Oracle Corp (ORCL) — Q3 2018 Earnings Call Transcript

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 includes a GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from our Investor Relations website. On the call today are Chairman and Chief Technology Officer, Larry Ellison; and CEOs, Safra Catz and Mark Hurd. As a reminder, today’s discussion will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. Throughout today’s discussion, we will present some important factors relating to our business that 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. 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 rate. Finally, we are not obligating ourselves to revisit 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 one-time net charge totaling $6.9 billion related to the 2017 Tax Cuts and Jobs Act. This is clearly a onetime event, so for the use of comparison, we have excluded it from our non-GAAP calculation. Now back to the quarter. Total cloud and software revenue was $8 billion, up 7% and up 3% in constant currency. Inside of cloud and software revenue, GAAP total revenue for application, which is new licenses, license updates including support and SaaS was $2.7 billion, up 9% or 6% in constant currency, and GAAP total revenues for platform and infrastructure, which is new licenses, license update, including support and PaaS and IaaS was $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 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% PaaS 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 rate 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 and 9% in U.S. dollars. The operating margin was 44%, which was up from 43% last year. There were a couple of one-time ins and outs in the expenses impacting this, but basically the operating margin has now increased year-over-year for the sixth consecutive quarter. And while I can’t promise this will happen every quarter, I do expect that operating margin 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 one-time benefits. The GAAP tax rate was 222%, reflecting the $6.9 billion tax charge related to the new tax law. Non-GAAP earnings per share was $0.83, up 20% in USD and up 15% in constant currency. The GAAP loss per share was $0.98, driven by the one-time charges related to the new tax law. Operating cash flow over the last four quarters was $15.2 billion, up 13% in U.S dollars and free cash flow over the last four quarters was $13.3 billion, also up 13% in U.S. dollars. Capital expenditures for the quarter were $286 million, and we expect that cloud CapEx spending will continue to be driven by our ARR. Should we see higher than expected ARR growth, we’d expect to see higher CapEx as 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, and 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 repurchased $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 prior exchange rates, currency could be as much as 3% positive on total revenue and $0.03 positive on earnings per share. For Q4, cloud revenues including SaaS, PaaS and IaaS are expected to grow 19% to 23% in USD and 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 one-time tax events that will cause our actual tax rates to vary from our base rate, but I expect the normalization for these one-time tax events 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; Eastern Line Technologies, Fusion ERP; Master Lock; MTM Group; William Morison Supermarket, all Fusion ERP; and HCM Arthur Gallagher; City of Memphis, again Dubai Ports; Grant Thornton; Henkel's McCoy; Marina Healthcare, also MTN brought HCM; National Oilwell Varco; Principle Financial Group; First Group; also William Morrison Supermarkets; and a really large U.S. bank that bought HCM from us, which is one of the largest HCM transactions in ARRs that we have ever received. With that, a couple of comments on a quarter. Safra mentioned our revenue numbers up 6% with software and cloud revenue year-to-date, up 8% and operating income up 10% and EPS up 16%, up 20% in Q2. We talked a little bit about our ecosystem. Our app ecosystem year-to-date is up 12%; we 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. SaaS bookings 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 was up 24%, now over $4.6 billion run rate, ERP was 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, verticals up 20%. Now we move to tech. By the way, on the verticals, I want to mention the 20% growth is compared up 110% last year. On our technical system, year-to-date, our technology ecosystem is up at 6% with the database ecosystem also up at roughly 6%. 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 in our pipeline, this will only strengthen our technology ecosystem growth. As the infrastructure revenues are up 28%, with our NexGen PaaS infrastructure business growing 56%, and we’re already over $1.1 billion annualized run rate. A few highlights: Oracle clouds, which include database and service, are up 34%; public cloud infrastructure was actually up 142%; storage infrastructure up 82%; compute infrastructure up 121%; network infrastructure up 181%. Cloud revenue of 25% growth now at $6.3 billion annual run rate and 80% of our trailing 12 months software and cloud revenue are 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 at 60% 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 of assets 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 costs by minimizing 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.

