Ken Bond - IR Safra Catz - Chief Executive Officer Mark Hurd - Chief Executive Officer Lawrence Ellison - Executive Chairman and Chief Technology Officer

Richard Sherlund - Nomura Securities Jason Maynard - Wells Fargo Kash Rangan - Bank of America Merrill Lynch Heather Bellini - Goldman Sachs John DiFucci - Jefferies & Company Brent Thill - UBS Philip Winslow - Credit Suisse Karl Keirstead - Deutsche Bank

Welcome to Oracle's Second Quarter Fiscal 2015 Earnings Call. As a reminder this call is being recorded for replay purposes. I'd like to now turn the call over to Ken Bond, Vice President of Investor Relations.

Thank you, operator. Good afternoon, everyone and welcome to Oracle's second quarter fiscal year 2015 earnings conference call. A copy of the press release and financial tables, which includes the 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 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 any other risks 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 of 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'd like to turn the call over to Safra.

Thanks Ken. I am going to focus on our non-GAAP results for Q2. I'll then review guidance for Q3, and turn the call over to Larry and Mark for their comments. Clearly we are very pleased with our results as hardware and total revenue were both above my CD guidance while total software was up at the high end. Cloud grew 47% on premise software license and support grew 6%, hardware systems grew 4% and total revenue grew 7% in constant currency. The as-reported numbers were heavily impacted by the strengthening of the US dollar in comparison to other currencies. Total revenue saw a 4% currency headwind which was double to what it was at the time of my guidance. Software and Cloud as well as hardware system saw a growth rate affected by 3%. Currencies continue to move significantly. So my comments today are generally going to reflect constant dollar growth rates. Total Cloud revenue was 590 million growing 47% with Cloud SaaS and PaaS revenue of 364 million, up 41% from last year and more than double last year's growth. The cloud bookings from several quarters is now helping drive SaaS and PaaS revenue growth. When bookings turn into revenue, depends on many factors. But as I reviewed the numbers over the last few quarter one thing is clear, the acceleration in the business bodes very well for our future. Cloud infrastructure as a service revenue was 155 million, up 62% but due in part to prior year compares being low. Overall our Cloud results were better than expected as we are clearly growing faster than sales force and were more than three times the size of Workday. Our goal remains to be bigger and grow faster in the cloud in both companies while improving our already high level of profitability. Total software revenues were 7.3 billion up 8% from last year. Software updates and product support revenues drove nearly half of total company revenue at 4.8 billion, up 9% from last year. Attach and renewal rates remain at their usual high levels as our growing install base of customers continue to power earnings and cash flow. New software license revenues were $2 billion. Looking at GAAP software and Cloud results by region, the Americas grew 8% with North America database growing double digits and very strong Cloud growth, AMEA grew 9% with Cloud growth of more than 80% and Asia Pacific grew 7% powered by Japan. Overall the hardware business including hardware support grew 4% with hardware system product revenue of 717 million and hardware support revenue of 690 million. Our engineered systems saw solid growth with particular strength in both Exalogic and big data appliance as we continue to gain share. For the company total revenue for the quarter was 9.6 billion, up 7% from last year. Non-GAAP operating income was 4.4 billion also up 7% from last year, and the operating margin was unchanged at 46%. Excluding MICROS, both hardware gross margin and operating margin expanded by more than 1% that we were able to maintain our industry leading operating margins with MICROS now part of the business while growing our Cloud business 47% is a testimony to the strength of our business model. The non-GAAP tax rate for the quarter was 24.3% that's higher than my guidance of 23% and EPS was $0.69 in US dollars. The GAAP tax rate was 23.5%, a point higher than my guidance and GAAP EPS for the quarter was $0.56 in US dollars. The higher tax rate reduced EPS for both GAAP and non-GAAP by a cent. This was a result of revenue mix by region driven primarily by foreign currency impact and a couple of other small factors. Free cash flow over the last four quarters was down very slightly at 14.5 billion as we increased CapEx spending a little bit. Just so that you get a sense of the size here, CapEx spending over the last four quarters in about $150 million higher than that same four quarters the previous year. We now have nearly 45 billion in cash and marketable securities net of debt our cash position's approximately 12 billion. As we've said before we are committed to returning value to our shareholders through technical innovation, strategic acquisition, stock repurchases, prudent use of debt and the dividends. In terms of acquisitions, we continue to focus on finding the right companies as the right valuations and both are critically important. This quarter we repurchased 52.8 million shares for a total of 2.1 billion. Over the last 12 months, we have repurchased more than 200 million shares for a total of 8.1 billion, paid out dividends of 2.1 billion for a total that is more than 70% of our free cash flow. And the Board of Directors declared a quarterly dividend of $0.12 per share. Now to the guidance. As you can imagine we feel very good about our prospects and our performance. But I have to tell you I am always keeping an eye on the situation in the macro environment especially aboard. Additionally given the unusually high volatility in exchange rates, we expect currency will affect revenue by more than 4% and EPS by $0.04 if rates stay as they did -- as they are just about now, but as we just don't know how much. I am going to provide constant currency guidance today. SaaS and PaaS on a non-GAAP basis is expected to grow 30% to 34% in constant currency. On a GAAP basis SaaS and PaaS revenue is expected to grow 31% to 35%, Cloud IaaS on a GAAP and non-GAAP basis is expected to grow 29% to 33%, software and Cloud revenue on a GAAP and non-GAAP basis including SaaS and PaaS and IaaS, new software license and software support is expected to grow between 5% to 8%. Hardware system revenue on a GAAP and non-GAAP basis which includes hardware system products and hardware system support is expected to be somewhere between negative 2 and positive 8 in constant currency. Total revenue growth on a GAAP and non-GAAP basis is expected to range from 4% to 8%. Non-GAAP EPS is expected to be somewhere between $0.69 to $0.74, again all this in constant currency. GAAP EPS is expected to be somewhere between $0.55 and $0.60. Now this guidance assumes a GAAP tax rate of 23% and a non-GAAP tax rate of 24% but this too may end up being different especially as tax rate is very heavily impacted by the mix of earnings which is impacted by currency. With that I am going to turn this over to Larry for his comments.

