.com."

The Board of Directors also declared a quarterly cash dividend of $0.15 per share of outstanding common stock. This dividend will be paid to stockholders of record as of the close of business on January 6, 2016, with a payment date of January 27, 2016.

Q2 Fiscal 2016 Earnings Conference Call and Webcast

Oracle will hold a conference call and webcast today to discuss these results at 2:00 p.m. Pacific. You may listen to the call by dialing (816) 287-5563, Passcode: 425392. To access the live webcast of this event, please visit the Oracle Investor Relations website at http://www.oracle.com/investor. In addition, Oracle's Q2 results and Fiscal 2016 financial tables are available on the Oracle Investor Relations website.

A replay of the conference call will also be available by dialing (855) 859-2056 or (404) 537-3406, Pass Code: 1507329.

About Oracle
Oracle offers a comprehensive and fully integrated stack of cloud applications and platform services. For more information about Oracle (NYSE: ORCL), visit www.oracle.com or contact Investor Relations at investor_us@oracle.com or (650) 506-4073.

Trademarks
Oracle and Java are registered trademarks of Oracle and/or its affiliates. Other names may be trademarks of their respective owners.

"Safe Harbor" Statement: Statements in this press release relating to Oracle's future plans, expectations, beliefs, intentions and prospects, including statements regarding our expectations of future growth in our SaaS and PaaS gross margins, revenues, EPS and bookings; and the timing of such growth are "forward-looking statements" and are subject to material risks and uncertainties. Many factors could affect our current expectations and our actual results, and could cause actual results to differ materially. We presently consider the following to be among the important factors that could cause actual results to differ materially from expectations: (1) Economic, geopolitical and market conditions, including the continued slow economic recovery in Europe, parts of the U.S. and other parts of the world, can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price. (2) We may fail to achieve our financial forecasts due to such factors as delays or size reductions in transactions, fewer large transactions in a particular quarter, fluctuations in currency exchange rates, delays in delivery of new products or releases or a decline in our renewal rates for contracts. (3) Our cloud computing strategy, including our Cloud SaaS, PaaS, IaaS and Database as a Service offerings, may not be successful. (4) If we are unable to develop new or sufficiently differentiated products and services, or to enhance and improve our products and support services in a timely manner or to position and/or price our products and services to meet market demand, customers may not buy new software licenses, cloud software subscriptions or hardware systems products or purchase or renew support contracts. (5) Our international sales and operations subject us to additional risks that can adversely affect our operating results, including risks relating to foreign currency gains and losses. (6) If the security measures for our software, hardware, services or Oracle Cloud offerings are compromised or subject to a successful cyber-attack, or if such offerings contain significant coding, manufacturing or configuration errors, we may experience reputational harm, legal claims and financial exposure. (7) We have an active acquisition program and our acquisitions may not be successful, may involve unanticipated costs or other integration issues or may disrupt our existing operations. A detailed discussion of these factors and other risks that affect our business is contained in our U.S. Securities and Exchange Commission (SEC) filings, including our most recent reports on Form 10-K and Form 10-Q, particularly under the heading "Risk Factors." Copies of these filings are available online from the SEC or by contacting Oracle Corporation's Investor Relations Department at (650) 506-4073 or by clicking on SEC Filings on Oracle's Investor Relations website at http://www.oracle.com/investor. All information set forth in this press release is current as of December 16, 2015. Oracle undertakes no duty to update any statement in light of new information or future events.

