Oracle (ORCL) Q3 2018 Earnings Conference Call Transcript

Oracle (NYSE: ORCL) Q3 2018 Earnings Conference CallMarch 19, 2018 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Oracle's Third-Quarter 2018 Earnings Conference Call. Now I'd like to turn today's conference over to Ken Bond, senior vice president.

Ken Bond -- Senior Vice President

Thank you, Holly. Good afternoon, everyone, and welcome to Oracle's Third-Quarter Fiscal Year 2018 Earnings Conference Call. A copy of the press release and financial tables which include 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 also are subject to risks and uncertainties that may cause actual results to differ materially from the statements made today. As a result, we caution you against placing undue reliance on these forward-looking statements and we encourage you to review our most recent reports including our 10-K and 10-Q and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock.

10 stocks we like better than OracleWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Oracle wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of March 5, 2018

As a reminder, Safra's comments today will use constant-dollar growth rates unless stated otherwise and Mark's comments will use U.S. dollar growth rates. Finally, we are not obligating ourselves to revise our results or publicly release any revisions to these forward-looking statements in light of new information or future events.Before taking questions, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra.

Safra A. Catz -- Chief Executive Officer

Thanks, Ken. Good afternoon, everyone. I'm going to focus on our non-GAAP results for Q3. I'll then review guidance for Q4 and turn the call over to Larry and Mark for their comments.

As you can see, we had another solid quarter, but before discussing Q3, let me just point out that the GAAP income statement was impacted by one-time net charge totaling $6.9 billion related to the 2017 Tax Cuts and Jobs Act. This is clearly a one-time event. So for ease of comparison, we have excluded it from our non-GAAP calculation.Now, back to the quarter. Total cloud and software revenues were $8 billion, up 7% and up 3% in constant currency.

Inside of cloud and software revenues, GAAP total revenue for application, which is new licenses, license updates including support and SaaS were $2.7 billion, up 9% or 6% in constant currency. And GAAP total revenues for platform and infrastructure, which is new licenses, license update, including support and PaaS and IaaS were $5.3 billion, up 8% or 3% in constant currency.Cloud SaaS revenue for the quarter was $1.2 billion, up 21% on a GAAP basis from last year on a non-GAAP basis with Fusion Cloud revenues up 52% in constant currency. Cloud PaaS and IaaS revenues for the quarter were $416 million, up 24% from last year in constant currency. Cloud PaaS and IaaS revenue, excluding legacy hosting services, saw growth of 49% in constant currency and 56% in U.S.

dollars. As legacy hosting services become a smaller part of total PaaS and IaaS, the underlying growth of PaaS and next-generation IaaS will be more visible. As for cloud margins, our SaaS business continues to scale and grow and the gross margin has expanded to 67%, up from 65% last Q3. We expect to see further improvement and remain committed to our goal of 80% SaaS gross margin.

Now the gross margin for PaaS and IaaS was 35%, down from last year. However, in looking ahead, I believe we're at the point where PaaS and IaaS gross margins will begin to improve with Q4 slightly higher than Q3.Total new license and license updates, including support revenues were $6.4 billion, up 4% in USD with software updates and support revenue of over $5 billion for the first time ever, reflecting continued excellent renewal rate and the strength of our installed base of customers. Total non-GAAP revenues for the company were $9.8 billion, up 1% from last year in constant currency and up 5% in U.S. dollars.

Non-GAAP operating income was $4.3 billion, up 4% from last year in constant currency, 9% in U.S. dollars. The operating margin was 44%, which was up from 43% last year. There were a couple of the one-time in and outs in the expenses impacting this but basically, the operating margin has now increased year over year for six consecutive quarters.