I had a question around IaaS, PaaS. You saw an acceleration of growth which is greater. And Mark, you talked in February when we discussed bring your own license as a factor that we need to consider. Can you talk a little bit about the momentum you saw around IaaS, PaaS, and bring your own licenses this quarter? Thank you.

Raimo, it’s why I continue to try to focus here on the ecosystem number. I mean I think again, without autonomous database being generally available at this point, as Larry mentioned a bit in his comments, we grew the tech ecosystem by 6% and it shows up in different categories. It shows up in licenses, and again, licenses today are not really on-prem; licensees are now currency that you can use in the cloud or you can use it on-prem, so licenses are now able to be used both ways. We’ve seen strong database momentum in the context of being able to license and use in the cloud or on-prem. By the way, we continue to see support grow in database at the same time. You saw, as I mentioned in my comments, growth in databases of service simultaneously 34% at all of the core next-gen infrastructure categories grew in excess of 100%. Storage is actually up 82%, but compute is up 121%. We saw good momentum. Again, the key for us is that all tech ecosystem growth, and I think with the autonomous database as we get GA and build references, it’s going to do nothing but get better.

Safra, I am looking at your SaaS guidance. Clearly, the business seems to be moderating into the 28%-ish type growth here. At this point, how do we get the margin leverage that you’ve always talked about heading to 80%? It seems like on a year-over-year basis, you're showing an improvement, but from 60%, 70% to 80%, and what looks to be perhaps — and I’m not putting words in your mouth — and it’s basically your. So this seems like a pretty big leap. I’m just curious to get your thoughts on how the company manages to accomplish that goal? Thank you, and that’s it for me.

In running our SaaS business, it’s really now getting to a scale, and we’re able to use the number of new technologies that we’re rolling out through the business that is giving us a lot more capacity. Before, we had to invest more for the same amount of users than we do now, and we’ve got quite a lot of capacity improvement. 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 install base. I don’t know if anybody else wants to add to that...

For example, as we fully deployed database multi-tenancy in our SaaS, let’s say we double our capacity without spending one penny on hardware. We can help twice as many customers, twice as many transactions, twice as many users without spending one dollar. So those are technologies we can add that allow us to dramatically improve our SaaS market.

It’s a straight math, so at our current SaaS business, and you now play out, we’re spending $1.3 billion roughly speaking expense when you reverse engineer the gross margin. To Safra’s point, we’re just simply not having the dialog right now, dialog in the context of more expense. So if you just sell forward our bookings, you put $1 billion of revenue on the top, you’re roughly at that number.

And Mark, I think you just said that only 15% of apps customers moved to the cloud; the other 85% is ahead of you. Couldn’t the company grow again faster than SaaS, given that you have a significant option, and you had a few investments in it? Thank you.

And to clarify, first thing you understand that that 15% have started; this is not 15% have moved all of their apps to the cloud; they just started, so there’s a ton of room here.

There's a lot wrapped into that quote that I put out there. Let me try to unpack it a little bit. If you looked at core, meaning I have core e-business suite solutions, and I replaced it with a cloud financials SaaS application. That percent of our user base that has moved is below single digits. The less than 15% number we put out is the percent of our user base that has some cloud applications that they are now using. The percent of our user base that is in our pipeline now is getting to be fairly extensive; it’s multiple 10% of our user base. When we convert AI and traditional on-premise applications to SaaS, we typically get 3 times the revenue. The bulk of our bookings, the bulk of our revenue today is not from our user base. Additionally, 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. The ability to accelerate that growth rate, and how we have not given this number of what we could do by taking market share and all of the above, which we truly believe we are and we’ll continue to do by just moving the user base does turn us into a very, very large SaaS business, and to your point, that greatly accelerates our growth rate.