ORACLE CORPORATION
Q2 FISCAL 2016 FINANCIAL RESULTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in millions, except per share data)
Three Months Ended November 30,
% Increase
2015 % of Revenues 2014 % of Revenues % Increase (Decrease) in US $ (Decrease) in Constant Currency (1)
REVENUES
Cloud software as a service and platform as a service $ 484 5 % $ 361 4 % 34 % 39 %
Cloud infrastructure as a service 165 2 % 155 1 % 7 % 11 %
Total cloud revenues 649 7 % 516 5 % 26 % 31 %
New software licenses 1,677 19 % 2,045 21 % (18 %) (12 %)
Software license updates and product support 4,683 52 % 4,768 50 % (2 %) 5 %
Total on-premise software revenues 6,360 71 % 6,813 71 % (7 %) 0 %
Total cloud and on-premise software revenues 7,009 78 % 7,329 76 % (4 %) 2 %
Hardware products 573 6 % 717 8 % (20 %) (14 %)
Hardware support 550 6 % 617 6 % (11 %) (5 %)
Total hardware revenues 1,123 12 % 1,334 14 % (16 %) (10 %)
Total services revenues 861 10 % 935 10 % (8 %) 0 %
Total revenues 8,993 100 % 9,598 100 % (6 %) 0 %
OPERATING EXPENSES
Sales and marketing 1,945 22 % 1,897 20 % 3 % 10 %
Cloud software as a service and platform as a service 280 3 % 165 2 % 70 % 79 %
Cloud infrastructure as a service 91 1 % 87 1 % 5 % 9 %
Software license updates and product support 293 3 % 296 3 % (1 %) 8 %
Hardware products 325 3 % 369 4 % (12 %) (5 %)
Hardware support 174 2 % 218 2 % (20 %) (15 %)
Services 690 8 % 764 8 % (10 %) (3 %)
Research and development 1,444 16 % 1,389 14 % 4 % 6 %
General and administrative 285 3 % 272 3 % 5 % 10 %
Amortization of intangible assets 423 5 % 568 6 % (26 %) (26 %)
Acquisition related and other (7 ) 0 % (20 ) 0 % 67 % 69 %
Restructuring 95 1 % 51 0 % 85 % 104 %
Total operating expenses 6,038 67 % 6,056 63 % 0 % 5 %
OPERATING INCOME 2,955 33 % 3,542 37 % (17 %) (8 %)
Interest expense (371 ) (4 %) (282 ) (3 %) 31 % 31 %
Non-operating income, net 84 1 % 9 0 % 842 % 1,135 %
INCOME BEFORE PROVISION FOR INCOME TAXES 2,668 30 % 3,269 34 % (18 %) (9 %)
Provision for income taxes 471 6 % 767 8 % (39 %) (32 %)
NET INCOME $ 2,197 24 % $ 2,502 26 % (12 %) (3 %)
EARNINGS PER SHARE:
Basic $ 0.52 $ 0.57
Diluted $ 0.51 $ 0.56
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 4,239 4,417
Diluted 4,316 4,505
(1) We compare the percent change in the results from one period to another period using constant currency disclosure. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the exchange rates in effect on May 31, 2015, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods. Movements in international currencies relative to the United States dollar during the three months ended November 30, 2015 compared with the corresponding prior year period decreased our revenues by 6 percentage points, operating expenses by 5 percentage points and operating income by 9 percentage points.
ORACLE CORPORATION
Q2 FISCAL 2016 FINANCIAL RESULTS
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
($in millions, except per share data)
Three Months Ended November 30, % Increase (Decrease)
in US $
% Increase (Decrease) in Constant Currency (2)
2015
GAAP

