EX-99.1 2 d309371dex991.htm EXHIBIT 99.1 Exhibit 99.1

Exhibit 99.1

 

LOGO

For Immediate Release

 

Contact:    Ken Bond    Deborah Hellinger
   Oracle Investor Relations    Oracle Corporate Communications
   1.650.607.0349    1.212.508.7935
   ken.bond@oracle.com    deborah.hellinger@oracle.com

Q2 SAAS AND PAAS CLOUD REVENUES UP 81%, AND UP 89% IN NON-GAAP CONSTANT CURRENCY

Total Quarterly Cloud Revenue $1.1 Billion — First Quarter Over One Billion Dollar Mark

REDWOOD SHORES, Calif., December 15, 2016 — Oracle Corporation (NYSE: ORCL) today announced fiscal 2017 Q2 results. Total Revenues were $9.0 billion, flat in U.S. dollars and up 1% in constant currency. Non-GAAP Total Revenues were $9.1 billion, up 1% in U.S. dollars and up 2% in constant currency. Cloud software as a service (SaaS) and platform as a service (PaaS) revenues were $878 million, up 81% in U.S. dollars and up 83% in constant currency. Non-GAAP SaaS and PaaS revenues were $912 million, up 87% in U.S. dollars and up 89% in constant currency. Total Cloud Revenues, including infrastructure as a service (IaaS), were $1.1 billion, up 62% in U.S. dollars and up 64% in constant currency. Cloud plus On-Premise Software Revenues were $7.2 billion, up 2% in U.S. dollars and up 3% in constant currency.

Operating Income was $3.0 billion and Operating Margin was 34%. Non-GAAP Operating Income was $3.8 billion and non-GAAP Operating Margin was 42%. Net Income was $2.0 billion while non-GAAP Net Income was $2.6 billion. Earnings Per Share was $0.48, while non-GAAP Earnings Per Share was $0.61. Without the impact of the U.S. dollar strengthening compared to foreign currencies and an unforeseen Egyptian currency exchange loss, Oracle’s reported GAAP and non-GAAP Earnings Per Share would have been 2 cents higher.

Short-term deferred revenues were $7.4 billion, up 6% in U.S. dollars and up 8% in constant currency compared with a year ago. Operating cash flow on a trailing twelve-month basis was $14.2 billion, up 9% from the prior year.

“For four consecutive quarters our Cloud SaaS & PaaS revenue growth rate has increased,” said Oracle CEO, Safra Catz. “As we get bigger in the cloud, we grow faster in the cloud. Our non-GAAP constant currency SaaS and PaaS growth rate is now up to 89%. This growth rate

acceleration has driven our quarterly cloud revenue over the $1 billion mark. When salesforce.com crossed the billion dollar milestone their SaaS and PaaS subscription growth rate had slowed down to 36%, even after you include all their acquisitions.”

“Oracle has now passed salesforce.com and become number one in SaaS cloud applications sales to customers with over 1,000 employees according to the latest IDC report,” said Oracle CEO, Mark Hurd. “In other words, this year we are selling more enterprise SaaS than any cloud services provider in the world. We expect to book over $2 billion in new annually recurring cloud business this year alone. And, with the acquisition of NetSuite, we plan on being the #1 cloud applications service provider for companies with less than 1,000 employees as well.”

“Our Database as a Service cloud revenue was $100 million for the quarter, driving growth in our overall database business,” said Larry Ellison, Oracle Chairman and CTO. “We expect our Database as a Service and IaaS businesses will grow even faster than our skyrocketing SaaS business. A lot of people were taken by surprise when IDC ranked Oracle #1 in Enterprise SaaS, surpassing salesforce.com and overcoming their fifteen year head-start. Stay tuned. More surprises coming. I think we’re going to do even better with IaaS and the Oracle database in the cloud.”

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 5, 2017, with a payment date of January 26, 2017.

Q2 Fiscal 2017 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 2017 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, Passcode: 34339280.

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 revenue growth and bookings in our cloud business overall, and specifically our IaaS and Database as a Service businesses, and our expectations regarding the positive effects of the acquisition of NetSuite on our business are all “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) Our cloud computing strategy, including our Oracle Cloud SaaS, PaaS, IaaS and data as a service offerings, may not be successful. (2) 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. (3) If the security measures for our software, hardware, services or Oracle Cloud offerings are compromised or if such offerings contain significant coding, manufacturing or configuration errors, we may experience reputational harm, legal claims and financial exposure. (4) 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 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) Economic, geopolitical and market conditions, including the continued slow economic recovery in 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. (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 15, 2016. Oracle undertakes no duty to update any statement in light of new information or future events.

