甲骨文 (ORCL) 2015 Q4 法說會逐字稿

Welcome to Oracle's Fourth Quarter 2015 Earnings Call.

As a reminder, this call is being recorded for replay purposes.

I'd now like to turn the call over to Ken Bond, Senior Vice President of Investor Relations.

Thank you, Holly.

Good afternoon, everyone, and welcome to Oracle's Fourth Quarter and FY15 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 Executive 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 being 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.

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 some prepared remarks.

With that, I'll turn the call over to Safra.

Thanks, Ken.

I'm going to focus on our non-GAAP results for Q4 and FY15.

I'll then review guidance for Q1, and then turn the call over to Larry and Mark for their comments.

As you probably remember, I didn't provide US dollar guidance for Q4, given the unusually high volatility in exchange rates.

The currency head wind ended up being higher than consensus estimates would reflect, with 8% to software and cloud revenue, as well as the total Company revenue, 9% for hardware revenue, and $0.09 for earnings per share.

Currencies continue to move significantly and remain unpredictable, so my comments today generally reflect constant dollar growth rates, which is how we look at the business.

We are delighted with our results, with the most important thing being that we dramatically over-achieved in the cloud.

This is the first Q4 where we had everything together for the cloud.

We had the products that we've been working on for a decade, the operations, the sales force, and the references with many happy customers.

Having all that in place caused SaaS PaaS bookings to grow more than 200%, our best-ever growth rate for cloud bookings, and more than $125 million higher than our own $300-million goal.

For most companies, as their business grows the growth rates go down.

In our case, as the business grows, our growth rates are increasing.

To the numbers.

Cloud SaaS and PaaS revenue was -- I'm doing only non-GAAP -- was $419 million, up 34% from last year, and well above the high end of my guidance.

As our cloud bookings growth continues to accelerate, so too will our cloud revenue growth.

As I just said, bookings grew more than 200%, further adding to the momentum, which is helping drive SaaS and PaaS growth.

Now when you translate the $125 million higher from SaaS and PaaS to had it been historically our license business, it probably would have been around $375 million more in license, and it would all have been booked immediately, not ratably over time.

For us, this was actually fantastic news.

When bookings ultimately turn into revenue depends of course on many factors, but one thing is clear.

Our momentum in the cloud bodes very well for the future.

Combined with infrastructure as a service revenue of $160 million, which was up 31%, our total cloud revenue in the quarter was $579 million.

Engineered systems continued to -- excuse me, sorry.

To help you further understand just how well we are doing in the cloud, I thought it would with helpful to compare our cloud billings growth rate to that of our principal cloud competitors.

Billings is generally defined as total revenue in the period, plus the sequential change in gross deferred revenue.

Our practice at Oracle regarding deferred revenue has always been to net out the build but unpaid invoices from our deferred revenue balance on our balance sheet.

I believe that our cloud competitors follow a practice where they disclose only a gross deferred revenue balance, not net for uncollected invoices.

We've put up a spreadsheet on our website to show you the same thing for comparability.

We've calculated Oracle's cloud billings using our competitor's methodology, or the sum of total cloud revenue plus the sequential change in gross deferred revenue.

What it shows is that billings grew from $468 million in FY14 fourth quarter to $834 million in this just finished quarter.

That's a growth rate of more than 70% in US dollars.

Though there may be seasonality to billings numbers, this is dramatically faster than Salesforce's 21% billings growth and Workday's 31% billings growth in their most recently reported quarters.

In summary, our cloud business is significantly outpacing the competition.

Now, total software revenues were $8.4 billion, with software updates and product support revenues at $4.7 billion, up 8% 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 revenue worth $3.1 billion, reflecting the accelerated migration to cloud.

The shift to cloud was very pronounced in Europe, where new software license sales were most impacted.

But Europe was also our fastest growing region for both cloud revenue and bookings, as you would expect from the substitution.

Total hardware including hardware support grew 5%, with hardware system product revenue of $818 million, and hardware support revenue of $590 million.

Engineered systems continued to be strong, with double-digit bookings growth, and we continue to take share from IBM and HP.