Adj.
2015
Non-GAAP
2014
GAAP

Adj.
2014
Non-GAAP
GAAP Non-GAAP GAAP Non-GAAP
TOTAL REVENUES $ 8,993 $ 3 $ 8,996 $ 9,598 $ 10 $ 9,608 (6 %) (6 %) 0 % 0 %
TOTAL CLOUD AND ON-PREMISE SOFTWARE REVENUES $ 7,009 $ 3 $ 7,012 $ 7,329 $ 8 $ 7,337 (4 %) (4 %) 2 % 2 %
Cloud software as a service and platform as a service 484 $ 3 487 361 3 364 34 % 34 % 39 % 38 %
Cloud infrastructure as a service 165 - 165 155 - 155 7 % 7 % 11 % 11 %
New software licenses 1,677 - 1,677 2,045 - 2,045 (18 %) (18 %) (12 %) (12 %)
Software license updates and product support 4,683 - 4,683 4,768 5 4,773 (2 %) (2 %) 5 % 5 %
TOTAL HARDWARE REVENUES $ 1,123 $ - $ 1,123 $ 1,334 $ 2 $ 1,336 (16 %) (16 %) (10 %) (10 %)
Hardware products 573 - 573 717 - 717 (20 %) (20 %) (14 %) (14 %)
Hardware support 550 - 550 617 2 619 (11 %) (11 %) (5 %) (5 %)
TOTAL OPERATING EXPENSES $ 6,038 $ (765 ) $ 5,273 $ 6,056 $ (839 ) $ 5,217 0 % 1 % 5 % 7 %
Cloud software as a service and platform as a service 280 (4 ) 276 165 (3 ) 162 70 % 70 % 79 % 79 %
Stock-based compensation (3) 250 (250 ) - 237 (237 ) - 5 % * 5 % *
Amortization of intangible assets (4) 423 (423 ) - 568 (568 ) - (26 %) * (26 %) *
Acquisition related and other (7 ) 7 - (20 ) 20 - 67 % * 69 % *
Restructuring 95 (95 ) - 51 (51 ) - 85 % * 104 % *
CLOUD SOFTWARE AS A SERVICE AND PLATFORM AS A SERVICE MARGIN % 42 % 43 % 54 % 55 % (1,218) bp. (1,200) bp. (1,295) bp. (1,280) bp.
OPERATING INCOME $ 2,955 $ 768 $ 3,723 $ 3,542 $ 849 $ 4,391 (17 %) (15 %) (8 %) (8 %)
OPERATING MARGIN % 33 % 41 % 37 % 46 % (405) bp. (431) bp. (307) bp. (385) bp.
INCOME TAX EFFECTS (5) $ 471 $ 230 $ 701 $ 767 $ 234 $ 1,001 (39 %) (30 %) (32 %) (24 %)
NET INCOME $ 2,197 $ 538 $ 2,735 $ 2,502 $ 615 $ 3,117 (12 %) (12 %) (3 %) (5 %)
DILUTED EARNINGS PER SHARE $ 0.51 $ 0.63 $ 0.56 $ 0.69 (8 %) (8 %) 2 % 0 %
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,316 - 4,316 4,505 - 4,505 (4 %) (4 %) (4 %) (4 %)
(1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these measures, please see Appendix A.
(2) We compare the percent change in the results from one period to another period using constant currency disclosure. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the exchange rates in effect on May 31, 2015, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods.
(3) Stock-based compensation was included in the following GAAP operating expense categories:
Three Months Ended Three Months Ended
November 30, 2015 November 30, 2014
GAAP Adj. Non-GAAP GAAP Adj. Non-GAAP
Sales and marketing $ 55 $ (55 ) $ - $ 43 $ (43 ) $ -
Cloud infrastructure as a service 1 (1 ) - 1 (1 ) -
Software license updates and product support 6 (6 ) - 4 (4 ) -
Hardware products 2 (2 ) - 1 (1 ) -
Hardware support 1 (1 ) - 2 (2 ) -
Services 7 (7 ) - 9 (9 ) -
Research and development 151 (151 ) - 134 (134 ) -
General and administrative 27 (27 ) - 43 (43 ) -
Subtotal 250 (250 ) - 237 (237 ) -
Cloud software as a service and platform as a service 4 (4 ) - 3 (3 ) -
Acquisition related and other - - - 1 (1 ) -
Total stock-based compensation $ 254 $ (254 ) $ - $ 241 $ (241 ) $ -
(4) Estimated future annual amortization expense related to intangible assets as of November 30, 2015 was as follows:
Remainder of Fiscal 2016 $ 757
Fiscal 2017 1,005
Fiscal 2018 858
Fiscal 2019 751
Fiscal 2020 608
Fiscal 2021 466
Thereafter 1,154
Total intangible assets, net $ 5,599
(5) Income tax effects were calculated reflecting an effective GAAP tax rate of 17.6% and 23.5% in the second quarter of fiscal 2016 and 2015, respectively, and an effective non-GAAP tax rate of 20.4% and 24.3% in the second quarter of fiscal 2016 and 2015, respectively. The differences between our GAAP and non-GAAP tax rates in the second quarter of fiscal 2016 and 2015 were primarily due to the net tax effects of acquisition related items, including the tax effects of amortization of intangible assets.
* Not meaningful
ORACLE CORPORATION
Q2 FISCAL 2016 YEAR TO DATE FINANCIAL RESULTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in millions, except per share data)
Six Months Ended November 30, % Increase
2015 % of Revenues 2014 % of Revenues % Increase (Decrease) in US $ (Decrease) in Constant Currency (1)
REVENUES
Cloud software as a service and platform as a service $ 934 5 % $ 698 4 % 34 % 39 %
Cloud infrastructure as a service 325 2 % 293 1 % 11 % 17 %
Total cloud revenues 1,259 7 % 991 5 % 27 % 32 %
New software licenses 2,829 16 % 3,415 19 % (17 %) (11 %)
