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Oracle Corporation (NYSE:ORCL)

Q4 2014 Earnings Conference Call

June 19, 2014 05:00 PM ET

Executives

Ken Bond - VP of Investor Relations

Larry Ellison - CEO

Safra Catz - President and CFO

Mark Hurd - President

Analysts

Brent Thill - UBS

Karl Keirstead - Deutsche Bank

Walter Pritchard - Citi

Kash Rangan - Bank of America/Merrill Lynch

Jason Maynard - Wells Fargo

Richard Sherlund - Nomura

Heather Bellini - Goldman Sachs

Joel Fishbein - BMO Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to today's Oracle Corporation quarterly conference call. Today's conference is being recorded. And now I'd like to introduce Ken Bond, Vice President of Investor Relations, Oracle. Please go ahead, Mr. Bond.

Ken Bond

Thank you, Chelsea. Good afternoon, everyone, and 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 Web site.

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 10-K 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 revisions to these forward-looking statements in light of new information or future events.

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

Safra Catz

Thanks, Ken, and good afternoon, everyone. As you can see, we've made some significant changes in our financial reporting and in our guidance to match our company's fundamental transition. We're now firmly into the transition to the cloud and 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 some on the phase 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. Well, 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 reporting 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 some new software license SaaS and PaaS, IaaS and software license update 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 details, 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 we'll point out GAAP numbers or U.S. dollar growth rate 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 U.S. 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 U.S. dollar. Software supported cash and renewal rate 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 U.S. dollars. With our new presentation, you can see that our on-premise based software business, which is new software license and software license update 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 revenues 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 represent 1/3rd of hardware product sales. In addition, we saw very strong growth in NAS storage in the quarter.

Hardware product gross margins were 49%, down about two points from last year as we continue to put more value in our products without raising prices that's grabbing significant market share as all our major competitors shrink. Keep in mind that as we've increased hardware supported tax rates, hardware support margin has steadily improved and total hardware systems margin are unchanged from last year at 66%.

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 U.S. dollars, operating margin was 51%, same as last year. Unlike new software license transactions where we've recognized the revenue upfront, we've recognized 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 than 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 product 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 excluded 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 a 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 to 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 a 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 margins 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 many computer database to a complete suite of products, client server to Internet, commodity hardware to engineer systems and now on-premise to cloud. We're 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 $0.12 per share between dividend and buyback. This year we returned nearly $12 billion or more than 80% of our free cash flow 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 U.S. 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 U.S. dollars, 24% to 34% in constant currency. SaaS and PaaS on a GAAP basis is expected to grow 27% to 37% in U.S. dollars, 26% to 36% in constant currency.

Next, another one at the line, cloud IaaS on a GAAP and non-GAAP basis is expected to grow 10% to 20% in U.S. 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 system support is expected to be between negative one and positive three or negative two to positive two in constant currency.

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

Non-GAAP EPS is expected to be somewhere between $0.62 and $0.66 in U.S. dollars, $0.61 and $0.65 in constant currency. GAAP EPS is expected to be somewhere between $0.49 and $0.53 in U.S. 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.

Larry Ellison

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 are already number two in overall SaaS subscription sale. In FY '15 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.

Walking you through some of the details of highlights regarding our cloud wins and our great Q4 quarter in the cloud - let me just actually start with hardware a little bit. We’re now roughly in the middle of transition in our hardware business, engineered systems strategy are now a significant part of our hardware, we’ve grown hardware for the second quarter in a row. The change in mix away from commodity hardware to high-value engineered systems that transform 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 10,000 engineered system in Q1; we’re at the scale. Our hardware support margins are now approaching to 70% and this business is sticky. SPARC super cluster 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 are in the middle of the transition.

Now, I will talk about cloud. We are actually just starting this transition. We are the only company that has a whole suite of cloud applications. We are salesforce.com's primary competitor, Workday's primary competitor. And in the cloud we’re many times the size of Workday, we’re bigger than SAP, and we are going to pass Salesforce in cloud.

Let me run a few facts about our cloud. As industry analysts build their waves and quadrants they name 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 was 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 are adding customers at four to five 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 are the clear number one in marketing automation with bookings growth of 200% this quarter.

In sales force 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 customers go lives just this quarter with hundreds already live. We are 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 are already number one or number two in every SaaS category and we won't stop until we are number one in every category. Just like hardware where we focused in engineered systems in software we are focused on the cloud. We are executing, we are winning and we are going to be number one. And with that I'll turn it over for questions.

