甲骨文 (ORCL) 2014 Q4 法說會逐字稿

Well good day, ladies and gentlemen, and welcome to today's Oracle Corporation quarterly conference call.

Today's conference is being recorded.

And now I would like to introduce Ken Bond, Vice President of Investor Relations Oracle.

Please go ahead, Mr. Bond.

Thank you, Chelsea.

Good afternoon, everyone.

Welcome to Oracle's fourth quarter fiscal year 2014 earnings conference call.

A copy of the press release and financial tables, 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 Chief Executive Officer, Larry Ellison, President and CFO, Safra Catz, and President, 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 our most recent reports including our 10K and 10-Q, and any applicable amendments for a complete discussion of these factors and other factors that may affect our future results or the market price of our stock.

And finally, we are not obligating ourselves to revise our results or publicly release any revision of 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, and good afternoon, everyone.

As you can see, we've made significant changes in our financial reporting and in our guidance to match our Company's fundamental transition.

We are now firmly into the transition to the cloud, and though we had previously disclosed our SaaS revenues in the 10-Ks and Qs, as the cloud revenue has become larger and more significant, we've gone ahead and disclosed them on the face of our income statement.

You may want to actually take out your income statement as we go through this just so that you can follow me.

What we previously reported as new software license and cloud subscription is now reported on two separate lines, new software license and another line for cloud software as a service and platform as a service, SaaS and PaaS.

At this time, the bulk of the revenue is software as a service, but we expect platform as a service to become very important as we do the full launch of platform as a service this fall.

Also, we previously reported in service -- what we previously reported in services is now reported on two separate lines, cloud infrastructure as a service, IaaS and services.

We have summed new software license, SaaS and PaaS, IaaS, and software license updates and product support as a total called software and cloud revenue.

Our services line now includes consulting, advanced customer support services and education.

The expense lines were also broken out in more detail where appropriate.

So, to start, I'm going to go over the Q4 results with our new detail and then sum it up using our old disclosure for comparability to my previous guidance.

Then I'll move on to the guidance for Q1.

Generally, I'll be using non-GAAP measures in constant currency unless otherwise stated, but will point out GAAP numbers or US dollar growth rates when the difference is important for comparability to last year.

So, using our new reporting.

Software and cloud revenue totaled a record $8.9 billion in Q4, growing 4%.

New software license was $3.8 billion, flat in US dollars, declining 1% in constant currency while new software license application revenues were up 6%.

Cloud SaaS and PaaS were $327 million, growing 23%.

Cloud infrastructure as a service was $128 million, growing 13%.

Software license updates and product support was $4.7 billion, growing 6% in constant currency and 7% in US dollars.

Software support attach and renewal rates were strong as usual.

To most closely compare these numbers to my guidance last earnings call, new software license and cloud SaaS and PaaS added together were $4.1 billion, up 1% in constant currency and 2% in US dollars.

With our new presentation, you can see that our on premise-based software business, which is new software license and software license updates and product support, has steadily grown over time to $8.5 billion this quarter.

On top of that, we're building our SaaS, PaaS, and IaaS cloud business which grew nearly 20% and is already approaching a $2 billion run rate with $455 million in revenue this quarter.

Hardware system revenue was nearly $1.5 billion, growing 3% on a GAAP basis and 2% on a non-GAAP basis.

Hardware products were $870 million, growing 3%, and hardware support was nearly $600 million, growing 2%.

Engineered systems had another good quarter with double-digit growth and represents one-third of hardware product sales.

In addition, we saw very strong growth in NAS storage in the quarter.

Hardware product gross margins were 49%, down 2 points, about 2 points from last year as we continue to put more value in our product without raising prices, thus grabbing significant market share as all our major competitors shrink.

Keep in mind that as we've increased hardware support attach rates, hardware support margins have steadily improved, and total hardware systems margins are unchanged from last year at 56%.

For the Company, total revenue for the quarter was $11.3 billion, up 3% from last year.

Operating income was $5.8 billion, up 2% in constant currency, 3% in US dollars.

Operating margin was 51%, same as last year.

Unlike new software license transactions where we recognize the revenue up front, we recognize the revenue from cloud software over time.