Thank you, Safra. As Oracle Cloud business gets bigger, our growth rate is going up. As our competitors' Cloud businesses get bigger, their growth rates are going down. This has big implication I'd like to explain. In Q2 we booked more than $170 million in new SaaS and PaaS annually recurring revenue or ARR. In other words, we sold over $170 million of new SaaS and PaaS annual subscriptions this past quarter. In Q4 of this fiscal year, we expect to sell more than $250 million of new annual SaaS and PaaS subscriptions. That means, during our next fiscal year we will sell well over $1 billion of new SaaS and PaaS annual subscriptions. What makes this particularly interesting is that next year Oracle will sell about the same total dollar amount of new SaaS and PaaS business as Cloud market leader salesforce.com. Stay tuned, it's going to be close. We are catching up to them and we are catching up very quickly. Mark, over to you.

Thank you. Okay, let me just give you a couple of numbers and a few names and then we will go to your questions. SaaS and PaaS revenue as Safra mentioned grew 41% in CD. ERP EPM revenue grew more than 80%. CX revenue grew nearly 50%. I think that company Larry mentioned salesforce.com reported 28. CX marketing automation grew 200% in revenue but we are the clear number one. Bookings grew nearly 150%. I want to say one more time it was 150%. Fusion bookings, ERP, HCM and Sales Force Automation all grew triple digits. All pillars saw booking growth in excess of 50%. We added more than 860 SaaS customers with more than 230 that subscribed to more than 1 pillar when they bought a cloud subscription from us. Nearly 650 existing customers expanded their cloud services in the quarter. In HCM we added 230 new customers, in CX more than 460 new customers, in ERP EPM 250 new customers. In one quarter we added 2.5 times Workday's entire install base. Nearly 150 of the new ERP customers did not have any Oracle ERP before they bought Cloud subscription from Oracle in the quarter. Overall Fusion has triple-digits bookings growth, triple-digit revenue growth. We had over 125 go-lives in Q2. That's SaaS. In PaaS we had a breakout quarter. We had 150 brand new PaaS customers. As many of you know, we announced PaaS at Oracle OpenWorld, the end of September. Three quarters subscribed to multiple PaaS services, the PaaS opportunity is big given the size of our install base and you might argue is big or bigger than the SaaS opportunity. Let me read you a few names from the quarter. In HR, Fidelity National Financial, Pella, Siemens, Barnes & Noble, Baylor Healthcare System, DIRECTV, Honeywell, Johnson & Johnson, Kaiser, Nokia, Northup Grumman, Societe Generale, Skanska. In sales service clouds, FlowServe, 3M, Adidas, Equifax, DIRECTV, Fiat, Tellus, United Parcel Service, Visa, Yahoo, Big server, Super Cypress Semiconductor. In marketing cloud, Bloomberg, Equifax, Fiat, Honeywell, Ricoh, Siemens, Telefonica, Visa, Emerson, Kroger, Lego Systems. In ERP EPM cloud, Odebrecht in Brazil, HJ Heinz, InBev, Lafarge, Michael Frager, and I don't have more time to read more. These are like huge list of logos that we gained in the quarter. Couple other comments, premise software grew 6% in CD. I continue to expect this business to grow nicely while our cloud continues to maintain hyper growth. Moving quickly just to mention hardware. Engineered systems bookings grew double digits. Bookings for Exalogic, SuperCluster and big data appliance, (inaudible) point all grew more than 50%. And I just want to make sure for those of you who don't listen to additional hardware companies' calls, it is clear we are taking substantive market share in hardware. And wrapping up, our cloud revenues' already at a $2 billion rate and I said at the Financial Analyst meeting our SaaS pipeline is large. Since then it's gotten bigger. We outpaced our bookings growth planned for the first half of the year and set our sights on 100% bookings growth for Q3. With that we will take your questions.

