甲骨文 (ORCL) 2018 Q3 法說會逐字稿

Welcome to Oracle's Third Quarter 2018 Earnings Conference Call.

Now I would like to turn today's call over to Ken Bond, Senior Vice President.

Thank you, Holly.

Good afternoon, everyone, and welcome to Oracle's Third Quarter Fiscal Year 2018 Earnings Conference Call.

A copy of the press release and financial tables, which include 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 the statements made today.

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

And as a reminder, Safra's comments today will use constant dollar growth rates unless stated otherwise and Mark's comments will use U.S. dollar growth rates.

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

Before taking questions, we'll begin with a few prepared remarks.

And with that, I'd like to turn the call over to Safra.

Thanks, Ken.

Good afternoon, everyone.

I'm going to focus on our non-GAAP results for Q3.

I'll then review guidance for Q4 and turn the call over to Larry and Mark for their comments.

As you can see, we had another solid quarter.

But before discussing Q3, let me just point out that the GAAP income statement was impacted by a onetime net charge totaling $6.9 billion related to the 2017 Tax Cuts and Jobs Act.

This is clearly a onetime event, so for ease of comparison, we have excluded it from our non-GAAP calculation.

Now back to the quarter.

Total cloud and software revenues were $8 billion, up 7% and up 3% in constant currency.

Inside of cloud and software revenue, GAAP total revenue for applications, which is new licenses, license updates, including support and SaaS, were $2.7 billion, up 9% or 6% in constant currency.

And GAAP total revenues for platform and infrastructure, which is new licenses, license updates, including support and PaaS and IaaS, were $5.3 billion, up 8% or 3% in constant currency.

Cloud SaaS revenue for the quarter was $1.2 billion, up 21% on a GAAP basis from last year in constant currency with -- excuse me, on a non-GAAP basis with Fusion Cloud revenues up 52% in constant currency.

Cloud PaaS and IaaS revenues for the quarter were $416 million, up 24% from last year in constant currency.

Cloud PaaS and IaaS revenue, excluding legacy hosting services, saw growth of 49% in constant currency and 56% in U.S. dollars.

As legacy hosting services become a smaller part of total PaaS and IaaS, the underlying growth of PaaS and next-generation IaaS will be more visible.

As for cloud margins, our SaaS business continues to scale and grow, and the gross margin has expanded to 67%, up from 65% last Q3.

We expect to see further improvement and remain committed to our goal of 80% SaaS gross margin.

Now the gross margin for PaaS and IaaS was 35%, down from last year.

However, in looking ahead, I believe we're at the point where PaaS and IaaS gross margins will begin to improve with Q4 slightly higher than Q3.

Total new license and license updates, including support revenues, were $6.4 billion, up 4% in USD with software updates and support revenue of over $5 billion for the first time ever, reflecting continued excellent renewal rates and the strength of our installed base of customers.

Total non-GAAP revenues for the company were $9.8 billion, up 1% from last year in constant currency and up 5% in U.S. dollars.

Non-GAAP operating income was $4.3 billion, up 4% from last year in constant currency, 9% in U.S. dollars.

The operating margin was 44%, which was up from 43% last year.

There were a couple of onetime in and outs in the expenses impacting this, but basically, the operating margin has now increased year-over-year for 6 consecutive quarters.

And while I can't promise this will happen every quarter, I do expect that operating margins will continue to expand.

The non-GAAP tax rate for the quarter was materially lower than guidance at 16.1%, reflecting the impact from the new tax law as well as other onetime benefits.

The GAAP tax rate was 222%, reflecting the $6.9 billion tax charge related to this new tax law.

Non-GAAP earnings per share was USD 0.83, up 20% in USD and up 15% in CD.

The GAAP loss per share was $0.98, driven by the onetime charges related to the new tax law.

Operating cash flow over the last 4 quarters was $15.2 billion, up 13% in U.S. dollars, and free cash flow over the last 4 quarters was $13.3 billion, also up 13% in U.S. dollars.