I would like to add one thing to that, that we have some very high growth rate SaaS businesses like ERP and HCM, and we have some that we developed organically, and we have some slower growth rate SaaS businesses that we've acquired many years ago. As the mix changes, you see all the growth coming from Fusion ERP, Fusion HCM, NetSuite. It's also we expect after the quarter, this quarter — a great part of this quarter. You see this shift to the higher growth rate SaaS services, I expect as our mix changes; Fusion ERP, Fusion HCM, and that's where it became a larger percentage of the total; again to growth mark, the math just says the growth rate should accelerate because of the mix change. I also think that's very important. The renewal rates are much higher in the high growth SaaS services. So Fusion ERP, Fusion HCM, and NetSuite have much higher renewal rates than we have in some of the older acquired SaaS products. The combination of faster sales and higher renewal rates should dramatically increase our growth rate in our SaaS business. So you raised a simple question and you got a lot of guys in there.

Analytical answer from Larry, thank you.

It's important to note that we don't have a SaaS business growing at the reported rate. We have acquired businesses growing in the low single digits that we've held for some time; Fusion is seeing growth in the mid-60s and has the potential for even higher growth. NetSuite, which we acquired, is experiencing growth in the mid to high-teens, and as Larry mentioned, we expect to see the numbers increase at a faster pace. The vertical businesses are growing at roughly 20 percent.

As you see Fusion becoming a larger and larger percentage of our total SaaS business, the change in mix means right now you would certainly have a very large Fusion SaaS business growing at a high rate than those slower growing acquired businesses. The reacceleration again to growth Mark is just a matter of amount.

My question relates to the BYOL, and I'm trying to understand it better. Mark, from our field research, customers really value the flexibility offered by BYOL. It's quite unique, and other vendors are feeling pressured to adopt it because you're doing it. When I look at your results and see that cloud revenue has been moderating sharply over the past few quarters, I appreciate the ecosystem concept you discussed; it makes sense that BYOL could be a factor in that. However, I'm trying to understand the situation better because it appears quite aggressive. I'm also receiving inquiries about this. Is this the main issue, or does it relate to the large figures? I'm uncertain if we will see the acceleration you mentioned previously. When thinking of that entire ecosystem, is that something you believe will start to materialize in the near future?

Well that was about 20 questions. So I'm going to try to do my best to unpack it. I guess 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 the tack answer, and Larry is going to want to chime in on this as well. The concept around BYOLs; we don’t want our customers to pay twice. They get the opportunity to buy our license; they can bring that license with them to the cloud, and they can bring, for example, a database license to the cloud, and I'll take advantage of that by the appropriate infrastructure compute, storage; maybe with that, some automation. If the customers choose to buy that way, that will improve our license business in the way it's reported, and it may have an effect on our cloud business and tech. This is 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 the autonomous database to the market now. That's going to go through its phases to bring the market. I told you this, John, over the past several quarters, our tech ecosystem without the autonomous database has been taking a little bit of share. I think the autonomous database is the most important thing we've announced in years. I don’t want to be sarcastic because I don’t want to be misquoted; it will accelerate our tech ecosystem growth.

We have been concentrating on the total revenue from new licenses and new software, which encompasses both license and cloud revenues. There have been some fluctuations recently, with some areas performing better than others over the past few quarters. Could you summarize your insights from the previous questions? Specifically, what do you anticipate regarding the growth balance between licenses and cloud moving forward? Is it possible for license growth to approach breakeven? Additionally, regarding the stock buyback that you initiated this quarter, which we appreciate, could you share what we should expect in terms of share count going forward? Is this the new standard for the level of buybacks? Thank you.

I don't typically reveal in advance how much I plan to buy back. We executed $4 billion in buybacks this quarter, which I believe is a reasonable amount. I'm not entirely sure what else to say since I usually don’t provide guidance on buybacks. I don’t anticipate that it will be higher than this in the next quarter.

And then the question about license mix versus cloud?

There is no doubt that bringing your own license to the cloud encourages customers to continue purchasing licenses. It has led to an increase in database license purchases and the acquisition of database options like multi-tenancy and real applications clustering. Our customers appreciate that once they invest in a license, they can deploy it either on-premise or in the cloud. Historically, our license business was viewed as traditional on-premise, but that’s no longer the case. More and more, our licenses are being deployed in the cloud. In fact, they are not just used in our cloud but also in the Salesforce, SAP, Microsoft, and Amazon clouds. Our license business is evolving and is not tied to legacy systems; these licenses are increasingly being utilized in modern cloud environments, including those of our competitors.