And while I can't promise this will happen every quarter, I do expect that operating margins will continue to expand.The non-GAAP tax rate for the quarter was materially lower than guidance at 16.1%, reflecting the impact of the new tax law as well as other one-time benefits. The GAAP tax rate was 222%, reflecting the $6.9 billion tax charge related to the new tax law. Non-GAAP earnings per share were $0.83, up 20% in USD and up 15% in CD. The GAAP loss per share was $0.98, driven by the one-time charges related to the new tax law.Operating cash flow over the last four quarters was $15.2 billion, up 13% in U.S.

dollars and free cash flow over the last four quarters was $13.3 billion, also up 13% in U.S. dollars.Capital expenditures for the quarter were $286 million and we expect that cloud CAPEX spending will continue to be driven by our ARR and should we see higher-than-expected ARR growth, we'd expect to see higher CAPEX as investments as well. We now have more than $70 billion in cash and marketable securities. Net of debt, our cash balance is nearly $10 billion.

The short-term deferred-revenue balance is $8 billion, up 4% in constant currency. This quarter we repurchased nearly 81 million shares for a total of nearly $4 billion. Over the last 12 months, we've repurchased 143 million shares for a total $7 billion and we also paid out dividends of nearly $3.2 billion. The board of directors again declared a quarterly dividend of $0.19 per share. As we move to Q4 guidance, I want to remind you that we have a bit of a tough comparison as the last Q4 we beat our EPS guidance by $0.10.

I will give you guidance for non-GAAP Q4 in U.S. dollars and also in constant currency. Assuming prior exchange rates, currency could be as much as 3% positive on total revenue and $0.03 positive on earnings per share. So for Q4, cloud revenues including SaaS, PaaS, and IaaS are expected to grow 19% to 23% in USD, 17% to 21% in constant currency.Total revenues are expected to grow from 1% to 3% in USD and negative 2% to 0% in constant currency.

Non-GAAP EPS in USD is expected to be between $0.92 and $0.95 and EPS in constant currency is expected to be between $0.89 and $0.92. This assumes a non-GAAP tax rate of around 20%. The important thing for you to know is that for fiscal 2019 I expect the new tax law will translate for us to a tax rate of 19.5%. However, in any given quarter, we could see one-time tax events that will cause our actual tax rates to vary from our base rate, but I expect that in normalizing for these one-time tax events, our tax rate will average around 19.5%.With that, I will turn it over to Mark for his comments.

Mark Hurd -- Chief Executive Officer

Thanks, Safra. I'm just going to start with a few customer wins for the quarter and then make a couple of comments and I'll turn it over to Larry. First in ERP wins -- Avis Budget Group; Barrick Gold -- by the way, also bought HCM at the same time; Baylor, Scott & White Health, ERP and Fusion HCM; Blue Cross Blue Shield of Florida, Fusion ERP; Broadcom, Fusion ERP; Caesars Entertainment, Fusion ERP and HCM; Dubai Ports, Fusion ERP; EastLine Technologies, Fusion ERP; Master Lock, MTM Group, William Morrison Supermarkets, all Fusion ERP. In HCM, Arthur Gallagher, City of Memphis, Diebolt, again, Dubai Ports, Grant Thornton, Henkels & McCoy, Marina Healthcare, also MTM bought HCM, National Oilwell Varco, Principal Financial Group, First Group, also William Morrison Supermarkets, and a really, really large U.S.

bank who bought HCM from us which is one of the largest HCM transactions in ARR that we have ever received.All right, with that a couple of comments on the quarter. As Safra mentioned, our revenue numbers are up 6%, with software and cloud revenue year to date up 8% and operating income up 10% and EPS up 16%, up 20% in Q3 alone. We'll talk a little bit about our ecosystem. Our app ecosystem year to date is up 12%.

We continued to grow faster than the market. Less than 15% our apps customers have started to move their core apps to the cloud. Between customers that have partially moved and those not started yet, we have an enormous opportunity at both.SaaS bookings ARR. ARR was roughly where I expected it to be in Q3 and with SaaS revenue now approaching $5 billion, I'll focus my comments on SaaS revenue as opposed to ARR.

SaaS revenue up 24%, now over A $4.6 billion run rate. ERP up 62% organically. Overall ERP is now at $1.5 billion annualized run rate. Fusion HCM was up 71%.

That's a revenue number, doesn't include the bookings that I described a couple of minutes ago. Verticals up 20%. Now we move to tech. By the way, on the verticals, I want to mention the 20% growth is compared to up 110% last year.On our technical system, year to date our technology ecosystem is up at 6% with the database ecosystem also up at the same time roughly 6%.