Ken Bond

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

Question-and-Answer Session

Operator

(Operator Instructions) We will go first to Brent Thill with UBS.

Brent Thill – UBS

Thanks, good afternoon. Safra, just on the revenue recognition changes, I'm just curious if you could walk through why now, and I think you stated in the press release that you're seeing a shift to ratable revenue recognition versus upfront, 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?

Safra Catz

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 upfront. We haven't changed any of our actual accounting. What 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 upfront.

So we haven't actually changed any of our accounting, it's just that with our focus on cloud and the fact that we are selling more cloud, we recognize that ratably over time as appropriate on that contract, and so a bigger piece of software and what we use to call software and cloud subscription -- new software license and cloud subscription, a larger piece of it is recognized over time. Did you understand me or should I try that again?

Brent Thill – UBS

No, that's great. I guess just from a go-to-market maybe, Mark, just that process of putting that in place. How long does that take to get the sales aligned to that process?

Mark Hurd

Well, -- can you hear me okay now? I just want to make sure; I'm at a different microphone. But when you hire a sales person who is selling cloud, they are really selling ARR, which is Annual Recurring Revenue. Roughly speaking, ARR is a third of a license. It's not precisely right. It differs a little bit by solution, but it roughly right.

So therefore we take roughly three years for somebody to get to the same productivity of what you'd think of in the license model. So that's probably the timeframe you should be thinking of, and it's Larry.

Larry Ellison

Okay. There are two things. There is the rate in which -- This is Larry. The 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 upfront. 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 they sell a subscription. They get paid the same amount in either case. So the sales force has -- there is 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 is no transition time, it's zero. What is different and what Safra was explaining is that we 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 breakeven –- 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 three, four or five, 10, 15, 20 years, so we make a lot more money on a subscription, but we recognize the money over time. So as we make the transition to selling more cloud software services as opposed to upfront licenses, we will 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 will make more money doing that over time.

But during the transition selling those cloud subscriptions what would have been a license is now recognized over time. So we are 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 compete against this whole new array of competitors like Salesforce and Workday versus the previous generation of competitors like SAP and IBM.

Brent Thill – UBS

Very clear, thank you.

Operator

We will move on to Karl Keirstead with Deutsche Bank.

Karl Keirstead - 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 '14. I just wanted to ask you if you look forward to fiscal '15, 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 '15? Thank you.

Safra Catz

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 like voraciously successful with cloud in the next year or so such that a lot of revenue comes in this cloud even though I don't recognize it upfront. 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, I think we've got it very, very well balanced and I actually expect our operating margins to improve because we 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?

Mark Hurd

No. I think well, Safra says it right. We have gone through a sizable build up based on the strategy that we 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 that Larry talked about pretty exciting opportunity for us in PaaS, the last 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 have seen over the past two or three years.

Safra Catz

And this could be outweighed by revenue growth and this could be outweighed by revenue growth as well as profitability improvements in the rest of business.

Mark Hurd

It is a reasonable to point to bring up because it sort of relates to that first question that came up that as our sales force now becomes more productive particularly when you see cloud booking. Larry gave you a very important statement about some thoughts about cloud bookings in 2015. As those numbers turned from bookings into revenue, that turns into a very attractive model as it relates to your first question about our operating margins.

Karl Keirstead - Deutsche Bank

Got it, very helpful.

Operator

Walter Pritchard with Citi has the next question.

Walter Pritchard – Citi

Hi, Safra. I am wondering if you could talk about -- you gave guidance for license three months ago and you were towards to the low end of that. I wonder if you could help people understand what the source of the deviation was there. You did talk about you are seeing more demand show up in SaaS. Was the total sort of volume or demand you saw from the software perspective SaaS and traditional on-prem license in line of what you expect at the midpoint or is at the low end? Just trying to calibrate versus what you got given all of the moving pieces.

Safra Catz

I think we are doing better in cloud than we expected that has become extremely, extremely popular and as a result we have rest of the growth in new license, we have a lot more in cloud but obviously I am not recognizing all that cloud upfront. In fact some of it especially stepped this actually booked in Q4 is not recognized at all and so it shows up later as you will see we are on 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, you know the customer's alternative of course would have been to buy a license. And so that's what we are doing. I am actually thrilled that we are where we are in new license considering how much cloud growth we've got.

Walter Pritchard – Citi

Great, thank you.

Operator

Our next question will come from Kash Rangan with Bank of America/Merrill Lynch.

Kash Rangan - Bank of America/Merrill Lynch

Hi; one observation and 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 applications 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 stay 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 multi-tenant 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.