Software license updates and product support 9,379 54 % 9,499 52 % (1 %) 6 %
Total on-premise software revenues 12,208 70 % 12,914 71 % (5 %) 2 %
Total cloud and on-premise software revenues 13,467 77 % 13,905 76 % (3 %) 4 %
Hardware products 1,142 7 % 1,295 7 % (12 %) (4 %)
Hardware support 1,108 6 % 1,204 7 % (8 %) (1 %)
Total hardware revenues 2,250 13 % 2,499 14 % (10 %) (2 %)
Total services revenues 1,724 10 % 1,790 10 % (4 %) 5 %
Total revenues 17,441 100 % 18,194 100 % (4 %) 3 %
OPERATING EXPENSES
Sales and marketing 3,675 21 % 3,603 20 % 2 % 10 %
Cloud software as a service and platform as a service 555 3 % 314 2 % 77 % 85 %
Cloud infrastructure as a service 180 1 % 166 1 % 8 % 14 %
Software license updates and product support 584 4 % 568 3 % 3 % 12 %
Hardware products 628 4 % 667 4 % (6 %) 3 %
Hardware support 355 2 % 410 2 % (14 %) (7 %)
Services 1,401 8 % 1,455 8 % (4 %) 4 %
Research and development 2,834 16 % 2,718 15 % 4 % 7 %
General and administrative 542 3 % 547 3 % (1 %) 4 %
Amortization of intangible assets 875 5 % 1,116 6 % (22 %) (22 %)
Acquisition related and other 25 0 % 4 0 % 505 % 661 %
Restructuring 178 1 % 120 0 % 48 % 74 %
Total operating expenses 11,832 68 % 11,688 64 % 1 % 7 %
OPERATING INCOME 5,609 32 % 6,506 36 % (14 %) (4 %)
Interest expense (745 ) (4 %) (544 ) (3 %) 37 % 37 %
Non-operating income, net 114 1 % 25 0 % 355 % 529 %
INCOME BEFORE PROVISION FOR INCOME TAXES 4,978 29 % 5,987 33 % (17 %) (6 %)
Provision for income taxes 1,033 6 % 1,302 7 % (21 %) (10 %)
NET INCOME $ 3,945 23 % $ 4,685 26 % (16 %) (5 %)
EARNINGS PER SHARE:
Basic $ 0.92 $ 1.06
Diluted $ 0.90 $ 1.04
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 4,278 4,434
Diluted 4,364 4,527
(1) We compare the percent change in the results from one period to another period using constant currency disclosure. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the exchange rates in effect on May 31, 2015, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods. Movements in international currencies relative to the United States dollar during the six months ended November 30, 2015 compared with the corresponding prior year period decreased our revenues by 7 percentage points, operating expenses by 6 percentage points and operating income by 10 percentage points.
ORACLE CORPORATION
Q2 FISCAL 2016 YEAR TO DATE FINANCIAL RESULTS
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES (1)
($in millions, except per share data)
Six Months Ended November 30, % Increase (Decrease)
in US $
% Increase (Decrease) in Constant Currency (2)
2015 GAAP Adj. 2015 Non-GAAP 2014 GAAP Adj. 2014 Non-GAAP GAAP Non-GAAP GAAP Non-GAAP
TOTAL REVENUES $ 17,441 $ 6 $ 17,447 $ 18,194 $ 13 $ 18,207 (4 %) (4 %) 3 % 3 %
TOTAL CLOUD AND ON-PREMISE SOFTWARE REVENUES $ 13,467 $ 5 $ 13,472 $ 13,905 $ 11 $ 13,916 (3 %) (3 %) 4 % 4 %
Cloud software as a service and platform as a service 934 4 938 698 5 703 34 % 34 % 39 % 38 %
Cloud infrastructure as a service 325 - 325 293 - 293 11 % 11 % 17 % 17 %
New software licenses 2,829 - 2,829 3,415 - 3,415 (17 %) (17 %) (11 %) (11 %)
Software license updates and product support 9,379 1 9,380 9,499 6 9,505 (1 %) (1 %) 6 % 6 %
TOTAL HARDWARE REVENUES $ 2,250 $ 1 $ 2,251 $ 2,499 $ 2 $ 2,501 (10 %) (10 %) (2 %) (3 %)
Hardware products 1,142 - 1,142 1,295 - 1,295 (12 %) (12 %) (4 %) (4 %)
Hardware support 1,108 1 1,109 1,204 2 1,206 (8 %) (8 %) (1 %) (1 %)
TOTAL OPERATING EXPENSES $ 11,832 $ (1,582 ) $ 10,250 $ 11,688 $ (1,691 ) $ 9,997 1 % 3 % 7 % 9 %
Stock-based compensation (3) 504 (504 ) - 451 (451 ) - 12 % * 12 % *
Amortization of intangible assets (4) 875 (875 ) - 1,116 (1,116 ) - (22 %) * (22 %) *
Acquisition related and other 25 (25 ) - 4 (4 ) - 505 % * 661 % *
Restructuring 178 (178 ) - 120 (120 ) - 48 % * 74 % *
OPERATING INCOME $ 5,609 $ 1,588 $ 7,197 $ 6,506 $ 1,704 $ 8,210 (14 %) (12 %) (4 %) (4 %)
OPERATING MARGIN % 32 % 41 % 36 % 45 % (360) bp. (384) bp. (239) bp. (322) bp.
INCOME TAX EFFECTS (5) $ 1,033 $ 451 $ 1,484 $ 1,302 $ 467 $ 1,769 (21 %) (16 %) (10 %) (8 %)
NET INCOME $ 3,945 $ 1,137 $ 5,082 $ 4,685 $ 1,237 $ 5,922 (16 %) (14 %) (5 %) (6 %)
DILUTED EARNINGS PER SHARE $ 0.90 $ 1.16 $ 1.04 $ 1.31 (13 %) (11 %) (1 %) (2 %)
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,364 - 4,364 4,527 - 4,527 (4 %) (4 %) (4 %) (4 %)
(1) This presentation includes non-GAAP measures. Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these measures, please see Appendix A.