And again, we're growing faster than the market. The fact is that we are taking market share and with autonomous database just beginning to show up in our pipeline, this will only strengthen our technology ecosystem growth. As the infrastructure revenues up 28% with our Next Gen PaaS infrastructure business growing 56% and we're already over $1.1 billion annualized run rate.A few highlights. Oracle PaaS which includes database and service, up 34%.

Public cloud infrastructure was actually up 142%. Storage infrastructure up 82%. Compute infrastructure up 121%. Network infrastructure up 181%.

Cloud revenue at 25% growth, now at $6.3 billion annual run rate and 80% of our trailing 12-month software and cloud revenue are now recurring in nature.We're executing well on a big and growing pipeline. Our pipeline is at a record level and our year-to-date performance with top-line growth at 60% USD and 16% EPS growth reflects our success. Looking forward to the full year, I expect our apps ecosystem, as I said early in the year, will grow around 10%. The tech ecosystem will grow around 5% and our EPS will be above 10%.With that, I'll turn it over to Larry.

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

Thank you, Mark. Oracle with fully autonomous self-driving database is now available in the Oracle cloud. No other cloud provider has a fully automated database, one that automatically and immediately applies security patches without requiring any scheduled downtime. Oracle's autonomous database features are absolutely unique.There are more autonomous cloud services to come.

Over the next few months, we expect to deliver autonomous analytics, autonomous mobility, autonomous application development, and autonomous integration services. Oracle's new suite of autonomous PaaS services delivers an unprecedented level of automation and cost savings to our customers. Our highly automated suite of autonomous PaaS services reduces cost by reducing human labor and improves reliability and security by reducing human error. No other cloud provider has anything like it.

Ken Bond -- Senior Vice President

Thank you, Larry. Holly, if you could prepare the audience for Q&A, please.

Questions and Answers:

Operator

[Operator instructions]. Our first question will come from the line of Raimo Lenschow, Barclays. Raimo, please go ahead with your question.

Raimo Lenschow -- Barclays Investment Bank -- Managing Director

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

Mark Hurd -- Chief Executive Officer

Raimo, it's why I continue to try to focus on the ecosystem number. I mean, I think, again, without autonomous database frankly being GA at this point, being generally available, as Larry mentioned a bit in his comments, we grew the tech ecosystem 6% and it shows up in different categories. It shows up in license and, again, licenses today are not really on-prem. Licensees are now currency that you can use in the cloud or you can use it on-prem.

So, licenses are now able to be used both ways. And so we've seen, I'd say, strong database momentum in the context of being able to licenses and use sort of in the cloud or on-prem. By the way, we continue to see support grow in database at the same time. And you saw, as I mentioned in my comments, growths in databases and service simultaneously 34% at all of the core NextGen infrastructure categories grew in excess of 100%, storage is actually up 82% but compute is up 121%.

So we saw a good momentum. And, again, the key for us is that the whole tech ecosystem growth and I think with the autonomous database, as we get a GA and build references, it's going to do nothing but get better.

Raimo Lenschow -- Barclays Investment Bank -- Managing Director

Thank you.

Operator

Our next question will come from the line of Kash Rangan, Bank of America Merrill Lynch.

Kash Rangan -- Bank of America Merrill Lynch -- Managing Director

Hi. Thank you very much. Safra, I am looking at your SaaS guidance. Clearly, the business seems to moderate into the 28ish%-type growth here.

At this point, how do we get the margin leverage that you've always talked about heading to 80%? Seems like on a year-over-year basis, you're showing an improvement but from 60% to 70% to 80% and what looks to be perhaps, I am not putting words in your mouth, in the space of a year. So seems like a pretty big leap. And I am curious to get your thoughts how the company manages to accomplish that goal? Thank you. That's it for me.

Safra A. Catz -- Chief Executive Officer

In running our SaaS business, it's really now getting to a scale and we're able to use the number of new technologies that we're rolling out through the business that is giving us a lot more capacity. So before, we had to invest more for the same amount of users than we do now. And so we've got quite a lot of capacity improvement. And, in fact, we're not going to need to make too many more infrastructure investments into the SaaS business and yet handle a much larger install base.

