Ken Bond - Senior Vice President Larry Ellison - Chairman and Chief Technology Officer Safra Catz - Chief Executive Officer Mark Hurd - Chief Executive Officer

Raimo Lenschow - Barclays Capital Kirk Materne - Evercore Sarah Hindlian - Macquarie John DiFucci - Jefferies Heather Bellini - Goldman Sachs Philip Winslow - Wells Fargo Kash Rangan - Bank of America Keith Weiss - Morgan Stanley Mark Moerdler - Sanford Bernstein

Welcome to Oracle’s Fourth Quarter 2017 Earnings Conference Call. Now, I’d like to turn today’s call over to Ken Bond, Senior Vice President.

Thank you, Kimberly. Good afternoon, everyone and welcome to Oracle’s fourth quarter and fiscal year 2017 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, 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 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 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 we take questions, we will begin with a few prepared remarks. And with that, I’d like to turn the call over to Safra.

Thanks, Ken. Good afternoon, everyone. As you can see, we had a tremendous quarter in just about every way as cloud revenue, new software license and earnings were all much better than expected. The adoption by our customers of our products and services is at an all-time high. But before going into more detail about Q4, you can also see that we have made significant improvement in our financial reporting to align with how we are running the business now. The cloud has become our predominant growth vehicle. As you can see in our press release supplemental pages, we have given you tons of detail. We have given you the detail in our new presentation format and we have also provided the reporting in our old format going back through fiscal 2016 and 2017. So, you can see the numbers the new way, the old way all including history to help your transition this quarter. I will first walk you through the reporting changes, then go over to Q4 results using the new format and recap Q4 using the old format for comparability to my previous guidance. Then, I will sum up fiscal year ‘17 results using the new additional detail before moving on to my guidance for Q1. So, please be patient as I am going to be giving you a lot in numbers today. But as I said, it’s all in the press release tables that are on file. So, you don’t have to catch every number. After all that, I will turn the call over to Larry and Mark for their comments. In making these reporting changes, we are now reporting SaaS revenue separately as our tremendous growth resulted in SaaS revenue crossing the $1 billion a quarter threshold in Q4, having grown 76% in constant currency. We have also combined platform and Infrastructure-as-a-Service as the synergies and cross-selling between these two businesses is very high and this is also how we are measuring our internal organization. On Page 10, you can see GAAP applications revenue, which is SaaS and on-premise application software revenues and further down the page GAAP platform and infrastructure revenues, which is the PaaS and IaaS and on-premise revenues. For hardware, we have gone ahead and consolidated hardware products and hardware support into a single line item of hardware. And we have also aligned the expense lines where appropriate. I am now going to go over our non-GAAP Q4 results with our new format and use constant dollar growth rates unless I state otherwise. This quarter by the way the effects of currency movements resulted in a 1% headwind on both total software revenue, including cloud as well as total revenue. Currency movements had a $0.01 negative impact on non-GAAP EPS and $0.02 negative impact on GAAP EPS. Well, clearly, we are absolutely thrilled with our Q4 results as software and cloud revenues were 4 points above the high-end of my guidance and earnings per share was $0.08 above the high-end of my guidance. As I mentioned earlier, cloud SaaS revenues for the quarter were more than $1 billion for the first time and up 76% from last year. Cloud, PaaS and IaaS revenue for the quarter were $403 million, up 45% from last year. You can see the continuing revenue momentum of our cloud business in the cloud billings and deferred revenue. The gross deferred revenue balance is now over $2.4 billion, up 63% in U.S. dollars. Cloud billings grew 42% in U.S. dollars this quarter. And once again, we have put the cloud billings number up on our website for you to see the detail this quarter and frankly probably don’t need to keep doing it since many of the numbers you can derive. As our SaaS business continues to scale and grow dramatically, the gross margin has expanded. The gross margin for SaaS in the quarter was 65%, up from 54% last Q4. We expect to see further improvement in FY 18 and remain committed to our goal of 80% SaaS gross margins over time. Now, the gross margin for PaaS and IaaS was 47%, down from 54% last Q4 as we invested in our geographic build-out ahead of the bulk of the revenue recognition. When we approach scale, I expect to see improvements in gross margins there too. Total cloud revenues in the quarter were $1.4 billion, up 66% from last year. Total on-premise software revenues were $7.5 billion essentially