Welcome to Oracle's quarter four 2016 earnings conference call. I'd now like to turn the call over to Ken Bond, Oracle's Senior Vice President. Please go ahead, sir.
Thank you, operator. Good afternoon, everyone, and welcome to Oracle's fourth quarter and fiscal year 2016 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 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. 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. With that, I'd like to turn the call over to Safra.
Thanks, Ken. Good afternoon, everyone. I'm going to focus on our non-GAAP results for Q4 and fiscal year 2016. I'll then review guidance for Q1 and provide some color on FY 2017. Then I'll turn the call over to Larry and Mark for their comments. Clearly, we are thrilled with our results, with the most obvious thing being that we dramatically overachieved again in the cloud. For most companies, as their business grows, the growth rates go down. In our case, as the business grows, the growth rates are continuing to increase. In our SaaS, PaaS business, we reported 20% growth in fiscal year 2014, 34% in FY 2015, and now 52% in FY 2016. Not to get ahead of myself, but we expect to see even higher SaaS, PaaS growth this year.
We'll continue to use constant dollar growth rates on our quarterly calls so we can have some measure of consistency across the quarters, as well as to reflect how we measure the business. This past quarter, the effects of currency movements were slightly less than expected, with a 1%-2% headwind in most revenue categories, including 1% to total revenue and a $0.01 headwind to earnings per share. Cloud, SaaS, and PaaS revenue for the quarter was $691 million, up 67% from last year and well above the 61% high end of my guidance and up 17% sequentially. As regard to our cloud revenue accounting, we have reviewed it carefully and are completely confident that it is 100% accurate and, if anything, slightly conservative. You can also see the continuing revenue acceleration of our cloud business in the SaaS and PaaS billings and deferred revenue.
The gross deferred revenue balance is now nearly $1.4 billion, up 64% in U.S. dollars. SaaS and PaaS billings grew 38% in U.S. dollars this quarter. We've put the billings numbers up on our website for you to see the detail. Though there will be seasonality to some of these numbers, we are now growing faster than both Salesforce and Workday in every way: revenue growth, deferred revenue growth, and billings growth. As our SaaS, PaaS business continues to scale and grow dramatically, the growth margin continues to expand. The Q4 growth margin for SaaS and PaaS was 57%, up from 40% last Q4, and we expect to see further improvement in FY 2017. From there, we'll be targeting 80% over time.
Combined with cloud infrastructure as a service revenue of $169 million, which was up 8%, our total cloud revenue in the quarter was $860 million, up 50% from last year. Total on-premise software revenues were $7.6 billion, with software updates and product support revenue at $4.8 billion, up 4% from last year. Attach and renewal rates remain at their usual high levels as our growing installed base of customers continue to power earnings and cash flows. New software license revenues were $2.8 billion, down 10%, reflecting the accelerated migration to cloud. Total hardware, including hardware support, was down 7%, with hardware systems product revenue of $725 million and hardware support revenue of $558 million. For the company, total revenue for the quarter was $10.6 billion, up slightly in constant currency from last year. non-GAAP operating income was $4.8 billion, and the operating margin was 45%.
The non-GAAP tax rate for the quarter was at 24.4%, and EPS was $0.81. The GAAP tax rate was 24.6%, and GAAP EPS was $0.66. Had currencies not moved, by the way, non-GAAP EPS numbers would've been $0.01 higher, and GAAP EPS numbers would've been $0.02 higher. Covering the full fiscal year, total software and cloud revenues totaled $29 billion, growing 3% in constant currency. Cloud SaaS and PaaS were $2.2 billion, growing 52%. Cloud infrastructure as a service was $646 million, growing 11%. On-premise software grew slightly in constant currency to $26.1 billion, as continued growth in software support offset cloud-related declines in new software license.
Our SaaS and PaaS business has now grown to the point that we expect the dollar growth in SaaS, PaaS revenue will exceed the dollar declines in new software license in fiscal year 2017 and beyond. More importantly, when you look at our software business, we have an on-premise business basically growing a bit or flattish, and the cloud business layering on top of that, growing very fast and growing as a percentage of the software business. You can understand why we start growing significantly this year. For the year, total revenues grew 2% to $37.1 billion, and operating income was $15.8 billion. Assuming no more wild currency swings this fiscal year, I expect that we will see operating income growth this next year. Our non-GAAP operating margin for the full year was 43%, and non-GAAP EPS was $2.61.