I don't know if anybody else wants to add to that.

Mark Hurd -- Chief Executive Officer

For example, as we fully deploy database multi-tenancy in our SaaS estate, we double our capacity without spending one penny on hardware. We can help twice as many customers, twice as many transactions, twice as many users without spending one dollar. So, those are kind of technologies that are going to allow us to dramatically improve our SaaS market.

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

Kash, it's a straight math. So at our current SaaS business and in our play-out, we're spending $1.3 billion, roughly speaking, in expense when you reverse engineer the gross margin. To Safra's point, we're just simply not having to buy a lot right now, buy a lot in the context of adding more expense. So if you just dial forward our bookings, you put $1 billion of revenue on the top, you're roughly at that number.

Kash Rangan -- Bank of America Merrill Lynch -- Managing Director

And Mark, I think you just said that only 15% of apps customers have moved to the cloud. The other 85% is ahead of you. Couldn't the company grow even faster in SaaS given that you have a significant option and you had a few? That's it for me. Thank you.

Safra A. Catz -- Chief Executive Officer

To clarify, first, you understand that that 15% have started. This is not 15% have moved all of their apps to the cloud. They've just started. So there's a ton of room here, a ton.

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

There's a lot wrapped into that quote that I put out there. So let me try to unpack it a little bit. So in terms of if you looked at the core, meaning I have core e-business suite solutions and I replaced it with a cloud financials SaaS application. That percent of our user base that has moved is low single digits.

The less than 15% number we put out is the percent of our user base that has some cloud applications that they are now using. The percent of our user base that is in our pipeline now is getting to be fairly extensive, meaning it's multiple 10s percent of our user base. And to your point, when we convert a traditional on-premise application to SaaS, we typically get three times the revenue. The bulk of our bookings, the bulk of our revenue today is not from our user base.

In addition, one of the biggest users we have has now just migrated to the cloud and that would be us, Oracle. We have migrated the entire company to SaaS. That's an important point because we've moved really the suite of ERP capabilities that we had traditionally on-premise now to the cloud. So, to your point, the ability to accelerate that growth rate, and I have not given this number what we could do by taking market share and all of the above, which we truly believe we are and will continue to do, but just moving the user base does turn us into a very, very large SaaS business and, to your point, very well accelerates our growth rate.

I would like to add one thing to that. We have some very high growth rate SaaS businesses like ERP and HCM and we have some that we developed organically and we have some slower growth rate SaaS businesses that we've acquired many years ago. As the mix changes, you see all the growth is coming from Fusion ERP, Fusion HCM, NetSuite. It's also we expected to happen in the later part of this quarter.

As you see this shift to the higher growth rate SaaS services, I expect [Inaudible] changes and Fusion ERP and Fusion HCM and that's where it became a larger percentage of the total. Again, to quote Mark, the math just says the growth rate should accelerate because of the mix change. I also think that's very important. Also, the renewal rates are much higher in the high-growth SaaS services.

So Fusion ERP, Fusion HCM, NetSuite have much higher renewal rates than we have in some of the older acquired SaaS products. So the combination of faster sales and higher renewal rates should dramatically increase our growth rate in our SaaS business.

Mark Hurd -- Chief Executive Officer

You asked a simple question and you got a lot of [Inaudible] in there.

Kash Rangan -- Bank of America Merrill Lynch -- Managing Director

I got an analytical answer from Larry. Thank you.

Mark Hurd -- Chief Executive Officer

And the reason I said to you is because it's important to understand we actually don't have a SaaS business that really grows at the rate we report SaaS. We have acquired businesses that are growing low single digits that we've had for a while. Fusion's growing mid-60s with the potential to grow higher. We have NetSuite that we acquired that's growing mid to high-teens, but to Larry's point, we think it's going to start, we'll start to see the numbers grow faster, and then vertical businesses that are growing roughly 20.

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

And as you see Fusion becoming a larger and larger percentage of our total SaaS business, then the change in mix -- right now you certainly have a very large Fusion SaaS business growing at a high rate, which then dwarfs those slower-growing acquired businesses. So, the reacceleration, again to quote Mark, was just a matter of math.

