甲骨文 (ORCL) 2017 Q1 法說會逐字稿

Welcome to Oracle's first-quarter fiscal year earnings conference call.

It's now my pleasure to turn today's conference over to Ken Bond, Senior Vice President.

Please go ahead, sir.

Thank you.

Good afternoon, everyone, and welcome to Oracle's first-quarter FY17 earnings conference call.

A copy of the press release and financial table, which includes a GAAP to non-GAAP reconciliation, and other supplemental financial information can be viewed and downloaded from our investor relations website.

On the call today are Chairman and Chief Technology Officer, Larry Ellison, and CEOs Safra Catz and Mark Hurd.

As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates, or other information that might be considered forward looking.

Throughout today's discussion we will present some important factors relating to our business, which may potentially affect these forward-looking statements.

These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements made today.

As a result, we caution you from placing undue reliance on these forward-looking statements, and we encourage you to review most recent reports, including our 10-K and 10-Q, and any applicable amendments for a completion discussion of these factors and other risks that may affect our future results or the market price of our stock.

Finally, we are not obligating ourselves to revise our results or publicly release any revision to these forward-looking statements in light of new information or future events.

Before taking questions, we will begin with a few prepared remarks, and with that, I'd like to turn the call over to Safra.

Thanks, Ken.

Good morning -- good afternoon, everyone.

I'm going to focus on our non-GAAP results for Q1.

I'll then review guidance for Q2 and turn the call over to Mark and Larry for their comments.

Clearly, we are pleased with our results, with the most obvious thing being that we overachieved again in the cloud, especially in the United States.

As you all know, we have pivoted the organization to go after the cloud, and we are outperforming even our most aggressive expectation.

This has resulted in our growth rate continuing to accelerate as we scale in the cloud, something our competitors are not similarly experiencing.

We continue to use constant dollar growth rates on our quarterly calls so we can have some measure of consistency across the quarter, as well as to reflect how we measure the business.

This quarter, the effects of currency movements were more than expected, mostly because the surprise Brexit vote happened after our earnings call, resulting in a 1% to 3% headwind in most revenue categories, including 1% to total revenue, and EPS which was $0.01 lower as a result.

Cloud SaaS and PaaS revenue for the quarter was $815 million, up 82% from last year, and above the 80% high end of my guidance.

While this excellent growth rate was helped a little by recent acquisitions, organic growth accelerated from both Q4 and Q1 of last year.

Actually, organic SaaS and PaaS growth rates has accelerated for seven straight quarters.

You can also see the continuing revenue acceleration of our cloud business in the SaaS and PaaS billings and deferred revenue.

The gross deferred revenue balance is now nearly $1.5 billion, up 49% in US dollars.

SaaS and PaaS billings grew 49% in US dollars this quarter, up from 38% last quarter.

We've put the billings numbers up on our website for you to see the detail.

Our SaaS and PaaS business has now grown to the point where the dollar growth in SaaS and PaaS revenue exceeded the dollar declines in new software license.

Together, SaaS and PaaS subscriptions and new software license grew 16% in constant currency.

As our SaaS and PaaS business continues to scale and grow dramatically, the gross margin also continues to expand.

The Q1 gross margins for SaaS and PaaS was 62%, up from 40% last Q1, and we expect to see further improvement in FY17.

And from there, we'll be targeting 80% over time.

Combined with cloud infrastructure-as-a-service revenue of $171 million, which was up 10%, our total cloud revenue in the quarter was nearly $1 billion, up 63% in constant currency from last year.

Total on-premise software revenues were $5.8 billion, with software updates and product support revenues at $4.8 billion, up 3% from last year.

Attach and renewal rates remain at their usual high levels, as our growing installed base of customers continues to power earnings and cash flow.

New software license revenues were slightly over $1 billion, down 10%, reflecting the continued migration to cloud.

Total hardware, including hardware support, was down 11%, with hardware systems product revenue of $462 million and hardware support revenue of $535 million.

Our engineered systems grew mid double digits, led by Exadata that grew over 30% in the quarter.

For the Company, total revenue for the quarter was $8.6 billion, up 3% from last year.

Non-GAAP operating income was $3.4 billion and operating margin was 39%.

I need to remind you that the large debt offering we did last quarter cost about $0.005 in EPS in the quarter.

The additional interest was not in my guidance, as the debt offering took place after the guidance call.