I understand that everyone wants to analyze every single number in detail, which is why I've tried to redirect your attention to our overall ecosystem. So far this year, our software business has grown by 8%. This growth is reflected in both our license and cloud segments. We have identified several drivers during this call, including the autonomous database, which impacts both license and cloud. It allows for flexibility since I can purchase a license and utilize it in the cloud, making it applicable to both areas. Emphasizing the growth of the entire ecosystem is crucial. As for our applications, we discussed our user base and our strategy for migrating to it. This will likely result in a decrease in apps support revenue while increasing SaaS revenue. All these changes will occur simultaneously. I want to reiterate that trying to micromanage every detail might not be the best approach to understand the company, as we have various factors contributing to our overall software growth. Some of this growth will come from the cloud while other parts will stem from licenses, but we are committed to gaining market share in both segments of our ecosystem.

Mark, I know you don’t want us to micromanage and fix data on license revenue, but you guys were seeing this segment shrink 10% to 15% over the last couple of years in '16, 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? Again, not trying to micromanage it, but there's a big debate of how much of it is just 12cR2 benefits and therefore maybe more one-time 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. Quite frankly, people are just trying to get a sense of how they think about growth in license as a result of all that over the course of the next year?

I believe the answer is yes. At the heart of it, as we discussed earlier, the bring your own license model gives customers the ability to commit to a technology without worrying about how much they need to purchase. They now have a currency they can bring to any resource in any quantity they desire. This provides ultimate flexibility, which is exactly what customers want. The BYOL model has relieved a lot of concerns for our customers. Additionally, moving to universal credits offers them the chance to make cloud decisions and apply those credits across different cloud services. We have created a very customer-friendly environment for acquiring our products, which is positively impacting the market.

Let me try to be clear about this as I could be. With BYOL, when someone brings their database to the cloud, some of that revenue goes into license and some of that revenue goes into cloud. Without BYOL, as we didn't have BYOL, and an Oracle customer went to the cloud, when 100% of revenue goes to the cloud. There’s no question BYOL has lowered our cloud revenue and increased our license revenue.

On autonomous database cloud, Larry or Mark perhaps can you talk about the impact that it would have on converting economics from on-prem, because it would seem I have to imagine you’re going to get better multiples than the 3x that you've talked about in the past as you generally get with regular database as a service?

The remarkable aspect of the autonomous database is that it is the only database globally that requires no human intervention to manage. There are no database administrators tuning the system, applying security patches, or handling backups and recovery; it's all automated. The main expense of operating a database stems from human labor, not from purchasing software, cloud services, or hardware; it’s the labor costs that we essentially eliminate. This presents significant value in removing the need for human labor. Additionally, beyond cost savings, as mentioned earlier, eliminating human labor also reduces human error, leading to a much more secure system, where no one forgets to apply necessary patches. This prevents situations where the CEO might be held accountable when a security lapse occurs, as the process is automated. The result is a far more secure and reliable system, allowing us to offer lower prices because human labor is expensive, and we've automated those tasks. We believe this new autonomous database is one of the most significant advancements Oracle has made in data management. We currently hold the position as the top data management company globally and have for some time. We anticipate that many of our customers will transition to the autonomous database. Migrating from an on-premise database to an autonomous database involves merely pressing one button, as there's no need to set up indexes or retune the system; your data seamlessly transfers from on-premise to our cloud-based autonomous database, which runs on high-performance infrastructure that ensures similar speeds to Exadata on-premise or is even ten times faster if not using Exadata. Our database operates several times faster than Amazon's. Notably, both Oracle and Amazon charge by the minute, and while our pricing is comparable, with our database being ten times faster, we effectively offer a cost that is one-tenth that of Amazon’s database.

This is very important. We’ve been all the public benchmarks are; you can go and 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 to 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.