Operator

Our next question will come from the line of John DiFucci, Jefferies.

John DiFucci -- Jefferies -- Analyst

Thank you. My question also, I think, has to do with the BYOL and I'm just trying to figure this out. Mark, from our field due diligence, the flexibility offered customers with BYOL is something they really appreciate and it's certainly unique out there. There's just no one else doing that and other vendors are getting pressure to do it because you guys are doing it.

I guess, when I look at your results here and I see the cloud revenue been moderating pretty aggressively over the last couple of quarters, I buy into the whole ecosystem thing that you're talking about, it makes sense to me that BYOL, that would be a result but I'm just trying to figure it out because it looks pretty aggressive and I'm getting pinged with emails too. Is that what it is or is it sort of law of large numbers too? And you said it accelerated a couple of times, to use that word, and when I think of that whole ecosystem. Well, that whole ecosystem, is that what you guys think will start to happen at some point hopefully in the near future?

Mark Hurd -- Chief Executive Officer

Well, that was about 20 questions. So, I'm going try to do my best to unpack it. You started talking about the database and then you introduced my comments on acceleration, which was mostly in apps and mostly around one portion of the apps ecosystem, which is SaaS. Let me go with the tech.

I'm sure Larry is going to want to chime in on this as well. The concept around BYOL is we don't want our customers to pay twice. So they get the opportunity to buy our license, they can bring that license with them to the cloud and they can bring, for example, a database license to the cloud and take advantage of that by the appropriate infrastructure, compute, storage and then with that perhaps some PaaS automation. And if customers choose to buy that way, that will improve our license business the way it's reported and it may have an effect on our cloud business in tech.

And that's why I focus you on the ecosystem growth and the ability for us to grow faster. And then you have to add to it. We are just really bringing the autonomous database to the market [Inaudible]. So that's going to go through its phases to bring the market.

And I told you this, John, over the past several quarters, our tech ecosystem without the autonomous database, has been taking a little bit of share. I think the autonomous database is the most important thing we've announced in years. And I don't think the autonomous database -- I don't want to be sarcastic because I don't want to be misprinted -- it will accelerate our tech ecosystem growth.

John DiFucci -- Jefferies -- Analyst

OK, that's clear. Thank you.

Operator

Our next question will come from the line of Adam Holt, MoffettNathanson.

Adam Holt -- MoffettNathanson -- Analyst

Hi, everyone. Thanks for the question. We've been very focused on your total new-license or new-software revenues, which includes license revenue and cloud. There's been some movement about which has been a little bit better, which has been a little bit worse in the last couple of quarters but if we were to boil down all the comments you've made on the last couple of questions, think about the mix between license growth and cloud on a go-forward basis, do you think that license growth could get close to break-even? And then just for you, Safra, you started to really buy back some stock, which we love this quarter.

Could you give us maybe a sense of what we should be thinking about from a share count perspective going forward? Is this the new normal on now the buyback level? Thank you.

Safra A. Catz -- Chief Executive Officer

Well, I don't usually tell you in advance how much I'm going to buy back. So we did $4 billion in this quarter, seems like a reasonable amount to do. Don't really know what to tell you because I don't usually give guidance on my buybacks. Don't expect it to exceed that in the next quarter.

Adam Holt -- MoffettNathanson -- Analyst

That's great. And then the question about license mix versus cloud?

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

There is no doubt that BYLO when you're bringing your license to the cloud, encourages customers to continue license purchases. If [Inaudible] buy more database licenses, continue to buy database options like multi-tenancy to buy database options like real applications clustering and the like. And, again, our customers love the idea that once they make an investment in the license, they can use that license on-premise or in the cloud, you can deploy it in either place. So what historically people have thought of our license business is kind of traditional on-premise business.

In fact, that is simply not the case. In fact, more and more our licenses are being deployed in our cloud. By the way, they're not just being deployed in our cloud. Our licenses are being deployed in the SalesForce cloud, in the SAP cloud, in the Microsoft cloud, in the Amazon cloud.

So, again, our license technology business is not a legacy business. These licenses are going to be used and are being used more and more in the modern cloud, not just the Oracle cloud but our competitors' clouds as well.