In the short term -- in the short run, it delays revenue.

But over the medium and long term, we can expect more revenues as we do more of the work for our customers while our customers can expect to pay substantially less in total with savings in the form of large reductions in the cost of implementing and running their own system.

Over time, this contributes to our business model, particularly given our differentiated products in each of SaaS, PaaS, and IaaS.

As we get to the operating income line, I want to remind you that our GAAP operating income last year benefited from a $269 million reduction in the purchase price of an acquisition.

This was entirely exclusive from a non-GAAP purpose, but did show up in our GAAP -- in the GAAP numbers which flow all the way through.

In addition, both on GAAP and non-GAAP results include another foreign currency loss this quarter, this time for $102 million from the devaluation of our Venezuela net assets compared to the dollar.

This, of course, was not included in my guidance last quarter.

Our net asset values in Venezuela have now devalued so much that it will not have any meaningful impact on our numbers going forward.

Were it not for the Venezuela currency loss, EPS would have been $0.02 higher.

The non-GAAP tax rate for the quarter was 23%, the GAAP tax rate was 20.5%.

Non-GAAP earnings per share were $0.92, up from $0.87 last year.

GAAP EPS for the quarter was $0.80, unchanged because last year our GAAP EPS was helped by the $0.04 reduction in the purchase price for the acquisition I just mentioned.

I want to make sure I said that correctly so you understand what happened.

We got a $0.04 benefit last year in our GAAP EPS.

This year we obviously don't have that benefit, and without that benefit, it would have been $0.76, not $0.80.

Operating cash flow increased $14.9 billion, and free cash flow grew to $14.3 billion over the last four quarters.

Both are record Q4 results.

For the fiscal year 2014, total software and cloud revenues totaled a record $29.2 billion, growing 5% in constant currency.

New software license was $9.4 billion, up 1%, cloud, SaaS and PaaS were $1.1 billion, growing 20% non-GAAP and 24% GAAP.

Cloud infrastructure as a service was $456 million, growing 1%.

Software support was $18.2 billion, growing 7%, hardware system revenue was nearly $5.4 billion, growing 2%.

Of that, hardware products were $3 billion, down 1% for the year, and hardware support was $2.4 billion, growing 5% for the year.

Services revenue was $3.7 billion, declining 4% as the result of the continuing move of our consulting business to shorter, faster, cheaper engagements for our customers as they move to the cloud.

Total revenue grew 4% to a record $38.3 billion.

Our non-GAAP operating margin for the full year was 47%.

Earnings per share were $2.87, growing 8%.

We've successfully grown the Company's revenues and earnings through every transition, whether it was minicomputer database to a complete suite of products, client server to internet, commodity hardware to engineered systems, and now on-premise to cloud.

We are well on our way into our most recent transition.

We have nearly $39 billion in cash and marketable securities.

Net of debt, our cash position is more than $14 billion, deferred revenue now stands at $7.3 billion, up 2% from last year.

In Q4, we repurchased more than 49 million shares for a total of $2 billion and for the full year, we repurchased nearly 281 million shares for a total of more than $9.8 billion.

And the Board of Directors declared a quarterly dividend of $0.12 per share between dividends and buyback; this year, we returned nearly $12 billion, or more than 80% of our free cash flows to our shareholders.

Now, let's move to the guidance.

Software and cloud revenue on a GAAP and non-GAAP basis which includes new software license, software support, SaaS and PaaS and IaaS is expected to grow 6% to 8% in US dollars, 5% to 7% in constant currency.

SaaS and PaaS, one of the line items, on a non-GAAP basis is expected to grow 25% to 35% in US dollars, 24% to 34% in constant currency.

SaaS and PaaS on a GAAP basis is expected to grow 27% to 37% in US dollars, 26% to 36% in constant currency.

Now, another one of the lines, cloud IaaS, on a GAAP and non-GAAP basis is expected to grow 10% to 20% in US dollars and 9% to 19% in constant currency.

Hardware system revenues on a GAAP and non-GAAP basis, which includes hardware systems products and hardware systems support, is expected to be between negative 1 and positive 3 or negative 2 to positive 2 in constant currency.