For the Company, total revenue for the quarter was $10.7 billion, up 3% from last year.

Non-GAAP operating income was $5 billion, and the operating margin was 46%, with currency and MICROS lowering operating margins by 2%.

That we're able to maintain our industry-leading operating margins with MICROS, and while growing our cloud business dramatically, is a testimony to the strength of our business model.

While we believe our over-achievement in cloud bookings will be much more valuable in both revenue and earnings over time, cloud revenue is recognized ratably, unlike new license, which is recognized up front.

This shift has the effect of lowering near-term earnings per share, but over time will increase it significantly.

For example, a $1-million license deal, which would be recognized up front -- dropped right to the bottom line -- would ultimately result in about $3 million in revenue over 10 years.

A $1-million SaaS PaaS booking -- a SaaS booking -- results in $10 million over that same time period.

I would not trade the cloud revenue for the license revenue, as cloud revenues and cloud bookings means significantly more in revenues and earnings over time.

The non-GAAP tax rate for the quarter was at 25.5%, and EPS was $0.78 in US dollars, $0.09 lower due to currency.

The GAAP tax rate was 25.4%, and the GAAP EPS was $0.62 in US dollars, $0.08 lower due to currency.

Both tax rates were significantly higher than my guidance, and were the result of multiple factors, but generally relate to the mix of earnings between the US and other jurisdictions, with the US being a larger percentage of our quarter in recognized revenue than we forecast.

For the FY15, total software and cloud revenues totaled $29.5 billion, growing 5% in constant currency.

Cloud SaaS and PaaS were $1.5 billion, growing 34%.

Cloud infrastructure as a service was $608 million, growing 36%.

New software license was $8.5 billion, and software support was $18.9 billion, growing 8%.

Hardware systems revenue was $5.2 billion, growing 1%.

Services revenue was $3.5 billion, essentially unchanged from last year.

Total revenue grew 4% to $38.3 billion.

Our non-GAAP operating margins for the full year was 45%, and non-GAAP earnings per share were $2.77.

Free cash flow over the last four quarters was $12.9 billion.

Capital expenditures continue to be higher, as we provision existing orders and build out SaaS and PaaS -- for SaaS and PaaS growth.

As a reminder, our cloud data centers are built using our own engineered systems, so while CapEx is a cost to other cloud providers, a good portion of our CapEx is essentially a hardware sale, which we sell as a cloud subscription.

We now have $54 billion in cash and marketable securities.

Net of debt, our cash position is approximately $12.4 billion.

The short-term deferred revenue balance is $7.2 billion, up 9% in constant currency.

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

In terms of acquisitions, we continue to focus on finding the right companies at the right valuations, as both are critically important.

This quarter, we again repurchased 4.6 million shares for a total of $2 billion.

Over the last 12 months, we've repurchased more than 193 million shares for a total of $8.1 billion.

We paid out dividends of $2.3 billion, for a total that is 8% -- 80% of our free cash flow.

The Board of Directors declared a quarterly dividend of 15% -- $0.15 per share.

Now to the guidance.

We feel very good about our own performance, but of course we are keeping an eye on the macro environment, especially abroad.

Additionally, given the continued high volatility in exchange rates, we expect currency will affect results; but as of now, we just don't know how much.

I'm going to again provide constant currency guidance, though I would take our results as some idea of what we think currencies are doing right around now.

Clearly, customers are migrating to Oracle cloud at even faster rates, and my guidance reflects this accelerating mix shift.

Since we are starting the new year, I am going to make some changes in my guidance.

I am dropping some things, including smaller components of cloud, and I am dropping GAAP guidance, which both best match how we look at the business.

All of my guidance today is on a non-GAAP basis and in constant currency.

Here goes.

SaaS and PaaS revenue is expected to grow between 39% and 43%.

Software and cloud revenue, including SaaS, PaaS, IaaS, new software license and software support is expected to grow between 6% and 8%.

Total revenue growth is expected to range from 5% to 8%.

Non-GAAP EPS in constant currency is expected to be somewhere between $0.56 and $0.59.

