10-QPeriod: Q1 FY2008

ORACLE CORP Quarterly Report for Q1 Ended Aug 31, 2007

Filed September 26, 2007For Securities:ORCLORCL-PD

Summary

Oracle Corporation (ORCL) reported strong performance for the first quarter of fiscal year 2008, with total revenues growing 26% year-over-year (22% on a constant currency basis) to $4.53 billion. This growth was driven by significant increases in both new software license revenues (up 35% actual, 32% constant currency) and software license updates and product support revenues (up 23% actual, 19% constant currency). The services business also saw solid growth, with consulting revenues up 25% actual (20% constant currency) and On Demand revenues up 27% actual (23% constant currency). The company's strategic focus on acquisitions continues to play a significant role, with recent acquisitions like Hyperion contributing to revenue growth across various segments, particularly in applications and database/middleware. Operating margins improved to 27% from 26% in the prior year period, aided by favorable foreign currency movements and strong revenue growth outpacing expense increases. Oracle also reported a substantial increase in cash from operating activities, up 66% to $2.7 billion, and healthy free cash flow of $6.24 billion on a trailing four-quarter basis, underscoring its financial strength and ability to fund future growth initiatives and shareholder returns.

Key Highlights

  • 1Total revenues increased by 26% to $4.53 billion, with 22% growth on a constant currency basis, demonstrating robust underlying business performance.
  • 2New software license revenues saw a significant jump of 35% (32% constant currency) to $1.09 billion, fueled by strong demand for both database/middleware and applications.
  • 3Software license updates and product support, Oracle's highest margin business, grew 23% (19% constant currency) to $2.38 billion, highlighting strong customer retention and expansion.
  • 4The services business contributed positively, with consulting revenues up 25% (20% constant currency) and On Demand revenues up 27% (23% constant currency).
  • 5Operating margin improved to 27% from 26% in the prior year, reflecting efficient cost management relative to revenue growth and positive foreign currency impacts.
  • 6Cash flow from operating activities surged by 66% to $2.7 billion, indicating strong cash generation capabilities.
  • 7The company continues to actively pursue its acquisition strategy, with recent acquisitions contributing to revenue streams and market position.

Frequently Asked Questions

Oracle's acquisitions, notably Hyperion, significantly contributed to revenue growth across new software licenses, particularly in applications and database/middleware segments. The acquisitions also influenced operating expenses, leading to higher amortization of intangible assets and stock-based compensation.

Foreign currency rate fluctuations had a positive impact in this quarter. Total revenues grew an additional 4 percentage points due to the weakening US dollar. While favorable for reported growth, the company presents constant currency figures to provide a clearer view of underlying business performance.

This segment, Oracle's highest margin business, demonstrated strong performance with 23% revenue growth (19% constant currency) to $2.38 billion. The company expects continued growth due to high renewal rates, new license sales driving support contracts, and contributions from acquired companies. Margins for this segment remained robust at 84%.

The services business, comprising consulting, On Demand, and education, saw a 25% revenue increase (20% constant currency) to $1.06 billion. Consulting revenues are expected to continue growing, lagging software revenue growth as implementations follow new license sales. On Demand services are also expanding, though investments have impacted margins.