Capital expenditures for the quarter were $286 million.

I expect that cloud CapEx spending will continue to be driven by our ARR, and should we see higher-than-expected ARR growth, we'd expect to see higher CapEx of investments as well.

We now have more than $70 billion in cash and marketable securities.

Net of debt, our cash balance is nearly $10 billion.

The short-term deferred revenue balance is $8 billion, up 4% in constant currency.

This quarter, we repurchased nearly 81 million shares for a total of nearly $4 billion.

Over the last 12 months, we've repurchased 149 million -- 143 million shares for a total of $7 billion, and we also paid out dividends of nearly $3.2 billion.

The Board of Directors again declared a quarterly dividend of $0.19 per share.

As we move to Q4 guidance, I want to remind you that we have a bit of a tough comparison as the last Q4, we beat our EPS guidance by $0.10.

I will give you guidance for non-GAAP Q4 in U.S. dollars and also in constant currency.

Assuming current exchange rates, currency could be as much as 3% positive on total revenue and $0.03 positive on earnings per share.

So for Q4, cloud revenues, including SaaS, PaaS and IaaS, are expected to grow 19% to 23% in USD, 17% to 21% in constant currency.

Total revenues are expected to grow from 1% to 3% in USD and negative 2% to 0 in constant currency.

Non-GAAP EPS in USD is expected to be between $0.92 and $0.95, and EPS in constant currency is expected to be between $0.89 and $0.92.

This assumes a non-GAAP tax rate of around 20%.

The important thing for you to know is that for fiscal 2019, I expect the new tax law will translate for us to a tax rate of 19.5%.

However, in any given quarter, we could see onetime tax events that will cause our actual tax rate to vary from our base rate, but I expect that in normalizing for these onetime tax events, our tax rate will average around 19.5%.

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

Thanks, Safra.

I'm just going to start with a few customer wins for the quarter and then make a couple of comments.

And I'll turn it over to Larry.

First in ERP wins: Avis Budget Group, Barrick Gold, by the way, also bought HCM at the same time; Baylor Scott & White Health, ERP and Fusion HCM; Blue Cross Blue Shield of Florida, Fusion ERP; Broadcom, Fusion ERP; Caesars Entertainment, Fusion ERP and HCM; Dubai Ports, Fusion ERP; Esterline Technologies, Fusion ERP; Master Lock; MTM Group; William Morrison Supermarkets, all Fusion ERP.

In HCM: Arthur Gallagher; City of Memphis; [Diebold]; again, Dubai Ports; Grant Thornton; Henkels & McCoy; Molina Healthcare; also, MTM bought HCM; National Oilwell Varco; Principal Financial Group, Hearst Group; also William Morrison Supermarkets and a really, really large U.S. bank, who bought HCM from us, which is one of the largest HCM transactions and ARR that we have ever received.

All right.

With that, a couple comments on the quarter.

Safra mentioned our revenue numbers up 6% with software and cloud revenue year-to-date up 8%, operating income up 10% and EPS up 16%, up 20% in Q3 alone.

We'll talk a little bit about our ecosystems.

Our app ecosystem year-to-date is up 12% and continue to grow faster than the market.

Less than 15% of our apps customers have started to move their core apps to the cloud.

Between customers that are partially moved and those not started yet, we have an enormous opportunity (inaudible).

SaaS bookings ARR.

ARR was roughly where I expected it to be in Q3.

And with SaaS revenue now approaching $5 billion, I'll focus my comments on SaaS revenue as opposed to ARR.

SaaS revenue up 24%, now over a $4.6 billion run rate; ERP up 62% organically.

Overall, ERP is now $1.5 billion annualized run rate.

Fusion HCM was up 71%.

That's a revenue number.

Doesn't include the bookings that I described a couple of minutes ago.

Vertical's up 20%.

Now let me move to tech.