Total revenue on a GAAP and non-GAAP basis is expected to range from 4% to 6% in US dollars and 3% to 5% in constant currency.

Non-GAAP EPS is expected to be somewhere between $0.62 and $0.66 in US dollars, $0.61 and $0.65 in constant currency.

GAAP EPS is expected to be somewhere between $0.49 and $0.53 in US dollars and $0.48 to $0.52 in constant currency.

Now, this guidance assumes a GAAP tax rate of 22% and a non-GAAP tax rate of 23.5%.

Of course, it may end up being different.

And with that, I'll turn it over to Larry.

Thank you, Safra.

Okay, Oracle is focused, focused like a laser on one goal over the next few years, becoming the number one company in cloud computing's two most profitable segments, software as a service, SaaS, and platform as a service, PaaS.

We expect to become number one for three reasons.

First, we have the most complete and modern portfolio of SaaS products in the cloud, CRM sales, CRM service, marketing.

In human capital management we have core human resources, recruiting, talent management and payroll.

In ERP we have accounting, procurement, supply chain, project management and more, the most comprehensive suite of products in the cloud by far.

Second, all of those SaaS applications run on the world's most powerful platform in the cloud.

The Oracle in-memory multi-tenant database and the world's most popular programming language, Java.

Third, we have dramatically expanded, specialized and lined up our sales forces to sell SaaS and PaaS subscriptions against the new generation of cloud software competitors, and it's working.

As we enter our new fiscal year, we're already number two in the overall SaaS subscription sales.

In FY 2015, our plan is to grow our SaaS bookings over 50%.

That will allow us to close in on the number one spot.

We already have a huge lead over Workday in cloud ERP.

We acquired 120 new cloud ERP customers in Q4 alone.

In HCM, we are dominating Workday in Europe and beating them in dozens of core HCM deals here in North America.

Mark can give you some of the details and highlights regarding our cloud wins in our great Q4 quarter in the cloud.

Mark?

Let me just actually start with hardware a little bit.

We are now roughly in the middle of transitioning our hardware business, engineering systems with our strategy, and now a significant part of our hardware, we've grown hardware for the second quarter in a row.

The change in mix away from [cloud] new hardware to high value engineered systems that transformed the business to an integrated engineered systems business that brings with it extremely attractive annuity.

Let me give you some facts about hardware.

Engineered systems grew to record levels in Q4 while our competitors, as Safra described, are declining.

We will ship our 10,000th engineered system in Q1.

We're at scale.

Our hardware support margins are now approaching 70%, and this business is sticky.

SPARC SuperCluster bookings grew triple digits, Exalytics, big data appliance and Oracle database appliance all grew double digits.

Oracle has become the hardware company taking share, growing and doing it profitably, and as I said, we're in the middle of the transition.

Now, I'll talk about cloud.

We're actually just starting this transition.

We're the only company that has a whole suite of cloud applications.

We're Salesforce.com's primary competitors, Workday's primary competitor and in the cloud, we're many times the size if Workday.

We're bigger than SAP and we're going to pass Salesforce in the cloud.

Let me run a few facts about you about our cloud.

As industry analysts build their waves and quadrants, they named cloud leaders in specific cloud areas, and Oracle today is the leader across more cloud solutions than Salesforce, Workday and SAP combined.

Cloud bookings grew 37% last year, Q4 was the best ever for bookings.

Fusion cloud bookings growth were three times the overall growth rate.

Fusion HCM, ERP, and sales force automation revenue all grew triple digits.

We added 870 cloud customers in Q4, including in HCM, nearly 320 customers, with Fusion, 110 HCM customers.

If I take Workday's reported number of 75 new customers, we're adding customers at 4 to 5 times the pace of Workday.

In customer experience, we added 430 customers with 120 plus Fusion sales force automation wins.

With BlueKai now on board, along with Eloqua and Responsys, we're the clear number one in marketing automation with bookings growth of 200% this quarter.

In salesforce automation, bookings grew more than 80% and revenue was up triple digits.

As Larry referenced, we added 120 ERP cloud customers in the quarter, all Fusion.