Had currencies not moved, non-GAAP EPS would've been $0.17 higher. Operating cash flow over the last four quarters was $13.6 billion, with capital expenditures for the quarter at $180 million. Free cash flow over the last four quarters was $12.4 billion. We now have approximately $56 billion in cash and marketable securities. Net of debt, our cash position is approximately $12.3 billion. The short-term deferred revenue balance is $7.7 billion, up 7% in constant currency. As we've said before, we're committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases, prudent use of debt, and a dividend. In terms of acquisitions, we continue to focus on finding the right companies at the right valuations that make both strategic and financial sense. This quarter, we repurchased 49 million shares for a total of $2 billion.
Over the last 12 months, we've repurchased 272 million shares for a total of $10.4 billion. We've paid out dividends of $2.5 billion for a total that is 105% of our free cash flow. The board of directors again declared a quarterly dividend of $0.15 per share. Before I turn to guidance, I would like to provide a brief update on the operational transformation that I highlighted last quarter as we are working to position Oracle as our customers' strategic partner for the cloud. The first phase, called the Accelerated Buying Experience, was rolled out in March. It was designed to make purchasing cloud services from us fast and simple and was built using our own Oracle Configure, Price, Quote, product, sales, and service clouds.
We believe that we're the first enterprise technology vendor to use click-to-accept functionality for our enterprise customers, that enables our customers to complete their orders with a click of the button. The results for Q4 were fantastic, as nearly two-thirds of our cloud deals were processed using the Accelerated Buying Experience, we saw the quote-to-book times reduce dramatically. These results are truly amazing given we introduced the program in Q4 and salespeople had very little time to get used to it. Our customers could then start using our services faster. We feel very good about the progress of our cloud transition, clearly, customers are embracing the move with us. We now have the most complete set of cloud services in the industry, with thousands of our customers around the world already using these cloud services to help run their businesses.
We are far enough along that our financial statements will begin to show our success with accelerating revenue growth, operating margin expansion over time, leading to very solid EPS growth. My guidance will reflect this, making it easier to see that we are a force to be reckoned with in the cloud. Now to my guidance. I'm going to give you my guidance for Q1, and then some preliminary comments for fiscal year 2017. All of my guidance is on a non-GAAP basis and in constant currency. If current exchange rates remain the same as they are now, we expect to see a currency headwind of about 1% on some parts of cloud revenue, but very little effect on total revenue and EPS.
While we feel fantastic about our own performance and transformation, I'm definitely keeping an eye on the macro environment, especially abroad, and I'm going to be a bit conservative in my outlook. Even with that said, for Q1, I'm raising my earlier guidance for SaaS and PaaS revenue, which we now expect to grow 75%-80%. This guidance reflects a bit of additional revenue from acquisitions and higher guidance for the organic business. Software and cloud revenue, including SaaS, PaaS, and IaaS, new software license, and software and support, is expected to grow 5%-7%. Total revenue growth is expected to range from 2%-5%. Non-GAAP EPS in constant currency is expected to be somewhere between $0.56 and $0.60, up from $0.53 last Q1, depending on the mix of revenues and, of course, the tax rate.
Over the full year for FY 2017, I expect SaaS and PaaS revenue growth will be higher than the 65%, up from 52% in FY 2016. SaaS and PaaS growth margins should exit Q4 FY 2017 much higher than the 57% reported today, as we show steady and continued improvement through the year. As I mentioned earlier, operating income is also expected to grow in constant currency. With that, I will turn it over to Larry.
Thank you very much, Safra. In the fiscal year just started, FY 2017, Oracle has two specific points of focus. First, we'd like to accelerate our SaaS and PaaS growth and make sure we're growing at least double the rate of our closest competitors. We think we have a fighting chance to be the first SaaS company to make it to $10 billion in revenue. We're the second-largest SaaS company in the world now, and we think we can be the largest SaaS company pretty quickly. By the time we hit $10 billion, we think we're going to be the first one there. Why do I think that's possible? One is we're already growing at a very high rate, much faster than our competitors. We've proven we can do this. Can we keep it up as our business continues to scale?