Mark Hurd -- Chief Executive Officer

And, I guess, I would just say that I know how badly everybody wants to micro-analyze every single number and it's why I've tried to focus you back on the ecosystem. We've grown our software business year to date 8%. Some of that shows up in the license. Some of that shows up in the cloud.

Now, we have a couple of drivers we've talked about on the call. We've autonomous database. That's going to show up in both license and cloud. It's a fungible currency in the context of the earlier question but I can now buy a license and I can bring it with me to the cloud.

It could show up in either bucket. And, again, focusing on the overall ecosystem growth is important. The apps, we've talked about the user base and our ability to migrate to that user base. What effect will that have? That will show that apps' support revenue goes down, SaaS revenue goes up.

And so these things are going to go on simultaneously. And, again, I'll say it one more time. I think trying to micromanage every line is probably the wrong way to look at the company because we've got multiple drivers here but they're all driving toward more overall software growth. Some could come in the cloud, some could come in the license but we're going to continue to gain share in both ecosystem segments.

Adam Holt -- MoffettNathanson -- Analyst

That's sounds great. Thanks very much.

Operator

Our next questions will come from the line of Heather Bellini, Goldman Sachs. Heather, go ahead with your questions.

Heather Bellini -- Goldman Sachs -- Managing Director

Mark, I know you don't want us to micromanage and fixate on license revenue but you guys were seeing this segment shrink 10% to 15% over the last couple of years in '16, a big change in that performance over the last few quarters. One of the big questions that keep coming up is what's driving the performance? And, again, not trying to micromanage it but there's a big debate of how much of it is just 12cR2 benefits and therefore may be more one-time in nature versus maybe customers that are recommitting to Oracle ELAs because of some of the things they see that you're doing on the innovation front. And, I guess, quite frankly, people are just trying to get a sense of how they think about growth in license as a result of all that over the course of the next year?

Mark Hurd -- Chief Executive Officer

Well, I think my answer may be yes but I do think at the core of it is what we talked about earlier. "Bring your own license" gives now the customers, instead of having to figure out how much I am going to buy here or there, I now get the ability to commit to a technology and we, the customer, now have a currency that I can bring to whichever environment I want, whatever quantities I want. And it now gives the customer ultimate flexibility and that's what customers want. So BYOL as a concept has given our customers a lot of relief.

You add to that the fact that we also move to universal credits, now gives the customer the opportunity to make even a cloud decision and reapply those credits across multiple cloud services. So this is, Heather, I would say, a very customer friendly environment we've created now in terms of the way they acquire our products and it's having an effect on the market.

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

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

Heather Bellini -- Goldman Sachs -- Managing Director

In technology.

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

In technology.

Operator

Our next question is going to come from the line of Brad Zelnick, Credit Suisse.

Brad Zelnick -- Credit Suisse -- Managing Director

Thank you so much for taking the question. On autonomous database cloud, Larry or Mark perhaps, can you talk about the impact that it would have on converging economics from on-prem because I have to imagine you're going to get a better multiple and the 3X that you've talked in the past as you generally get with regular database as a service?

Mark Hurd -- Chief Executive Officer

Well, the amazing thing about the autonomous database is it's the only database on the planet that requires no human labor to administer the database. There are no DBAs tuning the system. There are no DBAs applying security patches. There are no DBAs backing up the system or recovering the system.

It's all the done automatically. But with the bulk of the cost of running a database is human labor. It's not buying the software. It's not buying the cloud service.

It's not buying the hardware or the cloud services or anything else. It's the human labor and we basically take that to zero. So there is huge value by getting rid of this human labor. By the way, it's not only cost savings.

I think I said earlier in my opening remarks, also if you eliminate human labor, you eliminate human error. That gives you a much more secure system, nobody forgets to patch something and your CEO ends up getting fired or on the front page of the newspaper. No one forgets to apply a security patch and your data is stolen. That's all automated.