(Operator Instructions) Your first question comes from the line of Rick Sherlund with Nomura Securities.

Hey, thank you for taking the question, and good quarter. On the cloud side, I am curious as far as the new versus exiting customers, I think you got some metric there. Could you give us a sense of are you seeing a conversion from existing on-prem customers or is most of this new business that you are picking up?

Well, first let's go through it by pillar because I think that's the way you have to do it. In marketing everything is really new. We don't have a market install base. So when we give you those numbers, Rick, there really everything coming is a net new logo. Now it may be in a company that's got Oracle product but it's all net new. Most of our sales Cloud is net new. There is some Siebel conversion but as I mentioned at the Financial Analyst meeting, our Siebel install base, when you look at the sport numbers, is fairly stable. So we have a lot of net-net new even in if you will sales Cloud. We have a mix in HR both conversion and net new. And I think the important thing you saw this quarter as we talked before Rick, I think it's not just the fact that our strategy isn't the just best of breed in each of these apps, but also to have a suite of capability, and that's why I wanted to mention the multi-pillar deals that occurred in Q2 because we have customers now that are not just buying in ERP from us but they are buying ERP and HR. They are buying sales Cloud and marketing. And we also get the opportunities to go back into that install base once we've got one app, and sell a second app, a third app, a fourth app. And so it was an exiting quarter across a number of those metrics.

Rick just for me to add one thing. As Mark said you have to take a pillar by pillar, you also have to take it layer by layer in the cloud. So -- where a lot of our SaaS business are brand new logos. People who've never done business with Oracle before you would expect that in PaaS it's virtually all our install base. But the reason being almost every moderate size company in the world is already an Oracle user. So the PaaS we are selling at this install base as Mark said SaaS is a bit of a mix depending on pillar.

Yes, and Larry you are seeing customers pivoting now to PaaS and infrastructure as a service, if you could maybe spend a moment on that.

Again, I think, we are pushing very hard as PaaS as opposed to infrastructure as a service. I mean that's where our huge differentiation is, that's where we give you so much more automation in terms of database tuning and installation and backup and recovery and logging and security. So our big push is in the PaaS. We are in infrastructure as a service which is a low cost commodity business where we have the same pricing as Amazon and Google and the rest. We are in that because when our customers come, as Mark said earlier, they buy one pillar and go buy another. I can talk about layers in the Cloud, will they will buy a few SaaS applications, they will buy some PaaS and they will buy some infrastructure as a service as they want to have a unified security model and a vast network to interconnect all of these pieces.

Thank you.