Safra pointed out something that's kind of shocking, that as we scale our business, our growth rates are going up. Why is that? The explanation is our SaaS portfolio. We compete in virtually every important SaaS area there is. We're a major player in ERP and HCM. We're almost the only player in supply chain and manufacturing. We're the number one player in marketing. We're very competitive. We're tied for number one in service. We compete against Salesforce.com in sales automation. In all of these areas, we compete. Salesforce.com, which is the largest SaaS company, is really focused on sales automation and some of the other customer experience aspects. They just bought Demandware. They're making acquisitions. They're growing their business, but they're in the customer experience sales area. They don't compete in the largest category, which is ERP. Also not HCM. Again, supply chain and manufacturing.
We think that gives us a huge advantage that our footprint is wider, and some of these mid-market companies can simply get an all-Oracle footprint, run their entire enterprise in the cloud on Oracle. That is something that Salesforce can't offer, and we think that's going to serve us very well and allow us to keep these very high growth rates while we go for that, to be first to $10 billion. Okay, that's one thing. We want to be number one. We think we need to be number one. We think we will be number one in SaaS and PaaS. Second major point of focus is that our generation two of our infrastructure as a service data centers have been built and stocked with computers. Now we're beginning to bring our customers into these new data centers.
Infrastructure as a service is the third leg of Oracle's cloud strategy. Obviously, SaaS, we talk about a lot, and PaaS, we talk a lot about, because those two businesses are growing very rapidly for Oracle. What's going on in infrastructure as a service? Well, we've learned a lot about this business. There's a huge amount of demand, by the way, for our infrastructure as a service from our existing SaaS customers and our new SaaS customers. Even bigger amount of demand for infrastructure as a service from our database customers. Our database customers want to move their applications into our cloud, putting their database onto our platform as a service. Then their applications, a lot of custom applications, onto our infrastructure as a service. These two things go together.
We've built, again, the second-generation data center, which we think is highly competitive with anything out there. Lower cost, better performance, better security, better reliability than any of our competitors. There's huge demand for it, and we're now starting to bring customers into that. We think that's another very important driver to Oracle's overall growth. We're growing fast in SaaS, we're growing fast in PaaS. Now we need to grow fast in infrastructure as a service. We've made the investment. We have the right technology with our second-generation data centers, and we're very excited about the potential for Oracle with the combination of PaaS and infrastructure as a service for our huge installed base of database customers and helping them move to the cloud. I'll turn it over to Mark.
Thanks, Larry. A few more numbers and we'll take your questions. Cloud bookings over $600 million in USD, 52% growth for us in Constant Currency. As a reminder, last year we grew more than 200%. This comparison or this number is against that comparison. In SaaS, roughly $350 million in USD bookings. In PaaS, over $250 million. One point of clarification, our ARR bookings are only for new and expansion. I've had some questions about do we include renewals in our bookings? We do not. Renewals are a separate bucket of bookings, kept separate in our ARR reporting. As it relates to renewals in the quarter, our renewals for the quarter were up 200 basis points year-over-year. SaaS PaaS revenue, we grew 67%. We grew 17% quarter-on-quarter. ERP/EPM was 58% growth quarter-over-quarter. In HCM, we had our strongest growth rate in three years.
That's as our business has gotten bigger. In CX, all sales, marketing, and service revenue growth rates were up double digits. In Data as a Service, we nearly doubled year-over-year. Platform as a Service had another breakout quarter. We nearly doubled quarter-on-quarter. Within doubling quarter-on-quarter, our Database as a Service business more than doubled quarter-on-quarter. Our SaaS PaaS billings grew 48% in FY 2016. Our SaaS PaaS deferred revenue grew 64%. To Safra Catz's point, I want to say it again, grew much faster than salesforce.com and Workday. I want to come to another set of numbers that are actually probably more exciting, our customer metrics. In the quarter, we closed 1,640 new SaaS customers. Nearly two-thirds were Fusion wins. We had 917 customer expansions. That is an all-time high for us. 273 customers who bought SaaS also bought PaaS. I want to make sure you understand that connection point.