This assumes a non-GAAP tax rate of 25.5%.

Of course, if this quarter's any example, it may end up being very different.

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

Just a couple quick comments, Safra, to add.

I think one, Safra told you about the 34% year-on-year SaaS PaaS revenue growth.

That was 12% sequential growth, and almost entirely organic.

We talked about the billings growth of 70%, now faster than Salesforce or Workday.

Bookings at $426 million was 200% plus growth for Q4.

Let me give you some customer numbers.

We added 1,217 SaaS customers in the quarter new.

760 customers expanded.

By pillar, HCM added 312 new customers in the quarter, 933 for the year, three times Workday's total customer growth over the last four quarters.

In customer experience, we added 657 customers in Q4 -- 1,900, almost 1900, for the year.

In ERP we added 380 customers in Q4 and 888 for the year.

Our install base is now almost 1,100 ERP customers in the cloud, nearly 10X the size of Workday.

Let me add, we really never see SAP.

In PaaS, we added 1,419 customers in Q4.

Let me just repeat, that was 1,419 customers in one quarter.

We booked over $100 million and grew 100% sequentially.

We're now at scale.

Our cloud revenue is already above a $2.3 billion run rate.

We added $858 million in ARR this year, $858 million.

Using the conversion that Safra used a little while ago, that would be almost $2.5 billion in license.

We expect to sell between $1.5 billion and $2 billion in ARR next year.

We're now growing faster than both Salesforce and Workday, and we expect revenue growth next year could be as high in SaaS PaaS as 60%.

Now I've given you a lot of numbers to reflect on, but when you look at customer counts, booking, revenue, the result is the same.

We're doing what you very rarely ever see happen in our industry.

We are getting bigger and our growth rate is expanding.

We will be the world's largest enterprise cloud Company.

With that, let me turn it over to Larry.

Thank you, Mark.

Mark gave you a lot of interesting numbers, and I'd like to drill into a couple of them.

First, I'd like to look at our sales growth rates of cloud applications, SaaS, and platform services, PaaS.

I'm intentionally leaving out our cloud infrastructure business so I can do an apples-to-apples comparison with Salesforce.com, which does not sell infrastructure as a service.

Okay.

Last year in FY15, as Mark just said, we sold $858 million of new SaaS and PaaS business.

About half of that, $426 million, was sold in Q4.

That's a year-over-year Q4 sales growth rate of over 200%.

More importantly, the $426 million is more SaaS and PaaS new business than has ever been sold by any cloud services Company in a single quarter.

It's a record.

Clearly, our cloud business has entered a hyper growth phase.

This year in FY16, we plan on selling between $1.5 billion and $2 billion of new SaaS and PaaS business.

In other words, we plan to sell at least twice as much as we sold last year.

That's at least 50% more new business than Salesforce.com will sell in their current fiscal year.

If we exceed our plan like we did this Q4, we could book twice as much new business as Salesforce.com.

Now, I don't think that's likely that we'll sell double what Salesforce.com sells, but it's definitely possible.

Second, let's look at the impact these record sales rates have on SaaS and PaaS revenue.

In Q4 of FY15, our SaaS and PaaS revenue grew 35% in constant currency.

Because our cloud sales has dramatically accelerated, our SaaS and PaaS revenues are planned to grow at 60% in FY16, unaided by any new acquisitions.

Our cloud service -- our cloud business is much bigger than Workday, and we will grow faster than Workday will this year.

Our cloud SaaS and PaaS revenue is still second to Salesforce.com, but we're growing much faster than they are.

It won't be long before we pass them.

How and why is this happening?

Our SaaS growth is due to the rapid acceptance of our new generation of Fusion application.

We now have over 1,000 Fusion ERP customers, around 10 times more than Workday.

Mark said that once.

I'm going to say it twice -- around 10 times more than Workday.

Workday says they never see SAP in the cloud ERP market.

That's the one thing Oracle and Workday agree on.

It's between us, Oracle and Workday, in the mid-market and the high end of the cloud ERP market, and we are winning big-time.