Safra Catz

Actually, it's a good question. I am going to get Mark and Larry talk about the new products in the database. But actually what went down in this quarter was a incredibly difficult compare in technology over Q4 last year actually. So I am 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.

Mark Hurd

In 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 standardize for the next 10 years, actually more precise in the next nine 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.

Safra Catz

With that our new products, Larry, just did launch last week.

Larry Ellison

Yes. In term of 12C clearly the 12C is brand new. We think the multi-tenant option and the in memory option are very, very attractive especially to cloud companies. Most of the cloud companies are based on the Oracle database. We are, for example, this last Q4 we did a huge -- a big deal with SAP was success factors is based entirely on Oracle. 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 net suite at abate. But virtually everybody with the exception of Workdays based on the Oracle database. And we think these two features the in-memory feature and the multi-tenant 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.

Mark Hurd

Okay. Just a little bit of color for you on the database number. First, database to Larry's point was a tough compare in the U.S., but in Europe we grew double-digits. So we had very strong database growth in Europe and so really was that one compare that Larry has described. Middleware had growth in the quarter as well which was good to see. And of course as Safra mentioned our apps business, I mean sort of enjoyed the benefit the other way, about 6% growth in apps and just to get context Kash, I want to emphasize that we had 6% growth in apps license. Sometimes we have on premise at the same time as we had the bookings growth that I referenced which was [37%] (ph) for the year in cloud bookings and it becomes so popular here. So we actually got both benefits in the quarter, so a strong quarter for us.

Operator

Moving on to Jason Maynard with Wells Fargo.

Jason Maynard - Wells Fargo

Hey, good afternoon, guys. I actually have a couple of 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 breakdown adoption by region because the U.S. look like it was a little slower compared to EMEA and I am trying to figure out if that's a reflection of perhaps greater cloud growth or adoption in the U.S. relative to Europe and on premise licensing. Thanks.

Larry Ellison

I think we are recognized clearly as the leader in marketing and of course our marketing suite Gartner recognizes that as the leader in marketing in the cloud, we are the upper right hand company. And we had great growth in marketing and we are getting traction both in B to C, and B to B end marketing doing very, very well. HCM, kind of across board we are doing extremely well from core HCM to recruiting in talent. We've just been very, very successful in HCM. Its early days in ERP, however, Q4 was a great ERP, Fusion ERP. And this is all the stuff that we built. This is all Fusion, it took us eight, nine, ten years, whatever you want, although I didn't logged on to build on next generation cloud products, Fusion ERP, Fusion HCM, Fusion CRM. It was the top road. But we are beginning to get really serious traction especially in North America for ERP.

Our HCM products are doing extremely well in North America. We were head-to-head against Workday. And we are running the table in EMEA and HCM. We really are the dominant supplier in the cloud in EMEA. In terms of the adoption rates, I mean obviously cloud is much slower to be adopted in Asia-Pac. I'll turn it over to Mark.

Mark Hurd

I think, Jason, a couple of points. One, HCM, I think we are doing really well. I mean I know nobody loves it when I read all names, but to be very blunt, our wins in the quarter were significant, just a couple, Cox Enterprises, ITEN, Fair Isaac, National Instruments, Vivendi, 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 were actually going up against a strongest HCM compare last year that we've seen, but it was very, very impressive. So 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, ITEN, Lexmark, Panasonic, Thomson Reuters, Time Warner Cable, Ricoh, I mean these are quality names that have adopted the Oracle marketing. And I could go on across all these areas. So as I described in my prepared comments that maybe you couldn't hear, when you look at these Gartner waves or Gartner Quadrant (indiscernible) 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. And your question about regions, I think you're taking the long conclusion out of Europe versus United States. Our U.S. 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 maybe stronger, but the adoption is slower relative to what we've seen in the U.S. Europe has done fantastic. Let me take nothing away from Europe. But where you're really seeing them done a great job up is winning what's available in the European market, and they've done a great job in our traditional business at the same time.

Operator

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

Richard Sherlund - Nomura

Thank you. I just want to follow-up on 12c. Larry, would you envision what the capabilities of 12c that your SaaS partners that use Oracle will re-architect their products to support multi-tenancy at the database level and take advantage in memory capabilities as well to advance the apps offered on top of 12c?

Larry Ellison

Well, if you've already put multi-tenancy, let me answer your re-architecture question, what the 12c database does, the multi-tenant feature takes an existing application that doesn't have multi-tenancy build into it at the application layer and make those existing applications all multi-tenant.

