Oracle Corporation reports 61.6% Net Income decline in 2018 while 4.4% Revenue growth
06/19/2018 • About Oracle Corporation (
$ORCL) • By InTwits
Oracle Corporation reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Oracle Corporation has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.6%. At the same time it's in pair with industry average of 3.1%
- CAPEX is quite volatile: $1,736m in FY2018, $2,021m in FY2017, $1,189m in FY2016, $1,391m in FY2015, $580m in FY2014
- In the last 5 years the company invested considerably less than D&A: $6,917m vs. $13,514m. In FY2018 this situation was still the same: CAPEX was 1,736 while D&A was 2,785
- The company has highly profitable business model: ROIC is 12.2%
- It operates with medium-size leverage: Net Debt/EBITDA is 2.4x while industry average is -1.5x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue increased on 4.4%. Revenue growth showed slowdown in FY18Q4 - it was 1.1% YoY. During FY2014-FY2018 Revenue growth bottomed in FY2016 at -3.1% and was accelerating since that time. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased slightly on 0.57 pp from 40.2% to 40.8% in FY2018. EBITDA Margin stuck to a declining trend at -1.4 pp per annum in the last 5 years.
Gross Margin decreased slightly on 0.67 pp from 80.2% to 79.5% in FY2018. SG&A as a % of Revenue showed almost no change in FY2018. SG&A as a % of Revenue grew at 0.64 pp per annum in the last 5 years. Stock Based Compensation (SBC) as a % of Revenue increased slightly on 0.50 pp from 3.6% to 4.1% in FY2018. SBC as a % of Revenue grew at 0.39 pp per annum in FY2014-FY2018.
Net Income margin dropped on 15.6 pp from 24.7% to 9.1% in FY2018. The efficient tax rate was 71.1% in FY2018 while the average for the last five years was 31.0%.
Investments (CAPEX, working capital and M&A)
In FY2018 Oracle Corporation had CAPEX/Revenue of 4.4%. Oracle Corporation's CAPEX/Revenue increased slightly on 0.77 pp from 3.6% in FY2015 to 4.4% in FY2018. It's average CAPEX/Revenue for the last three years was 4.3%.
Accounts receivable as a % of Revenue decreased slightly on 1.0 pp from 14.0% to 13.0% in FY2018. Inventories as a % of Revenue showed almost no change at 1.0% in FY2018. Accounts payable as a % of Revenue decreased slightly on 1.5 pp from 8.0% to 6.6% in FY2018.
Oracle Corporation has spent
$1,724m on M&A in FY2018 which accounts for 4.4% of revenue.
Return on investment
The company operates at good ROIC (12.2%) while ROE is low (7.2%). ROIC showed almost no change in FY2018. ROE dropped on 11.3 pp from 18.5% to 7.2% in FY2018. ROIC stuck to a declining trend at -2.4 pp per annum in the last 5 years. ROE followed a declining trend at -3.6 pp per annum in the last 5 years.
Leverage (Debt)
Company's Net Debt / EBITDA is 2.4x and Debt / EBITDA is 3.8x. Net Debt / EBITDA increased on 0.047x from 2.4x to 2.4x in FY2018. Debt increased on 4.7% while cash decreased slightly on 0.75%. Net Debt/EBITDA followed a growing trend at 0.5x per annum in the last 5 years.
Oracle Corporation has good short term financial stability: Interest coverage ratio (ICR) is 6.6x. Oracle Corporation has no short term refinancing risk: cash is higher than short term debt (481.4%).
Average interest expence paid by the company was 3.3% in FY2018.
Valuation and dividends
The company's trades at EV/EBITDA 13.7x and P/E 50.5x.
The company paid 87.5% of Net Income as dividends in FY2018. Dividends grew on average at 7.6% per annum in the last 5 years).
Management team
Oracle Corporation's CEO is Mark V Hurd. Mark V Hurd has 4 years tenure with the company. CEO total compensation was
$216,577,356 in FY2018 which included
$1,900,000 salary.
34.6% of the company is owned by insiders. Insider ownership didn't change in 2018.
At the end of financial year the company had 137,000 employees. The number of employees decreased slightly on 0.72%. Average revenue per employee in FY2018 was
$287,467 and it increased on 5.1%.