unchanged from last year and while new software license revenues were $2.6 billion, down 4% reflecting the increasing preference of customers for cloud. Software updates and product support revenues were $4.9 billion, up 3% reflecting the continued high attach and renewal rates that showed the stability of our installed base of on-premise customers. Total software and cloud revenues were $8.9 billion, up 7% and 4 points above the high-end of guidance. In addition, the total on-premise software and cloud revenues for both our applications and platform and infrastructure businesses are growing very well now. Applications total revenue were $2.9 billion, up 10% non-GAAP, 8% GAAP, and platform and infrastructure total revenues were $6 billion, up 6% both GAAP and non-GAAP. In particular, our database business in aggregate grew 8%. Hardware revenues were $1.1 billion, down 12% and services revenue were $894 million, up 4%. Total revenues for the quarter were $10.9 billion, up 4% from last year, non-GAAP operating income was $5 billion, up 7% from last year, and the operating margin was 46%, which was up from 45% last year. The non-GAAP tax rate for the quarter was 20% as we saw some one-time benefits and EPS was $0.89 in U.S. dollars. The GAAP tax rate was 14.1% and GAAP EPS was $0.76 in U.S. dollars. Because of currency movements, non-GAAP EPS was lowered $0.01 and GAAP EPS was lowered by $0.02. Q4 using our old format against my guidance, you can see that SaaS, PaaS revenues were $1.2 billion, up 75% and above the high end of the guidance I gave last quarter. IaaS revenues were $214 million, up 29% and at the high end of my guidance. Now, moving on to the full fiscal year software and cloud revenues totaled $30.4 billion, growing 6% in constant currency with $24 billion or 79% of that being recurring revenue, up from 75% last year. Cloud SaaS was $3.4 billion, growing 70%. Cloud PaaS and IaaS was $1.4 billion, growing 63%. Total cloud revenues totaled $4.7 billion, growing 68%. On-premise software declined 1% to $25.6 billion as the 3% growth rate in software support was offset by cloud related declines in new software license which were down 11%. Hardware revenues were $4.2 billion, declining 10% and services revenue was $3.4 billion, up 1%. Total company revenues for the year grew 3% to $37.9 billion and operating income was $16.2 billion, up 3%. Our non-GAAP operating margin for the full year was 43%, up slightly from last year. Non-GAAP EPS – earnings per share were $2.74 in U.S. dollars, up 6%. Because of currency movements non-GAAP EPS was $0.03 lower. Operating cash flow over the last four quarters was – it was $14.1 billion, up 3%. Capital expenditures for the quarter were $525 million. Free cash flow over the last four quarters was $12.1 billion. I expect our cloud CapEx spending to be about $1 billion next year, roughly equivalent to this year’s level. We now have approximately $66.1 billion in cash and marketable securities. Net of debt our cash position is approximately $8.2 billion. The short-term deferred revenue balance is $8.2 billion, up 8% year-over-year and up 11% sequentially. As we have said before, we are committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases, prudent use of debt and the dividend. In terms of acquisitions, we always have a disciplined approach to finding the right companies at the right time at the right valuation and that make both strategic and financial sense. This quarter we repurchased 11 million shares for a total of nearly 500 million. Over the last 12 months, we have repurchased 86 million shares for a total of 3.5 billion and paid out dividends of $2.6 billion. The Board of Directors again declared a quarterly dividend of $0.19 per share. Now to the guidance, I am going to give you guidance for Q1 and then some preliminary comments for FY ‘18. My guidance today is on a non-GAAP basis and in constant currency, but assuming current exchange rates remain the same as they are now currency shouldn’t have – should not have an effect on total revenues or EPS. So for Q1 cloud revenues including SaaS, PaaS and IaaS are expected to grow between 48% and 52%. Total revenue growth is expected to range from 4% to 6%. Non-GAAP EPS in constant currency is expected to be somewhere between $0.59 and $0.61, up from $0.55 last Q1. This assumes a non-GAAP tax rate of 23.5%. Of course the tax rate could end up being different. Over the full year of FY ‘18 I expect continued high growth in cloud revenues with cloud revenues materially surpassing new software license revenues. Operating income growth will accelerate and the continued expansion of cloud gross margins and the return of operating margin expansion. Over the last two quarters we exceeded the high end of my EPS guidance by $0.14 and as we begin FY ‘18 our compare is now that much higher. But even with this higher compare, I expect EPS growth will be double digit next year. As I mentioned earlier we will continue to invest in capital in our cloud data centers expansions, but I do expect our overall CapEx will be lower as the CapEx for real estate should be somewhat lower. With that, I will turn it over to Larry for his comments.