In just Q4, we added more ERP cloud customers than Workday's total customer base for financials.

More than 70 customer go lives just this quarter with hundreds already live.

We're about to deliver release 9 of Fusion this summer.

With Fusion, we have built the most attractive cloud solution in the industry.

We have acquired the most attractive SaaS companies in the industry.

We're already number one or number two in every SaaS category, and we won't stop until we're number one in every category.

Just like hardware where we focused on engineered systems, in software, we are focused on the cloud.

We're executing, we're winning, and we're going to be number one.

And with that, we'll turn it over for questions.

Before we go to questions, Chelsea, I want to call out that we understand that some of you may have had difficulty hearing parts of Mark's comments.

We'll continue to move forward with the call and we will try to address some of Mark's comments into the Q & A. Chelsea, if you could start the Q & A please?

Will do, Mr. Bond.

(Operator Instructions)

We'll go first to Brent Thill with UBS.

Thanks, good afternoon.

Safra, just on the revenue recognition changes, I'm just curious if you could just walk through, why now?

And I think you were -- stated in the press release that you're seeing a shift to ratable revenue recognition versus up front.

And if you could maybe just talk through how long you think that will take to accelerate the sales process to align to this new model?

Okay so thanks for the question.

Let me clarify my quote.

Really, we have -- we always, always recognize SaaS and PaaS cloud subscriptions over time.

That's always been the way we do it.

New licenses we recognize up front.

We haven't changed any of our actual accounting.

What's happened is that more of our software revenues are coming in as SaaS subscription, which we recognize over time versus new license deals, which we recognize up front.

We haven't actually changed any of our accounting, it's just that with our focus on cloud and the fact that we're selling more cloud, we recognize that ratably over time as appropriate on that contract.

And so a bigger piece of software and what we used to call software and cloud subscription -- software and -- new software license and cloud subscription, a larger piece of it is recognized over time.

Did I -- did you understand me, or should I try that again?

No, that's great, and I guess just from a go to market from maybe Mark, just that process of putting that in place.

How long does that take to get the sales aligned to that process?

Well as Safra was -- can you hear me okay now?

I just want to make sure, I have a different microphone.

But when you hire a sales person who's selling cloud, they are really selling ARR, which is annual recurring revenue.

Roughly speaking, ARR is one-third of a license.

It's not precisely right.

It differs a little bit by solution, but it's roughly right.

So, therefore, it would take roughly three years for somebody to get to the same productivity of what you would think of in the license model.

So, that's probably the time frame you should be thinking of.

And as Larry --

Let me be -- there are two things.

There's the rate in which -- this is Larry.

The rate in which -- rate at which we recognize revenue, which of course, statutorily, whenever we sell a cloud subscription, whether it's platform-as -a-service, software-as-a-service, infrastructure-as-a-service, you always recognize the revenue ratably by month versus selling a license.

You recognize it up front, that's the accounting.

The sales force is motivated by their commissions, and we've made it commission neutral.

In other words, the sales force doesn't really care if they sell a license or if they sell a subscription.

They get paid the same amount in either case.

So, the sales force has -- there's no time at all required for the sales force to transition to this new model.

They get paid equally for a cloud subscription or a license.

So, there's no transition time, zero.

What is different and what Safra was explaining is that as our cloud business gets bigger, and I think everybody wants our cloud business to get bigger, I certainly do, we actually make more money when we sell a cloud subscription.

We break even -- where a subscription is probably after three years, as Mark pointed out, we get about the same amount of money from a subscription after three years as we get from a license, but these subscriptions last 3, 4, 5, 10, 15, 20 years.

So, we make a lot more money on a subscription, but we recognize the money over time.

As we make the transition to selling more cloud software services as opposed to up front licenses, we'll recognize the cloud revenue over time and that eventually, that cloud revenue eventually will grow to be even bigger than our license revenue, at least that's our plan.

And we'll make more money doing that over time, but during the transition in selling those cloud subscriptions, what would have been a license is now recognized over time.

We're going to recognize the revenue more slowly, and that will somewhat affect the top line during the transition.

That's okay, because in the long term we make much, much more money.