ORACLE CORPORATION

Q2 FISCAL 2017 FINANCIAL RESULTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in millions, except per share data)

 

     Three Months Ended November 30,     % Increase            % Increase
(Decrease)		  
     2016      % of
Revenues		      2015      % of
Revenues		     (Decrease)
in US $		            in Constant
Currency (1)		  
            

REVENUES

                   

Cloud software as a service and platform as a service

    $   878         10%       $ 484         5%        81%           83%   

Cloud infrastructure as a service

      175         2%         165         2%        6%           9%   
  

 

 

         

Total cloud revenues

      1,053         12%         649         7%        62%           64%   
  

 

 

         

New software licenses

      1,347         15%         1,677         19%        (20% )         (19% ) 

Software license updates and product support

      4,777         53%         4,683         52%        2%           3%   
  

 

 

         

Total on-premise software revenues

      6,124         68%         6,360         71%        (4% )         (3% ) 
  

 

 

         

Total cloud and on-premise software revenues

      7,177         80%         7,009         78%        2%           3%   
  

 

 

         

Hardware products

      497         5%         573         6%        (13% )         (12% ) 

Hardware support

      517         6%         550         6%        (6% )         (5% ) 
  

 

 

         

Total hardware revenues

      1,014         11%         1,123         12%        (10% )         (9% ) 
  

 

 

         

Total services revenues

      844         9%         861         10%        (2% )         0%   
  

 

 

         

Total revenues

      9,035         100%         8,993         100%        0%           1%   
  

 

 

         

OPERATING EXPENSES

                   

Sales and marketing

      1,960         21%         1,945         22%        1%           2%   

Cloud software as a service and platform as a service

      361         4%         280         3%        29%           31%   

Cloud infrastructure as a service

      111         1%         91         1%        22%           24%   

Software license updates and product support

      242         3%         293         3%        (17% )         (16% ) 

Hardware products

      242         3%         325         3%        (25% )         (24% ) 

Hardware support

      144         2%         174         2%        (18% )         (17% ) 

Services

      697         8%         690         8%        1%           3%   

Research and development

      1,510         17%         1,444         16%        5%           5%   

General and administrative

      303         3%         285         3%        6%           8%   

Amortization of intangible assets

      302         3%         423         5%        (29% )         (29% ) 

Acquisition related and other

      40         0%         (7 )       0%        713%           707%   

Restructuring

      86         1%         95         1%        (10% )         (5% ) 
  

 

 

         

Total operating expenses

      5,998         66%         6,038         67%        (1% )         0%   
  

 

 

         

OPERATING INCOME

      3,037         34%         2,955         33%        3%           3%   

Interest expense

      (451 )       (5% )       (371 )       (4% )      22%           22%   

Non-operating income, net

      99         1%         84         1%        17%           2%   
  

 

 

         

INCOME BEFORE PROVISION FOR INCOME TAXES

      2,685         30%         2,668         30%        1%           1%   
  

 

 

         

Provision for income taxes

      653         7%         471         6%        39%           39%   
  

 

 

         

NET INCOME

    $ 2,032         23%       $ 2,197         24%        (8% )         (7% ) 
  

 

 

         

EARNINGS PER SHARE:

                   

Basic

    $ 0.50          $ 0.52             

Diluted

    $ 0.48          $ 0.51             

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

                   

Basic

      4,104            4,239             

Diluted

      4,195            4,316             
                                                              

 

(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, 2016, 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, 2016 compared with the corresponding prior year period decreased our revenues by 1 percentage point and operating expenses by 1 percentage point.

 

1

ORACLE CORPORATION

Q2 FISCAL 2017 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)		  
    

2016

GAAP

     Adj.    

2016

Non-GAAP

    

2015

GAAP

     Adj.    

2015

Non-GAAP

     GAAP     Non-GAAP     GAAP     Non-GAAP  

 

TOTAL REVENUES

   $        9,035      $ 35      $   9,070      $        8,993      $ 3      $   8,996        0%         1%         1%         2%    

TOTAL CLOUD AND ON-PREMISE SOFTWARE REVENUES

   $ 7,177      $ 35      $ 7,212      $ 7,009      $ 3      $ 7,012        2%         3%         3%         4%    

Cloud software as a service and platform as a service

     878        34        912        484                3        487        81%         87%         83%         89%    

Cloud infrastructure as a service

     175        —        175        165        —        165        6%         6%         9%         9%    

New software licenses

     1,347        —        1,347        1,677        —        1,677        (20%)        (20%)        (19%)        (19%)   

Software license updates and product support

     4,777                1        4,778        4,683        —        4,683        2%         2%         3%         3%    

 

TOTAL OPERATING EXPENSES

   $ 5,998      $ (735)      $ 5,263      $ 6,038      $ (765)      $ 5,273        (1%)        0%         0%         1%    

Sales and marketing (3)

     1,960        (59)        1,901        1,945        (55)        1,890        1%         1%         2%         1%    

Cloud software as a service and platform as a service (4)

     361        (6)        355        280        (4)        276        29%         29%         31%         31%    

Stock-based compensation (4)

     242        (242)        —        195        (195)        —        24%         *         24%         *    

Amortization of intangible assets (5)

     302        (302)        —        423        (423)        —        (29%)        *         (29%)        *    

Acquisition related and other

     40        (40)        —        (7)        7        —        713%         *         707%         *    

Restructuring

     86        (86)        —        95        (95)        —        (10%)        *         (5%)        *    

 

CLOUD SOFTWARE AS A SERVICE AND PLATFORM AS A SERVICE MARGIN %

     59%          61%        42%          43%        1,664 bp.        1,762 bp.        1,650 bp.        1,746 bp.   