Thank you, Safra. Last fiscal year we sold more than $2 billion in cloud annually recurring revenue. This is the second year in a row that we sold more cloud ARR than salesforce.com. We are now well on our way to passing them and becoming number one in the enterprise SaaS market. Our rapid SaaS growth is the driving force behind Oracle’s revenue and earnings growth in Q4. The reason we are confident that we will pass Salesforce is because we have a three-fold SaaS application suites for ERP, for HCM and for CRM including financials, procurement, supply chain, manufacturing, human resources, payroll, marketing, sales and service. Salesforce in contrast only competes in three of these nine market areas. Furthermore, Oracle is now the clear leader in cloud ERP. And ERP is by far the largest application market, not CRM. In addition to our demonstrated strength in SaaS, Oracle also competes in Infrastructure as a Service and Platform as a Service. Here our primary competitor is Amazon AWS. During this new fiscal year, we expect both our PaaS and IaaS businesses to accelerate into hyper growth, the same kind of growth we are seeing with SaaS. As our customers begin to migrate their millions of Oracle databases to generation two of the Oracle public cloud, the AT&T deal is just the beginning. We expect that our Oracle PaaS and IaaS businesses will grow so fast that they will be even bigger than our SaaS business. Over to you Mark.

Thanks Larry. First, I would like to congratulate Safra for getting through all that material that was a thing to get through. Listen, thanks Larry. Good quarter for us, obviously we tracked ahead of virtually every metric that I track, whether it’s cloud bookings, cloud revenue, EPS, really everything on my KPI list was at a record level. Turning to cloud bookings, $855 million, it’s the best quarter we have ever had, it’s up 43% over what was a very strong Q4 last year. We had a goal of $2 billion in ARR. We finished with nearly $2.1 billion. Next year we will sell more. By the way booking revenue growth rates are given in CD unless otherwise said, SaaS bookings were $486 million, PaaS and infrastructure bookings $369 million. As Safra said cloud revenue growth at 66%, we are now at $6 billion annualized run rate. For total software and cloud, to Safra’s point 80%, roughly 80% of our trailing 12 months revenue is now recurring in nature. SaaS revenue while up 76% was an acceleration from 40% growth last year. ERP was up 156% organically, that did not include NetSuite. Overall ERP is now over $1.2 billion annualized run rate. Fusion HCM was up 96%, most – more than twice the growth rate of Workday. In our front office solutions sales, marketing and service were all up double digits organically. Our verticals were up 111% and over $140 million in quarterly revenue. Our PaaS infrastructure revenue was up 45%, Database as a Service was up 62%. Our database business including Database as a Service and our on-premise licenses and support were up 8%. Cloud billings grew 42% as Safra said and deferred revenue up 63%, both of those are in USD. I am going to just name a few customers, so you get an idea of some of the customer wins we had in the quarter. I am not going to hit everything. I am just going to hit a few representative customers. I will start a little bit – I will start with ERP, Allianz, Ball Corporation, BNP Paribas, GE, the Kraft Heinz Corporation, Juniper, MetLife, Minerals Technology, Motorola, Mouser Electronics, NCR, Netflix, Newell Rubbermaid, Orange, Pearson, Sinclair Broadcast Group, Textron, University of Maryland, Vanderbilt University, Volkswagen. In HCM, ABM Industries, AutoZone, Fannie Mae, Fujitsu, Garden Fresh Restaurants, Landmark, Mary Kay, the National Football League, NTT, Raymond James Associates, Sinclair Broadcast Group, Staples, University of Pittsburgh, the University of Texas System, Vanderbilt and a very large investment bank in New York City who switched vendors to our HCM. Those are just a few representative customers across just a couple of pillars in the quarter. Lastly, as I mentioned, it was an overall a very strong quarter, bookings, billings and revenue, all at record levels. We announced an exciting deal with AT&T. And while it provided no revenue at all in Q4, it’s a very strategic win as a reference to all of our customers about the modernization of databases and the movement of them to the cloud. Looking forward just a couple of predictions. FY ‘17 bookings were $2.1 billion. Our pipeline is very large and ARR will be higher in FY ‘18. I do expect our application ecosystem of on-premise that would include licenses and support and SaaS will grow roughly 10% next year. With revenue now at an annualized run-rate of $6 billion and the growth rate of 66%, we are clearly the fastest growing cloud company at scale. With that, we will take your questions.