We think that connection will actually grow higher as time goes on. Our SaaS install base is now roughly 12,000 customers. In the quarter, we had almost 700 CX customers and 600 expansions. In HCM, 318 new customers, 900 for the year, nearly two and a half times that what Workday reported. In ERP, we had 808 new customers in the quarter. I want to make sure I didn't misspeak. It's 808 new customers in the quarter. We doubled the FY 2016 count in Q4. Almost 50% of those customers never had an Oracle app. Our install base is now over 2,500 customers, nearly two and a half times the install base from last year. We have 1,577 customers now live on Fusion. We added nearly 1,000 go lives this year. In PaaS, we added 2,005 new PaaS customers. Our install base is now nearly 9,000 customers.
In closing, this was a big year for us, not only in revenue, but bookings as well, where we sold more than $1.4 billion in ARR. I'm going to make a couple predictions for the new year. We had a big year in bookings in FY 2016. We will have a bigger year in FY 2017. Our pipeline is actually today up more than our bookings and our revenue reported growth rates. Revenue growth of 52% this year. Our growth rate will be higher than 65% in FY 2017. As Larry and Safra Catz both mentioned, as our business gets bigger, we continue to grow faster. With that, we'll take whatever questions that you might have.
Thank you. We'll now begin the Q&A session. To ask a question, press star one. Our first question will come from the line of Mark Moerdler with Bernstein Research.
Thank you very much for taking my question, congrats on your cloud progress. I'd like to drill in specifically into Platform as a Service. Two parts to my question. The first is, can you give us some more color on your success in PaaS? Second, specifically, can you help us with understanding how you're expanding the TAM via database, middleware, et cetera, and what are the drivers? Is it newer segments, higher revenue attached from existing customers? Any help would be appreciated.
Mark, I'll start, then I think Larry's going to chip in. No question about it that the total available market expands, because obviously when we win, just like in SaaS, if we win in SaaS, we actually get all of the middleware, all of the database, all of the hardware. We get really all of the services. We get this multiple of support that when we get an application, the whole stack comes with us. The same thing, in effect, occurs when we get Database as a Service as well. With it comes all of the other services that come with it as well. In addition, we get to expand our TAM to a whole new set of customers that otherwise we would never have gotten to.
We get now to a whole set of mid-market customers that frankly, we just didn't have an opportunity to sell to before, because you had to have a data center, you had to have a computer, and you had to have a staff. Now all of that TAM has expanded as well. It's a broader market set we get to and a whole set of market share that comes with it.
The other thing is the network effect between SaaS, PaaS, and Infrastructure as a Service. If you have, let's say, your ERP application, and it's an Oracle ERP application, you want to build a bunch of data warehousing applications on top of the data from your ERP system. In a sense, you could say well it's perfectly reasonable to have the ERP system at Oracle, I'll put the data warehousing situation at Microsoft Azure. If you actually look at the pricing of cloud pricing, the one part of cloud that's expensive is moving data out of data centers. That's one thing they charge you a lot of money for. That's just kind of industry pricing, the way it works. Moving data between data centers, back and forth, back and forth between data centers, can be quite expensive.
There is an advantage built in for us if we have the ERP data and we have the ERP system. We have a built-in advantage by offering our PaaS and our Infrastructure as a Service as a set of tools to allow you to build your data warehouses in your data marts using that ERP data. I think that gives us a very significant advantage, the interaction between SaaS and PaaS, and the interaction between PaaS and Infrastructure as a Service. I'll go back to Infrastructure as a Service. Well, why shouldn't I just move to Amazon? Amazon's been doing this for a while, they got Infrastructure as a Service. Well, because we handle the Oracle Database much better than Amazon does. We can run very large Oracle databases. We run it fault tolerantly. We just do a better job.