 

OPERATING INCOME

   $ 3,037      $ 770      $ 3,807      $ 2,955      $ 768      $ 3,723        3%         2%         3%         3%    

 

OPERATING MARGIN %

     34%          42%        33%          41%        76 bp.        58 bp.        68 bp.        48 bp.   

 

INCOME TAX EFFECTS (6)

   $ 653      $ 228      $ 881      $ 471      $ 230      $ 701        39%         26%         39%         26%    

 

NET INCOME

   $ 2,032      $ 542      $ 2,574      $ 2,197      $ 538      $ 2,735        (8%)        (6%)        (7%)        (6%)   

 

DILUTED EARNINGS PER SHARE

   $ 0.48        $ 0.61      $ 0.51        $ 0.63        (5%)        (3%)        (4%)        (3%)   

 

DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

     4,195        —        4,195        4,316        —        4,316        (3%)        (3%)        (3%)        (3%)   
                                                                                 

 

(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, 2016, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods.

 

(3) Non-GAAP adjustments to sales and marketing expenses were as follows:

 

     Three Months Ended  
     November 30,  
      2016      2015  

Stock-based compensation (4)

    $ (68 )     $ (55 ) 

Acquired deferred sales commissions amortization

            9             —   
  

 

 

     

 

 

  

Total non-GAAP sales and marketing adjustments

    $ (59 )     $ (55 ) 
  

 

 

     

 

 

  

 

(4) Stock-based compensation was included in the following GAAP operating expense categories:

 

     Three Months Ended      Three Months Ended  
     November 30, 2016      November 30, 2015  
      GAAP      Adj.      Non-GAAP      GAAP      Adj.      Non-GAAP  

Cloud infrastructure as a service

    $ 1       $ (1 )     $ —       $ 1       $ (1 )     $ —   

Software license updates and product support

      6         (6 )       —         6         (6 )       —   

Hardware products

      2         (2 )       —         2         (2 )       —   

Hardware support

      1         (1 )       —         1         (1 )       —   

Services

      9         (9 )       —         7         (7 )       —   

Research and development

      188         (188 )       —         151         (151 )       —   

General and administrative

      35         (35 )       —         27         (27 )       —   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      242         (242 )       —         195         (195 )       —   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Sales and marketing

      68         (68 )       —         55         (55 )       —   

Cloud software as a service and platform as a service

      6         (6 )       —         4         (4 )       —   

Acquisition related and other

      11         (11 )       —         —         —         —   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total stock-based compensation

    $   327       $   (327 )     $   —       $   254       $   (254 )     $   —   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(5) Estimated future annual amortization expense related to intangible assets as of November 30, 2016 was as follows:

 

Remainder of fiscal 2017

    $ 723   

Fiscal 2018

      1,331   

Fiscal 2019

      1,222   

Fiscal 2020

      1,035   

Fiscal 2021

      861   

Fiscal 2022

      758   

Thereafter

      2,038   
  

 

 

  

Total intangible assets, net

    $   7,968   
  

 

 

  

 

(6) Income tax effects were calculated reflecting an effective GAAP tax rate of 24.3% and 17.6% in the second quarter of fiscal 2017 and 2016, respectively, and an effective non-GAAP tax rate of 25.5% and 20.4% in the second quarter of fiscal 2017 and 2016, respectively. The difference between our GAAP and non-GAAP tax rate in the second quarter of fiscal 2017 was primarily due to the net tax effects on stock-based compensation expense and acquisition related items, including the tax effects of amortization of intangible assets. The difference between our GAAP and non-GAAP tax rate in the second quarter of fiscal 2016 was primarily due to the net tax effects of acquisition related items, including the tax effects of amortization of intangible assets.

 

* Not meaningful

 

2

ORACLE CORPORATION

Q2 FISCAL 2017 YEAR TO DATE FINANCIAL RESULTS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in millions, except per share data)

 

     Six Months Ended November 30,     

% Increase

          

% Increase

(Decrease)

  
    

2016

     

% of

Revenues

     

2015

     

% of

Revenues

     

(Decrease)

in US $

          

in Constant

Currency (1)

  
   

REVENUES

                   

Cloud software as a service and platform as a service

    $ 1,675         9%       $ 934         5%         79%          81%   

Cloud infrastructure as a service

      346         2%         325         2%         7%          9%   
  

 

 

         

Total cloud revenues

      2,021         11%         1,259         7%         61%          63%   
  

 

 

         

New software licenses

      2,377         13%         2,829         16%         (16% )        (15% ) 

Software license updates and product support

      9,570         55%         9,379         54%         2%          3%   
  

 

 

         

Total on-premise software revenues

      11,947         68%         12,208         70%         (2% )        (1% ) 
  

 

 

         

Total cloud and on-premise software revenues

      13,968         79%         13,467         77%         4%          5%   
  

 

 

         

Hardware products

      959         6%         1,142         7%         (16% )        (15% ) 

Hardware support

      1,051         6%         1,108         6%         (5% )        (4% ) 
  

 

 

         