(2) We compare the percent change in the results from one period to another period using constant currency disclosure. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the exchange rates in effect on May 31, 2015, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods.
(3) Stock-based compensation was included in the following GAAP operating expense categories:
Six Months Ended Six Months Ended
November 30, 2015 November 30, 2014
GAAP Adj. Non-GAAP GAAP Adj. Non-GAAP
Sales and marketing $ 107 $ (107 ) $ - $ 86 $ (86 ) $ -
Cloud software as a service and platform as a service 8 (8 ) - 5 (5 ) -
Cloud infrastructure as a service 2 (2 ) - 2 (2 ) -
Software license updates and product support 12 (12 ) - 9 (9 ) -
Hardware products 3 (3 ) - 3 (3 ) -
Hardware support 3 (3 ) - 3 (3 ) -
Services 14 (14 ) - 14 (14 ) -
Research and development 298 (298 ) - 242 (242 ) -
General and administrative 57 (57 ) - 87 (87 ) -
Subtotal 504 (504 ) - 451 (451 ) -
Acquisition related and other 3 (3 ) - 4 (4 ) -
Total stock-based compensation $ 507 $ (507 ) $ - $ 455 $ (455 ) $ -
(4) Estimated future annual amortization expense related to intangible assets as of November 30, 2015 was as follows:
Remainder of Fiscal 2016 $ 757
Fiscal 2017 1,005
Fiscal 2018 858
Fiscal 2019 751
Fiscal 2020 608
Fiscal 2021 466
Thereafter 1,154
Total intangible assets, net $ 5,599
(5) Income tax effects were calculated reflecting an effective GAAP tax rate of 20.8% and 21.7% in the first half of fiscal 2016 and 2015, respectively, and an effective non-GAAP tax rate of 22.6% and 23.0% in the first half of fiscal 2016 and 2015, respectively. The differences between our GAAP and non-GAAP tax rates in the first half of fiscal 2016 and 2015 were primarily due to the net tax effects of acquisition related items, including the tax effects of amortization of intangible assets.
* Not meaningful
ORACLE CORPORATION
Q2 FISCAL 2016 FINANCIAL RESULTS
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
November 30, May 31,
2015 2015
ASSETS
Current Assets:
Cash and cash equivalents $ 17,411 $ 21,716
Marketable securities 34,924 32,652
Trade receivables, net 3,956 5,618
Inventories 238 314
Prepaid expenses and other current assets 2,089 2,220
Total Current Assets 58,618 62,520
Non-Current Assets:
Property, plant and equipment, net 3,855 3,686
Intangible assets, net 5,599 6,406
Goodwill, net 34,171 34,087
Deferred tax assets 1,341 1,458
Other assets 2,899 2,746
Total Non-Current Assets 47,865 48,383
TOTAL ASSETS $ 106,483 $ 110,903
LIABILITIES AND EQUITY
Current Liabilities:
Notes payable, current $ 2,000 $ 1,999
Accounts payable 415 806
Accrued compensation and related benefits 1,597 1,839
Deferred revenues 6,998 7,245
Other current liabilities 2,744 3,317
Total Current Liabilities 13,754 15,206
Non-Current Liabilities:
Notes payable, non-current 39,940 39,959
Income taxes payable 4,273 4,386
Other non-current liabilities 2,184 2,254
Total Non-Current Liabilities 46,397 46,599
Equity 46,332 49,098
TOTAL LIABILITIES AND EQUITY $ 106,483 $ 110,903
ORACLE CORPORATION
Q2 FISCAL 2016 FINANCIAL RESULTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
Six Months Ended
November 30,
2015 2014
Cash Flows From Operating Activities:
Net income $ 3,945 $ 4,685
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 429 324
Amortization of intangible assets 875 1,116
Deferred income taxes (83 ) (321 )
Stock-based compensation 507 455
Tax benefits on the exercise of stock options and vesting of restricted stock-based awards 147 136
Excess tax benefits on the exercise of stock options and vesting of restricted stock-based awards (40 ) (74 )
Other, net 77 103
Changes in operating assets and liabilities, net of effects from acquisitions:
Decrease in trade receivables, net 1,614 1,813
Decrease in inventories 61 14
Decrease in prepaid expenses and other assets 139 439
Decrease in accounts payable and other liabilities (960 ) (861 )
(Decrease) increase in income taxes payable (367 ) 191
Increase (decrease) in deferred revenues 13 (230 )
Net cash provided by operating activities 6,357 7,790
Cash Flows From Investing Activities:
Purchases of marketable securities and other investments (17,638 ) (17,514 )
Proceeds from maturities and sales of marketable securities and other investments 15,088 10,153
Acquisitions, net of cash acquired (147 ) (5,122 )
Capital expenditures (641 ) (426 )
Net cash used for investing activities (3,338 ) (12,909 )
Cash Flows From Financing Activities:
Payments for repurchases of common stock (6,258 ) (4,087 )