So you have a much more secure system, you have a much more reliable system but you have to [Inaudible] pay less because human beings cost a lot of money and we've automated them out of the system. So we think this new autonomous database is again maybe the most important thing Oracle has ever done in terms of data management and we are the number one data management company on the planet right now and have been for some time. We think this is a very big deal. We think that bulk of our customers are going to move to autonomous database.Now, when we talk about migration when you move from an on-premise database to an autonomous database, you kind of press one button because you don't have to set up indexes or retune it or do anything else.

Your data automatically move from on-premise into our autonomous database in our cloud, running on high-performance gear, if you're running Exadata on-premise, it will run at the same speed. If you're not running at Exadata on-premise, it will run 10 times faster by moving to the cloud and it runs multiples of times faster than Amazon.OK, Oracle's got a faster database than Amazon, it's no big surprise there, but the interesting thing is Amazon charges by the minute and we charge by the minute. Our prices are essentially the same or close enough. If we run 10 times faster, we are one-tenth the cost of Amazon database and that's what it is.

I mean, we've done all these public benchmarks. You can go and look at them. We're one-tenth the cost. We automatically apply security patches.

We eliminate human labor. It's a huge benefit to our customers to move to the autonomous database. It just went live a couple of weeks ago and we expect it's going to change the profile of our company forever.

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

Brad, to your question about the multiple, the answer to your question is yes.

Brad Zelnick -- Credit Suisse -- Managing Director

OK, thank you.

Operator

Our next question will come from the line of Mark Moerdler, Sanford Bernstein.

Mark Moerdler -- Sanford Bernstein -- Managing Director

Thank you very much. Safra and Mark, software support with constant currency have been growing 2% to 3% year over year in the recent quarters but it was only up 1% this quarter in constant currency. Are you seeing increased cannibalization of the on-premise business by your own Oracle cloud SaaS and PaaS or are there other factors that are coming in?

Safra A. Catz -- Chief Executive Officer

Actually, all you're really seeing is seasonality. If you're sort of asking our cancellation rate's way up, they are not. And in technology and especially with BYOL, there's absolutely no reason. And in some cases for our customer in the cloud and in the apps business, you will see cancellation.

It turns out to be not that large in the overall base. And so the overall cancellation rates for the company are actually the same. They've not moved at all and all you're seeing for the quarter is seasonality. I don't know, Mark, if you want to add anything.

Mark Hurd -- Chief Executive Officer

Everything she said is right and I'd say nothing other than to say it's a little bit of two different stories. So in database support, database support is growing. I just want to make sure, it's growing. It's growing materially.

It's not growing 1%. It's growing more than 1%. Apps support is declining. In our case, the bulk of our apps support is ERP.

That is the bulk of our application support. We want to migrate that to SaaS. So, over time, I have no issue if the ERP cancellation goes up as we migrate those customers that I talked about earlier to SaaS. And to Larry's earlier point about BYOL, BYOL very likely will have the impact of continuing growth in the tech support part of our business and the applications now, as I described, is very much a byproduct of the migration of our support to SaaS.

Does that help?Mark MoerdlerJust a quick follow-up. If it's seasonality, Q3 is going to be weaker effectively and other quarters are going to be better. Is that the way we should be thinking of models? Can you give more detail?

Safra A. Catz -- Chief Executive Officer

It just happens to be when we do the renewal. So I think you will see a return. And because you compared a full year to one quarter, I think you will see that it sure will recover. And remember also that some of it has to do with first-year support.

So, since we're selling less apps licenses, we have less first-year support associated with those licenses and that's been for the past few years. So, the amount for me is a little bit less. Cancellation rates are the same. And then we have some folks on the app side migrating but that's it.

Still growing.

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

Let me just real quickly, on the applications business, if someone moves from the e-business suite to the Oracle [Inaudible] to Fusion ERP, they stop paying support, support goes down and 100% of the Fusion ERP revenue is recognized in the cloud. This is in contrast to our tech business where if someone has an Oracle license or buys an additional Oracle license and then brings that license to the cloud, our license business stays the same or goes up. And part of the autonomous database that's running in the cloud is recognized as part of the license in support business and part of the revenue for the autonomous database is recognized as cloud revenue. So it's split.

So these two businesses operate very differently. In our applications business, we're migrating people from an older generation of applications to a new generation of applications. We're actually changing from one product to another. We're changing from e-business suites to Fusion ERP, which is a different product.