Thank you Rick.

Next question please.

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

Hey, good afternoon guys. I have two questions. One I want to follow-up on the Cloud piece and then I had a question on the database. On the cloud piece Larry, you talked about a billion dollars in bookings. I just want to make sure then I am reading this correctly. That's an incremental one billion…

Yes, Jason, on the -- that's another business that we will have sold when you annualize. This is not total contract value. This is in terms of annual subscriptions rates. We will sell next fiscal year well in excess -- we expect to sell well in excess of $1 billion of new annual subscriptions.

And that's on top…

Which is about what Sales Force will be selling in their next fiscal year. I think they are 1.1 something like that best as we can estimate. And we think we have a good chance of passing them. I don't know, we could pass them or catch them or -- but it's going to be very close. We are in that ballpark. So we are selling new business at the same rate as the market leader next year which I think -- we are expecting this hyper growth. Sales Force is slowing down, we are speeding up. They are only twice as big as us. Their round numbers are 4 billion, we are 2 billion. But we are growing a lot faster, and we have a lot more products, and we have a large install base to see into. So we think again I said -- announced, just words. We said -- we think we can become number one in the Cloud. We think we will be number one in the Cloud, and we will be number one in the Cloud very quickly.

And Jason, just to add to your question, I mean most of -- all of our comments that Larry made, then I made in that effort, we are all talking about ARR, not TCV.

Right.

So there's not a multiplier on -- or average contract value is up longer than annual.

Right.

But we are talking in comparisons of ARR. IBM will announce a $1 billion deal over 10 years.

Right.

That $1 billion deal to us would be $100 million. If it was a 10-year deal, and it's evenly distributed, we would count that as $100 million of ARR.

Right.

100 million over one year. We annualize all of this stuff, how much of revenue once they are installed and running, and that there's a delay between when we book something and when we start collecting revenue because we don't collect revenue till the users are up and running and it's implemented. Okay, so there is that delay. But once they are up and running, it's an annualized number we are giving you, not a total contract value number we are giving you.

Right, I got that part. But I also want to make sure I am clear. This is incremental on top of your current $2 billion plus run rate?

Of course. And it should be a lot more than 2 billion by the way because that's next fiscal year. So we are not going to end this fiscal year still will 2 billion. That will grow. You have bookings that have been booked that have yet to be provisioned. Therefore you will have a bigger base on which those bookings will go. At the same time the bookings we get in the future will take time to provision as they go forward. So it's a layered model as you build up on the revenue Jason.

I want to ask one thing on the database business. Larry, lot of customers in the past, they have been conditioned to wait for R2 of the database to come up. This time around you guys made a major release this past summer with the N memory option. I would be curious to get your take on what you are seeing in terms of customer adoption, are we starting to see folks, hey we are going to move to this incremental dot release that came out, I think it was June-July time frame. Or some folks still waiting for R2 and what's the advice to the guidance from Oracle in terms of when customers should migrate to 12C? Thank you.

Okay, so there are two major pieces of our new database release, once as you mention is the memory option. But that's not the only driving factor where people are operating their database version. The other is metal-Tennessee, the multi-tenant option which is appropriate for the Cloud that allows them to again convert all of your existing Oracle applications and make them multi-tenant applications while preserving security and reliability, a better way than do multi-tenancy at the application layer. Anyway, we think those two features in concert are driving -- will drive a much more rapid adoption, the Oracle database over the next couple of years. So we think our database business is going to have a very strong 24 months coming up.

And Jason the options did very-very well in the quarter. So there's no question customers are extremely interested and are buying the options.

Right, great. Thank you guys. Appreciate the answers.

Your next question comes from the line of Kash Rangan with Bank of America.

Hi, happy holidays and good news from Oracle to hear that. Can you talk about the net new cloud bookings and what exactly is driving that? If you can give us color by product, is it HCM or serum, or to Larry's point, the layer. Is it the PaaS or the SaaS layer or geographies? And in particular, Larry, if you could drill into the PaaS layer and help us understand is it a net new market or could it come at the expense of the traditional database business, which maybe gets cannibalized or maybe not? Just wanted to get your thoughts on it. Thank you.

