Conference Call, 09/16/97 Oracle Corp. Q1

FOOL CONFERENCE CALL SYNOPSIS*
By Greg Markus (TMF Boring)

Oracle Corp.
Nasdaq: ORCL)
500 Oracle Parkway
Redwood Shores, CA 94065
(415) 506-4073
http://www.oracle.com

ANN ARBOR, Mich. (Sept. 16, 1997) /FOOLWIRE/ -- Oracle Corp. today reported results for its fiscal first quarter ended August 31, 1997. Revenues increased 30% to $1.369 billion from $1.052 billion in the same period last year. Net income of $149.8 million, or $0.15 per share (excluding one-time charges in connection with current quarter acquisitions), compared to net income of $113 million, or $0.11 per share, in the first quarter of fiscal 1997. [After adjusting for the 3-for-2 stock split effective August 15, 1997, common and equivalent share count declined from 1,010,715 a year ago to 1,006,266.]

CHARGES FOR ACQUISITIONS. Two transactions resulted in one-time charges during the quarter. Oracle acquired Navio Communications Inc. from NETSCAPE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> and merged it with Oracle's Network Computer Inc. subsidiary. The one-time after-tax net charge for the write-off of in-process research and development expenses for this transaction was $49.8 million, or $0.05 per share. Also, Oracle acquired Treasury Services Corp., the leading provider of profitability and risk analysis applications for large financial institutions, at a cost of approximately $120 million. The one-time after-tax net charge for the write-off of in-process R&D expenses for this transaction was $59.5 million, or $0.06 per share. Giving effect to these charges, net income for the quarter was $40.5 million, or $0.04 per share.

OTHER FINANCIAL DETAILS. Excluding one-time charges, pre-tax margin increased slightly to 16.8% versus 16.7% a year ago. The tax rate in the quarter was 35%, versus 36% last year. Oracle expects the tax rate to remain at 35% for the balance of the fiscal year. Days sales outstanding (DSO) was 78 days versus 77 days in last year's fiscal first quarter.

HEADCOUNT. Oracle has been slowing the rate of growth in its total number of employees somewhat. Even so, total headcount increased 25% relative to a year ago.

GEOGRAPHIC BREAKDOWN. Revenues gains were negatively impacted by translation of international revenues from local currencies into the strong dollar. Revenue was up 36% over the year-ago period when denominated in local currencies. EMEA (Europe, Middle East and Africa) had the greatest currency impact, reporting revenue growth at 20%, or 33% in local currencies. Asia Pacific reported revenue growth at 32%, or 43% in local currencies. Americas revenues were up 36%, or 37% in local currencies, versus the same period last year.

PRODUCTS BREAKDOWN. Applications license revenue increased 96% relative to the year-ago quarter, reflecting the rapid growth of this business in the past year. Oracle Services, which includes support, consulting and education, grew 42%. Overall license and other sales increased 15%. Server product revenues increased 6%, reflecting a tough comparison with last year's unusually strong first quarter, currency translation impact, and some loss of momentum owing to a recent reorganization of the sales force. Tools revenues declined 10%. Just as the high rate of growth in applications licenses reflects an easy comparison and should therefore not be expected to be sustained over the year, so it is that the server sales growth reflects a tough comparison and should be expected to increase as the year progresses.

PLATFORM BREAKDOWN. UNIX-based sales increased 10% over the year-ago quarter and desktop sales were up 44%, while sales for "proprietary and other" platforms decreased 35%. The pattern reflects increasing customer interest in NT-based products.

VERTICALS. The Treasury Services acquisition will benefit Oracle's "vertical" enterprise solution for financial services institutions. That product and the one aimed at telephone companies are probably the least fully developed of Oracle's verticals offerings right now. The vertical for the consumer packaged goods (CPG) industry is the most complete and has a strong sales pipeline. The vertical for energy companies is perhaps the next most complete, benefiting from the acquisition of the downstream oil commercial processing software from BRITISH PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BP)") else Response.Write("(NYSE: BP)") end if %> during the quarter; a number of large energy companies are currently evaluating this vertical. The manufacturing vertical is also developing well and is beginning to compete well against some of the niche players in that market.

YEAR-2000. So far, the "Y2K" challenge has benefited Oracle. It is possible that by the middle of next year there could be some negative impact if, for example, the U.S. government decides to reduce software purchases until it resolves its Y2K problems.

OTHER COMMENTS ON Q1. The first quarter is always a tough one for Oracle, as Q4 tends to drain the pipeline, which must then be refilled beginning in Q1 of the new fiscal year. Over all, management is pleased that the Q1 performance was in line with the internal business plan. Areas where management focused attention last year, such as the EMEA region and verticals and NT-based products, are showing good results. Oracle's share of the NT market continues to grow, and the company is at parity with MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> in that area. The recent reorganization of the sales force along lines of particular products and customers is paying off.

OUTLOOK FOR THE YEAR. Management sees no reason to revise the comments they provided at the end of fiscal 1997's fourth quarter. Sales in the Americas continues to look good. EMEA results should benefit from improvements in applications intended to better serve that market. One thing that has changed somewhat is the effect of exchange rates on revenues. The currency impact had been projected to be approximately a negative 2 to 3 percentage points. The impact now looks to be more on the order of 5 points, based on current exchange rates, which could of course change at any time.

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