Total hardware revenues

      2,010         12%         2,250         13%         (11% )        (10% ) 
  

 

 

         

Total services revenues

      1,652         9%         1,724         10%         (4% )        (3% ) 
  

 

 

         

Total revenues

      17,630         100%         17,441         100%         1%          2%   
  

 

 

         

OPERATING EXPENSES

                   

Sales and marketing

      3,879         22%         3,675         21%         6%          7%   

Cloud software as a service and platform as a service

      680         4%         555         3%         22%          24%   

Cloud infrastructure as a service

      208         1%         180         1%         16%          17%   

Software license updates and product support

      516         3%         584         4%         (12% )        (10% ) 

Hardware products

      484         3%         628         4%         (23% )        (22% ) 

Hardware support

      292         2%         355         2%         (18% )        (17% ) 

Services

      1,393         8%         1,401         8%         (1% )        1%   

Research and development

      3,030         17%         2,834         16%         7%          8%   

General and administrative

      618         4%         542         3%         14%          16%   

Amortization of intangible assets

      613         3%         875         5%         (30% )        (30% ) 

Acquisition related and other

      54         0%         25         0%         121%          130%   

Restructuring

      185         1%         178         1%         4%          8%   
  

 

 

         

 

Total operating expenses

      11,952         68%         11,832         68%         1%          2%   
  

 

 

         

 

OPERATING INCOME

      5,678         32%         5,609         32%         1%          2%   

Interest expense

      (867 )       (5% )       (745 )       (4% )       16%          16%   

Non-operating income, net

      247         2%         114         1%         118%          114%   
  

 

 

         

INCOME BEFORE PROVISION FOR INCOME TAXES

      5,058         29%         4,978         29%         2%          2%   
  

 

 

         

Provision for income taxes

      1,194         7%         1,033         6%         16%          15%   
  

 

 

         

NET INCOME

    $ 3,864         22%       $ 3,945         23%         (2% )        (1% ) 
  

 

 

         

EARNINGS PER SHARE:

                   

Basic

    $ 0.94          $ 0.92             

Diluted

    $ 0.92          $ 0.90             

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

                   

Basic

      4,112            4,278             

Diluted

      4,208            4,364             
                                                              

 

(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, 2016, 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, 2016 compared with the corresponding prior year period decreased our revenues by 1 percentage point, operating expenses by 1 percentage point and operating income by 1 percentage point.

 

3

ORACLE CORPORATION

Q2 FISCAL 2017 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)		  
     2016
GAAP		     Adj.     2016
Non-GAAP		     2015
GAAP		     Adj.     2015
Non-GAAP		     GAAP     Non-GAAP     GAAP     Non-GAAP  

 

TOTAL REVENUES

   $       17,630      $         53      $   17,683      $   17,441      $           6      $   17,447        1%        1%        2%        2%   

TOTAL CLOUD AND ON-PREMISE SOFTWARE REVENUES

   $ 13,968      $ 53      $ 14,021      $ 13,467      $ 5      $ 13,472        4%        4%        5%        5%   

Cloud software as a service and platform as a service

     1,675        52        1,727        934        4        938        79%        84%        81%        86%   

Cloud infrastructure as a service

     346        —        346        325        —        325        7%        7%        9%        9%   

New software licenses

     2,377        —        2,377        2,829        —        2,829        (16% )      (16% )      (15% )      (15% ) 

Software license updates and product support

     9,570        1        9,571        9,379        1        9,380        2%        2%        3%        3%   

 

TOTAL HARDWARE REVENUES

   $ 2,010      $ —      $ 2,010      $ 2,250      $ 1      $ 2,251        (11% )      (11% )      (10% )      (10% ) 

Hardware products

     959        —        959        1,142        —        1,142        (16% )      (16% )      (15% )      (15% ) 

Hardware support

     1,051        —        1,051        1,108        1        1,109        (5% )      (5% )      (4% )      (4% ) 

TOTAL OPERATING EXPENSES

   $ 11,952      $ (1,478 )    $ 10,474      $ 11,832      $ (1,582 )    $ 10,250        1%        2%        2%        3%   

Sales and marketing (3)

     3,879        (124 )      3,755        3,675        (107 )      3,568        6%        5%        7%        6%   

Stock-based compensation (4)

     502        (502 )      —        397        (397 )      —        26%        *        26%        *   

Amortization of intangible assets (5)

     613        (613 )      —        875        (875 )      —        (30% )      *        (30% )      *   

Acquisition related and other

     54        (54 )      —        25        (25 )      —        121%        *        130%        *   

Restructuring

     185        (185 )      —        178        (178 )      —        4%        *        8%        *   

 

OPERATING INCOME

   $ 5,678      $ 1,531      $ 7,209      $ 5,609      $ 1,588      $ 7,197        1%        0%        2%        1%   

 

OPERATING MARGIN %

     32%          41%        32%          41%        5 bp.        (48) bp.        (6) bp.        (63) bp.   