By the way, on the verticals, I want to mention that 20% growth is compared to up 110% last year.

On our tech ecosystem, year-to-date, our technology ecosystem is up 6% with a database ecosystem also up, at the same time, roughly 6%.

And again, we're growing faster than the market.

The fact is that we are taking market share, and with autonomous database just beginning to show up on our pipeline, this will only strengthen our technology ecosystem growth.

PaaS infrastructure revenue was up 28% with our next-gen PaaS infrastructure business growing 56% and already overall $1.1 billion annualized run rate.

A few highlights.

Oracle PaaS, which includes Database as a Service, up 34%.

Public cloud infrastructure was actually up 142%, storage infrastructure up 82%, compute infrastructure up 121%, network infrastructure up 181%, cloud revenue at 25% growth now at a $6.3 billion annual run rate, and 80% of our trailing 12 months software and cloud revenue is now recurring in nature.

We're executing well on a big and growing pipeline.

Our pipeline is at a record level, and our year-to-date performance with top line growth of 6% USD and 16% EPS growth reflect our success.

Looking forward for the full year, I expect our apps ecosystem, as I said early in the year, will grow around 10%.

The tech ecosystem will grow around 5%, and our EPS will be above 10%.

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

Thank you, Mark.

Oracle's fully autonomous self-driving database is now available in the Oracle Cloud.

No other cloud provider has a fully automated database, one that automatically and immediately applies security patches without requiring any scheduled downtime.

Oracle's autonomous database features are absolutely unique.

There are more autonomous cloud services to come.

Over the next few months, we expect to deliver Autonomous Analytics, Autonomous Mobility, Autonomous Application Development and Autonomous Integration services.

Oracle's new suite of autonomous PaaS services delivers an unprecedented level of automation and cost savings to our customers.

Our highly automated suite of autonomous PaaS services reduces cost by reducing human labor and improves reliability and security by reducing human error.

No other cloud provider has anything like it.

Thank you, Larry.

Holly, if we could prepare the audience for Q&A, please.

(Operator Instructions) Our first question will come from the line of Raimo Lenschow, Barclays.

I had a question around IaaS, PaaS.

You saw an acceleration of growth, which is great.

And Mark, you talked in February when we talked about Bring Your Own License as a factor that we need to kind of consider.

Can you talk a little bit about momentum you saw around IaaS, PaaS and Bring Your Own License this quarter?

Yes.

Raimo, that's why I continue to try to focus you on ecosystem number.

I mean, I think, again, we -- without autonomous database, frankly, being GA at this point, being generally available, as Larry mentioned a bit in his comments, we grew the tech ecosystem 6%, and it shows up in different categories.

It shows up in license.

And again, licenses today are not really on-prem.

Licenses are now currency that you can use in the cloud or you can use on-prem.

So licenses are now able to be used both ways.

And so we've seen a strong database, I'd say strong database momentum in the context of being able to license and use sort of in the cloud or on-prem.

By the way, we continue to see support grow in database at the same time, and you saw, as I mentioned in my comments, growth in Database as a Service simultaneously 34%.

And all of the core next-gen infrastructure categories grew in excess of 100%.

Storage is actually up 82% but compute up 121%.

So we saw good momentum.

And again, the key for us though is that whole tech ecosystem growth, and I think with autonomous database, as we get it GA and build references, it's going to do nothing but get better.

Our next question will come from the line of Kash Rangan, Bank of America Merrill Lynch.

Safra, I'm looking at your SaaS guidance.

Clearly, the business seems to be moderating into the 20-ish percent type growth here.

At this point, how do we get the margin leverage that you've always talked about heading to 80%?

Seems like, on a year-over-year basis, you are showing an improvement, but from 66%, 67% to get to 80% and what looks to be perhaps an operating [worsening] amount in the space of a year.

So seems like a pretty big leap.

And I just -- I'm curious to get your thoughts how the company manages to accomplish that goal.