This is not the place for me to give you a technical proof, we do a better job than they do on the Oracle. They run Oracle databases, we do a much better job. We run it faster, more reliably, more securely. Well, if I've got the database in an Oracle data center and in the Oracle Cloud, it makes sense for me to put the application in a computer right next to that. That's higher performance, much lower cost, because I'm not moving all this data in and out of an Amazon data center and in and out of an Oracle data center. Those things are going to tend to be co-located.
We think we have some built-in advantages of being a strong player in SaaS and a strong player in PaaS. A lot of customers will want to get their Infrastructure as a Service or they're related to Infrastructure as a Service from the same cloud supplier and in the same data center.
Excellent. I really appreciate it.
Thanks.
Our next question will come from the line of Heather Bellini with Goldman Sachs.
Thank you very much. Safra, you mentioned growth in operating income in your prepared remarks. I was wondering if you could help us think about how that translates into growth in operating margins.
We expect operating margins to go up also as this continues. Obviously, cloud margins are going through the roof. That's become obvious. We expect operating margins to increase. You've got revenue increasing and operating margins also increasing over time and operating income increasing also over time. This is actually a very, very important time for Oracle financially because what you see is that we have stopped having reductions really in any of the numbers, and we've turned up in every way, including EPS. I know for a while I was telling you this is a transition and all that, but I feel like we are officially at the complete end of the beginning, meaning we are now in the mode of increasing, improving EPS up, operating income up, revenue up, just everything. We've made the transition, and we are moving up from here.
I'd like to comment something in terms of margins. Our Gen 2 of our data center. Okay, what was wrong with Gen 1, no one asked?
Gen 1 was more expensive than we liked it. One of the great things about our Gen 2 data centers is we think we now have the best bang for the buck, the best cost performance data centers in the world with our Gen 2 data centers. We think we again deliver more performance at the cost of any cloud provider. We think that's another huge advantage for us, and we'll be scaling our business on this new, very cost-effective, most modern of all the cloud networks. That's going to help our margins enormously.
Great. Thank you very much.
Our next question will come from the line of Kash Rangan with Bank of America Merrill Lynch.
Hey, Oracle team. Congratulations on the results as well. Mark, I guess two sub-part questions for you. Try to keep it brief. One is, how would you explain the magnitude of outperformance on the SaaS and PaaS revenue growth rate relative to the midpoint of the guidance? Wondering if the milestone criteria are turning out to be faster than you expected, or maybe that's not the case. Secondly, as you look at your SaaS and PaaS revenues, they're a large number, and I'm curious, and also get questions from investors, as to what exactly is the relative size or magnitude of growth rates of the different categories here vis-a-vis HCM, ERP, and CRM, digital marketing? Any color you can give us there, that'll be fantastic. Thank you.
Sure. First, there's no one reason why we beat the revenue. It's all of the reasons. First, starts with we booked more than we planned, sort of point one. We not only booked more, we booked more faster than we thought. It improved our linearity as we went. Our team has done a great job in cloud ops from a provisioning perspective. Provisioning meaning we then sell more, we sell more faster, and then we actually get the customer up and running and live, and that has another effect on revenue linearity. In addition, as I mentioned, our renewals were 200 basis points over prior year. Not to say it was better than we expected, but it was good. It was solid, and that helped as well. We also had more usage on our platform.
We've had this continued sort of not linear, but geometric increase in the usage of our PaaS platform. Those that are not on subscription but on metered just used more. When you add up all of those things, and no one thing was 80% of it, Kash, it was really all of those things together that added up to the beat that you referenced. Your second question was the relative growth rates of the various businesses. I'd start with, they're sort of all good, would be the way I would describe it, and the question becomes degree of good. I gave you a number specifically on ERP, in terms of growth rate, and that number, I think I gave it to you quarter-on-quarter, in terms of growth rate. You know what I'll do?
As we get towards financial analyst day, I'll do more of a breakout pillar by pillar, but they're just all strong. Our performance in marketing, our performance in HCM. I can't help myself here. On HCM, the performance of our team on HCM was just superb. I mean, that's a global statement, Kash. If we went back to the days of four or five years ago, it's just amazing. Totally what our product team has done, our ability to release new product, our ability to get it to market, the references we've gotten. We did almost 1,000 new HCM customers this year, two and a half times the guy we were talking about three or four years ago. It was just a superb quarter for us, by pillar.