 

INCOME TAX EFFECTS (6)

   $ 1,194      $ 486      $ 1,680      $ 1,033      $ 451      $ 1,484        16%        13%        15%        14%   

 

NET INCOME

   $ 3,864      $ 1,045      $ 4,909      $ 3,945      $ 1,137      $ 5,082        (2% )      (3% )      (1% )      (3% ) 

 

DILUTED EARNINGS PER SHARE

   $ 0.92        $ 1.17      $ 0.90        $ 1.16        2%        0%        2%        1%   

 

DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

     4,208        —        4,208        4,364        —        4,364        (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, 2016, which was the last day of our prior fiscal year, rather than the actual exchange rates in effect during the respective periods.

 

(3) Non-GAAP adjustments to sales and marketing expenses were as follows:

 

     Six Months Ended
November 30,		  
         2016              2015      

Stock-based compensation (4)

    $ (133 )     $ (107 ) 

Acquired deferred sales commissions amortization

      9         —   
  

 

 

     

 

 

  

Total non-GAAP sales and marketing adjustments

    $   (124 )     $   (107 ) 
  

 

 

     

 

 

  

 

(4) Stock-based compensation was included in the following GAAP operating expense categories:

 

      Six Months Ended
November 30, 2016		      Six Months Ended
November 30, 2015		  
   GAAP      Adj.      Non-GAAP      GAAP      Adj.      Non-GAAP  

Cloud software as a service and platform as a service

    $ 11       $ (11 )     $ —       $ 8       $ (8 )     $ —   

Cloud infrastructure as a service

      2         (2 )       —         2         (2 )       —   

Software license updates and product support

      12         (12 )       —         12         (12 )       —   

Hardware products

      4         (4 )       —         3         (3 )       —   

Hardware support

      2         (2 )       —         3         (3 )       —   

Services

      17         (17 )       —         14         (14 )       —   

Research and development

      382         (382 )       —         298         (298 )       —   

General and administrative

      72         (72 )       —         57         (57 )       —   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Subtotal

      502         (502 )       —         397         (397 )       —   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Sales and marketing

      133         (133 )       —         107         (107 )       —   

Acquisition related and other

      11         (11 )       —         3         (3 )       —   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total stock-based compensation

    $   646       $   (646)       $   —       $   507       $   (507)       $   —   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(5) Estimated future annual amortization expense related to intangible assets as of November 30, 2016 was as follows:

 

Remainder of fiscal 2017

    $ 723   

Fiscal 2018

      1,331   

Fiscal 2019

      1,222   

Fiscal 2020

      1,035   

Fiscal 2021

      861   

Fiscal 2022

      758   

Thereafter

      2,038   
  

 

 

  

Total intangible assets, net

    $ 7,968   
  

 

 

  

 

(6) Income tax effects were calculated reflecting an effective GAAP tax rate of 23.6% and 20.8% in the first half of fiscal 2017 and 2016, respectively, and an effective non-GAAP tax rate of 25.5% and 22.6% in the first half of fiscal 2017 and 2016, respectively. The difference between our GAAP and non-GAAP tax rate in the first half of fiscal 2017 was primarily due to the net tax effects on stock-based compensation expense and acquisition related items, including the tax effects of amortization of intangible assets. The difference between our GAAP and non-GAAP tax rate in the first half of fiscal 2016 was primarily due to the net tax effects of acquisition related items, including the tax effects of amortization of intangible assets.

 

* Not meaningful

 

4

ORACLE CORPORATION

Q2 FISCAL 2017 FINANCIAL RESULTS

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in millions)

 

      November 30,
2016		      May 31,
2016		  

 

ASSETS

      

Current Assets:

      

Cash and cash equivalents

    $ 18,592       $ 20,152   

Marketable securities

      39,614         35,973   

Trade receivables, net

      3,690         5,385   

Inventories

      327         212   

Prepaid expenses and other current assets

      2,511         2,591   
  

 

 

  

 

Total Current Assets

      64,734         64,313   

 

Non-Current Assets:

      

Property, plant and equipment, net

      4,882         4,000   

Intangible assets, net

      7,968         4,943   

Goodwill, net

      42,083         34,590   

Deferred tax assets

      895         1,291   

Other assets

      3,038         3,043   
  

 

 

  

 

Total Non-Current Assets

      58,866         47,867   
  

 

 

  

 

TOTAL ASSETS

    $ 123,600       $ 112,180   
  

 

 

  

 

LIABILITIES AND EQUITY

      

 

Current Liabilities:

      

Notes payable and other borrowings, current

    $ 3,838       $ 3,750   

Accounts payable

      615         504   

Accrued compensation and related benefits

      1,486         1,966   

Deferred revenues

      7,411         7,655   

Other current liabilities

      2,997         3,333   
  

 

 

  

 

Total Current Liabilities

      16,347         17,208   

 

Non-Current Liabilities:

      

Notes payable and other borrowings, non-current

      50,489         40,105   

Income taxes payable

      5,099         4,908   

Other non-current liabilities

      2,820         2,169   
  

 

 

  

 

Total Non-Current Liabilities

      58,408         47,182   

 

Equity

      48,845         47,790   
  

 

 

  

 

TOTAL LIABILITIES AND EQUITY

    $   123,600       $   112,180   
  

 

 

  
                   

 