Proceeds from issuances of common stock 640 907
Shares repurchased for tax withholdings upon vesting of restricted stock-based awards (77 ) (7 )
Payments of dividends to stockholders (1,286 ) (1,070 )
Proceeds from borrowings, net of issuance costs - 9,945
Repayments of borrowings - (1,500 )
Excess tax benefits on the exercise of stock options and vesting of restricted stock-based awards 40 74
Distributions to noncontrolling interests (85 ) (196 )
Net cash (used for) provided by financing activities (7,026 ) 4,066
Effect of exchange rate changes on cash and cash equivalents (298 ) (563 )
Net decrease in cash and cash equivalents (4,305 ) (1,616 )
Cash and cash equivalents at beginning of period 21,716 17,769
Cash and cash equivalents at end of period $ 17,411 $ 16,153
ORACLE CORPORATION
Q2 FISCAL 2016 FINANCIAL RESULTS
FREE CASH FLOW - TRAILING 4-QUARTERS (1)
($ in millions)
Fiscal 2015 Fiscal 2016
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
GAAP Operating Cash Flow $ 15,357 $ 15,273 $ 14,509 $ 14,336 $ 13,464 $ 12,903
Capital Expenditures (628 ) (727 ) (948 ) (1,391 ) (1,636 ) (1,606 )
Free Cash Flow $ 14,729 $ 14,546 $ 13,561 $ 12,945 $ 11,828 $ 11,297
% Growth over prior year 4 % 0 % (6 )% (10 )% (20 )% (22 )%
GAAP Net Income $ 10,948 $ 10,896 $ 10,827 $ 9,938 $ 9,501 $ 9,198
Free Cash Flow as a % of Net Income 135 % 133 % 125 % 130 % 124 % 123 %
(1) To supplement our statements of cash flows presented on a GAAP basis, we use non-GAAP measures of cash flows on a trailing 4-quarter basis to analyze cash flow generated from operations. We believe free cash flow is also useful as one of the bases for comparing our performance with our competitors. The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as an alternative to net income as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity.
ORACLE CORPORATION
Q2 FISCAL 2016 FINANCIAL RESULTS
SUPPLEMENTAL ANALYSIS OF GAAP REVENUES AND HEADCOUNT (1)
($in millions)
Fiscal 2015 Fiscal 2016
Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
REVENUES
Cloud software as a service and platform as a service $ 337 $ 361 $ 372 $ 416 $ 1,485 $ 451 $ 484 $ 934
Cloud infrastructure as a service 138 155 155 160 608 160 165 325
Total cloud revenues 475 516 527 576 2,093 611 649 1,259
New software licenses 1,370 2,045 1,982 3,138 8,535 1,151 1,677 2,829
Software license updates and product support 4,731 4,768 4,661 4,686 18,847 4,696 4,683 9,379
Total on-premise software revenues 6,101 6,813 6,643 7,824 27,382 5,847 6,360 12,208
Total cloud and on-premise software revenues 6,576 7,329 7,170 8,400 29,475 6,458 7,009 13,467
Hardware products 578 717 712 818 2,825 570 573 1,142
Hardware support 587 617 587 589 2,380 558 550 1,108
Total hardware revenues 1,165 1,334 1,299 1,407 5,205 1,128 1,123 2,250
Total services revenues 855 935 858 899 3,546 862 861 1,724
Total revenues $ 8,596 $ 9,598 $ 9,327 $ 10,706 $ 38,226 $ 8,448 $ 8,993 $ 17,441
AS REPORTED REVENUE GROWTH RATES
Cloud software as a service and platform as a service 32 % 39 % 30 % 29 % 32 % 34 % 34 % 34 %
Cloud infrastructure as a service 26 % 60 % 28 % 25 % 33 % 16 % 7 % 11 %
Total cloud revenues 31 % 45 % 29 % 28 % 33 % 29 % 26 % 27 %
New software licenses (2 %) (4 %) (7 %) (17 %) (9 %) (16 %) (18 %) (17 %)
Software license updates and product support 7 % 6 % 2 % 0 % 4 % (1 %) (2 %) (1 %)
Total on-premise software revenues 5 % 3 % (1 %) (8 %) (1 %) (4 %) (7 %) (5 %)
Total cloud and on-premise software revenues 6 % 5 % 1 % (6 %) 1 % (2 %) (4 %) (3 %)
Hardware products (14 %) 0 % (2 %) (6 %) (5 %) (1 %) (20 %) (12 %)
Hardware support (1 %) 1 % (2 %) (1 %) (1 %) (5 %) (11 %) (8 %)
Total hardware revenues (8 %) 1 % (2 %) (4 %) (3 %) (3 %) (16 %) (10 %)
Total services revenues (7 %) (3 %) (3 %) (4 %) (4 %) 1 % (8 %) (4 %)
Total revenues 3 % 3 % 0 % (5 %) 0 % (2 %) (6 %) (4 %)
CONSTANT CURRENCY GROWTH RATES (2)
Cloud software as a service and platform as a service 32 % 41 % 34 % 35 % 35 % 38 % 39 % 39 %
Cloud infrastructure as a service 25 % 62 % 32 % 31 % 36 % 23 % 11 % 17 %
Total cloud revenues 30 % 47 % 33 % 34 % 36 % 34 % 31 % 32 %
New software licenses (2 %) 0 % 0 % (10 %) (4 %) (9 %) (12 %) (11 %)
Software license updates and product support 6 % 9 % 8 % 8 % 8 % 8 % 5 % 6 %
Total on-premise software revenues 4 % 6 % 6 % 0 % 4 % 4 % 0 % 2 %
Total cloud and on-premise software revenues 6 % 8 % 7 % 2 % 5 % 6 % 2 % 4 %
Hardware products (14 %) 4 % 6 % 3 % 0 % 9 % (14 %) (4 %)