Financial and operational results
FY ended 05/31/2018
Oracle Corporation ($ORCL) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 38,275 | 38,226 | 37,047 | 37,728 | 39,383 | 4.4% |
| Gross Profit | 31,039 | 30,694 | 29,568 | 30,259 | 31,323 | 3.5% |
| SG&A | 8,605 | 8,732 | 9,039 | 9,373 | 9,715 | 3.6% |
| EBITDA | 17,667 | 16,732 | 15,113 | 15,161 | 16,049 | 5.9% |
| EBIT | 14,759 | 13,871 | 12,604 | 12,710 | 13,264 | 4.4% |
| Interest expence | 914 | 1,143 | 1,467 | 1,798 | 2,025 | 12.6% |
| Tax | 2,749 | 2,896 | 2,541 | 2,182 | 8,837 | 305.0% |
| Net Income | 10,955 | 9,938 | 8,901 | 9,335 | 3,587 | -61.6% |
| Stock Based Compensation | 1,035 | 933 | 1,037 | 1,350 | 1,607 | 19.0% |
Balance Sheet
|
|---|
| Cash | 17,769 | 21,716 | 20,152 | 21,784 | 21,620 | -0.8% |
| Accounts Receivable | 6,087 | 5,618 | 5,385 | 5,300 | 5,136 | -3.1% |
| Inventory | 189 | 314 | 212 | 300 | 398 | 32.7% |
| Accounts Payable | 471 | 806 | 504 | 599 | 529 | -11.7% |
| Short Term Debt | 1,508 | 1,999 | 3,750 | 9,797 | 4,491 | -54.2% |
| Long Term Debt | 22,589 | 39,959 | 40,105 | 48,112 | 56,128 | 16.7% |
Cash flow
|
|---|
| Capex | 580 | 1,391 | 1,189 | 2,021 | 1,736 | -14.1% |
| Dividends | 2,178 | 2,255 | 2,541 | 2,631 | 3,140 | 19.3% |
| Acquisitions | 3,488 | 6,239 | 650 | 11,221 | 1,724 | -84.6% |
Ratios
|
|---|
| Revenue growth | 2.9% | -0.1% | -3.1% | 1.8% | 4.4% | |
| EBITDA growth | 0.3% | -5.3% | -9.7% | 0.3% | 5.9% | |
|
|---|
| Gross Margin | 81.1% | 80.3% | 79.8% | 80.2% | 79.5% | -0.7% |
| EBITDA Margin | 46.2% | 43.8% | 40.8% | 40.2% | 40.8% | 0.6% |
| EBIT Margin | 38.6% | 36.3% | 34.0% | 33.7% | 33.7% | -0.0% |
| SG&A, % of revenue | 22.5% | 22.8% | 24.4% | 24.8% | 24.7% | -0.2% |
| SBC, % of revenue | 2.7% | 2.4% | 2.8% | 3.6% | 4.1% | 0.5% |
| Net Income Margin | 28.6% | 26.0% | 24.0% | 24.7% | 9.1% | -15.6% |
| CAPEX, % of revenue | 1.5% | 3.6% | 3.2% | 5.4% | 4.4% | -0.9% |
|
|---|
| ROIC | 21.7% | 17.1% | 13.9% | 12.5% | 12.2% | -0.4% |
| ROE | 23.9% | 20.8% | 18.6% | 18.5% | 7.2% | -11.3% |
| Net Debt/EBITDA | 0.4x | 1.2x | 1.6x | 2.4x | 2.4x | 0.0x |
| Interest expence / Average debt | 3.8% | 3.5% | 3.4% | 3.5% | 3.3% | -0.2% |
People
|
|---|
| Insider ownership | 34.6% | 34.6% | 34.6% | 34.6% | 34.6% | 0.0% |
| Employees | 122,000 | 132,365 | 136,262 | 138,000 | 137,000 | -0.7% |
| Revenue/Employee, th. $ | 314 | 289 | 272 | 273 | 287 | 5.1% |
Oracle Corporation ($ORCL) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 9,104 | 9,589 | 9,676 | 11,014 | | 5.9% | 6.1% | 5.1% | 1.1% |
| EBITDA | 3,445 | 3,727 | 4,014 | 4,863 | | 8.5% | 4.1% | 11.0% | 1.5% |
| Net Income | 2,144 | 2,214 | -4,047 | 3,276 | | 17.0% | 9.0% | -280.8% | 1.4% |
Balance Sheet
|
|---|
| Cash | 21,321 | 21,310 | 19,487 | 21,620 | | -25.5% | 14.6% | -1.3% | -0.8% |
| Short Term Debt | 4,998 | 2,499 | 4,491 | 4,491 | | 400.3% | -34.9% | 28.4% | -54.2% |
| Long Term Debt | 48,293 | 58,170 | 56,224 | 56,128 | | -9.0% | 15.2% | 11.4% | 16.7% |
Ratios
|
|---|
| Gross Margin | 78.8% | 79.6% | 79.4% | 80.3% | | -0.5% | -0.6% | -0.1% | -1.3% |
| EBITDA Margin | 37.8% | 38.9% | 41.5% | 44.2% | | 0.9% | -0.8% | 2.2% | 0.2% |
| Net Income Margin | 23.6% | 23.1% | -41.8% | 29.7% | | 2.2% | 0.6% | -66.1% | 0.1% |
Peers in Systems Software