Well, in running our SaaS business, it's really now getting to a scale, and we're able to use a number of new technologies that we're rolling out through the business that is giving us a lot more capacity.

So before, we had to invest more for the same amount of users than we do now and so we've got quite a lot of capacity improvement.

And in fact, we're not going to need to make too many more infrastructure investments into the SaaS business and yet handle a much larger installed base.

I don't know if anybody else wants to add to that.

Well, for example, as we fully deploy database multi-tenancy in our SaaS estate, we double our capacity without spending $0.01 on hardware.

We can handle twice as many customers, twice as many transactions, twice as many users without spending one dime.

So that's -- those are kind of technologies we're going to add that allow us to dramatically improve our SaaS margins.

Yes.

Kash, by the way, just straight math, right?

So at 4-point -- at our current SaaS business and you now play out, we're spending $1.3 billion, roughly speaking, in expense when you reverse engineer the gross margin.

To Safra's point, we're just simply not having to buy a lot right now, buy a lot in the context of adding to more expense.

So if you just dial forward our bookings, you put $1 billion of revenue on the top, you're roughly at that number.

(inaudible)

And Mark, I think you just said that only 15% of apps customers have moved to the cloud, so the other 85% is ahead of you.

Couldn't the company grow even faster in SaaS given that you have a significant [optionality] ahead of you?

And that's it for me.

Yes.

To clarify, first, you understand that, that 15% is -- has started.

This is not 15% have moved all of their apps to the cloud.

They've just started.

So there's a ton of room here, tons.

I'd put a lot -- there's a lot wrapped into that quote that I put out there, so let me try to unpack it a little bit.

So in terms if you looked at core, meaning I had a core E-Business Suite solution and I replaced it with a Cloud Financials SaaS application, that percent of our user base that has moved is low single digits, yes?

The less than 15% number we put out is the percent of our user base that had some cloud application that they are now using.

The percent of our user base that is in our pipeline now is getting to be fairly extent, meaning it's multiple 10s percent of our user base.

And to your point, when we convert a cloud -- I'm sorry, a traditional on-premise application to SaaS, we typically get 3x the revenue.

The bulk of our bookings, the bulk of our revenue today is not from our user base.

In addition, one of the biggest users we have has now just migrated to the cloud, and that would be us, Oracle.

We have migrated the entire company to SaaS.

That's an important point because we've moved really the suite of ERP capabilities that we had traditionally on-premise now to the cloud.

So to your point, the ability to accelerate that growth rate, and I've not given in this number what we could do by taking market share and all of the above, which we truly believe we are and will continue to do, but just moving the user base does turn us into a very, very large SaaS business and to your point, very well accelerates our growth rate.

Yes.

I'd like to add one thing to that, is that we have some very high growth rate SaaS businesses like ERP and HCM.

And we have some that we've developed organically, and we have some slower growth rate SaaS businesses that we've acquired many years ago.

As the mix changes, all the growth is coming from Fusion ERP, Fusion HCM, NetSuite.

It's kind of -- it's also, we expect is going to have a good quarter this quarter or good growth quarter this quarter.

As you see this shift to the higher growth rate SaaS services, I expect as that mix changes and Fusion ERP and Fusion HCM, and that's going to become a larger percentage of the total.

Again, to quote Mark, the math just says the growth rate should accelerate because of the mix change.

I'd also think that's very important.

Also the renewal rates, the renewal rates are much higher in the high-growth SaaS services.

So Fusion ERP, Fusion HCM, NetSuite have much higher renewal rates than we have in some of the older acquired SaaS products.

So the combination of faster sales and higher renewal rates should dramatically increase our growth rate in our SaaS business.

So you asked a simple question, and you got a lot of (inaudible).

Analytical answer from Larry.

(inaudible) [right] and the reason I say it to you it's because it's important to understand we actually don't have a SaaS business that really grows at the rate we report SaaS.

We have acquired businesses that are growing low single digits that we've had for a while, Fusion growing mid-60s with the potential to grow higher.