For Q2, I expect the added interest will lower EPS by more than $0.01, without the matching benefit of NetSuite's contribution to earnings, which will be accretive until the deal closes.

G&A expenses were also higher than usual in Q1 because of some legal fees, which will be lower in the second quarter and largely gone by Q3, as a result of the settlement of one case and the end of two trials.

The non-GAAP tax rate for the quarter was higher than projected due to the geographic mix of earnings, which is driven by our over-achievement in cloud revenues in the US, resulting in a tax rate of 25.5% and EPS being $0.01 lower at $0.55 in US dollars, but still up 5% in constant currency.

The GAAP tax rate was 22.8% and GAAP EPS was $0.43 in USD, up 11% in constant currency.

Operating cash flow over the last four quarters was $13.7 billion.

Capital expenditures for the quarter were $299 million.

Free cash flow over the last four quarters was $12.6 billion, up 5% from last year.

We now have approximately $68 billion in cash and marketable securities.

Net of debt, our cash position is approximately $14.3 billion.

The short-term deferred revenue balance is $9.5 billion, up 5% in constant currency.

As we've said before, we are committed to returning value to our shareholders through technical innovation, strategic acquisition, stock repurchases, prudent use of debt, and the dividend.

In terms of acquisitions, we continue to focus on finding the right companies at the right valuation that make both strategic and financial sense.

This quarter, we repurchased 49 million shares for a total of $2 billion, and the Board of Directors again declared a quarterly dividend of $0.15 per share.

For those of you curious about NetSuite, I can report we have now cleared anti-trust reviews everywhere, except the United States, where our waiting period expires at the end of September.

Now to the guidance.

I'm going to give you guidance for Q2 and then some updated comments for the fiscal year.

All of my guidance today is on a non-GAAP basis and in constant currency, and while we feel good about our own performance and transformation, I am always keeping an eye on the macro environment, especially abroad.

If current exchange rates remain the same as they are now, we expect to see SaaS and PaaS revenue is expected to grow again 78% to 82%, a little bit more than I guided last time.

Our software and cloud revenue, including SaaS and PaaS and IaaS, new software license and software support is expected to grow 3% to 5%.

Total revenue growth is expected to range from 0% to 3%.

EPS is expected to be between $0.59 and $0.62 in constant currency.

Were it not for the higher tax rate and interest expense, we would expect EPS to grow approximately 4%, or be $0.06 higher.

Over the full year of FY17, I'm raising the outlook for FY17 SaaS and PaaS revenue growth from 65% to 67%.

I continue to expect the SaaS and PaaS gross margins will exit Q4 higher than the 62% reported today, as our cloud business continues to grow dramatically.

With that, I'll turn it over to Mark for his comments.

Thank you, Safra.

First, we just had a great quarter, and I want to thank everybody at Oracle for their hard work, all of our employees.

I'm going to give you a lot of numbers; let me start with booking and revenue growth rates.

I'm going to give them to you year on year [of CD] unless I state otherwise.

Cloud bookings ARR was $271 million in USD, a 42% growth.

As a reminder, ARR growth last year was 166%.

SaaS bookings were $165 million USD and PaaS/IaaS bookings were $106 million USD.

As Safra said, SaaS/PaaS revenue was up 82%.

I just want to repeat, the seventh consecutive quarter of organic growth acceleration.

Our ERP EPM revenue grew 70% quarter on quarter.

The seventh consecutive quarter with sequential growth that was greater than 50%.

In Fusion HCM, we grew 131%, nearly 4 times the growth rate of Workday.

In CX separately, up double digits in sales, marketing, and service.

Data as a service was up 75%.

Platform as a service up 22% quarter on quarter.

Overall, we grew 82%, the highest global growth rate of any scaled cloud company.

SaaS/PaaS billings grew 49% in the quarter, up from 38% last quarter.

Deferred SaaS/PaaS revenue was up 49%.

SaaS customer metrics, we closed 776 new SaaS customers in the quarter.

We had 677 expansions, 125 customers who bought SaaS also bought PaaS; 346 new CX customers, 488 expansions.

173 new HCM customers drove that great result, inclusive of 69 expansion.

344 ERP/EPM customers and 135 expansion.

Our active base is now 2,800 customers with a 1,000 live 10 times Workday.