5

ORACLE CORPORATION

Q2 FISCAL 2017 FINANCIAL RESULTS

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

 

     Six Months Ended November 30,  
      2016      2015  

Cash Flows From Operating Activities:

      

Net income

    $       3,864       $       3,945   

Adjustments to reconcile net income to net cash provided by operating activities:

      

Depreciation

      463         429   

Amortization of intangible assets

      613         875   

Deferred income taxes

      103         (83 ) 

Stock-based compensation

      646         507   

Tax benefits on the vesting of restricted stock-based awards and exercise of stock options

      249         147   

Other, net

      85         77   

Changes in operating assets and liabilities, net of effects from acquisitions:

      

Decrease in trade receivables, net

      1,680         1,614   

(Increase) decrease in inventories

      (116 )       61   

Decrease in prepaid expenses and other assets

      321         139   

Decrease in accounts payable and other liabilities

      (499 )       (960 ) 

Decrease in income taxes payable

      (240 )       (367 ) 

(Decrease) increase in deferred revenues

      (208 )       13   
  

 

 

  

 

Net cash provided by operating activities

      6,961         6,397   
  

 

 

  

 

Cash Flows From Investing Activities:

      

Purchases of marketable securities and other investments

      (10,090 )       (17,638 ) 

Proceeds from maturities and sales of marketable securities and other investments

      6,080         15,088   

Acquisitions, net of cash acquired

      (9,854 )       (147 ) 

Capital expenditures

      (1,056 )       (641 ) 
  

 

 

  

 

Net cash used for investing activities

      (14,920 )       (3,338 ) 
  

 

 

  

 

Cash Flows From Financing Activities:

      

Payments for repurchases of common stock

      (2,569 )       (6,258 ) 

Proceeds from issuances of common stock

      746         640   

Shares repurchased for tax withholdings upon vesting of restricted stock-based awards

      (188 )       (77 ) 

Payments of dividends to stockholders

      (1,232 )       (1,286 ) 

Proceeds from borrowings, net of issuance costs

      13,932         —     

Repayments of borrowings

      (3,750 )       —     

Distributions to noncontrolling interests

      (200 )       (85 ) 
  

 

 

  

 

Net cash provided by (used for) financing activities

      6,739         (7,066 ) 
  

 

 

  

Effect of exchange rate changes on cash and cash equivalents

      (340 )       (298 ) 
  

 

 

  

Net decrease in cash and cash equivalents

      (1,560 )       (4,305 ) 
  

 

 

  

Cash and cash equivalents at beginning of period

      20,152         21,716   
  

 

 

  

Cash and cash equivalents at end of period

    $ 18,592       $ 17,411   
  

 

 

  
                   

 

6

ORACLE CORPORATION

Q2 FISCAL 2017 FINANCIAL RESULTS

FREE CASH FLOW - TRAILING 4-QUARTERS (1)

($ in millions)

 

     Fiscal 2016      Fiscal 2017  
      Q1      Q2      Q3      Q4      Q1              Q2                      Q3                      Q4          

 

GAAP Operating Cash Flow

    $       13,682       $       13,113       $       14,252       $       13,685       $       13,679       $ 14,249         

Capital Expenditures

      (1,636 )       (1,606 )       (1,606 )       (1,189 )       (1,042 )       (1,604 )       
  

 

 

  

 

Free Cash Flow

    $ 12,046       $ 11,507       $ 12,646       $ 12,496       $ 12,637       $ 12,645         
  

 

 

  

% Growth over prior year

      (20% )       (22% )       (8% )       (5% )       5%         10%                     

 

GAAP Net Income

    $ 9,501       $ 9,198       $ 8,844       $ 8,901       $ 8,986       $ 8,820         

Free Cash Flow as a % of Net Income

      127%         125%         143%         140%         141%         143%         
                                                                         

 

(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.

 

7

ORACLE CORPORATION

Q2 FISCAL 2017 FINANCIAL RESULTS

SUPPLEMENTAL ANALYSIS OF GAAP REVENUES AND HEADCOUNT (1)

($ in millions)

 

     Fiscal 2016     Fiscal 2017  
  Q1     Q2     Q3     Q4     TOTAL     Q1     Q2           Q3                 Q4           TOTAL  

 

REVENUES

                    

Cloud software as a service and platform as a service

   $ 451      $ 484      $ 583      $ 690      $ 2,207      $ 798      $ 878          $ 1,675   

Cloud infrastructure as a service

     160        165        152        169        646        171        175            346   
 

 

 

  

Total cloud revenues

     611        649        735        859        2,853        969        1,053            2,021   

 

New software licenses

     1,151        1,677        1,680        2,766        7,276        1,030        1,347            2,377   

Software license updates and product support

     4,696        4,683        4,669        4,814        18,861        4,792        4,777            9,570   
 

 

 

  

Total on-premise software revenues

     5,847        6,360        6,349        7,580        26,137        5,822        6,124            11,947   
 

 

 

  

Total cloud and on-premise software revenues

     6,458        7,009        7,084        8,439        28,990        6,791        7,177            13,968   

 

Hardware products

     570        573        604        725        2,471        462        497            959   