And we can effectively complete against this whole new array of competitors like Salesforce and Workday versus the previous generation of competitors like SAP and IBM.

Very clear, thank you.

We'll move on to Karl Keirstead with Deutsche Bank.

Hi, thanks, this question is for Safra.

Safra, you were able to keep the operating margins flat at about 47% despite, among other things, a big 10% growth in sales and marketing in fiscal 2014.

I just wanted to ask you, as you look forward to fiscal 2015, do you think that pace of sales investments is likely to moderate?

And how comfortable are you with Oracle returning to year-over-year margin improvement in this fiscal 2015?

Thank you.

Well, I actually expect us to continue to improve over time, to be honest with you.

The one thing that could maybe impact our margins negatively is if we are outrageously successful with cloud in next year or so such that a lot of revenue comes in as cloud, even though I don't recognize it up front and so we have expenses -- some expenses related to that that are not matched by our other improvements in productivity in the rest of the business.

Generally, we've got it very, very well balanced, and I actually expect our operating margins to improve because we've made the big investments in the field already in most regions.

The big, big investments have gone in over the past three years, and I don't expect them to continue to increase at that rate.

Mark, Larry do you want to comment on?

No, I think what Safra said is right.

We have gone through a sizeable build up based on the strategy that we've described to you previously.

We are still adding.

We are not adding at the pace that we were adding, so I think you should expect us -- Larry talked about a pretty exciting opportunity for us in PaaS, we'll add sales people in the area of PaaS.

And there will be some complementary areas to the sales force that we've got, but you won't see the size of increases that you've seen over the past two or three years.

And it should be outweighed by revenue growth, as well as profitability improvements in the rest of the business.

It is a reasonable point to bring up because it sort of relates to the first question that came up that as our sales force now becomes more productive, particularly when you see cloud bookings.

Larry gave you a very important statement about some thoughts about cloud bookings in 2015.

As those numbers turn from bookings into revenue, that turns into a very attractive model as it relates to your first question about our operating margins.

Got it.

Very helpful.

Walter Pritchard with Citi has the next question.

Safra, I'm wondering if you could talk about, you gave guidance for license in the -- three months ago and you were towards the low end of that.

I'm wondering if you could help people understand what the source of the deviation was there.

You did talk about you're seeing more demand show up in SaaS.

Was the total volume and demand that you saw from a software perspective SaaS and traditional on-prem license in line with what you're expecting at the mid point, or was it at the low end?

Just trying to calibrate versus what you guided, given all of the moving pieces.

I think we're doing better in cloud than we expected.

That has become extremely, extremely popular and as a result, we have less of a growth in new license, we have a lot more in cloud, but obviously I'm not recognizing all that cloud up front.

In fact, some of it, especially stuff that's actually booked in Q4, is not recognized at all and so it shows up later.

As you'll see, where I'm projecting cloud growth in the high 20s to 30s in my guidance, which is obviously a reflection of what's been going on.

Cloud is doing extremely, extremely well, and sometimes to the extent the customers' alternative, of course, would have been to buy a license, and so that's what is doing it.

I'm actually thrilled that we are where we are in new license, considering how much cloud growth we've got.

Great, thank you.

Our next question will come from Kash Rangan with Banc of America, Merrill Lynch.

Hi, one observation and then a question.

Observation is, you folks have done a remarkable job growing your earnings through this cloud transition and investing in the sales force, which is something that many large cap tech and many large cap software companies are not able to, that speaks to the power of the model.

But my observation was that, Safra, I think you mentioned application is up about 6% or so, which is commendable, especially given the cloud transition.

But any commentary on the technology side of the equation?

Did that come in -- how did that serve relative to your expectations?

And how should we think about the 12c cycle, is the best of the 12c cycle yet to come, especially with the multitenant option and the in-memory option?

Just trying to get a gauge whether there was any transition issue involved in the quarter on the tech side.

Thank you very much.

Actually, it's a good question.

I'm going to let Mark and Larry talk about the new products in the database.

But actually, what went down in this quarter was an incredibly difficult compare in technology over Q4 last year.

Actually.