Let me -- Mark will give you a more detailed answer, but my answer is yes. It's all of the above. One other thing, we have such a broad -- if you look at our product line versus our competitors, we are Salesforce's only real competitor in sales automation. We are the leader in marketing automation. We are fighting hard to be the leader in service automation where our competitor is salesforce.com. We are Workday's only real competitor in HCM, and we think we have passed them in HCM. But you can make an argument we are both fighting our new CM. but we are killing Workday in ERP. If you conclude ERP and EPM together, it's planning, budgeting, performance management and their graphic ERP, all of that, we sold 2.5 times more customers this past quarter than they have done in the life of their company. We are the clear leader in mid-range and high end ERP with no competition from Workday. They are just not there or when they are there they are losing every time. So we are very strong in HCM, we are very strong in ERP, we are very strong -- we are the leader in ERP, we are the leader in marketing, we are the leader in EPM, we are contending for leadership in service automation and in HCM and we they guys in second place behind Salesforce in Salesforce Automation. But every place else except for that one segment, we are the leader or fighting to be the leader. So we have incredible breadth of SaaS products. Now our SaaS products are built on top of Java and the Oracle database, the platform, and companies want to make extensions to the applications. They want to link the applications to existing applications, and so on. Using our platform, makes a lot more sense than using a proprietary platform from salesforce.com. We don't think it's a fair fight. But wait, salesforce.com uses our platform to build their applications. They just can't sell our platform as a part of their service offering to their customers. So they have not license to do so. We can sell our platform, we do sell our platform. So we sell the same platform that we build on to our customers. So we've seen a huge amount of interest. But from our SaaS customers using our platform and also there's huge install base we have in the database business. Interested moving test and development and certain aspects of their database work to the Cloud, not everything, but a part of it, a bit of hybrid, and we are seeing these customers now experimenting, they're at the experiment level. But the potential for this as Mark said is probably bigger than our SaaS business and I think we are going to be by far the leading SaaS company in the Cloud. Look at our product portfolio. Kash, who wins in all of these battles? The suite vendors always beat the point solution guys. It's happened in every generation of computing where the end user, the customer, doesn't want to be the integrator of 30 separate applications from 30 separate vendors. No different now, just on the Cloud now. Same problem, they don't want to integrate a lot of different stuff. We have all the stuff pre-integrated. We think we are in a great position, we are seeing hyper growth at SaaS, we are seeing hyper growth in PaaS, we are getting bigger and our growth rates are getting higher. That's the -- unlike anyone else in the Cloud business.

Thanks, and happy holidays.

Yes, listen, add to it the products are more mature. We are on release 9 of our SaaS products. We only had -- not only our products' more mature, we have more of them. Our suite is broader. We've added sales capacity before 2.5 years ago. So realigning the sales force, adding capacity, they are trained, they are getting more training and we have references. And when you add the familiarity now of the SI community to it, you just have a lot of factors. There's no one of these factors in isolation, it's the culmination of a lot of work over a lot of period done.

Next question please.

And you next question comes from the line of Heather Bellini with Goldman Sachs.

Great, thank you. Mark, I was wondering if you could share with us, I mean, your performance this quarter, given what's going on with currency was definitely better than I think people were expecting on a constant currency basis, even. And I'm wondering how much of that due, do you think, maybe the US environment, a deal-closing environment getting a little bit better from a macro perspective? And how much of it is due to sales force efficiency improvement?

So you are saying macro versus us?

No, macro in the US, right, seems to be doing better. So how much of it is due to kind of -- is your sales force productivity improving, and that's what's driving kind of the confidence and the guidance for next quarter, and your results on a constant currency basis this quarter? Because I think versus what everyone was thinking, things look a little bit -- things are looking better.

Well I don't think anything changed from what we had been seeing for a while. The only difference is we saw it in pipeline, we saw it in proposal, and now it's turned into actual numbers and performance. So I don't think this is an event. I think this is a set of activities that have occurred over a long period of time, as I tried to reference in my previous question. I would not take some short-term improvement in the US macro and turn that into -- that's whey Oracle has great cloud bookings in Q2. I think our performance was driven by exactly the phenomena that I described. Better -- great products, more mature products, better references, lots of capacity in our sales force that's better trained that's out in the market winning deals. That's what I think drove it.