Thank you. Kimberly, if we can please start the Q&A.

[Operator Instructions] Our first question comes from Raimo Lenschow with Barclays Capital.

Hey, congrats on a great quarter. Quick question on the database side, Safra, thanks for the extra disclosure that’s really helpful. I can see that the database license numbers are starting to accelerate – did accelerate in Q4. Is that already 12C or how do I have to think about them? Thank you.

Maybe Larry might want to talk about 12C a bit.

Yes. I think it’s, yes, the new versions of our database are experiencing very, very rapid uptick. We have a number of key features. One is in memory. The other is multi-tenants. And people are moving to the latest version of our database more rapidly than they traditionally do. And we are seeing you saw evidence of that in Q4.

Thank you.

Our next question comes from Kirk Materne with Evercore.

Thanks and my congrats on a great end to the fiscal year. Mark, I was wondering if you could provide a bit more detail on the strength in the ERP business in the cloud and why that seems to be accelerating? And just as a quick follow-up, I noticed you didn’t provide any customer accounts this quarter by pillar. So, I was wondering if you might have those numbers for us as well. Thanks.

Yes, I was trying to save time, but sure I am glad to cover. We had a little less than 1,600 new SaaS customers, 1,575 in the quarter. We had 1138 expansions in the quarter, roughly 400 of those customers who bought SaaS, also bought Platform-as-a-Service. So, again the attach rate between apps and PaaS continues to strengthen. ERP, we had 868 new customers. Now, by the way, Kirk, that doesn’t include NetSuite. So, that’s just inside the traditional Oracle ERP business. We had almost 200 expansions. That’s a big deal, because as we start to sell in many cases financials we are now being able to sell supply chain, procurement and manufacturing into that base as well. Another good thing for us in the quarter is roughly two-thirds of the new ERP customers never had Oracle ERP before. So, again this is again 66%, 65% brand new logos to Oracle. So HCM, we had about 325, 326 new customers and 300 expansions and a little over 600 in marketing, sales and service and about 670 expansions. So sort of all-in, we have now about 13,550 customers in our SaaS active base. If you do include NetSuite, that number gets to 25,000. About 75% everything we did in the quarter was Fusion. Again, that would not include NetSuite. So, that’s roughly speaking how metrics worked out in the quarter. I hope that helps.

Next question please.

Our next question comes from Sarah Hindlian with Macquarie.

Alright, thank you. I would like to add congratulations too. That’s a really phenomenal quarter around this aggressive cloud transition. And I just had a couple of questions I wanted to address for the team. Safra, I want to start with you, you just reiterated the fiscal ‘18 double-digit earnings growth and I guess I think what’s becoming more relevant is do we think about this as a 1-year phenom bouncing off of the difficult transition or how can we really be thinking about earnings growth beyond fiscal ‘18 into ‘19 and ‘20? And then Mark, my second question is for you, really interested in hearing some of these larger logo wins you cited in SaaS and ERP and HCM in particular and yet you are still seeing and we are still continuing to hear about a lot of traction for you in the mid-market reflected in some of your other comments. So, I am trying to wrap my head around some of these larger logos that we are hearing pickup, especially on the ERP vertical given its sheer size. And I am hoping you can guide us as to where we are with some of those large logos in terms of go-live, pipeline, etcetera? That would be really tremendously helpful.

Okay. So, this is absolutely not a 1-year phenomenon. In fact, what you should see as this goes on is we will have less drag from the transition and the base will continue to grow and so this should really accelerate and understand that in our PaaS, IaaS business, we are not even at scale. So, as we have really scaled that up, profitability is going to increase more quickly and revenues will be built on the base of another recurring revenue – of the recurring revenue business. So, we have been basically turning and we have had the drag of the move away from our historic business to some extent and revenue recognition that’s not upfront, but ratable. Then all of a sudden, you are going to see less of a drag as that side of the business is smaller compared to our cloud business. So, we are obviously very optimistic we indicated to you all during last year this past year that this thing was coming and it has clearly come in Q4. And this next year and years after that are now going to be building on that base.