One runs on-premise, one runs in the cloud. Our tech business is very, very different.

Mark Moerdler -- Sanford Bernstein -- Managing Director

Excellent. Very [Inaudible]. Thanks.

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

Oracle database is on-premise. You run the same Oracle database in the cloud. So we don't expect any shrinkage. As Mark said, we expect our license business, our new license business, our license in support business for tech, specifically database, to continue to grow even as people migrate those databases to the cloud.

Safra A. Catz -- Chief Executive Officer

Yes but net-net tech [Inaudible] completely unchanged.

Operator

Our final question will come from the line of Kirk Materne, Evercore ISI.

Kirk Materne -- Evercore ISI -- Senior Managing Director

Hi. Thanks very much for taking the question. Mark, when you look at the opportunities in front of you in the ERP market, we've absolutely seen an inflection in demand in CRM and, I would say, HCMs, started over the last couple of years. When you think about ERP, do you see an inflection on the horizon over the next 12 to 18 months? And can you just discuss maybe why and if we do see that, how do you see the competitive environment shaping up? Thanks.

Mark Hurd -- Chief Executive Officer

Well, 1) in ERP we are the leading vendor in the world and the No. 2 company is hard for me to find. So let me start with that. So when I look at SaaS, there is no other company that has the ability to take customers to the cloud with a true SaaS offering.

So full stop. Second, we have an inflection point, clearly. with our user base. So our user base, as we've tried to talk about today, has only begun to move.

And so just to the earlier question, imagine what happens to our applications revenue when we multiply 3 to 1, actually our revenue doubles, our support revenue doubles. We lose support revenue. We get three times that revenue in the cloud. All I did in that math was talk about our user base.

The bulk of what we book today in many cases is outside our user base.

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

Someone else's user base.

Mark Hurd -- Chief Executive Officer

Somebody else's user base. We are gaining share from other companies. So I don't want you to walk away from this all thinking "I got it. Their SaaS revenue is really limited to their user base." I just talked about that in the context of one catalyst to our SaaS revenue, which is converting our existing customers, just upgrading them to the latest version of ERP, which is SaaS.

I truly believe the opportunity is materially bigger than that. Most of the ERP market doesn't sit with SAP, by the way. The majority of the market doesn't sit with Oracle or SAP. It sits with this category called "others." And as others would like the opportunity to move to SaaS, we're in the best position in the world, worldwide, to move those companies to SaaS.

So moving our user base has a dramatic implication on our applications ecosystem. If we're successful to continue to take share at the same time, yes, it's a pretty exciting opportunity for us. And that's why you hear us talk about it so much.

Ken Bond -- Senior Vice President

Thanks, Mark. A telephonic replay of this conference call will be available for 24 hours. Dial-in information can be found in the press release issued earlier today. Please call the Investor Relations department for any follow-up questions from this call and we look forward to speaking with you.

Thank you for joining us today. With that, I'll now turn the call back to Holly for closing.

Operator

Thank you for joining us for today's Oracle Third-Quarter 2018 Earnings Conference Call. We appreciate your participation. You may now disconnect.

Duration: 54 minutes

Call Participants:

Ken Bond -- Senior Vice President

Safra A. Catz -- Chief Executive Officer

Mark Hurd -- Chief Executive Officer

Lawrence J. Ellison -- Chairman of the Board and Chief Technology Officer

Raimo Lenschow -- Barclays Investment Bank -- Managing Director

Kash Rangan -- Bank of America Merrill Lynch -- Managing Director

John DiFucci -- Jefferies -- Analyst

Adam Holt -- MoffettNathanson -- Analyst

Heather Bellini -- Goldman Sachs -- Managing Director

Brad Zelnick -- Credit Suisse -- Managing Director

Mark Moerdler -- Sanford Bernstein -- Managing Director

Kirk Materne -- Evercore ISI -- Senior Managing Director

More ORCL analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than OracleWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Oracle wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of March 5, 2018

The Motley Fool owns shares of Oracle and has the following options: short June 2018 $52 calls on Oracle and long January 2020 $30 calls on Oracle. The Motley Fool has a disclosure policy.