We have NetSuite that we acquired that's growing mid- to high teens that, to Larry's point, we think is going to start -- we're starting to see the numbers grow faster and then vertical businesses that are growing roughly 20%.

And as you see, Fusion becoming a more and more -- a larger and larger percentage of our total SaaS business, then the change in mix.

You've got -- right now you certainly have a very large Fusion SaaS business growing at a high rate, which then dwarfs the slower growing acquired businesses.

So the reacceleration, again, to quote Mark, is just a matter of math.

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

My question also I think has to do with BYOL, and I'm just trying to figure this out because, Mark, from our field due diligence, the flexibility offered customers with BYOL is something they really appreciate and it's certainly unique out there, just nobody else doing that.

And naturally, other vendors are getting pressured to do it because you guys are doing it.

I guess, when I look at your results here and I see the cloud revenue been moderating pretty aggressively over the last couple of quarters, I sort of -- I buy into the whole ecosystem thing that you're talking about.

It makes sense to me that BYOL will have that -- that would be a result.

But I'm just trying to figure it out because it looks pretty aggressive, and I'm getting pinged with e-mails, too.

And is this -- is that what it is?

Or is it sort of the law of large numbers, too?

And I'm not sure if we're going to -- you said accelerate a couple of times.

You used that word.

And when I think of that whole ecosystem, will that whole ecosystem -- is that what you guys think will start to happen at some point hopefully in the near future?

Okay.

Well, that was about 20 questions, so I'm going to try to do my best to unpack it.

We -- I think you were talking -- you started talking about database, and then you introduced my comments on acceleration, which was mostly in apps and mostly around one portion of the apps ecosystem, which is SaaS.

Let me go to tech, and I'm sure Larry is going to want to chime in on this as well.

The concept around BYOL is we don't want our customers paying twice.

So they get the opportunity to buy a license, and they can bring that license with them to the cloud.

And they can bring, for example, a database license to the cloud, now take advantage of that, buy the appropriate infrastructure, compute, storage and then with that, perhaps some PaaS automation.

And if customers choose to buy that way, that will improve our license business the way it's reported, and it may have an effect on our cloud business in tech.

And that's why I focus you on the ecosystem growth and the ability for us to grow faster.

And then you have to add to it, we are just really bringing autonomous database to the market now.

So that's going to go through its phases to bring the market.

That -- and I've told you this John, over the past several quarters.

Our tech ecosystem without autonomous database has been taking a little bit of share.

I think autonomous database is the most important thing we've announced in years.

And I don't think the autonomous database -- let me -- I don't want to be sarcastic because I don't want to be misprinted.

It will accelerate our tech ecosystem growth.

Our next question will come from the line of Adam Holt, MoffettNathanson.

We've been very focused on your total new license or new software revenue, which includes license revenue and cloud.

There's been some movement about which has been a little bit better, which has been a little bit worse in the last couple of quarters.

But how should we -- if we were to boil down all the comments you've made in the last couple of questions, think about the mix between license growth and cloud on a go-forward basis.

Do you think that license growth could get close to breakeven?

And then just for you, Safra, you started to really buy back some stock, which we loved this quarter.

Could you give us maybe a sense for what we should be thinking about from a share count perspective going forward?

Is this the new normal on the buyback level?

Well, [we don't] usually tell you in advance how much I'm going to buy back.

So we did $4 billion in this quarter, seemed like a reasonable amount to do.

Haven't really -- don't really know what to tell you because I don't usually give guidance on my buyback.

Don't expect it to exceed that in the next quarter.

That's great.

And then the question about license mix versus cloud.

Yes.

Well, there's no doubt that BYOL, when you're bringing your license to the cloud, encourages customers to continue license purchases, continue to buy more database licenses, continue to buy database options like multi-tenancy, to buy database options like Real Application Clustering and the like.