Hardware support

     558        550        531        558        2,197        534        517            1,051   
 

 

 

  

Total hardware revenues

     1,128        1,123        1,135        1,283        4,668        996        1,014            2,010   

 

Total services revenues

     862        861        793        872        3,389        808        844            1,652   
 

 

 

  

 

Total revenues

   $ 8,448      $ 8,993      $ 9,012      $ 10,594      $ 37,047      $ 8,595      $ 9,035          $ 17,630   
 

 

 

  

 

AS REPORTED REVENUE GROWTH RATES

  

Cloud software as a service and platform as a service

     34%        34%        57%        66%        49%        77%        81%            79%   

Cloud infrastructure as a service

     16%        7%        (2% )      5%        6%        7%        6%            7%   

Total cloud revenues

     29%        26%        40%        49%        36%        59%        62%            61%   

 

New software licenses

     (16% )      (18% )      (15% )      (12% )      (15% )      (11% )      (20% )          (16% ) 

Software license updates and product support

     (1% )      (2% )      0%        3%        0%        2%        2%            2%   

Total on-premise software revenues

     (4% )      (7% )      (4% )      (3% )      (5% )      0%        (4% )          (2% ) 

Total cloud and on-premise software revenues

     (2% )      (4% )      (1% )      0%        (2% )      5%        2%            4%   

 

Hardware products

     (1% )      (20% )      (15% )      (11% )      (13% )      (19% )      (13% )          (16% ) 

Hardware support

     (5% )      (11% )      (10% )      (5% )      (8% )      (4% )      (6% )          (5% ) 

Total hardware revenues

     (3% )      (16% )      (13% )      (9% )      (10% )      (12% )      (10% )          (11% ) 

 

Total services revenues

     1%        (8% )      (7% )      (3% )      (4% )      (6% )      (2% )          (4% ) 

 

Total revenues

     (2% )      (6% )      (3% )      (1% )      (3% )      2%        0%            1%   

 

CONSTANT CURRENCY GROWTH RATES (2)

  

Cloud software as a service and platform as a service

     38%        39%        61%        68%        52%        79%        83%            81%   

Cloud infrastructure as a service

     23%        11%        2%        8%        11%        10%        9%            9%   

Total cloud revenues

     34%        31%        44%        51%        40%        61%        64%            63%   

 

New software licenses

     (9% )      (12% )      (11% )      (10% )      (11% )      (10% )      (19% )          (15% ) 

Software license updates and product support

     8%        5%        5%        4%        5%        3%        3%            3%   

Total on-premise software revenues

     4%        0%        0%        (2% )      0%        1%        (3% )          (1% ) 

Total cloud and on-premise software revenues

     6%        2%        3%        2%        3%        6%        3%            5%   

 

Hardware products

     9%        (14% )      (10% )      (10% )      (7% )      (18% )      (12% )          (15% ) 

Hardware support

     4%        (5% )      (5% )      (4% )      (3% )      (3% )      (5% )          (4% ) 

Total hardware revenues

     6%        (10% )      (8% )      (7% )      (5% )      (11% )      (9% )          (10% ) 

 

Total services revenues

     10%        0%        (2% )      (1% )      2%        (5% )      0%            (3% ) 

 

Total revenues

     7%        0%        1%        0%        2%        3%        1%            2%   
                                                                                 

GEOGRAPHIC REVENUES

                    

 

REVENUES

                    

Americas

   $ 4,716      $ 4,960      $ 4,942      $ 5,847      $ 20,466      $ 4,817      $ 4,935          $ 9,752   

Europe, Middle East & Africa

     2,456        2,645        2,661        3,120        10,881        2,413        2,558            4,971   

Asia Pacific

     1,276        1,388        1,409        1,627        5,700        1,365        1,542            2,907   
 

 

 

  

 

Total revenues

   $ 8,448      $ 8,993      $ 9,012      $ 10,594      $ 37,047      $ 8,595      $ 9,035          $ 17,630   
 

 

 

  
                                                                                 
HEADCOUNT                                                            

 

GEOGRAPHIC AREA

                    

Americas

     59,901        59,999        60,437        60,329          61,221        63,251         

Europe, Middle East & Africa

     27,030        27,541        27,275        27,061          26,895        27,922         

Asia Pacific

     48,139        48,620        48,694        48,872          49,234        50,509         
 

 

 

  

Total company

     135,070        136,160        136,406        136,262          137,350        141,682         
 

 

 

  
                   
                                                                                 

 

(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, 2016 and 2015 for the fiscal 2017 and fiscal 2016 constant currency growth rate calculations presented, respectively, rather than the actual exchange rates in effect during the respective periods.