I think, to be honest with you, Kash, I think based on what I told you in my prepared remarks on the pipeline, I think it's going to get better.
Great to hear that. Congrats again.
Thanks, Kash. Next question, please.
Your next question will come from the line of John DiFucci with Jefferies & Company.
Thank you. I have a question about the database. You announced R2 of 12c back at Oracle OpenWorld, I believe there was a webcast scheduled that was postponed, where you were supposed to do earlier this month on the database. I realize you can't talk about the timing of general availability of R2, but can you talk about, I don't know, general anecdotes about early adopters for R2, then also your expectations of how this will be consumed by customers between license and cloud consumption? Because that'll help with us, regardless of how we think of it, how we're going to model it. Thanks.
As you know, R2, a lot of people don't migrate to the .0 or the .1 releases of our database. They wait for the .2 release so that it is completely stable. We have two key features in version 12 of our database. One is in-memory, the other is multi-tenancy. Both of those are in high demand. I think it's made version 12 of our database one of the most rapidly adopted versions in many years. The question is, what will that adoption look like? I think you'll see early adoption in the cloud. I think cloud's going to lead the adoption. We now have hybrid customers.
A typical customer might have said, "Okay, I'd like to start experimenting with Release 12, I'm going to put it on these five development computers over here." We're encouraging our customers to look at alternatives. Why don't you just use the latest version in the cloud? Why don't you do your experimentation and your testing and your application migration, and your upgrades in the cloud? It's going to save you some money, allow you to get access even faster. We think that's what's going to happen. We're also offering versions of our cloud hardware, our hardware configurations, that if you say, "Because for statutory reasons, I'm a bank, for statutory reasons, I really have a hard time moving this application into the cloud." No problem. We'll take our existing cloud hardware, the exact same configuration.
We will move it behind your firewall, we'll completely manage it for you behind your firewall. You'll buy it just like it's cloud. In other words, you won't buy the hardware. There will be no upfront cost for the hardware. There's no upfront cost for the software. It will look exactly like the Oracle Cloud. It's just the boxes will happen to be sitting on your data center floor behind your firewall. We're giving people more options to go to the cloud, making it easier for them to go to the cloud. When our customers go to the cloud, which is what we want them to do, we want them to go earlier, another opportunity to get them to move to the cloud is with accelerated adoption of 12.2 of our database. That's how we'd like them to consume it.
If they go to the cloud, they save money, and it's easier for them, and we make more money, and it's better for us. That's where we'll be pushing our people. Again, we're incentive, and the customer's incentive to get to the cloud as quickly as we can. How fast can we make that happen? We made it happen pretty fast in Q4, and we're going to keep pushing this fiscal year.
Thanks, Larry. That's helpful. Just one clarification. When you talk about cloud hardware configurations on premise, are you alluding to Exadata? Is that what you're talking about? Especially for the database.
Actually, it's very important. I'm glad you asked the question. Not just Exadata. No, it would be our infrastructure as a service configuration and our Exadata configuration together, which is PaaS. Exadata is really PaaS. It's just database as a service is what Exadata is when we install it as part of the cloud and we manage it for you. We have a separate box, where you're running Compute and block storage and all of our other cloud services. It's like we'd open another cloud data center. Imagine we open another cloud data center at JPMorgan Chase. I'm not picking on my poor friend Jamie Dimon. To the best of my knowledge, we don't have a deal to do that at JPMorgan Chase. Let's say they are uncomfortable. Again, they've got certain statutes. The regulators want them to do this behind their firewall.
They're uncomfortable with putting it in a public cloud. We would actually create a little mini version of our cloud data center on the JPMorgan Chase floor. We would manage it for them. They would not buy the hardware. They would not buy the software. They would just buy a cloud subscription, just like it's in our cloud. It just so happens we would locate that hardware, which we would manage. We would locate that hardware on their floor behind their firewall for more security. Again, it would manage as part of the Oracle public cloud. The hardware is identical. The software is identical to the Oracle public cloud. We're just allowing our customers that option. We're trying to make it easier for them and give them more options to get to the Oracle public cloud, even if you're a highly regulated bank.