Hardware support (2 %) 5 % 4 % 7 % 4 % 4 % (5 %) (1 %)
Total hardware revenues (8 %) 4 % 5 % 5 % 2 % 6 % (10 %) (2 %)
Total services revenues (8 %) 1 % 3 % 5 % 0 % 10 % 0 % 5 %
Total revenues 2 % 7 % 6 % 3 % 4 % 7 % 0 % 3 %
GEOGRAPHIC REVENUES
REVENUES
Americas $ 4,620 $ 5,221 $ 5,134 $ 6,133 $ 21,107 $ 4,716 $ 4,960 $ 9,677
Europe, Middle East & Africa 2,589 2,911 2,813 3,067 11,380 2,456 2,645 5,101
Asia Pacific 1,387 1,466 1,380 1,506 5,739 1,276 1,388 2,663
Total revenues $ 8,596 $ 9,598 $ 9,327 $ 10,706 $ 38,226 $ 8,448 $ 8,993 $ 17,441
HEADCOUNT
GEOGRAPHIC AREA
Americas 54,073 57,243 58,117 58,415 59,901 59,999
Europe, Middle East & Africa 23,349 26,997 26,989 26,988 27,030 27,541
Asia Pacific 45,496 46,312 46,456 46,962 48,139 48,620
Total company 122,918 130,552 131,562 132,365 135,070 136,160
(1) The sum of the quarterly information presented may vary from the year-to-date information presented due to rounding.
(2) We compare the percent change in the results from one period to another period using constant currency disclosure. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the exchange rates in effect on May 31, 2015 and 2014 for the fiscal 2016 and fiscal 2015 constant currency growth rate calculations presented, respectively, rather than the actual exchange rates in effect during the respective periods.
ORACLE CORPORATION
Q2 FISCAL 2016 FINANCIAL RESULTS
SUPPLEMENTAL GEOGRAPHIC REVENUES ANALYSIS (1)
($in millions)
Fiscal 2015 Fiscal 2016
Q1 Q2 Q3 Q4 TOTAL Q1 Q2 Q3 Q4 TOTAL
AMERICAS
Total cloud and on-premise software revenues $ 3,614 $ 4,044 $ 4,021 $ 4,926 $ 16,604 $ 3,684 $ 3,927 $ 7,611
Total hardware revenues $ 583 $ 716 $ 686 $ 751 $ 2,737 $ 589 $ 595 $ 1,184
AS REPORTED GROWTH RATES
Total cloud and on-premise software revenues 5 % 6 % 5 % 6 % 6 % 2 % (3 %) (1 %)
Total hardware revenues (9 %) 3 % 5 % 1 % 0 % 1 % (17 %) (9 %)
CONSTANT CURRENCY GROWTH RATES (2)
Total cloud and on-premise software revenues 6 % 8 % 7 % 9 % 7 % 6 % 0 % 3 %
Total hardware revenues (8 %) 5 % 7 % 4 % 2 % 6 % (14 %) (5 %)
EUROPE / MIDDLE EAST / AFRICA
Total cloud and on-premise software revenues $ 1,992 $ 2,234 $ 2,169 $ 2,369 $ 8,764 $ 1,873 $ 2,066 $ 3,940
Total hardware revenues $ 338 $ 380 $ 379 $ 423 $ 1,519 $ 330 $ 316 $ 646
AS REPORTED GROWTH RATES
Total cloud and on-premise software revenues 10 % 4 % (3 %) (22 %) (5 %) (6 %) (8 %) (7 %)
Total hardware revenues (6 %) 2 % (6 %) (4 %) (3 %) (2 %) (17 %) (10 %)
CONSTANT CURRENCY GROWTH RATES (2)
Total cloud and on-premise software revenues 7 % 9 % 9 % (8 %) 3 % 7 % 3 % 5 %
Total hardware revenues (7 %) 8 % 8 % 15 % 6 % 14 % (6 %) 3 %
ASIA PACIFIC
Total cloud and on-premise software revenues $ 970 $ 1,051 $ 980 $ 1,105 $ 4,107 $ 901 $ 1,016 $ 1,916
Total hardware revenues $ 244 $ 238 $ 234 $ 233 $ 949 $ 209 $ 212 $ 420
AS REPORTED GROWTH RATES
Total cloud and on-premise software revenues 3 % 2 % (3 %) (10 %) (3 %) (7 %) (3 %) (5 %)
Total hardware revenues (8 %) (7 %) (12 %) (16 %) (11 %) (14 %) (11 %) (13 %)
CONSTANT CURRENCY GROWTH RATES (2)
Total cloud and on-premise software revenues 2 % 7 % 4 % (1 %) 3 % 7 % 6 % 6 %
Total hardware revenues (8 %) (3 %) (6 %) (8 %) (6 %) (3 %) (3 %) (3 %)
TOTAL COMPANY
Total cloud and on-premise software revenues $ 6,576 $ 7,329 $ 7,170 $ 8,400 $ 29,475 $ 6,458 $ 7,009 $ 13,467
Total hardware revenues $ 1,165 $ 1,334 $ 1,299 $ 1,407 $ 5,205 $ 1,128 $ 1,123 $ 2,250
AS REPORTED GROWTH RATES
Total cloud and on-premise software revenues 6 % 5 % 1 % (6 %) 1 % (2 %) (4 %) (3 %)
Total hardware revenues (8 %) 1 % (2 %) (4 %) (3 %) (3 %) (16 %) (10 %)
CONSTANT CURRENCY GROWTH RATES (2)
Total cloud and on-premise software revenues 6 % 8 % 7 % 2 % 5 % 6 % 2 % 4 %
Total hardware revenues (8 %) 4 % 5 % 5 % 2 % 6 % (10 %) (2 %)
(1) The sum of the quarterly information presented may vary from the year-to-date information presented due to rounding.
(2) We compare the percent change in the results from one period to another period using constant currency disclosure. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than United States dollars are converted into United States dollars at the exchange rates in effect on May 31, 2015 and 2014 for the fiscal 2016 and fiscal 2015 constant currency growth rate calculations presented, respectively, rather than the actual exchange rates in effect during the respective periods.
APPENDIX A
ORACLE CORPORATION
Q2 FISCAL 2016 FINANCIAL RESULTS
EXPLANATION OF NON-GAAP MEASURES