I'm actually very satisfied with where we came out on the tech side, happy with the app side and overall, extremely happy about what's going on in cloud for us.

Do you guys want to talk about the new products?

No, remember, the comparison we did, a huge deal, Salesforce.com is entirely based on the Oracle database and Oracle technology and in Q4 last year, of course they decided to just standardize for the next 10 years -- well, actually, to be more precise, in the next 9 years, on the Oracle database.

And we had a very large deal with Salesforce.com, which created a bit of a difficult compare for us this year in the tech portion of our business.

But we've got our new products, Larry just did a launch last week.

Yes, and Kash, in terms of 12c, clearly the 12c is brand new.

We think the multitenant option and the in-memory option are very, very attractive, especially to the cloud companies.

Most of the cloud companies are based on the Oracle database.

For example, this last Q4 we did a huge -- a big deal with SAP, where SuccessFactors is based entirely on Oracle.

And so people are using the Oracle database in the cloud, so we had a nice deal with them.

We had a nice deal a year ago, nice deal with Salesforce.com, obviously NetSuite as a base.

But virtually everybody with the exception of Workday is based on the Oracle database, and we think these two features, the in-memory feature and the multitenant feature really will allow us to deliver by far the best database experience in the cloud.

And that should drive our database sales for the next few years.

Just a little bit of color for you on the database number first, database, to Larry's point, was a tough compare in the US, but in Europe we grew double digits.

So, we had very strong database growth in Europe, and so it really was that one compare that Larry's described.

Middleware had growth in the quarter as well, which was good to see.

And of course, as Safra mentioned, our apps business enjoyed the benefit the other way, but 6% growth in apps.

And just to get context, Kash, I want to emphasize, as we said, we had 6% growth in apps license at the same time as we had -- on-premise -- at the same time as we had the bookings growth that I referenced, which was 37% for the year in cloud bookings.

And it's become so, as Safra says, popular here.

We actually got both benefits in the quarter, so strong apps quarter for us.

Moving on to Jason Maynard with Wells Fargo.

Hi, good afternoon, guys.

I actually have a couple questions on just cloud and applications overall.

Maybe first, Larry, which product areas are you seeing best traction, fastest growth?

And then the second part maybe, Mark, can you maybe break down adoption by region?

Because the US looked like it a little -- it was slower compared to EMEA, and I'm trying to figure out if that's a reflection of perhaps greater cloud growth or adoption in the US relative to Europe and on-premise licensing, thanks.

I think we're recognized clearly as the leader in marketing, and of course our marketing suite, Gartner recognizes us as the leader in marketing in the cloud.

We're the upper right hand company, and we had great growth in marketing, and we're getting traction both in B2C and B2B in marketing and doing very, very well.

In HCM, across-the-board we're doing extremely well from core HCM to recruiting and talent.

We've just been very, very successful in HCM.

It's early days in ERP, however, Q4 was a great ERP, Fusion ERP.

And this is all -- by the way, this is all stuff we built.

This is all Fusion, took us 8, 9, 10 years, whatever you want, however you want, it took us a long time to build our next generation cloud products.

Fusion ERP, Fusion HCM, Fusion CRM, it was a tough road.

But we're beginning to get real serious traction, especially in North America, for ERP.

Our HCM products are doing extremely well in North America where we're head-to-head against Workday.

And we're running the table in EMEA in HCM, we really are the dominant supplier in the cloud in EMEA.

In terms of the adoption rates, obviously there are much -- cloud is much slower to be adopted in Asia-Pac.

But I'll turn it over to Mark.

Well listen, I think, Jason, a couple of points.

One, HCM, I think we're doing really well.

I know nobody loves it when I read off names, but to be very blunt, our wins in the quarter were significant.

Just a couple, Cox Enterprises, Eaton, Fair Isaac, National Instruments, Avendi, Xerox, Fairmont Hotel.

These are just a few of the quality brands we took down in HCM alone, so we had a strong HCM quarter.

We're actually going up actually against the strongest HCM compare last year that we had seen, but it was very, very impressive.

I think we have a position in HCM where we're battling out with Workday.

We think we're winning a lot more than we're losing, and we're doing really well internationally, particularly in Europe, as Larry described.