So you will see -- and again, our customers love the idea that once they make an investment in a license, they can use that license on-premise or in the cloud.

You can deploy to either place.

So where, historically, people have thought of our license business as our kind of traditional on-premise business that is -- in tech, that is not simply the case.

In tech, our license business is now more and more of the -- our licenses are being deployed in our cloud.

By the way, it's not just -- they're not just being deployed in our cloud.

Our licenses are being deployed in the Salesforce cloud, in the SAP cloud, in the Microsoft cloud, in the Amazon Cloud.

So again, our license business is not a legacy business.

Our license technology business is not a legacy business.

These licenses are going to be used and are being used more and more in modern clouds, not just the Oracle Cloud, but our competitors' clouds as well.

Yes.

And I guess, I would just say that I know how badly everybody wants to micro-analyze every single number, and it's why I've tried to focus you back on this ecosystem.

We've grown our software business year-to-date 8%.

Some of that shows up in license.

Some of that shows up in cloud.

Now we have a couple drivers we've talked about on the call.

We've -- we have autonomous database.

That's going to show up in both license and cloud.

It's a fungible currency in the context of how -- to the earlier question.

But I can now buy a license, and I can bring it with me to the cloud.

It could show up in either bucket.

And again, focusing on the overall ecosystem growth is important.

The apps, we've talked about the user base and our ability to migrate to that user base, what effect will -- that'll have.

That'll show that apps support revenue goes down.

SaaS revenue goes up.

And so these things are going to go on simultaneously.

And I -- again, as I'll say one more time, I think trying to micromanage every line is probably the wrong way to look at the company because we've got multiple drivers here, but they're all driving towards more overall software growth.

Some could come in cloud.

Some could come in license, but we're going to continue to gain share in both ecosystem segments.

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

Can you hear me?

Yes.

Okay, great.

Sorry.

Mark, I know you don't want us to micromanage and fixate on license revenue.

But I mean, you guys were seeing this segment shrink kind of 10% to 15% over the last couple of years, and you've seen a big change in that performance over the last few quarters.

One of the big questions that keeps coming up is what's driving the performance.

And again, not trying to micromanage it, but there's a big debate of how much of it is just 12c R2 benefits and therefore, maybe more onetime in nature versus maybe customers that are recommitting to Oracle ELAs because of some of the things they see that you're doing on the innovation front.

And I guess, quite frankly, people are just trying to get a sense of how they think about growth and license as a result of all that over the course of the next year.

Well, I think my answer may be yes, but I do think at the core of it is what we talked about earlier.

Bring Your Own License gives now the customer, instead of having to figure out how much I'm going to buy here or there, I now get the ability to commit to a technology, and we now -- we, the customer, now have a currency that I can bring to whichever environment I want, whatever quantities I want.

And it now gives the customer ultimate flexibility, and that's what customers wanted.

So BYOL as a concept has given our customers a lot, a lot of relief.

You add to that the fact that we also moved to Universal Credits, now gives the customer the opportunity to make even a cloud decision and reapply those credits across multiple cloud services.

But this is a very -- I don't know, Heather, how to say it -- a very customer friendly environment we've created now in terms of the way they acquire our products, and it's having an effect on the market.

Let me try to be clear about this, as I can be.

With BYOL, when someone brings their database to the cloud, some of that database -- some of that revenue goes into license and someone -- some of that revenue goes into cloud.

Without BYOL, if we didn't have BYOL and someone -- an Oracle customer went to the cloud, 100% of the revenue would go to the cloud.

So there's no question, BYOL has lowered our cloud revenue and increased our license revenue.

In technology.

In technology.

Our next question is going to come from the line of Brad Zelnick, Crédit Suisse.

On Autonomous Database Cloud, Larry or Mark, perhaps, can you talk about the impact that it would have on conversion economics from on-prem?

Because it would seem you're -- I have to imagine you're going to get a better multiple than the 3x that you've talked about in the past as you generally get with regular Database as a Service.