I would like to second what Mark said, is we're just further up the learning curve and everything. Our sales management team terrific. We realigned our sales force against our secular competitors. So we have an HCM sales force that goes up against Workday. We have a sales automation sales force that goes up against salesforce.com and we have a service automation sales force that goes up -- but they are different -- it goes up against salesforce.com. We have a marketing automation sales force, we have an ERP sales force, we have an EPM sales force. We have all of these specialized sales forces and we created those, actually Mark created those several years ago, and we have been hiring, staffing, and they are much more mature. We started working on some of these products. Lot of these products are -- we built them internally. We started about 10 years ago -- after 10 years of development, the Fusion applications, again Mark said we are on release 9, and they are getting really good, the user interface is getting good, we are getting -- we have a lot of good customer feedback again over a period of years. We have improved the UIs, we have improved that multi-national capability. There -- we have improved security in the Cloud, we are the leader -- I think we are the leader in application security in the Cloud. So it's just walking up the learning curve, and at some point it becomes visible to everybody. Now I think we've been -- a few quarters ago talked about the size of the pipeline, look pretty good, they are kind of stunning. But I know the next thing is it turns into bookings, the next thing it turns into revenue, the next thing is we have more revenue than anyone else in the Cloud, and I think that's the next shoe that's going to drop.

Great, thank you.

Thanks Heather.

Our next question comes from the line of John DiFucci with Jefferies & Company.

Thanks. I have a question for Safra. Safra, as you said CapEx has creeped up a little bit, it's up 26% on a trailing 12-month basis or about 150 million. Non-GAAP operating margins have really helped steady as has free cash flow. But as you transition to more Cloud based business, should we expect free cash flow to trail off a bit even if it's just temporarily?

It's all so tiny -- these amounts are so small in the scheme of what's going on. I mean -- I think it's kind of unusual that I would even call out a $150 million increase year-over-year on capital expenditure but since you guys aren't even used to it I figure let me call it out as small as it is. Obviously in the launch for PaaS and the volumes that we are expecting, we made our investments. And as we expand, we will continue, but these are really tiny numbers and are totally dwarfed by our 14 billion plus in free cash flow. I mean it's kind of -- I am not sure other companies would've even mentioned it, and you are probably asking me because other companies make these enormous announcements of spending billions and billions and you have to remember, I mentioned it at Financial Analysts Day, we control almost our entire supply chain. You see, we literally -- I mean we are very close to starting with sand, and then we have computers. I mean we make almost everything, and as a result we get everything at the best possible prices and economies of scale. We are already a very large company, so we already had huge investments over the years, and so you have a lot of capacity and again -- so I would not fret on this really small number because I am not planning on making some announcement that we are going to spend billions because we've already spent and it's just showing up little teeny bitties at a time.

Okay, thanks, that's helpful. If I could, just a quick sort of tactical follow-up and it's regards to guidance. And we can go through our own calyx of foreign exchange effects to get a reported number relative to the constant currency guidance, but generally what's the delta in growth for the top line between constant currency and reported numbers that you have?

In this past quarter that we just had?

No, actually I'm talking about guidance, yes.

No I didn't give -- listen, the rates right now compared to last year depending on which line item because it depends for us geographic distribution and all of those things. It's over 4%, in some areas it approaches 5%. I mean it's -- the number of currencies really collapsed in comparison to the dollar. So if that's what you are asking me, I think I am answering, if things stayed as they are today, it is over 4% of the impact in many of the big numbers -- of the numbers you guys follow.

Okay, great, that's helpful. Thank you.

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

Good afternoon. Safra, just on operating margins, there's been a lot of focus, if you can continue to drive steady operating margin improvement despite this transition in the cloud. I think you were clear to John that the investments are already in. But as you look at kind of the next level of operational improvement, where do you see the biggest levers? And I guess as you transition in the Cloud, as more of the business gets there, is this inherently a more profitable business from your perspective, as you get to that side?