To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures indicated in the tables, which exclude certain business combination accounting entries and expenses related to acquisitions, as well as other significant expenses including stock-based compensation, that we believe are helpful in understanding our past financial performance and our future results. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Our non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects:

  • Cloud software as a service and platform as a service, software license updates and product support and hardware support deferred revenues: Business combination accounting rules require us to account for the fair values of cloud software as a service and platform as a service contracts, software license updates and product support contracts and hardware support contracts assumed in connection with our acquisitions. Because these contracts are generally one year in duration, our GAAP revenues generally for the one year period subsequent to our acquisition of a business do not reflect the full amount of revenues on these assumed cloud and support contracts that would have otherwise been recorded by the acquired entity. The non-GAAP adjustment to our cloud software as a service and platform as a service revenues, software license updates and product support revenues and hardware support revenues is intended to include, and thus reflect, the full amount of such revenues. We believe the adjustment to these revenues is useful to investors as a measure of the ongoing performance of our business. We have historically experienced high renewal rates on our software license updates and product support contracts and our objective is to increase the renewal rates on acquired and new cloud software as a service and platform as a service and hardware support contracts; however, we cannot be certain that our customers will renew our cloud software as a service and platform as a service contracts, software license updates and product support contracts or our hardware support contracts.

  • Stock-based compensation expenses: We have excluded the effect of stock-based compensation expenses from our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues, we continue to evaluate our business performance excluding stock-based compensation expenses. Stock-based compensation expenses will recur in future periods.

  • Amortization of intangible assets: We have excluded the effect of amortization of intangible assets from our non-GAAP operating expenses and net income measures. Amortization of intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of intangible assets will recur in future periods.

  • Acquisition related and other expenses; and restructuring expenses: We have excluded the effect of acquisition related and other expenses and the effect of restructuring expenses from our non-GAAP operating expenses and net income measures. We incurred significant expenses in connection with our acquisitions and also incurred certain other operating expenses or income, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Acquisition related and other expenses consist of personnel related costs for transitional employees, other acquired employee related costs, stock-based compensation expenses (in addition to the stock-based compensation expenses described above), integration related professional services, certain business combination adjustments including adjustments after the measurement period has ended and certain other operating items, net. Substantially all of the stock-based compensation expenses included in acquisition related and other expenses resulted from unvested options assumed in acquisitions whose vesting was fully accelerated upon termination of the employees pursuant to the original terms of those options. Restructuring expenses consist of employee severance and other exit costs. We believe it is useful for investors to understand the effects of these items on our total operating expenses. Although acquisition related expenses and restructuring expenses generally diminish over time with respect to past acquisitions, we generally will incur these expenses in connection with any future acquisitions.

Contact:
Ken Bond
Oracle Investor Relations
1.650.607.0349
Email Contact


Deborah Hellinger
Oracle Corporate Communications
1.212.508.7935
Email Contact

Source: Oracle Corporation

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