Over 50% of our ERP/EPM customers were net new to Oracle; they've never purchased an Oracle app before.

Two-thirds of our new customer wins were Fusion.

334 go lives in Fusion, our best quarter ever.

2,032 PaaS customers that were new in the quarter.

Our install base is now 11,000 PaaS customers.

1,671 new infrastructure-as-a-service customers that are supplemental to our PaaS customers.

Together, our install base of PaaS and infrastructure is now at 18,892 customers.

As a point of clarification, PaaS and infrastructure customers are counted for each service that they use.

In closing, this was just a very solid quarter for us, not only in revenue, but bookings and billings.

Look forward, a few predictions.

Q1 bookings were solid at 42%.

I believe Q2 will be better, could even be much better.

Q1 revenue was fantastic at 82%; it's one of the reasons that Safra described we're raising our guidance from [65% to 67%].

I just want to close by saying we are the fastest growing scale cloud Company in the world.

With that, I'll turn it over to Larry.

Thanks, Mark.

We're very excited about the rollout of our generation two infrastructure-as-a-service data centers.

These new data centers give us a significant cost and performance advantage over Amazon web services.

Plus our new bare metal offering makes it possible for our customers to lift and shift their entire existing corporate infrastructure, data, and applications without any changes whatsoever and move it to the Oracle public cloud.

You just can't do that with Amazon web service.

Lift and shift the entire network, BM, database, data, applications, move all of that across to our data center without changing anything.

It's a real advantage.

So for the first time, we have this big technology advantage in infrastructure as a service.

We expect this will enable Oracle to accelerate our infrastructure-as-a-service business to the same high growth rates that we're currently experiencing in both SaaS and PaaS.

With that, we're ready for questions.

Thank you.

(Operator Instructions)

Our first question comes from the line of Raimo Lenschow with Barclays.

Hi, thanks for taking my question.

A question for Mark.

Mark, the bookings number looked impressive and you hinted at the better numbers in Q2.

But you also, in the press release, talked about the $2 billion that you want to achieve for this year, which actually needs the slightly better than 42% growth for the year.

Can you talk a little bit about the drivers that drive that strong number and that drive the acceleration there, thank you.

Sure, yes.

Obviously to your point, we grew 42% in the quarter.

I actually -- as good as that was, we could have done better.

That's how strong our pipeline is right now.

And as I've told most of you that as we've gone through this cloud transition, we've got a pipeline and we understand now with -- as more data has come clear to us how that translates to performance.

And our performance continues to get better, and I think it's all of the things we've talked about.

Not only have we got more salespeople than we had before, they're better trained.

Our customers are more aware.

We have more references, we have more go lives, and all of that feeds together.

In addition, we not only have more products; we're going to release more products yet even this week or next week at OpenWorld, but more of our existing products are available in more geographies.

So as for example, as we've released ERP, ERP actually has not been available in every geographic market in the world, as it now is.

So you've got a culmination of all of these factors that lead into it, but we're going to have a very strong bookings year, as I described.

Thank you.

Our next question will come from the line of Keith Weiss with Morgan Stanley.

This is Keith Weiss from Morgan Stanley, and thank you for taking the question.

From our perspective, it looks like over the past two years, we've seen Oracle make a large push away from perpetual licenses towards attrition-based SaaS offerings on the application side of the business.

And now it appears that that push is shifting more on the database tech side of the business, steering more business towards platform as a service.

So one, is that a correct assumption, that the focus is more on database tech going towards platform as a service?

And two, how should investors think about the impacts of that shift in FY17 in particular?

This is Larry.

We started our Fusion applications efforts a little over 10 years ago.

So we started rewriting all of our applications for the cloud about a decade ago.

And when those applications were ready, we moved aggressively to sell those applications.

We believe that's what customers wanted, they wanted cloud-based applications not on-premise-based applications.

We had made a 10-year -- and we made the huge investment in rewriting all of our applications, and those were ready before -- and we were ready to move into SaaS application before we were ready to move into infrastructure as a service or PaaS.

We were just ready sooner.

So we pushed that.

The interest -- again, the interesting thing here is we are just beginning to move our database customer from on-premise into the cloud.

Microsoft has already done a very good job of moving their office customer from on-prem into the cloud and that's the overwhelming basis of their cloud growth.

The overwhelming basis of our cloud growth are new customers for applications.