To your other question, yes, we have got some very large active HCM customers. I mean, today, we have got Airtel, I don’t know, they are probably 30,000 users, American Eagle 40,000 users, Fairmont, Raffles hotels, 42,000 users, Siemens 60,000 users, Wells 275,000 users, Xerox 38,000, Schneider Electric over 100,000 and these are big, big customers. And so those are just HCM. So, those are obviously very big scale customers. Now that said in ERP, you are right in what you said. I mean, we have a lot of mid-market – upper mid-market wins and a lot of new logos to Oracle who were not doing business with Oracle before they made this acquisition and that’s certainly been a fantastic strength. I mean, our cloud is made up of a lot of new logos in addition to some existing customers. Now, in terms of scaled ERP customers though, I mean, Orange is – they are using financials, procurement, projects, supply chain management, GE Digital, Qualcomm, Hearst, Tesco, Ceasars, I mean, these are just sort of off the top of my head. So, these are big scaled ERP customers. Now to Larry’s point and I will make it a little bit about HCM and ERP, the TAM in ERP is materially bigger than the TAM in HCM. So the TAM in ERP is 3x to 4x bigger in ERP. And additionally ERP drags HCM or can drag HCM in the transaction. So these big – these big ERP references that we have and obviously with the number we closed in Q4 and are going live now every quarter, more to come. We see an increasing pull of HCM in these big ERP transactions and they are true in the mid-market and in the up-market. Hope that helps.

Our next question comes from John DiFucci with Jefferies.

Thank you. These are impressive results. And I will let others focus on those details. Mark, I would like if you could talk a little more about the AT&T deal, AT&T as you pointed out in the press release when that came out has been a customer of Oracle and we all know that, so I guess the question is how incremental is this deal to Oracle, is it a price uplift, because you are providing the entire infrastructure with cloud versus just the software or does it also include work – new workloads. And I guess can you give us any idea about how much incremental business assuming there is some which I think there obviously is, this means for you versus your previous relationship with AT&T?

Okay. So first I am not going to give you really all of that many detail, from a financial perspective. So as your point that was AT&T a good customer before this up, yes. Is AT&T going to be an even better customer going forward, yes. Is AT&T giving us more revenue than before, yes. Did AT&T give us any incremental revenue in Q4, no. So is this deal ratable over time, yes. Is it a long-term agreement, yes, it’s a very long-term agreement. Let me try to give you a little bit more color. First, it is a long-term deal. AT&T has over 10,000 Oracle databases. They have several hundred – and you might say John that’s a small percent of their overall databases, but they have several hundred large databases that have 70%, 75% of all of their company’s data. They have badly wanted to get the benefits of cloud, provisioning, a lot of provisioning and all the new features that come with product modernization, consolidation of that infrastructure, yet in many cases they have got regulatory pressures on what they can put in the public cloud and what they can’t. This is an example where we have talked about this before, we take our Oracle cloud machine and we are able now to do all of that with them on their premise and give them all the benefits of the cloud, we manage, we patch, we basically run the cloud for them and we help them get all of that done. And so it’s great a deal as this is. This is even a bigger deal John and what it represents for our entire customer base. This is a bigger deal to us than the transaction. It is the opportunity for us to now do this for hundreds and thousands and tens of thousands of customers. The opportunity for us in the quarter and the reason we somewhat put the press release out was AT&T being so effusive about their opportunity now and what it meant for them internal to AT&T. But its just if not more important for us and what we can do for all of our customers. Just to give you a little bit more data, not in any or hardware numbers is we did in excess of 100 Oracle cloud machines in the quarter which or again us bringing all of the capabilities of our public cloud to our customers in their data center. So that’s some details, although not the financial details of the deal. But frankly John, I think it’s just as important what it means to our customers going forward on the bigger picture.

If I could just say one other thing to John, so the issue is really for the folks who have large installed bases of Oracle database and they have done the research of where those workloads should be, they pick Oracle, that’s really what is shown. The folks who could go anywhere and do anything come to us and that’s really the important message. And we are seeing that throughout the customer base and you are going to start to see it in the revenue.

Next question please.

Our next question comes from Heather Bellini with Goldman Sachs.