Well, the amazing thing about the autonomous database is it's the only database on the planet that requires no human labor to administer the database.

There are no DBAs tuning the system.

There are no DBAs applying security patches.

There are no DBAs backing up the system or recovering the system.

It's all done automatically.

By the way, the bulk of the cost of running a database is human labor.

It's not buying the software.

It's not buying the cloud service.

It's not buying the hardware or the cloud services or anything else.

It's the human labor, and we basically take that to 0. So there's huge value by getting rid of this human labor.

By the way, it's not only cost savings.

So I think I said earlier in my opening remarks, we also -- if you eliminate human labor, you eliminate human error.

That gives you a much more secure system.

Nobody forgets to patch something, and your CEO ends up getting fired or on the front page of a newspaper.

No one forgets to apply a security patch, and your data is stolen.

That's all automated.

So you have a much more secure system.

You have a much more reliable system.

And -- but you have to be willing to pay less because human beings cost a lot of money, and we've automated them out of the system.

So we think this new autonomous database is, again, maybe the most important thing Oracle has ever done in terms of data management.

And we are the #1 data management company on the planet right now and have been for some time.

We think this is a very big deal.

We think the bulk of our customers are going to move to the autonomous database.

Now let me talk about migration.

When you move from an on-premise database to an autonomous database, you kind of press one button because you don't have to set up indexes or retune it or do anything else.

Your data automatically moves from on-premise into our autonomous database in our cloud, running on high-performance gear that pretty much guarantees to give you -- if you're running Exadata on-premise, it will run at the same speed.

If you're not running Exadata on-premise, it will run 10x faster by moving to the cloud.

And it runs multiples of times faster than Amazon.

Now I keep -- you say, okay, Oracle got a faster database than Amazon.

No big surprise there.

But the interesting thing, Amazon charges by the minute, and we charge by the minute.

It work -- our prices are essentially the same or close enough.

If we run 10x faster, we are 1/10 the cost of Amazon databases, and that's what it is.

So I mean, we ran all these public benchmarks that are -- you can go look at them.

We're 1/10 the cost.

We automatically apply security patches.

We eliminate human labor.

It's a huge benefit to our customers to move the autonomous database.

It just went live a couple of weeks ago, and we expect it's going to change the profile of our company forever.

By the way, Brad, to your question about the multiple, the answer to your question is yes.

Our next question will come from the line of Mark Moerdler, Sanford Bernstein.

Safra, Mark, software support in constant currency has been growing 2%, 3% year-over-year in the recent quarters, but was only up 1% this quarter in constant currency.

Are you seeing increased cannibalization of the on-premise business by your own Oracle Cloud SaaS and PaaS?

Or are there other factors that are coming in?

Actually, all you're really seeing is seasonality.

The -- if you're sort of asking, are cancellation rates way up?

They're not.

And in technology and especially with BYOL, there's absolutely no reason.

And in some cases, for customer to cloud and the apps business, you will see cancellation.

They are -- it turns out to be not that large in the overall base, and so the overall cancellation rates for the company are actually the same.

So they've not moved at all, and all you're seeing for the quarter is seasonality.

I don't know, Mark, if you want to add anything to that.

I agree with everything -- everything she said is right, and every -- and so I have nothing other than to say it's a little bit of 2 different stories.

So in database support, database support is growing.

I just want to make sure -- it's growing.

It's growing -- it's not growing 1%.

It's growing more than 1%.

Apps support is declining.

Apps support decline is actually, in our case, it's the bulk of our apps support is ERP, that is the bulk of our application support, we want to migrate that to SaaS.

So over time, I have no issue if the ERP cancellation goes up as we migrate those customers that I talked about earlier to SaaS.

And to Larry's earlier point about BYOL, BYOL very likely will have the impact of continuing growth in the tech support part of our business.

And the applications now as I've described is, it's very much a by-product of the migration of our support to SaaS.

Does that help?

Yes.