So we haven't started shifting our base yet, which I think is very interesting.

We got these applications ready, we're gaining share right and left, as I say.

We mention Workday a lot because they're our primary competitor for HCM and ERP in the cloud.

And as Mark pointed out, we have 10 times more customers than Workday as an ERP, and we've sold more, but those are -- more than half of those are net new customers.

Okay, so that's us gaining share in that business.

We're now beginning to move our install base into the cloud and this is a lot of expansion.

It's not like they're going to stop running in premise.

We believe this is the next decade; this is co-existive story.

They're going to continue running some of their stuff on-premise, and they're going to move some of the stuff into the cloud, and those two things have to co-exist.

And our unique offerings to our customers and database is the fact that we support the identical software on-premise and in the cloud, and you can move data and work loads back and forth very, very gracefully.

That's our PaaS offering.

Then, by the way, if you're a SaaS customer, your application is built on top of our database and our [middleware], so you buy SaaS with PaaS.

You often buy together, as Mark pointed out.

Finally so PaaS was ready second.

We were ready -- we're moving aggressively to PaaS.

Now what we're looking for is the third leg of the stool, which is to push into infrastructure as a service, where we have an all new and very formidable competitor, Amazon.com, who we think now with our new generation-two data centers, we have a big competitive advantage over Amazon.com.

And people will be buying our PaaS and our infrastructure as a service together.

So we sell PaaS twice.

Sometimes, we package PaaS with our application SaaS together, and this new business selling PaaS with infrastructure as a service, where they're building a lot of custom applications or moving existing applications into the cloud.

Way to think about it is our SaaS business is a new business, there's a lot of new customers.

We're just beginning to shift our install base from the on-premise into the cloud, which is enormous potential for us and we think that we make a lot more money by moving customers off premise into the cloud because we do a lot more things for the customer.

We help the customers save money, but we also provide, with our database, storage and networking, and compute, and all of the associated support services.

So we think, again, this is the beginning of still more rapid growth for Oracle.

One thing I would not want you to walk away with, Keith, you said shifting from SaaS to PaaS.

We aren't shifting.

We're supplementing.

This is -- in SaaS, we have more energy and more momentum than we've ever had.

We are not taking our foot off that accelerator.

We are supplementing -- by the way, let me just be clear, to Larry's point.

If we could push a button and move all of our on-prem Oracle database customers to PaaS, we would do it.

It is economically beneficial to us.

Secondly, we think that it's the way customers also want to buy now.

But there is this transition that Larry talked about that we are going through.

So --but I don't want you to think SaaS and PaaS have some inner relationship to the energy we'll put out.

We have separate, actually, sales organizations that do both.

Our energy is on both; we think both are tremendous opportunities about to be supplemented by our infrastructure offerings that Larry referenced.

Thank you.

Our next question will come from the line of Sarah Hindlian with Macquarie.

Hi, great, thank you.

It's Hindlian.

Thanks for taking my question and congratulations on the momentum in the cloud, Larry, Safra, and Mark.

I was hoping you could talk a little bit more about what is driving some of the success you're seeing there.

I know you mentioned conversions on the pipeline are strong and reference customers are now live, but are you seeing success around the streamlining of cloud purchases through the new accelerated buying experience?

Or is this more sales compensation changes, and of course, product functionality improvements that's driving the success in the cloud?

Some more comments and color would be very greatly appreciated.

Well, for sure I think it really is very much all of the above.

So let me just address the accelerated buying experience, because the most important part of it is that we end up being able to service our customers much more quickly, much more efficiently.

Our salespeople become so much more productive, they can spend more of their time -- really the bulk of their time with customers outwardly facing, making them successful, instead of inwardly facing, dealing with our own back office.

So this has really unleashed a massive amount of productivity.

Obviously, having many references is critical for the success of a software service, because customers all talk to each other.

And the happier customers lead to more happy customers, which is, by the way one, of the reasons we love Oracle OpenWorld.

Because tens of thousands of our customers come and they share their positive experiences, and that just gets more and more customers excited and participating.

And then, of course, the salesforce has enormous amount of success, which ends up leading to just more success, more productivity.

The entire thing is just a very, very virtuous cycle, all of which starts with having the best products.

That's really the bottom line, ultimately.

As Larry mentioned, we spent a decade.

Frankly it's a little over a decade in building these products.