Great. Thank you very much. This question could be for Mark or Safra, I mean obviously the cloud bookings number was very strong and I was wondering if you could just share with us any color on the impact that NetSuite might have had on the growth rate for cloud bookings and also well, I know you are not guiding to fiscal ‘18 cloud or SaaS, PaaS growth, I am just wondering if can share with us, Mark, you commented about having – doing better and expectation to do better than $2 billion in new cloud ARR, I am just wondering if you could talk a little bit about your confidence level there. And then just for the sake of clarity, since we do get this question from time-to-time, this $2 billion plus number that you mentioned is all new cloud business and does not include renewals, if you could just clarify that for people? Thank you.

Well, it’s great. You gave me one question with five parts, so I am going to try my best to remember all of your questions and answer first part, bookings. Our new and expansion bookings, they do not include renewals. There are no renewals in the ARR that we report, okay, point one. Point two, how did NetSuite do, I think they did terrific. I think they just did terrific. I think they are very stable. They – we have seen some acceleration in their growth rates from when they were a public company. I think they have just done terrific. So we are thrilled with the acquisition and we are thrilled with how they are performing. We are thrilled with the synergy inside Oracle. And I want to make sure I am clear that’s not rhetoric. I mean we are really thrilled, but I have no facial expression I can give you, so that you can see it. Our pipeline is big, yes. I mean how confident am I in more cloud bookings this year, extremely, put quotes around extremely, underline it. But that said I think we are going to have a terrific year in the context of terrific pipeline. So I think I covered all your points,

Our next question is from Philip Winslow with Wells Fargo.

Hi, thanks and congrats on really a fabulous fiscal Q4 and thank you for the increased disclosure in terms of on-premise breakdown of outsource platform. When I look at your Q4 results in the context of the full year, it’s basically almost impossible to argue that Oracle is not at the reaccelerating revenue growth inflection point in its transition to cloud, Mark would talk about apps, obviously has been growing mid to high single-digits, which is acceleration from last year, you talked about accelerating the 10% this coming fiscal year, so my question to both you or Safra is when you think about the platform side of the business here at Oracle, that’s been growing at low single-digits, where does that business fit in terms of the lifecycle transition to the cloud in terms of just the trajectory of net revenue growth? And I just have one follow-up to that.

Give us the follow-up first and then we can pace ourselves through the answers.

If the PaaS side continues to takeoff and now I want to put through in the context of Safra’s comments about CapEx being lower this year, the question I get is that, hey if this transition to the cloud is working, why is Oracle’s call it, operating model different in the cloud, why is Oracle so efficient in terms of it’s – call it infrastructure spend in the cloud and maybe that’s a good question for Larry actually?

Great. Okay.

Alright. Well, let me just talk a little bit about PaaS and IaaS together. The old IaaS was as you know a slower growing business. Our Gen 2 IaaS much faster. PaaS much faster, as it gets, it sort of completely overwhelms the base of our old IaaS. You are going to see acceleration, you must see acceleration, because it is inevitable as we do more and more transactions and bookings, which turn into revenues as people bring their Oracle licenses, their Oracle workloads to us, so you are going to see that’s a very big area. Now, as far as margins, remember in our PaaS business or our IaaS business, the system itself is the same. However, what you see though is that there is enormous value in both our automation and in our technology whether different pieces of software that are in there. And depending on the mix, the margin can be extremely high. We have always – it’s still the Oracle you know in that we watch every nickel around here. And we all sign off on every data center expansion and all the hardware that goes in it. So we really are very, very careful on not getting too far ahead of our revenues, but also benefiting from massive economies of scale. This past year, we did a lot of build-out, for which the revenue has not been showing up yet in the financial statements, but it will be. So, depending on how the different pieces roll in, we expect margins by the time it’s the end of the year, we expect even PaaS, IaaS margins to be better, but we do feel we can do it within our CapEx envelope.

Okay. So, let me comment. What is different, why do we not have these huge build-outs and then wait for the revenue. We have a just – we have a system, we build our own hardware. We build virtually all of our own hardware, I mean, not some of the network switches we buy those from Arista. We don’t ship computers to any of our data centers until we have pretty firm orders for capacity when we are constantly measuring how much our data centers are used as our data centers reach, let’s say, a bigger number 75%, 80% utilization. I mean, we have got to some threshold, then we start to replenish and add compute and storage capacity to the data centers. It’s a just-in-time system. Those components will grow and go to Frankfurt or go to London or go to Singapore or go to any of our data centers around the world, but we do it in such a way that once we ship we know that we are going to have a very, very high utilization rate at our data center. So, with the just-in-time shipments and we only ship when they cross something like 75% or 80% utilization at that data center. So, we don’t have a lot of unused capacity. So, if – let’s just say if our CapEx was double what Safra forecast next year, that’s great news, because then our PaaS revenues and infrastructure revenues would be much higher and make up for with much higher profits. So, I don’t know if that’s clear. We don’t make it until in a sense we have already sold it.