Okay, great. That's helpful. Thank you.
The next question will come from the line of Philip Winslow with Credit Suisse.
Hey, thanks, guys, congrats on a great quarter, particularly in the cloud and the customer count number on the Database as a Service side. It was quite impressive in particular. A question for Mark. There's been a lot of discussion out there, or rumors just in the market about changes to the comp plan of the sales force focusing on cloud, not license, others saying that you're dropping the cloud compensation structure. Wonder if you'd just comment on if there are any changes to the comp program, the structure of the sales force, or kind of what they're focused on this fiscal year, that'd be great.
Sure. There really is no change to the quote-unquote structure when you throw that in. We are actually quite happy with our structure, in that context. Now, we've actually cleaned up a few things. I made some changes three or four years ago to which group calls on what, there were some things that we've done that I would describe them as de minimis in terms of changes. Who calls on what size of account, et cetera. There's a little bit of that. Frankly, not much else. We have made an investment, Philip, as I know you know, in what we call Oracle Direct. This is selling really a lot of inside sales with a little bit of outside sales that supplements it, we continue to raise the bar for those teams. It is a lower cost of sale.
It is a much more modern way of selling, it is our primary vehicle into what you would think of as SMB.
We've continued to expand their use, expand the amount of headcount, invest in tools. We talked, I think last quarter, about investment we made in Austin and the CapEx we spent to build out that very modern center. Think of more of that, Phil, more people, more support for that team, they're actually calling higher in terms of the size of accounts that they call them. Very effective for us, more people. When you look at our spending, our spending actually doesn't go up nearly as much as the amount of resource that we get as part of those investments. In terms of the comp plan itself, there is no decrease in cloud comp. That's just pure nonsense. If anything, we believe we pay to all salespeople that would like to make money.
You sell cloud at Oracle, you will make more money than anywhere else in the industry. That's our model, that's what we've done. In terms of on-prem comp, in just applications, these are applications that are not our GBU applications. Think of them as our horizontal applications. We now do not retire quota for a license sale. We retire quota just on cloud. They do receive some "comp" in the context as it relates to a license sale. Phil, to understand today, in horizontal apps licenses, the vast majority of all of our licenses are in ERP, the vast majority of those are add-on seats within ERP into our existing base, more users. Then within that, we put a special team in place that actually focuses on handling that within our user base.
I understand there's some noise about it, but I would describe this as a non-event.
Great. Thanks for the clarification.
By the way, I want to add because I can't help myself. As of today, all of our salespeople have a territory, they have a comp plan, they have a boss, and virtually all of our salespeople since the end of the year, I want to make sure I say this, since the end of our fiscal year, have today been trained on all of our newest offerings. I've had this goal, Larry and I have talked about this for years, that we would get to the point that by the time we would start a year, instead of it taking forever. By the way, most companies take a quarter, four months, five months to get all this done.
Our objective has been that salespeople leave the fiscal year on May 31st, that as soon as possible they get out of the year, they have a quota, they have a comp plan, they have a boss, they have a territory, and they've been trained on everything we've got. I can tell you as we sit here today, that is almost entirely complete for the entire Oracle Corporation. Next question.
Awesome. Thanks, guys.
Thank you.
Our next question will come from the line of Raimo Lenschow with Barclays.
Hey, thanks for taking my question. I want to move up a little bit and talk about geographies on two aspects. First of all, Mark, can you talk a little bit about the success you have in cloud in the different regions? Secondly, more bigger picture, there's obviously worries about end demand, et cetera, in the different regions, and maybe you can comment on what you're seeing out there in the field in general for the whole business. Thank you.
I'm sorry, I missed one word. Did you say end demand?
Yeah.