We are the clear number one in cloud ERP, and we are number one or number two in most other SaaS categories, including HCM, sales, service, marketing, EPM, supply chain, and so on.

We have a lot more SaaS applications than any other enterprise SaaS company.

Our PaaS growth is due to the huge pent-up demand for the Oracle database and Java middleware as a service.

Our customers can now move their Oracle databases and Java applications to the cloud with the push of a button.

That's why our PaaS business is growing even faster than our SaaS business.

Things are good for Oracle in the cloud.

Thank you, Larry.

Before we go to the Q&A, Holly, if we could have one quick clarification.

Share repurchases in Q4 were 46 million shares.

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

All right.

(Operator Instructions)

Your first question comes from the line of Jason Maynard with Wells Fargo.

Hi.

Good afternoon, guys.

Look, Oracle wasn't the first and won't be the last software Company to go through this shift from selling up-front perpetual to ratable subscription licensing.

The metrics that we were used to are obviously changing, and you guys gave a lot of color around the current quarter.

What I hope maybe we could do is drill down a little bit more on the longer-term impact of the model and customer lifetime value.

I know in your 10-year example you generate more revenue with subscription.

Can you guys talk a little bit about what you think the ball park break-even point is on a hypothetical deal; what happens to margins over this time; and ultimately, how this is going to impact cash flow?

Thanks.

I'll repeat what Safra said.

Let's take a $1-million deal.

If it's licensed over a 10-year period, you get the $1 million up front for the license, and you get 20% a year for 10 years.

That's another $2 million for over a 10-year period.

You get a total of $3 million.

After the cost of sales, it's very profitable business.

Most of that $3 million -- again, after the cost of sales -- is profit.

In a $1-million SaaS or PaaS deal, you don't get anything up front, but you have to pay the commissions.

Then you only get -- and that $1-million deal is worth $10 million, or more than three times as much as the license deal over a 10-year period, over triple the value.

But the accounting is entirely different.

The accounting you take it ratably over that 10-year period.

You have to pay the commissions up front and recognize the expenses up front, and then you get 10 years.

Now what's the profitability on SaaS and PaaS?

This is going to shock you.

It's about the same as the license and support.

It's stunningly profitable.

Infrastructure as a service is very different.

Again, I'm talking about SaaS and PaaS.

Infrastructure as a service, the margins aren't nearly so high.

We make money in infrastructure as a service, but you can see what Amazon's profit margins are on infrastructure as a service.

We think it can be a profitable business when you get to scale.

But SaaS and PaaS is very similar to license.

That $1 million, which turned into something less than $3 million in profit after you get to scale in license, turns into something less than $10 million in profit -- say $9 million in profit -- over the 10-year period of -- that you're providing the service.

It's a much better business for us in terms of revenue, margin.

The revenue goes way up.

The profits go way up, and the margins are approximately the same.

I think we have a huge advantage, Jason, that some of our competitors don't have.

We make most of the components for the cloud service ourself.

Yes.

Again, Salesforce paid us a lot of money for their platform.

They buy Exadatas from us to run their data center.

They buy the Oracle database.

They paid a lot of money for the Oracle database.

By the way, we just signed an Oracle database deal, so SAP could run concurrent.

We signed an Oracle database deal -- this is all in the last 12 months -- so SAP can run Ariba.

We signed an Oracle database deal so SAP could run SuccessFactors.

We get a really good deal on the Oracle database, on Java middleware, on Exadata, and all of those things.

Our expense profile is very, very different.

By the way, it's interesting.

SAP does not use HANA in the cloud very much.

I know that because they keep paying us -- again this quarter.

They pay us for Oracle Perfect and Concur, and Oracle for Ariba, and Oracle for SuccessFactors.

If they're using HANA for anything, I don't know about it.

Jason, to add one thing.

As you talked about the conversion from license to ratable, I gave this set last quarter, but I'll give it again for this quarter.

Last quarter I think I said that 82% of our cloud SaaS deals were actually not Oracle customers of an application when they acquired or contracted for our SaaS application.

This quarter it was over 60.

These are -- this is not just a conversion of Oracle customers, Oracle application customers to SaaS.