Last point, first of all, just to add to everything Larry said, virtually most of the COGS other than what that Larry identified that fits in the data centers is ours. And then all of our R&D is aligned to all of our COGS and so we have both the advantage of being the major supplier to ourselves in addition to all of the R&D that we have into our technology. So, we get multiple benefits in addition to what Larry described. And Phil, just to be clear I just want to make sure I am clear on my quote, I said roughly double-digits on the application ecosystem growth next year.

Alright. Let me add one more thing I’ll do it for less. So, we build these storage systems than Amazon doesn’t have and Microsoft doesn’t have. And those storage systems are really a combination of flash and disk stored and we have these huge flash caches in front of the disk. So, from a customer standpoint, they think almost all the data is coming from flash and it has flash response times and flash performance, but we can do that, we can deliver that with hard disk cost. So, we can deliver that at about, I don’t know 20%, the cost of our competition. So, storage is a huge component of what the cloud providers are selling and we just have the better mousetrap. We have a better storage hierarchy system than they do. Therefore, we can provide very, very high performance at a dramatically lower cost to us than our competitors.

Next question please.

Our next question comes from Kash Rangan with Bank of America.

Hi, thank you very much. Congratulations. I am curious if you could talk about what drove the strength in license revenue this quarter is certainly much better than most people’s expectations. Did you have any products that were faced out or were comped out that you had any sort of pull-in potentially? And secondarily Safra, you talked about long-term SaaS gross margins approaching potentially 80% and if this AT&T deal is a harbinger of more databases transitioning to a PaaS model, what does the longer term outlook for gross margins for the entirety of the cloud business look like? And finally I had to sneak in one for Mark. Any thoughts on the sales force as you approach fiscal ‘18? Any changes, reorg etcetera? That’s it for me. Thank you.

That has to break every rule in the question etiquette thing. I think first, let me go to license in the quarter, there is no standout event. There is no product that discontinued. There was no single transaction. There was no geography I would say North America, I will say, first of all, overall very proud of our sales org in general, but North America was very strong again that I think they did a great job across both of our teams in North America, but we were solid really across every geography. There was just no real – Asia was strong for us. Japan, I could go on. So, there was no deal. There was no product. There was no geography. It was just really a broad-based performance overall. Do you want to talk about the gross margins?

Yes, okay. So, SaaS gross margins will continue to increase all of this coming year. We will get closer and closer to my 80 goal by the end of the year. We probably won’t hit 80, but we will be pretty close by Q4 in SaaS margin. So, I think that’s good news. As a result, margins for the entire cloud business will be up quite a bit by the end. So, I am very, very happy upbeat and I expect margins to improve a lot.

I forgot your sales reorg question, that’s again, I saw a couple of notes on that. I mean, it’s just like sort of that we are laying off salespeople. This is all just not true. So, is our sales force shrinking? No. Do we change things in our sales force? Sure. Is there any major reorg going on? No. But remember our competitors change. We have some very simple principles how we run the sales force. We lineup our sales force by product. We line them up by buyer and by competitor. And that market tends – those dynamics can change or competitors change we have noted over the past several years. So, you will see some shift in our specialization. That’s sort of one point. Second, we are building out as we have told you over the past couple of years big hubs that are doing a lot of our selling. And so we have the byproduct of that is that our sales force is actually increasing in numbers, but our cost per salesperson is actually declining. So, our overall productivity is actually inclining. Those phenomena occur simultaneously. So, anything about – that you hear about we are reducing our sales force, again big news, nothing that’s going on here. Second, we are increasing our sales force. We continually sort of realign our specializations based on competitor, based on product, based on buyer and we continue to build out and are very happy with the continued progress of our hubbing strategy. So hopefully that answers your question about the sales force.

Our next question comes from Keith Weiss with Morgan Stanley.