 

8

ORACLE CORPORATION

Q2 FISCAL 2017 FINANCIAL RESULTS

SUPPLEMENTAL GEOGRAPHIC REVENUES ANALYSIS (1)

($ in millions)

 

     Fiscal 2016     Fiscal 2017  
  Q1     Q2     Q3     Q4     TOTAL     Q1     Q2           Q3                 Q4           TOTAL  

 

AMERICAS

                    

Total cloud and on-premise software revenues

   $ 3,684      $ 3,927      $ 3,964      $ 4,771      $ 16,346      $ 3,876      $ 4,000          $ 7,877   
 

 

 

  

Total hardware revenues

   $ 589      $ 595      $ 571      $ 650      $ 2,404      $ 526      $ 510          $ 1,036   
 

 

 

  

AS REPORTED GROWTH RATES

                    

Total cloud and on-premise software revenues

     2%        (3% )      (1% )      (3% )      (2% )      5%        2%            3%   

Total hardware revenues

     1%        (17% )      (17% )      (14% )      (12% )      (11% )      (14% )          (12% ) 

 

CONSTANT CURRENCY GROWTH RATES (2)

                    

Total cloud and on-premise software revenues

     6%        0%        1%        (2% )      1%        6%        2%            4%   

Total hardware revenues

     6%        (14% )      (13% )      (11% )      (9% )      (10% )      (14% )          (12% ) 
           

 

EUROPE / MIDDLE EAST / AFRICA

                    

Total cloud and on-premise software revenues

   $ 1,873      $ 2,066      $ 2,069      $ 2,462      $ 8,471      $ 1,903      $ 2,008          $ 3,911   
 

 

 

  

Total hardware revenues

   $ 330      $ 316      $ 349      $ 382      $ 1,377      $ 275      $ 294          $ 569   
 

 

 

  

 

AS REPORTED GROWTH RATES

                    

Total cloud and on-premise software revenues

     (6% )      (8% )      (5% )      4%        (3% )      2%        (3% )          (1% ) 

Total hardware revenues

     (2% )      (17% )      (8% )      (10% )      (9% )      (17% )      (7% )          (12% ) 

CONSTANT CURRENCY GROWTH RATES (2)

                    

Total cloud and on-premise software revenues

     7%        3%        2%        5%        4%        7%        2%            4%   

Total hardware revenues

     14%        (6% )      (1% )      (8% )      (1% )      (13% )      (2% )          (8% ) 
                                                                                 

 

ASIA PACIFIC

                    

Total cloud and on-premise software revenues

   $ 901      $ 1,016      $ 1,051      $ 1,206      $ 4,173      $ 1,012      $ 1,169          $ 2,180   
 

 

 

  

Total hardware revenues

   $ 209      $ 212      $ 215      $ 251      $ 887      $ 195      $ 210          $ 405   
 

 

 

  

AS REPORTED GROWTH RATES

                    

Total cloud and on-premise software revenues

     (7% )      (3% )      7%        9%        2%        12%        15%            14%   

Total hardware revenues

     (14% )      (11% )      (8% )      8%        (7% )      (7% )      (1% )          (4% ) 

 

CONSTANT CURRENCY GROWTH RATES (2)

                    

Total cloud and on-premise software revenues

     7%        6%        13%        11%        9%        8%        11%            9%   

Total hardware revenues

     (3% )      (3% )      (3% )      9%        0%        (9% )      (3% )          (6% ) 
           

TOTAL COMPANY

                    

Total cloud and on-premise software revenues

   $ 6,458      $ 7,009      $ 7,084      $ 8,439      $ 28,990      $ 6,791      $ 7,177          $ 13,968   
 

 

 

  

Total hardware revenues

   $ 1,128      $ 1,123      $ 1,135      $ 1,283      $ 4,668      $ 996      $ 1,014          $ 2,010   
 

 

 

  

 

AS REPORTED GROWTH RATES

                    

Total cloud and on-premise software revenues

     (2% )      (4% )      (1% )      0%        (2% )      5%        2%            4%   

Total hardware revenues

     (3% )      (16% )      (13% )      (9% )      (10% )      (12% )      (10% )          (11% ) 

CONSTANT CURRENCY GROWTH RATES (2)

                    

Total cloud and on-premise software revenues

     6%        2%        3%        2%        3%        6%        3%            5%   

Total hardware revenues

     6%        (10% )      (8% )      (7% )      (5% )      (11% )      (9% )          (10% ) 
                                                                                 

 

(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, 2016 and 2015 for the fiscal 2017 and fiscal 2016 constant currency growth rate calculations presented, respectively, rather than the actual exchange rates in effect during the respective periods.

 

9

APPENDIX A

ORACLE CORPORATION

Q2 FISCAL 2017 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.

 

•   Deferred sales commissions amortization: Certain acquired companies capitalized sales commissions associated with subscription agreements and amortized these amounts over the related contractual terms. Business combination accounting rules generally require us to eliminate these capitalized sales commissions balances as of the acquisition date and our post-combination GAAP sales and marketing expenses generally do not reflect the amortization of these deferred sales commissions balances. The non-GAAP adjustment to increase our sales and marketing expenses is intended to include, and thus reflect, the full amount of amortization related to such balances as though the acquired companies operated independently in the periods presented. We believe this adjustment to sales and marketing expenses is useful to investors as a measure of the ongoing performance of our business. We are including this non-GAAP adjustment commencing in the second fiscal quarter of fiscal 2017 as a result of our acquisition of NetSuite. Such adjustment was not material in prior periods.

 

•   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.

 

10