Marketing, we won Kaiser, Eaton, Lexmark, Panasonic, Thomson Reuters, Time Warner Cable, Tyco.

These are quality names that adopted the Oracle marketing cloud, and I could go on across all these areas.

As I described in my prepared comments that maybe you couldn't hear, when you look at these Gartner waves or Gartner quadrants, sorry, and Forrester waves, we lead in more of these waves and quadrants than our three cloud competitors combined.

So, I really feel very good about where we are.

Now, to your question about regions, I think you're taking the wrong conclusion out of Europe versus the United States.

Our US cloud business has done very well.

You don't see it reflected in the numbers quite as well because of the conversation we had a couple of questions ago about the recognition of subscription revenue, but the bookings in the United States are quite strong.

Our relative position in Europe may be stronger, but the adoption is slower relative to what we've seen in the US.

Europe has done fantastic.

Let me take nothing away from Europe, but what you've really seen them done a great job of is winning what's available in the European market, and they've done a great job in our traditional business at the same time.

We'll now hear from Rick Sherlund with Nomura Securities.

Thank you.

I just wanted follow up on 12c.

Larry, would you envision with the capabilities of 12c that your SaaS partners that use Oracle will rearchitect their products to support multitenancy at the database level and take advantage of in-memory capabilities as well to advance the apps offered on top of 12c?

Well, if you've already put multitenancy -- let me talk about your rearchitecture question.

What the 12c database does, the multitenant feature, it takes an existing application that doesn't have multitenancy built into it at the application layer and makes those existing applications all multitenant.

So, there are a lot of companies that want to get to the cloud.

I'm just going to pick one out of thin air, like Cerner, who really don't have multitenant products but would like to get to the cloud, they would be a perfect example of a company who runs on top of Oracle that would like to get to the cloud where the multi -- Oracle multitenant database gives them fast track to the cloud and fast track to very fast big data analytics with our in-memory option.

So, those two things I think are going to be instrumental to us moving our huge ISV community to the cloud on top of our platform.

We think that's a gigantic opportunity, and let me emphasize, our platform -- Salesforce is really two businesses, Salesforce.com, the leader in the cloud, has two businesses.

They have got their sales force automation business, which is most of their application business, and then they have got what they now call Salesforce One, which is their platform business.

Our platform business is made up of the Oracle database with multitenant in-memory and the world's most popular programming language, Java.

We have -- virtually every ISV runs on top of the Oracle database.

Virtually all of these companies would like to be able to move their offerings to the cloud.

We now enable that.

Our platform is just coming out this fall.

This is a net new business for us going forward, moving all these ISVs into the cloud.

We think this might be the biggest single -- in an opportunity-rich world, as we're seeing our SaaS applications -- the growth is accelerating, by the way.

We're growing much faster.

So, this year, 50% bookings, I mentioned it before, we're seeing our -- the demand for our SaaS applications accelerate, absolutely.

And having a broad portfolio gives us a lot of room to grow.

PaaS is this new opportunity where a bunch of companies are just chomping at the bit to get their businesses to the cloud.

We can move that ISV community to the cloud with 12c, we think that is a gigantic opportunity, and it's going to help us grow our SaaS/PaaS business and make us number one in both categories.

Is the in-memory piece as important as the multitenancy?

Well, it's different pieces, right?

The multitenancy piece basically lets you get to the cloud, period, with multitenancy and the in-memory piece allows you to offer big data analytics.

What you're asking me, which is more important, big data analytics or being multitenancy in the cloud, I think they are both crucial to modern computing.

These are the -- two of the biggest parts of modern computing.

People spend a lot of time talking about the cloud and getting to the cloud, getting your business to the cloud and modernizing it and big data analytics.

They are number one and number two in the conversation about technology these days and all the meetings on them.

Heather Bellini with Goldman Sachs has the next question.

Great, thank you so much.

As Oracle continues with its success in the cloud, over time, I know you mentioned the revenue benefits over time, but I'm wondering how we think about the long-term operating margin profile of the Company as you guys continue down the path of your success.

And then also just a follow-up for Mark.