This is a lot of green field new market share for Oracle, as well.

Great.

I appreciate the commentary.

Thanks, guys.

Yes, again, I'm going to follow up on what Mark just said.

The SaaS market is much bigger than the licensed market.

As Mark is saying, we can go much further down market, get to customers we could never get to before, because the SaaS service is much easier to consume for a mid-sized company than buying a computer, opening a data center, hiring a bunch of people, and running licensed software.

We think the available market is dramatically larger.

The global mid-market is now available to us, unlike it would have been in the traditional license model.

It's very exciting.

Next question, please.

Your next question will come from the line of Michael Turits with Raymond James.

Hi, guys.

Good afternoon.

I wanted to drill down on the cloud numbers, especially how they stood up relative to license.

On license you missed in the quarter, as consensus, by about 273.

Obviously that's very much due to that shift over to cloud in terms of accounting structure, term structure.

Is it all due to that, or is there some impact -- anything negative that we should read fundamentally into license, and that's in either database apps and middleware?

First of all, I didn't give guidance regarding license.

Whatever number you put in your spreadsheet, we didn't make that number, okay?

No, I just meant relative to consensus, that's all.

Okay, relative to all of you who have a lot of spreadsheets.

However, the reality is I think that you can see the most instruction from what happened in Europe.

Our Europe new license was down a lot.

Our Europe cloud was huge.

It was for them, they focused all in, they went all in on pushing cloud, and that's where the focus went.

Other than that, I think if we're going to talk about spreadsheets that I did not actually guide you to, in currency, I think you all missed the boat there, too, a bit.

But that's okay.

We got another quarter now.

But the truth is that, yes, our customers are focusing on cloud as are our sales force.

We have a lot of references.

When a customer comes to us to the extent that they are a good candidate for cloud, which they are, we are going to be talking about cloud.

We're going to be selling cloud.

We would much rather have a cloud booking for -- as I said, for $1 million -- than we would for a license deal, which I book all the way right up front, drops right to the bottom line.

We would much rather have a cloud booking for $1 million than a new license dollar, and we're pushing that conversion quickly.

Just a little bit more.

No region missed its CD forecast with the exception of Europe.

Just to be clear, CD forecast that you're -- when you're talking about dollars from a CD perspective, every region executed as we expected in license, with the exception of Europe.

Europe had a phenomenal cloud quarter inclusive of probably one of the most exciting financials in the cloud deal we've seen at HSBC.

Some very exciting transactions in Europe, and they definitely made the shift.

But to whatever you have in your numbers on a local basis, no region missed its CD forecast in license with the exception of Europe that had a material shift to the cloud in the quarter, including some pretty exciting deals like what I just described.

Okay, helpful.

Thanks very much.

Thank you.

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

Great, thank you.

Safra, I know our spreadsheets are nowhere near as good as yours are, but just to follow up a little bit, Q4 used to be -- you would always characterize it as Mardi Gras for Oracle from a license revenue perspective.

Now that this transition seems to be happening so swiftly, it would -- in Q1 you would always have this big sequential drop-off.

I know you don't specifically talk about license revenue, but given we're all trying to get a hang of how to think about the Company's seasonality going forward, should we think about Q4, the dynamic for Q4, seasonality is going to become a little more muted, continue to become more muted, as you have this success transitioning?

Then again, Q1, which used to be a quarter where license revenue used to have such a big sequential decline, maybe Q1 gets a little bit easier?

Is there any way you can help us think about the seasonal changes?

Yes, you are on it.

Heather, you have got it actually exactly nailed correctly.

The reality is that cloud is growing sequentially, generally, regardless.

So Q1 in revenues, Q1 cloud is not going to be a giant drop-off from Q4.

My team here is telling me it's going up.

(laughter) I just gave the guidance.

Yes, so Heather, you have that right.

The seasonality for the whole Company is muted.

It is still true that our -- that from a bookings point of view and things like that, Q4 is Mardi Gras, and it's still Mardi Gras.

But revenue smoothes out.

New license, which was always just so enormous in Q4 takes a giant drop-off, it becomes less and less important.