So there are a lot of companies that want to get to the cloud. I mean I'm going just take out of thin air Cerner, who really don't have multi-tenant products, but would like to get to the cloud. They'd be a perfect example of the company who runs on top or Oracle that would like to get to the cloud where the Oracle multi-tenant database gives them fast track to the cloud, and fast track of -- very fast big data analytics with our in-memory options. So those two things I think will be instrumental get us moving our huge ISD community for the cloud on top of our platform. We think that's a gigantic opportunity, and let me emphasize, Salesforce is really two businesses, Salesforce.com; they're leader in the cloud. They have two businesses. They have got there Salesforce automation business, which is most of their application business. And then they have got what they now call Salesforce 1, which is their platform business.

Our platform business is made up of the Oracle database with multi-tenants, in-memory and the world's most popular programming language, Java. We have virtually every ISD 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 enabled that. Our platform is just coming out this fall. This is a net new business for us going forward, moving all these ISDs 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. We're growing much faster.

So this year, 50% bookings I mentioned before, we're seeing 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 ISD community to cloud with 12c. We think that's a gigantic opportunity. And it's going to help us grow our Saas Paas business and make us number one in both categories.

Richard Sherlund - Nomura

Is the in-memory piece as important as the multi-tenancy?

Larry Ellison

Well, it's different pieces, right? I mean the multi-tenancy piece basically let you get to the cloud period with multi-tenancy. And the in-memory piece allows you to offer big data analytics. And what you're asking me, which is more important, big data analytics or multi-tenancy in the cloud, I think they're both crucial to modern computing. These are two of the biggest, 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, I mean they're number one and number two in the conversation about technology these days in all of the meeting I've been.

Operator

Heather Bellini with Goldman Sachs has the next question.

Heather Bellini - Goldman Sachs

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 U.S. with the Salesforce.com deal in the Americas, was there anything else impacting growth in the region, in the quarter and on the flipside, 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 that you can highlight?

Safra Catz

Why don't you take the question first? And then I'll move in.

Mark Hurd

In the U.S., 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 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 had a sales capacity really three and a half 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 success as 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 timeframe. So I think our team there has just executed marvelously.

Safra Catz

Heather, on your margin question, as you can see in the numbers and they basically speak for themselves. We've been doing this buildup and investment all within our profitability envelope. You can look at our cash flow statements. You can see our capital investments. We're incredibly advantaged because we make virtually absolutely everything in the cloud that we need, whether it's the hardware, engineered system, 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 are not even at scale in cloud. So imagine at scale what's going to happen here, and as these new bookings which in this heavy growth period actually start to rain back as revenue, we're 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.

Mark Hurd

Let me just add …

Heather Bellini - Goldman Sachs

Thank you.

Larry Ellison

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.

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 of 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're our supply chain. So we buy electricity in buildings; everything else we make. And we think we can deliver the cloud services without compromising our margins whatsoever.

Heather Bellini - Goldman Sachs

Thank you.

Operator

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

Joel Fishbein - BMO Capital Markets

Hi. Mark, I might have missed this, but I just wanted to get some more color on the integrated systems. It looks like the business was a little weaker than we have expected -- I'd love to get some color around that. I might have missed it on your opening comments.

Mark Hurd

You mean engineered systems, correct, Joel?

Joel Fishbein - BMO Capital Markets

Engineered systems, sorry, Mark.

Mark Hurd

Yeah, strong quarter, best quarter we ever had. So, just to be clear, I think I said this in Q3 that Q3 was the best you we ever had except for this Q4 that we're going to have, that we've 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 also if she didn't, we have double-digit growth in engineered systems in the quarter. So it was a record for us and very strong. We couldn't grow hardware the way we did without engineered systems having a strong quarter. So we are also excited about that.

Joel Fishbein - BMO Capital Markets

All right. Thanks a lot.

Mark Hurd

Thanks, Joel.

Operator

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

Ken Bond

Thank you, operator. Our apologies for the technical difficulty this afternoon, we understand that the webcast came through cleanly. A telephonic replay of the conference call will be available shortly. Dial-in information for that webcast replay can be found in the press release issued earlier today. Please call the Investor Relations department with any follow-up questions from this call. We look forward to speak with you soon. Thank you again for joining us. And with that, I'll turn it back to Chelsea for closing the call.

Operator

Thank you, Mr. Bond. Again, ladies and gentlemen, that does conclude our conference for today. We thank you all for your participation.

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Source: Oracle's (ORCL) CEO Larry Ellison on Q4 2014 Results - Earnings Call Transcript
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