Knowing you had a tough comp in the US with the Salesforce.com deal in the Americas, was there anything else impacting growth in the region in the quarter?

And on the flip side, you had one of the best growth rates we've seen out of you guys in EMEA in quite some time.

Is there anything there you can highlight?

Why don't you take the question first.

Okay, one the US, no, everything roughly behaved as we expected, that's the issue on the comp.

Europe, I've said this I know multiple times on these calls.

They've just executed marvelously.

They've taken enormous amounts of market share.

They have just done a great job, and it's across, Heather, really all aspects of our business.

It's across our engineered systems business, our database business, our middleware business, our SaaS business.

They were the first to add sales capacity.

They added sales capacity really 3.5 years ago, and they've trained and assimilated that capacity and that capacity has now got us in materially more deals.

Simultaneously, we've been able to take some very strategic transactions, as we did this quarter, that are just part of that overall series of successes we've seen out of Europe.

And I think as you know, Europe hasn't been the most robust economy over the course of that time frame, so I think our team there has just executed marvelously.

Heather, on your margin question, as you can see in the numbers, and they basically speak for themselves, we've been doing this build up and investment all within our profitability envelope.

You can look at our cash flow statements, you can see our capital investments.

We are incredibly advantaged because we make virtually absolutely everything in the cloud that we need, whether it's the hardware, engineered systems, the software, the operating system, the database, we have it all.

And we have a business that is at such scale that we have enormous economies of scale.

We can add customers at an extremely high profitability level because we have so many customers generally and additionally because we control literally so much of our own supply chain.

So, we can deliver these services, and we already have the sales force, we have everything in place.

And we're not even at scale in cloud, so imagine at scale what's going to happen here.

And as these new bookings, which are in this heavy growth period, actually start to rain back as revenue, we are extremely optimistic about our ability to grow cloud and over time, as I said in my prepared remarks, in the short term, less revenue come in, in the long term and medium term more revenue come in.

And simultaneously, our customers spend and save an enormous amount of money themselves, so it's really a win-win as well for both of us.

Let me just add one little piece which is the two parts of the cloud business that we're focused on are SaaS, the applications and PaaS, the platform database and Java programming language.

We think inherently those businesses are 40%, 50% margin businesses.

We think that's not the case in infrastructure-as-a-service business.

We think that's a lower margin business, but we think we can run it profitably in association with our SaaS and PaaS businesses.

But where we're really trying to grow the business, where we're determined to be number one, is in SaaS and PaaS.

We're in infrastructure-as-a-service as a convenience to our customers who want to have one stop shopping and buy their applications platform and infrastructure at the same place.

But we think collectively, those three businesses, as Safra said, we are our supply chain.

We buy electricity in buildings, everything else we make.

And we think we can deliver these cloud services without compromising our margins whatsoever.

Thank you.

Our last question will come from Joel Fishbein with BMO Capital Markets.

Hi, Mark.

I might have missed this, but just wanted to get some more color on the integrated systems.

It looked like the business was a little bit weaker than we would have expected, and I would love to get color around that, and I might have missed it on your opening comments.

You mean engineered systems, correct, Joel?

Engineered systems, sorry, Mark.

Yes, strong quarter, best quarter we've ever had.

Just to be clear, I think I said this in Q3, that Q3 was the best quarter we'd ever had except for this Q4 that we were going to have, that we'd had, and we beat it in Q4.

Now, in Q4 was that same deal that Larry described earlier as a comparison, and as Safra mentioned, I think she said in her remarks, but I'll say it if she didn't, we had double-digit growth in engineered systems in the quarter, so it was a record for us and very strong.

We -- trust me, though, we couldn't grow hardware the way we did without engineered systems having a strong quarter, so we're awful excited about that.

Okay, thanks a lot.

Thanks, Joel.

Mr. Bond, I'll turn things back to you for closing or additional remarks.

Thank you, operator.

Our apologies for the technical difficulty this afternoon.

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Thank you again for joining us, and with that, I'll turn it back to Chelsea for closing the call.

Thank you, Mr. Bond.

Again, ladies and gentlemen, that does conclude our conference for today.

We thank you all for your participation.