We had leading products to begin with, but we started and rewrote them all, focused exclusively -- really focused on the cloud, and that's what ultimately shows through.

Thank you, Safra.

Thank you.

Our next question will come from the line of John DiFucci with Jefferies.

Thank you.

I'm going to ask another question about the cloud.

When we look at your traction here, and it's been much better than we would have thought, especially in this quarter which usually is seasonally slow quarter.

I don't think we've seen a company of scale move to cloud with the gusts that we've seen here.

As Larry mentioned, the cloud move here was mostly new -- I think you said customers, but I think you meant new workloads.

When should we expect to see more customers actually transition current workloads from on-premise to the cloud?

And how is this going to affect the aggregate bottom line in the near term?

By the way, we meant new customers.

He didn't misspeak.

He meant new customers.

Just to, John, give you a flavor in the quarter, and I didn't do this for the interest of time.

But just to give you an idea of new customers in the quarter and just SaaS ERP, we closed Adventist Health, Bharti Airtel, Rico, Saks, Tesco, Texas Instruments, UCLA, Wake Forest University, Baptist Medical Center in --

So were these customers never customers of Oracle before?

(Multiple Speakers) They were never application customers.

It's not a matter of -- we just make a distinction between moving an existing application customer from, let's say, an Oracle E-business suite customer to Oracle Fusion ERP in the cloud.

Got it.

Versus taking an SAP customer and moving them from SAP to Oracle Fusion application.

I think that -- just trying to tie back to the point Larry was making earlier, most of what you see in our cloud revenue number is customers that -- more than 50% where customers who were not an Oracle application customer before they became an Oracle SaaS customer.

So these are really new customers, and then to your point, that are bringing new workloads that we have not had before.

The exciting part, which again, I'll go back to what Larry said, was the core of our on-prem user base, particularly in the database arena, has not moved.

And that is a huge opportunity for us, that the only people that can move them to the cloud as efficiently and effectively are us.

So that's why this is such -- we get -- maybe we don't do as good a job explaining it as we feel it here, because what we've seen so far is what you would think of, John, as normally the hardest stuff, going out and finding net new customers.

So I think to distinguish it again, what I said before.

Microsoft is holding onto their Office customers by moving them from on-prem into the cloud.

We are not just holding on -- just holding on to our on-prem customers, moving our application customers to the cloud.

We're doing that too.

We're holding on to our apps customers while moving to the cloud.

But more than that, we're gaining -- more than half of them are net new customers.

So that's very different than what you see is going on in Microsoft.

And our big install base which is the database where we're preeminent, we really haven't begun -- or we're just beginning, in the early stages of holding onto them and moving them to the cloud.

So it's a bit of a different story between us and Microsoft.

That exciting prospect of moving those database customers to the cloud, that's in front of us.

That's what makes -- I congratulate Microsoft on doing what they've done.

It's the right strategy for them.

Our has been what we've said, we want to that, but we want to do more.

And we think we have the opportunity -- Safra mentioned another very important metric.

Our renewal rates are where they've always been, which tells you the bulk of our base that's on-prem is still yet to move.

And it tells you and supports this story about how much from us is just plain net new opportunities, John, for us.

Great that's very clear.

I did ask the question on the effect of the bottom line, too, here, at least in the near term.

Because -- Safra was clear with the impact to some of those extra items to the guidance for EPS relative to what expectations were anyway.

But is there going -- is this going to -- we know it can be suppressive to margins, at least initially, and we've seen that.

But at the same time, it looks like -- and this is the first time--

I'll let Safra comment again, but I want to make sure it's clear what we were saying.

This is actually the fact that we've done a very good job in the US growing our cloud business.

That's eventually -- had the strange effect of raising our tax rate.

This is the best bad news you could get.

So we're in a situation where I hate to say we've overexecuted, but that's how you feel.

And yet, to be clear, John, our bookings in Europe are very strong and so this is going to normalize.

This is just a point of us putting -- moving those bookings into revenue.

As we have more balance between our international cloud sales and our US cloud sales, the tax rate should drift back to where it normally is when we have the same mix.

It's just now we have a disproportionate amount of our cloud revenue in the United States.

We expect that to balance and we expect the tax rate to go back.

Well the bookings balance, it's just the current period revenue that we've got today, but this is overall a -- I view, a very good story, and let's not lose the fact of the other number Safra described very early.