As quick follow-up.

If it's seasonality, then -- so that Q3 is going to be weaker effectively and other quarters are going to be better?

Is that the way we should be thinking to model?

Can you give more detail?

Yes.

It just happens to be when we do the renewal.

So I think you'll see it return.

And because you asked, you compared a full year to 1 quarter, and I think you'll see that it's -- it will recover.

I mean, as Mark just said, on the tech side -- and remember also that some of it has to do with first-year support.

So since we're selling less apps licenses, we have less first year support associated with those licenses.

And so -- and that's been for the past few years.

So the amount floating in is a little bit less.

Cancellation rates are the same, and then we have some folks on the apps side migrating.

But that's it, still growing.

Yes.

Let me just real quickly.

On -- in the applications business, if someone moves from the E-Business Suite to the Oracle -- to Fusion ERP, they stop paying support.

Support goes down, and 100% of the Fusion ERP revenue is recognized in the cloud.

This is in contrast to our tech business where if someone has an Oracle license or buys an additional Oracle license and then brings that license to the cloud, our license business stays the same or goes up.

And part of the autonomous database that's running in the cloud is recognized as part of the license and support business, and part of the revenue for the autonomous database is recognized as cloud revenue.

So it's split.

So these 2 businesses operate very differently.

In our applications business, we're migrating people from an older generation of applications to a new generation of applications.

They're actually changing from one product to another.

They're changing from E-Business Suite to Fusion ERP, which is different product.

One runs on-premise.

One runs in the cloud.

Our tech business is very, very different, powerful database on-premise.

You run the same Oracle Database in the cloud.

So we don't expect any shrinkage.

As Mark said, we expect our license business, our new license business, our license and support business for tech, specifically database, to continue to grow even as people migrate those databases to the cloud.

Yes.

And net-net, cancellation rate is completely unchanged, unchanged.

Our final question will come from the line of Kirk Materne, Evercore ISI.

Mark, when you look at the opportunity in front of you in the ERP market, we've obviously seen an inflection of demand in CRM, I would say, HCMs started over the last couple of years.

When you think about ERP, do you see an inflection on the horizon over the next 12 to 18 months?

And can you just discuss maybe why and if we do see that, how do you see the competitive environment shaping up?

Well, one, in the ERP, we are the leading vendor in the world, and the #2 company is hard for me to find.

So let me start with that.

So when I look at SaaS, there is no other company that has the ability to take customers to the cloud with a true SaaS offering.

So full stop.

Second, we have an inflection point, clearly, with our user base.

So our user base, as I've tried -- as we've tried to talk about today, has only begun to move.

And so just to the earlier question, imagine what happens to our applications revenue when we multiply 3 to 1, our -- actually, our revenue doubles, our support revenue doubles.

We lose support revenue, we got 3x that revenue in the cloud.

All I did in that math was talk about our user base.

The bulk of what we book today, in many cases, is outside our user base.

Yes.

Someone else's user base.

Somebody else's.

We are gaining share from other companies.

So I don't want you to walk away from this call thinking, "I got it.

Their SaaS revenue's really limited to their user base." I just talked about that as the context of one catalyst to our SaaS revenue, which is converting our existing customers, just upgrading them to the latest version of ERP, which is SaaS.

I truly believe the opportunity's materially bigger than that.

Most of the ERP market doesn't sit with SAP, by the way, doesn't sit with -- the majority of the market doesn't sit with Oracle or SAP.

It sits with this category called others.

And as others would like the opportunity to move to SaaS, we're in the best position in the world, worldwide to move those companies to SaaS.

So moving our user base has a dramatic implication on our applications ecosystem.

If we're successful to continue to take share at the same time, yes, it's a pretty exciting opportunity for us, and that's why you hear us talk about it so much.

Thanks, Mark.

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With that, I'll now turn the call back to Holly for closing.

Thank you for joining us for today's Oracle Third Quarter 2018 Earnings Conference Call.

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