Thank you guys for taking the question and also very, very nice to FY ‘17. Safra, as we are thinking about FY ‘18, I think a big question investors are going to have is on the license revenue side, the declines that we are expecting – should we be expecting something more in line with what we saw in Q4 like that 5% range in terms of decline or more so should we be looking at like FY ‘17 the full year like 10% to 15% decline as our benchmark in terms of how that license revenue decline is going to progress throughout FY ‘18?

Hi, Keith. I think this is quite cute. You know I didn’t give guidance on new software license growth, because it’s become less and less relevant. So, I don’t actually intend to give it now, but I will give you a chance to ask another question if you have got one.

Sure. Shifting gears to repurchases, perhaps the levels of repurchases that were done in Q4 dropped down from what we have seen in like FY ‘16 in the first half of the year probably sort of having to do sort of where U.S. cash is versus overseas cash. Can you give us an idea of how you guys are thinking about those repurchases into play?

Sure. Absolutely. I’d love to. So as you guys know as I told you we spent quite a bit of money on that suite and so I needed to pay that back. And I have got a couple of quarters of still paying that back and as a general matter we like to buyback quite a lot of our stock, significantly more than at the 500 million a quarter that we have been on since we bought NetSuite. So one side paid all that back, assuming that I don’t buy anything else big, I expect that we will do what we always do which is send the money back to you all, because its your money and so we will buyout your partners and so share repurchases should go up. However, our stock price is going up also, so we may be spending more, but lucky us, lucky all of us stock price is going up which means sometimes I will get less share. So one side pay back NetSuite, I do expect to spend more than 500 million a quarter assuming I don’t buy anything else and anything else really significant. And – but I don’t know how many share I will get back because of course I don’t know what the stock price will be at that time.

Our final question comes from Mark Moerdler with Sanford Bernstein.

Thank you. Congratulations on the strong quarter. So given software support is continuing to grow would suggest that the cloud has predominantly met new workloads from either new or existing customers, we would expect at some point soon your customers are going to start moving existing workloads to the cloud, so a couple of parts to the question, when do you expect Oracle apps and Oracle database for revenue to start moving to the cloud, which moves first, what do you expect the impact will be and lastly which of the – what of the migration is baked into your confidence in FY ‘18 cloud ARR?

Okay. Well, all it’s baked into our view. So there is no new news here. So let me flip the metric on you. If 65% which is not an uncommon number we have given you over the past several quarters is coming from net new logos, then the flip of that is 35% is coming from our existing base. So we have seen our existing base move. They have just to your point moved slower than what the new logos have. I actually think this is a good thing, because I believe that we will get all of our existing customers’ on-prem, roughly speaking moving to our cloud infrastructure over time. Now, in addition when we do move and I want to make sure I am clear and say it again we now have a lot more data than I would have had 2 years ago. When a customer who is on-prem paying us support moved to the cloud, they pay us more money. They don’t pay us one to one, they don’t pay us two to one, they pay us more like three to one. In some cases more than three to one. In some cases we also get the attach of platform to the SaaS that we get as well. And that is not included in the three to one that I am giving you. So we are actually very positive about the fact that if people move from our application support to our SaaS revenue, we get more money. And to Safra’s point about what’s going on with our gross margin, we now produce better performance at the bottom line, because we get more revenue at a very high margin rate. So I expect that to continue as we get more references Mark. In ERP etcetera, you are going to see that accelerate. We want that to accelerate and that acceleration is a good thing for our customers and it’s a good thing for Oracle shareholders. Now, the reason we made the deal that we made a big deal we made over AT&T is because of the implication that has on our database business, that is a – and Safra couldn’t have said, but this is now a customer who is now a reference in the public domain explaining why. And now I think you will see that same migration as time goes on we have more customers like them who are in the middle of the process of moving now. And I give you an example of how much infrastructure was bought in Q4. Oracle cloud machines just as a – that is one surrogate, but what’s happening and if that occurs we will get more revenue as well. And I predict we will be able to deliver higher levels of service, more functionality, more capability, more modernization as we do it. So I think you begun to see the application business, we love what we see in the applications business so far. And I think you at the beginning have seen it in the database business as well.

Thank you, 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 with any follow-up questions from this call. We look forward to speaking with you. Thanks for joining us today. And with that I will turn the operator back to the – call back to the operator for closing.

Thank you for joining today’s Oracle fourth quarter 2017 earnings conference call. We appreciate your participation. You may now disconnect.