In total revenue, the seasonality smoothes out a bit.

But of course, our new license numbers are still very big numbers.

But in Q1 they're a much smaller percentage of the total than they are in Q4.

I do think it's worth noting, Heather, that in Q4 for us on a cloud bookings basis, we came in with a forecast that we had, which was what we talked about at the end of Q3 with the conference call, and every week this forecast got better, every week.

There was not a single -- I gave you an example of one deal, but there is no gargantuan transaction in there.

They is no dominant region.

There is no dominant pillar.

It is consistent by pillar, by geography, and it was a very consistent, steady move every week as we advanced through Q4.

Thank you very much.

Your next question will come from the line of Kash Rangan with Merrill Lynch.

Hi, guys.

I'm not going to ask you a spreadsheet question, but I want to ask about databases.

Any commentary on the new license sales of database, directionally, how it trend?

Also, an update on 12c adoption, what percentage of the base is on 12c, and any quantification you can provide on the options?

That will be good, thank you.

12c was good in the quarter.

I think we gave you a comparison last quarter.

But if we compared it to 11, we've been about 50% faster in feature adoptions of 12c than we were with 11, so it was very strong.

If you went by region, you saw tremendous performance in database in North America, even in license.

You saw that really consistently across the regions, except for the shift that we saw in Europe.

But the adoption speed of 12c was quite strong in the quarter, as it was in Q3.

Kash, let me give you a little -- kind of an interesting commentary, I think, on the relationship between PaaS and database adoption on premise.

We're the only Company that says, hey, you should -- what you run in the cloud and what you run on premise should be compatible, so that you can push a button and move a workload from your private cloud to the Oracle public cloud and back again; or you can do development test in the public cloud and do production in your private cloud on premise, if you want to.

That has -- we think over time that's going to dramatically accelerate the adoption of features, certain features of our database on premise, because they're getting those features in the cloud.

They're getting multi-tenancy in the cloud.

They're getting the in-memory database features in the cloud, and they'll want to have an exact analog in their private cloud on premise.

I think that's going to actually help, keeping our customers current with the latest features in the database.

Wonderful.

Safra, any commentary on the license growth rate for databases?

I want to talk to you actually about the options that did best.

As you would expect, everything around security, many of our customers are realizing the security options that we have, which are really very critical.

Obviously, cyber-hacks and all those things are -- and also in-sites rest are something they are finally really focused on.

Database security options were up very significantly, like around 30%, that kind of level.

Many of our customers are looking now at the multi-tenant option, which is available with our newest product, and that is doing very well.

That means that our customers are moving even themselves into their own private cloud to manage more efficiently.

That is -- was very good for us this year -- this quarter.

Thank you.

Next question, please.

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

Thank you for taking my question.

I guess we understand and appreciate the emphasis here on the cloud business, but I'd like to ask a question on what I guess is still the overwhelming majority of your revenue today, and that's -- I'm talking about the on-premise software business.

How should we be thinking about your enterprise customer base?

What is their behavior like?

Where do you think it's going to be moving forward from here?

In the past, I think we've heard both Safra and Mark talk about the sustainability of the [Cebol] maintenance train?

I guess as enterprise has moved to the cloud, is this move largely -- as your customers -- I know, Mark, you addressed this a little bit.

Are they -- are your customers largely replacing on-premise technology, or is it primarily for new implementations today and into the future?

I'm sorry for the long question.

But I guess what I'm trying to get to is how should we think about the current support stream from that on-premise software, the current support maintenance into the future?

Firstly, it's very important that you understand, our support base continues to grow.

When we sell new licenses at all, any new license, that increases our base.

We do continue to sell billions of dollars of new licenses.

Our renewal rates, by the way, remain extremely high, very high, historically high rates.

Many of our customers are not necessarily -- are not canceling support and moving everything to the cloud overnight.

They are adding cloud capabilities.

What happens, invariably, is even when they add something in the cloud that they did on premise, they have other uses for many of our licenses that they've had before.

We would like them over time, frankly, if we had our way, to move everything to the cloud.