Okay. By region. I think our performance in Asia Pacific was superb. That's come from where we've been over the past couple of years, but I don't know that I would describe that as a market phenomenon. I'm just going to make my comments in the context of Oracle. I think our team in Asia, which we've recruited over the past 18 months did a superb job all through the year. I think it culminated in a very strong quarter. We saw very strong growth really across every line. License performance was quite strong. Both SaaS and PaaS growth rates were superb. Very positive on Asia. I feel the same way in Europe. There's a mixed economy over in Europe. We don't actually talk about it much around here, because I think our performance in Europe has been consistent over the years.
I think our performance was emblematic of that through the fiscal year and was good and solid in Q4. I feel very good about it. I think that's the way I would describe things outside the U.S. LAD, we continue to deal with all the issues in Brazil. I would say within the context of overall LAD relative to the market, I think our team performed fantastic. Our movement to the cloud in LAD is perhaps as fast as anything we have across our company. You get to the U.S., and I think in Applications, our move to the U.S. was the quickest, the fastest, and it shows up in the majority of these wins that I talked about are in the U.S. There's some just very exciting movements. Our business and Applications in the U.S. is a cloud business. It is not a license business.
It is a cloud business. North America Tech has been strong in terms of its PaaS bookings, platform bookings. I would say, I'd also like to throw in our GBUs. I have to mention the strength of their performance in cloud. The growth rate on our GBUs was superb, led by both our retail business, our hospitality business, and our health sciences GBU. They had a great win at Pfizer in the quarter, and they have really kicked their competitor Medidata pretty strong over the course of the year, and I'd like to publicly give them the credit for that. They've done a great job. Maybe more data than you wanted, but that's my view going across the globe.
Perfect. Very helpful. Thank you.
Thank you.
Our next question will come from the line at Bradley Reback with Stifel.
Great. Thanks very much. Safra, could you maybe give us some sense of what the CapEx requirements for the business should be here in 2017? Thanks.
Overall CapEx should be a little bit more than it is this year, very little bit more. All of that would be actually from the real estate, on our real estate side as we build out our campus in Texas. Also, we have a little bit more real estate around the country. On the cloud CapEx, which is the one I think you guys have really been focusing on. As you know, in FY 2015, it was quite high. It dropped really dramatically, like 30% this past year. It'll go up a little bit, but not anywhere near where it was in FY 2015.
I think, generally, it's going to be around where it is right now, and any increases are entirely as a result of just some real estate things that will benefit us for decades, really, as we purchase pieces of property, stuff like that.
To Safra Catz's point, our cost per seat for a sales rep is declining. Our cost of housing them, we have to make these CapEx investments, but salary, bonus, everything as we move into this modern selling effort. We have more people, but our cost per seat is actually declining.
Okay.
Great. Thanks very much.
Our final question for today will come from the line of Kirk Materne with Evercore.
Thanks very much. Mark, just given the new customer count in cloud, it would seem you're picking up some momentum in the mid-market, especially around ERP. Can you just discuss what's driving that? Is it just more focus from a sales standpoint, is it having sort of a broader suite offering versus just our best-of-breed products? Just any color on that would be helpful. Thanks.
Yeah, Kirk, I just think it's all the stuff. Listen, you can't start with the fact that we have good products. We have good products, that's a really big advantage. That's sort of point one. Point two, we've done a lot of training and our salespeople are frankly better, and they come in with good products. They now know a lot more about them, and we have references. When you have those sort of combinations, things go well for you. I think we've done a good job putting our people, Safra's point about the investments we're making. We're putting people in these new modern capabilities that are giving them great tools now to go to market. Let me say all this against the backdrop of, I think we're actually going to get better at this.
You can't look at them, I can. When I look at our pipelines, I remember two years ago, I made the statement that I thought our ARR would be good a couple of years ago, and a lot of people said, "Why?" It's because our pipeline was up, and I can see it mature through the pipeline. This pipeline we have now is the strongest, best pipeline we've had. I believe our conversion rate, meaning the movement of that pipeline into actually booked orders, will actually get better for the very reasons we're describing. I'm quite optimistic about it.
Thanks.
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 again. Thank you for joining us today. With that, I'll turn the call back to the operator for closing.
Thank you. Once again, we'd like to thank you for your participation on today's Oracle quarter four 2016 earnings conference call. You may now disconnect.