Our margins are now at 62% in our SaaS/PaaS margins, which we talked about way back when they were at 39% as we were investing infrastructure to prepare for what we have now.

And so I think the margin story, John, is also beginning to solidify as we continue to grow and put revenue on top of the base.

Great that's all very helpful, thank you.

Our next question will come from the line of Heather Bellini with Goldman Sachs.

Great, thank you so much.

This is a question for Safra.

Safra, support grew, software support grew 3% year over year but was flat sequentially.

I'm wondering if there's any color you could provide here on the trends in that business.

And also, if you can share with us how you think about the tradeoff between support and cloud revenue and how you think about the sustainability of that software support stream.

Thank you.

Sure, so of course, you have to remember we're going from Q4 to Q1, so our Q1 new license is our seasonally lowest one anyway, okay?

Now as you know, our focus is now on cloud.

And so as new license becomes a smaller number, especially in Q1, it means that it does not -- that the support base does not grow as much.

There's also a little bit of currency, but you should ignore that, so that's the first thing.

Now, I know you're probably worried that all of the sudden support is going to go negative, the base is going to go negative.

We don't foresee that happening, okay, because the base is continuing to grow even though new license amount is not growing year over year as much or is actually shrinking, as more of our customers pivot to the cloud, we still sell new licenses, which means the base does continue to grow and it grew 3% year over year.

So that's, I think -- I don't know, you had a few parts to your question, but that's really what's going on here.

We don't -- yes, that's it.

And if I could just, just on that point, just with the support trends that you're seeing, is this still a year where you've forecasted bottom and operating income?

I'm sorry, FY16 being the bottom, my apologies.

Yes, yes, yes, it is.

Absolutely.

Absolutely, and I do want to say one more time again, and also Mark mentioned it, our retention rates, our renewal rates in our support business remain very, very high.

So, in fact, they're a little bit higher this quarter than another quarter.

It's all within a band; they're very high, they remain that way.

And so they are high, Heather, but again I want to reiterate, as I've said before, not on this call, if the customer does move to the cloud, we actually get more money.

So we actually do more things for the customer.

We now do their hardware.

We get all of the database.

We get all of the middleware.

We get a multiple on the support dollar.

And as our -- so our support dollar goes up when it converts into a cloud revenue dollar.

And back to the margin story we talked about five minutes ago, those margins in the cloud, as we see them approaching the level that Safra described earlier, this is good news for us.

So yes, the renewal rates are what they are.

We predict support to be the way they described but this is not bad news as we begin to move our base to the cloud.

This is actually good news.

Thank you.

Our next question comes from the line of Kash Rangan with Banc of America Merrill Lynch.

Hi guys, thanks for taking my question.

So Safra, just wanted your comment on gross profits.

One of the things we look for in cloud transition stories is when do gross profits start to grow.

And clearly after a two-year slump, your investment is starting to pay off, your gross profits were up for the first time in two years, I believe.

Can you talk about the disparity between gross profit growth, which obviously, is quite important and the operating income growth?

Is that a bit of a lag effect here?

And also if I could ask you, Mark or Larry, on the PaaS side, can you just give us a little bit more color.

What kind of projects are customers picking Oracle for when they sign a PaaS (inaudible), particularly given that you've surprised us with the announcement of a number of new customers for the PaaS side, I would have thought that would be just typical Oracle database customers.

But looks like something new could be happening.

If you could shed some light, that would be great.

Thank you.

Sure, so first, you really should take direction from what's going on in our gross profit line for the most strategic part of our business, which is moving to the cloud, and software, and software as a service.

And that is going to be very much followed up.

One of the things we do have that is costing us is that our hardware business outside of our engineered systems is getting smaller, and the expense line has not adjusted equally.

As you can imagine, you know us pretty well, that's something that is very straightforward for us to finish out during the year, and that is our expectation.

In addition, you also talked or you may have mentioned currency and tax and things like that.

So obviously, currency is something I can't project and I think after the Brexit vote, I'm pretty sure nobody else has projected it correctly either.

So but the way it affects us, just so that you know, is that the US at Oracle is ahead of Europe in our move to the cloud and outside of the United States; however, as Mark mentioned, the bookings are very, very high.

So bookings that were booked in the United States over the past year are turning into revenue already in the United States.