That would mean probably revenue rates significantly larger than we are now.

But our customers, our base continues to grow, our customer base continues to grow, and our support numbers continue to go up -- up obviously 8% just this quarter.

Yes, listen, I think what Safra said is right.

We had 8% CD growth for the quarter.

Renewal rates were very strong -- again, if you will, flat year over year, meaning they were very good.

Again, I'll try to go through this again to be clear.

Most of the new things that we sold, or most of what we sold in the cloud, was incremental in terms of certainly SaaS applications.

I think, again, the way to think through this is you're going to have a very large on- premise environment -- I think for a long period of time.

But workloads are shifting to the cloud, and that is an opportunity for us as we maintain our on-prem base, but frankly grow our market share through this shift to the cloud.

We can see it, and it's exciting with it.

Remember, John too, when we win a SaaS application, we gain all the hardware, all the operating systems, all the database, and all the middleware.

When we gain PaaS, we gain all the database, all the operating system, and all the hardware, as well.

I think you're going to see on-prem.

I think our position on-prem is actually strengthening on a relative basis to what's in the market, and we are now growing faster with these numbers.

I don't know how many ways to go through these numbers to show the market share we're gaining, and the speed by which we're accelerating our market position in the cloud.

I think we have a chance to get both.

Let me just add -- briefly summarize what Mark said.

Our support base, our installed base on premise is going up 8%, and will continue to go up, while our cloud business is experiencing hyper growth, 50% of revenue growth, 60% revenue growth, maybe more than that.

Next question, please.

Okay.

Great, thanks.

Your next question will come from the line of Brent Thill with UBS.

Thanks.

Safra, in Q4 did you see a greater percentage of deals in the pipeline than maybe were forecasted to go as a perpetual license that made the shift to a cloud model, and therefore, that was the weight on the license I think relative to what we all were looking for, there was a big delta there?

Just curious if you have any commentary?

Maybe for Mark, as it relates to some of the cloud initial deal side, is in duration of these contracts.

If you could maybe point at what you're seeing in terms of some of the contract values that you're seeing throughout the year, and any changing characteristics there, that would be helpful?

No, that isn't how it works.

It's not that -- by the time a deal itself is actually listed in the forecast, it's already qualified as to what it's going to be.

What the reality is that conversion rates move in the cloud were very high, and they were to some extent took -- were the big focus.

That is what we push in the forecast call every week.

That's what we're talking about all the time, and that's what was very clear.

In the forecast overall there are many different shape deals and types of deals, and what exactly will close in the quarter I never know.

I have to use my own conversion and closing historical rates.

This quarter showed a marked move towards converting the cloud deals.

Those did very well.

They far exceeded where we thought they would go.

That's how it worked out.

Obviously it doesn't show up in the revenues, because we don't book them up front like licenses.

To your second question, productivity and ASP, your point about pricing both inclined.

Our productivity per rep and our average deal size in cloud went up in the quarter.

It went up a bit sequentially, as well as it went up year over year.

There is an important other dynamic that when you look at our cloud business you've got several factors going on, Brent.

You've got one -- frankly the products are just better.

They're just getting better and they're more mature.

Our sales people, we have more of them, and they have longer tenure.

They're also simply better trained than they were just even a year or two years ago.

The combination of this is what's driven the performance in the cloud.

Make no mistake about it, there is a keen sales focus on growing our cloud business.

Our cloud business is important for all the reasons that we've already talked through.

Now, one other point that we haven't brought up that I think I'd add to it is when you look at where we're heading with the cloud, we're going into a year now where we now get frankly more of our portfolio available in the cloud.

We've done just what we described in Q4, which these numbers that everybody's all excited about -- frankly, with not our entire product line available to us in the cloud, and not even all of the products that we have localized to all of our geographies.

You have a set of factors occurring next fiscal year, this coming -- the year we're in -- where now we have yet more sales people with more tenure, with more references, with now more of our products on line, if you will, in more geographies.

Thank you.

Your next question comes from the line of Raimo Lenschow with Barclays.

Thanks for taking my question.

Two quick ones.