Safra or Mark, software support with constant currency has been growing 2%, 3% year-over-year in the recent quarters, but only at 1% this quarter constant currency. Are you seeing increased cannibalization of the on-prem 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. If you’re asking if our cancellation rates were way up, they are not. In technology, especially with BYOL, there’s absolutely no reason in some cases for customers to cloud in the apps business. You will see cancellations; they are not that large in the overall base. The overall cancellations for the company are actually the same; they’ve moved at all. All you’re seeing for the quarter is seasonality. I don’t know if Mark wants to add anything...

Everything she said is right; I’d say nothing other than to say it’s a little bit of two different stories. In database support, database support is growing; I just want to make sure it’s growing materially; it’s not growing 1%; it’s growing more than 1%. Apps support decline; apps support decline is actually, in our case, the bulk of our apps support is ERP; that is the bulk of our application support. We want to migrate that to SaaS. Overtime, I have no issue if ERP cancellations go up as we migrate those customers I talked about earlier. The impact of BYOL will very likely continue growth in the tech support part of our business, and the applications now that I described is very much a byproduct of the migration of our support through to SaaS. Does that help?

Just a quick follow-up. Is it the seasonality then so that Q3 is going to be weaker effectively and other quarters are better? Is that the way we should think about models? Can you give more detail?

The renewal period is when we expect to see a return. Comparing a full year to just one quarter, you'll notice the recovery as Mark mentioned regarding the tech side. It's important to note that part of this relates to first-year support. Since we're selling fewer app licenses, there's less first-year support tied to those licenses. The number of licenses is slightly lower; cancellation rates remain constant, and we have some customers transitioning on the app side. Overall, we are still experiencing growth.

Let me quickly clarify the applications business. When someone transitions from the e-business suite to Fusion ERP, they cease to pay for support, leading to a reduction in support revenue, while 100% of Fusion ERP revenue is recognized in the cloud. This contrasts with our tech business, where if a customer has an Oracle license or purchases an additional one and moves it to the cloud, our license revenue remains the same or increases. Part of the revenue generated from the autonomous database in the cloud is recognized as both license and support business, while another portion is accounted for as cloud revenue. Thus, these two business segments function quite differently. Our applications business involves migrating customers from older applications to a newer generation. We are transitioning from e-business suites to Fusion ERP, which represents a different product, where one operates on-premise and the other operates in the cloud. In our tech business, the situation is distinct; the Oracle database can operate both on-premise and in the cloud without any expected decline. As Mark mentioned, we anticipate that our license business, specifically for the database, will continue to grow even as customers move these databases to the cloud.

Yes, net-net tech really accelerates completely unchanged.

Mark, when you look at the opportunities front in the ERP market, we've absolutely seen an inflection demand in CRM, I would say, HCM 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? Can you just discuss maybe why and if we do see that, how do you see the competitive environment shaping up? Thanks.

In ERP, we are the leading vendor in the world, and it’s hard for me to find the number two company. 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. Our user base, as we’ve tried to talk about today, has only begun to move. Just to the earlier question, imagine what happens to our application revenue when we multiply 3 to 1; actually, our revenue doubles, our support revenue doubles, support revenue gets three times 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.

We are increasing our market share from other companies. I want to clarify that their SaaS revenues are largely dependent on their user base. I previously mentioned that one factor driving our SaaS revenue is upgrading our existing customers to the latest version of ERP, which is SaaS. I genuinely believe the potential is significantly greater than that. A large segment of the ERP market is not held by SAP; in fact, most of the market doesn't belong to Oracle or SAP either; it falls under a category called others. As these others look to transition to SaaS, we are in an excellent position globally to facilitate that shift. Transforming our user base has significant implications for our applications ecosystem. If we continue to gain market share simultaneously, it presents a very exciting opportunity for us. This is why we discuss it frequently.

Thanks, Mark. A telephonic replay of this conference call will be available for 24 hours. Dial-in information can be found in the press release issued earlier today. Please call the Investor Relations department for any follow-up questions from this call. We look forward to speaking with you. Thank you for joining us today. With that, I’ll now turn the call back to Holly for closing.