Yes. I mean there's no question. We have done the analysis and I think I shared at least some of it with you all during Financial Analyst Day, but there is no question that at scale we continue to improve our margins dramatically taking advantage of both our economies of scale and our controls, almost our entire supply chain and really our intense automation which really ultimately results in our being very-very price competitive and allowing our customers to spend much-much less all in than they ever did and yet we get a much more significant percentage of their wallet share. So we expect as we continue to go -- I am very pleased with where margins are laid out this quarter, and as we get to volume, I actually think we are going to do better -- continue to do better.

Thank you.

Your next question comes from the line of Phil Winslow with Credit Suisse.

Hi, thanks for taking my questions. And I'd just like to echo the congratulations for this quarter. Most people have touched on a lot of the other lines of businesses so far, but I want to ask a question about hardware. You guys exceeded your guidance this quarter and guiding for growth year-over-year again next quarter. Just give us a sense for what you're seeing in that hardware line. And we finally hitting that point that you all have talked about that the stuff that you're not focused on is getting small enough and declining less that the growth areas are starting to show through, just how we should think about that would be great?

Well, I think you should think about it that we are just winning. I mean that would be the overriding thing I would take away. So you look at some of the markets we are in particularly in computers that are scaled computers, the $20,000, $25,000 and up category that you typically see from most of the research firms. We are gaining startling amounts of share. And you are talking about growth rate, gains of share that are 7, 8, 9, 10 points of share gain and if you are going to ask what the drivers are underneath it, they're what we've been talking about before. We had double-digit bookings growth in engineered systems as I described a few minutes earlier. Safra and I both mentioned a couple of products and we've had very good performance out of what's called the Oracle SuperCluster, The SPARC SuperCluster has had significant growth. We've had very good growth and a product we don't talk about much called the Oracle Database Appliance. It's had significant growth for us. And so that this whole strategy of lining hardware and software to gather is what customers want. I can make an argument to you; it's the same market trend you see in the cloud. We just do more work for the customer. We integrate the products for the customer, the customer doesn't have to do it. We optimize the software for the solution and it's delivered us strong growth. And so when you look across really every line for us we had very good performance, by the way, I should add, in storage. Storage, our network attached product, again now it's a bigger base, had very strong growth in the quarter as well. So we're quite pleased with the performance we have seen in most of our product categories across most of our geographies particularly in terms of share gains.

Great. Thanks guys, and congratulations again.

Thank you.

Thank you.

Your final question comes from the line of Karl Keirstead with Deutsche Bank.

Thank you for fitting me in. I've got a question about two growth metrics that stood out to me that exceeded my expectations, and I'd love some color. The first, and maybe this is directed to Mark. Mark, it felt like North American database in the prior few quarters ran a little bit less than expectations. And yet Safra mentioned in her comments that North American database sales were back to double-digits. And I'd love to understand what drove that. It doesn't feel like there's a big broader demand improvement, so I'd love to know how you pulled that off? It's impressive. And then for Safra, you put up 9% software support revenue growth in constant currency. That's actually the best number you've put up in a little while, and I'd love a little color on that? Thank you.

Well I think on the database question North America, Larry answered that a bit earlier talking about 12c. I mean we are into a new release. We have talked about the timeframes it would come on board. You saw a good performance in North America, frankly when you looked at database overall in CD, we grew like 5, 6 points -- I will say 6 in CD. And so again my guess would be we're gaining share. Again as you look at database overall, I know you mentioned the metric you described about database, but as I tried to go through at Financial Analyst meeting, when you look at the CAGR on a three-year basis, it is a very strong upper single digit CAGR in database. So while you talk about one quarter or another. This is not new phenomena that you see this kind of performance in database and that with 12c. Our pipeline has grown in database and I think it's reflected in the numbers that you saw in the quarter.

Thanks, and Safra, yes.

Yes, sure. I am actually looking at all the numbers and the contract base and it's been going up -- I mean it jumps around, but I have other quarters where it's very close. And remember we are selling in extremely large amount, cancellation rates are very low. Attach rates are extremely high. And all of that added together just ends up with a good number.

Right. Okay. Thanks a lot.

Thank you.

Thank you. I would now like to turn the call back over to Mr. Bond for his closing remarks. Ken Bond - IR: Thank you, operator. 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 if any follow-up questions from this call. We look forward to speaking with you again. Thank you for joining us today. With that we will close the call.

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