Below we provide Oracle Corporation benchmarking against other companies in Systems Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Advantego Corp ($ADGO) | | | | | 973.8% |
| Solbright Group Inc ($SBRT) | | | 286.4% | 25.4% | 414.0% |
| Duos Technologies Group Inc ($DUOT) | | 61.0% | -9.8% | -36.4% | 210.2% |
| Dell Technologies Inc. ($DVMT) | | | | | 145.7% |
| Finjan Holdings, Inc. ($FNJN) | | -6.2% | 292.3% | 174.6% | 63.0% |
| |
|---|
| Median (48 companies) | | 20.6% | 14.7% | 16.6% | 20.4% |
|---|
| Oracle Corporation ($ORCL) | | -0.1% | -3.1% | 1.8% | 4.4% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| StrikeForce Technologies Inc ($SFOR) | 97.0% | 96.9% | 98.3% | 95.4% | 94.0% |
| Varonis Systems, Inc. ($VRNS) | 90.2% | 90.6% | 90.5% | 90.4% | 89.8% |
| Check Point Software Technologies Ltd. ($CHKP) | 88.2% | 88.5% | 88.5% | 88.6% | 89.6% |
| Tableau Software, Inc. ($DATA) | 91.0% | 88.7% | 88.0% | 87.1% | 87.7% |
| Attunity Ltd. ($ATTU) | 90.7% | 84.9% | 83.9% | 84.1% | 87.5% |
| |
|---|
| Median (53 companies) | 76.1% | 74.5% | 73.1% | 73.9% | 73.5% |
|---|
| Oracle Corporation ($ORCL) | 81.1% | 80.3% | 79.8% | 80.2% | 79.5% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Check Point Software Technologies Ltd. ($CHKP) | 54.3% | 52.4% | 49.8% | 50.7% | 48.8% |
| SolarWinds Corporation ($SWI) | | | -8.0% | 44.0% | 44.8% |
| Finjan Holdings, Inc. ($FNJN) | -192.1% | -295.2% | 2.2% | 30.2% | 42.0% |
| CA Inc. ($CA) | 33.9% | 36.7% | 37.2% | 36.1% | 35.3% |
| Progress Software Corporation ($PRGS) | 28.9% | 14.9% | 2.4% | 28.6% | 32.9% |
| |
|---|
| Median (47 companies) | -2.4% | -6.6% | -9.8% | -5.4% | -4.7% |
|---|
| Oracle Corporation ($ORCL) | 46.2% | 43.8% | 40.8% | 40.2% | 40.8% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| The Rubicon Project, Inc. ($RUBI) | 15.6% | 11.4% | 12.0% | 26.0% | 16.0% |
| CYREN Ltd. ($CYRN) | 2.4% | 4.4% | 3.2% | 5.8% | 9.2% |
| ServiceNow, Inc. ($NOW) | 8.0% | 8.7% | 7.6% | 7.8% | 8.6% |
| Qualys, Inc. ($QLYS) | 10.4% | 12.2% | 11.7% | 16.4% | 8.2% |
| Zscaler, Inc. ($ZS) | | 12.5% | 7.8% | 6.5% | 8.0% |
| |
|---|
| Median (48 companies) | 2.9% | 2.1% | 2.0% | 2.2% | 2.5% |
|---|
| Oracle Corporation ($ORCL) | 1.5% | 3.6% | 3.2% | 5.4% | 4.4% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Finjan Holdings, Inc. ($FNJN) | -42.6% | -113.5% | 3.4% | 46.6% | 64.1% |
| Fortinet, Inc. ($FTNT) | 9.2% | 2.1% | 5.3% | 15.0% | 28.0% |
| Check Point Software Technologies Ltd. ($CHKP) | 22.2% | 23.7% | 24.7% | 26.8% | 25.5% |
| MAM Software Group, Inc. ($MAMS) | 13.3% | 19.3% | 21.1% | 24.2% | 25.2% |
| Red Hat, Inc. ($RHT) | 15.1% | 14.1% | 14.2% | 16.4% | 22.4% |
| |
|---|
| Median (56 companies) | 0.0% | 0.0% | -4.3% | -4.7% | -1.9% |
|---|
| Oracle Corporation ($ORCL) | 21.7% | 17.1% | 13.9% | 12.5% | 12.2% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| NXT-ID Inc. ($NXTD) | | | | | 9.7x |
| Symantec Corporation ($SYMC) | -3.2x | -1.5x | -5.0x | 10.0x | 4.7x |
| SolarWinds Corporation ($SWI) | | | | 6.2x | 4.1x |
| ServiceNow, Inc. ($NOW) | | | | 9.0x | 0.9x |
| MAM Software Group, Inc. ($MAMS) | -2.0x | -1.5x | 2.1x | 1.4x | 0.4x |
| |
|---|
| Median (22 companies) | -2.7x | -1.5x | -1.5x | -0.8x | -0.5x |
|---|
| Oracle Corporation ($ORCL) | 0.4x | 1.2x | 1.6x | 2.4x | 2.4x |