Since the number is smaller in Europe, the bookings, the revenue numbers are smaller, the bookings are approaching those of the United States, and those are going to start flowing through revenue.

That will, in fact, impact our tax rate and readjust it back to the lower rates that you may had be used to.

So that's going to take a little while and that should go through.

In addition, as you know, we do have some significant borrowings, and as a result, we have a very large amount of cash on our balance sheet right now, which is not earning very high results.

We are looking forward to closing the NetSuite deal, which we believe to be accretive and that will also be helpful.

The other part of your question, this is Larry, is we sell PaaS two ways.

PaaS is sometimes attached to SaaS.

Think of it like salesforce.com.

They have their Force.com platform, where it's used to extend the salesforce application.

We have our platform people used to extend our SaaS application.

So you buy a number of SaaS applications or suite of SaaS applications, and you buy certain amount of PaaS to extend those data [marks], data warehouses, other things, add features and functions, use PaaS for that.

Also, the bigger opportunity is when you buy PaaS and infrastructure as a service together, where you are either writing brand new, net new custom applications or you're lifting and shifting an existing custom application to our infrastructure as a service, and then moving the database associated with that application to our PaaS.

That's actually the bigger opportunity, and you're beginning to see that start to drive our PaaS business higher.

And of course, it will accelerate the growth rate off our infrastructure as a service business as well.

I'd add just one less thing.

Exadata as a service has been a very strong PaaS offering, so we count Exadata as a service, meaning you can now get Exadata in the cloud, as you can get it on-premise.

And our Exadata-as-a-service offering has been a strong PaaS offering.

So when -- we actually don't even add that into the engineered systems numbers that Safra described earlier, and that's really the strength and popularity of Exadata.

We also have a pretty good sized business now [built] in PaaS, which is a cloud integration services business inside our platform as well.

So everything Larry, said all of the [dev-tev] stuff, the supplementing of our SaaS offerings, Exadata, and the data integration services are at the core of our most popular PaaS offering.

Our next question will come from the line of Kirk Materne with Evercore ISI.

Thanks very much.

Mark, given that you guys have a view into both the on-premise and the cloud world, I was wondering if you could give us some sense on where you think larger, say Fortune 1000, types are in terms of moving their ERP systems to the cloud, as well, CRM and HM seem to be past the tipping point.

There is some debate as to how fast some of the bigger companies are going to move ERP.

And I was just curious what you're seeing in your pipeline, and is that necessary?

Does that have to happen for you guys to hit your AR forecast for this year?

Just trying to get a sense on where we are in that front.

The answer to your last question is no, and the answer to your first question is faster than I would have thought two or three years ago.

So some of the names I wrote -- I read earlier are scaled companies.

When you see somebody like a Tesco moving, when you see an HSBC moving, when you see some of these brands, and we have all types of brands in our list of ERP customers, ranging from GE and others, as I've described, to newer companies like Lyft and others that are newer, hot, mid-market companies that may have not even had a set of financials before.

And it's really all of the above.

And I think the thing we get excited about, it's the reason we talk about Workday probably as much as we do, is we see them at least with a SaaS offering.

Our core on-prem competitor historically hasn't really done anything.

So when they try to --when you look at their base, as their base begins to lock for some of the benefits that our base now has the opportunity to take advantage of, we think there's a possibility for a relatively sizeable market share shift over the years as we move forward.

So I -- Kirk, I do think you're going to see tire kicking, and you see it now of many scaled companies that are the biggest companies in the world.

And you see a few of them showing up on our list of recorded wins.

Thanks for the color.

Our last question for the day will come from the line of Joel Fishbein with BTIG.

Good afternoon.

I just have a quick follow-up on a database.

Clearly, you have very strong momentum in the cloud application business.

Can you give us a little bit more color on where the database cycle will show up and what's the best way for us to measure it?

That would be helpful, thanks.

Well again, next week at Oracle OpenWorld this Sunday, we're announcing the latest version of our database, and it's going to be available in the cloud on Exadata.

We think you're going to see a very rapid uptake of the new version.

And we expect those customers to consume some of it on-prem, but also a significant amount of their new database consumption is going to be in the cloud.

So I think release two is going to move customers to the cloud more quickly than they otherwise might move.

Great, thank you.

Okay.

Can we move to close the call please?

But before we do that let though, me just finish up with the last couple of comments.

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