First, Safra, if I look at sales and marketing, they came in a little bit higher than we had expected.

Can you talk a little bit about the dynamics there?

Are you actually paying out more on cloud provisions, et cetera, or is it just that Q4 actually was very successful, and we can't see it in revenue because it was over cloud?

Then for Larry, a question on PaaS.

What are the use cases that you see on PaaS?

Is it all test and development, or are people actually putting popular production workloads over onto your cloud already?

Thank you.

What you're seeing in the sales and marketing percentage is that, again, since we're not recognizing the revenue up front, like with license -- though we have commissions and things like that with cloud -- there's also additional sales expenses that are recognized immediately, but they don't have the corresponding revenue like new license does.

You're just seeing timing differences more than anything else, and that's impacting a number of our ratios, clearly.

In PaaS, we have a number of things going on.

Yes, your point about dev test is correct.

This is a lot of dev test use cases for PaaS; but there's more going on in PaaS than just database as a service and just dev test.

We have released our first really BI solution into the market, which is now -- a visual analyzer -- which now goes head up against Tableau.

We had good success with that product in Q4.

Again, our competitors are shifting now, as opposed to in BI on-premise, where we would have competed with Cognos or Business Objects.

We now compete with Tableau.

That's in our PaaS results that we've described.

Also, Java as a service was strong in the quarter.

The collection of those services were 30%, 40% of our PaaS bookings, and yes, dev test, other than that dev test, is certainly a very big use case for our customers.

Perfect.

Thanks so much.

Next question, please.

Your last question will come from the line of Philip Winslow with Credit Suisse.

Thanks, guys, for taking my questions.

I think we've hit a lot on the software side of the business and cloud, but we haven't really touched on hardware much.

You guys came in actually a little bit above the mid-point of your constant currency guidance on hardware this quarter.

Wondering if you could comment on the trends you're seeing there -- engineered systems versus the non-engineered business?

Safra, I know you didn't give a specific guidance for the hardware business, but how are you guys thinking about that going forward?

Engineered systems, bookings grew double digits in the quarter, very strong.

We had over 1,500 -- I'm doing this off the top of my head -- 1,500, 1,600 incremental systems in the quarter, so very strong in the engineered systems side.

We had very strong growth in North America, very good performance out of one of our Oracle database appliance products.

SuperCluster was very strong in the quarter.

We grew in storage in the quarter.

This is really -- we're going through a shift in storage now.

We released our SAN product, FS1, in the quarter, which saw some bookings.

This is really the first quarter we got any bookings out of FS1, our ZFS product.

Somebody's renamed that, but I have -- ZS1.

I wish they wouldn't do that to me, but they've renamed it ZS1.

Actually ZS4, and they shouldn't rename it because it's hard to remember.

(laughter)

I missed the naming thing, or we would -- but anyway, so we had good growth in that thing (laughter), as well.

Then we had server performance that was declines in the quarter.

Then the growth in the other products that I've described netted to the growth rate that we described.

Let's face it, we are the only hardware Company growing in the industry.

When you look at the market share numbers, they sort of get to be staggering.

We've taken over the -- this is not a question you asked, but I'm going to say it anyway.

In the United States, when you look at servers above $15,000, the number one Company in market share now is Oracle.

I believe that will occur region by region by region, because of the strength of not just our hardware product line, but the alignment of our software portfolio with it.

It was a good quarter for us in hardware, and I would expect that trend to continue.

Very similar to John's question.

I don't think we're telling you that there isn't an on-premise market.

Please don't take that message from what we described.

I think the fact that you can take a workload from your on-premise data center and now move it seamlessly to the cloud and back and forth to a data center gives us a tremendous advantage.

The configuration we have in the cloud, the configuration we have on-premise now can be identical -- the ability to move workloads back and forth, use that on our hardware and your data center, use that on the very same hardware perhaps in the cloud.

We're the only Company in the industry that can do this.

I think this bodes very well for our hardware business -- granted, in a declining market, but I believe Oracle will gain market share in that declining market.

Got it.

Thanks, guys.

Thank you.

Thank you, Phil.

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