Welcome to Oracle's Q3 Fiscal 2015 Earnings Call. As a reminder, this call is being recorded for replay purposes. I'd now like to turn the call over to Ken Bond, Vice President of Investor Relations.
Thank you, operator. Good afternoon, everyone, and welcome to Oracle's Q3 fiscal year 2015 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 Executive Chairman and Chief Technology Officer, Larry Ellison and CEOs, Safra Katz 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 ks 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. And finally, we are not obligating ourselves to revise our results or publicly release any revisions of these forward looking statements in light of new information or future events. Before taking questions, we'll begin with a few prepared remarks.
And with that, I'll turn the call over to Safra.
Thanks, Ken. I'm going to focus on our non GAAP results for Q3. I'll then review guidance for Q4 and then turn the call over to Larry and Mark for their comments. As you can imagine, we are very, very pleased with our results as software and cloud, cloud SaaS and PaaS, total hardware, total revenue and earnings per share were all above the midpoint of my CD guidance. As you probably remember, I didn't provide U.
S. Dollar guidance for Q3 given the unusually high volatility in exchange rates. The currency headwind ended up being 6% for software and cloud revenues, as well as total revenue, 7% for total hardware revenue and $0.06 a share and $0.06 for earnings per share. Currencies continue to move significantly. So my comments today generally reflect constant dollar growth rates, which is how we look at the business.
Cloud SaaS and PaaS revenue was $375,000,000 up 33% from last year. Bookings were again over 100%, adding to the momentum, which is helping drive SaaS pass revenue growth. Now when bookings turn into revenue depends on many factors, but one thing is clear, our momentum in cloud bodes very, very well for the future. Cloud Infrastructure as a Service revenue was $155,000,000 up 32%. Overall, our cloud results were much, much better than expected as we're clearly growing faster than Salesforce.
We're more than 3 times the size of Workday now. Software and cloud revenues were 7 point $2,000,000,000 up 7% from last year. Software updates and product support revenues drove nearly half of total company revenue at $4,700,000,000 up 8% from last year. Attach and renewal rates remain at their usual high levels as our growing installed base of customers continues to power earnings and cash flow. New software license revenue was 2,000,000,000 dollars while we continue to enable our customers with their ongoing transition to cloud.
Looking at GAAP software and cloud results by region, the Americas grew 7%, EMEA grew 9% and Asia Pacific grew 4%. Total hardware, including hardware support, grew 5% with hardware system product revenue of $712,000,000 and hardware support revenue of 587,000,000 dollars Engineered Systems saw double digit revenue growth on the strength of our product portfolio. Obviously, we continue to gain share against IBM and HP, whose high end server businesses continue their decline. For the company, total revenue for the quarter was $9,300,000,000 up 6% from last year. Non GAAP operating income was $4,200,000,000 up 4% from last year and the operating margin was 46% in constant currency.
That we're able to maintain our industry leading operating margins, while growing our cloud business more than 30% is a testimony to the strength of our business model. The non GAAP tax rate for the quarter was 22.7 percent and EPS was $0.68 in U. S. Dollars, growing 9% in constant currency. The GAAP tax rate was 20.8% and GAAP EPS was $0.56 in U.
S. Dollars. As I mentioned earlier, but for the currency move, EPS would have been $0.06 higher. Free cash flow over the last 4 quarters was 14,500,000,000 Capital expenditures continue to be a bit higher as we provision cloud orders and build out for the enormous 4th quarter SaaS and PaaS growth we anticipate. Just to put it into perspective, when you compare the same 9 months last year to the 9 months the 1st 9 months of the year this year, our capital expenditure is up about $350,000,000 That's all.
We now have over $43,000,000,000 in cash and marketable securities. Net of debt, our cash position is approximately 11,500,000,000 dollars The short term deferred revenue balance is $6,400,000,000 down slightly due to currency, but in constant dollars, it actually grew 6%. Within short term deferred revenue is $321,000,000 for SaaS, PaaS and IAS Cloud Services. 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 valuation as both are critically important.
This quarter, we repurchased 46,100,000 shares for a total of $2,100,000,000 Excuse me. Over the last 12 months, we have repurchased nearly 200,000,000 shares for a total of 8,100,000,000 and we've paid out dividends of 2,100,000,000 for a total that is more than 75% of our free cash flow. And the Board of Directors increased the quarterly dividend 25% today from $0.12 to $0.15 per share. Now to the guidance. First of all, given the continued high volatility in exchange rate, We expect currency will affect results, but as we just don't know how much, I'm going to again provide constant currency guidance only.
Secondly, our customers are clearly embracing Oracle PaaS faster than we expected, which is actually great for us. Just to give you a little bit of insight on how we look at the business. For every $1,000,000 of license we sell, we expect to collect another $1,000,000 from support over 5 years for a total of $2,000,000 While for every $1,000,000 of pass we sell, we actually expect to collect $5,000,000 over 5 years. That's what we're looking at in our business. And though it may have some short term effect, it's actually already showing up in the revenues.
So here we go. SaaS and PaaS on a non GAAP basis is expected to grow 26% to 30%. On a GAAP basis, SaaS and PaaS revenue is expected to grow 27% to 31%. Cloud IAS on a GAAP and non GAAP basis is expected to grow 29% to 33%. Software and cloud revenue on a GAAP and non GAAP basis, including SaaS, PaaS, IAS, new software license and software support is expected to grow 2% to 6%.
Hardware systems revenue on a GAAP and non GAAP basis, which includes hardware system products and hardware system support, is expected to be between negative 2% and positive 8%. Total revenue on a GAAP and non GAAP basis is expected to range from 1% to 6%. Non GAAP EPS is expected to be somewhere between $0.90 $0.96 in constant currency. GAAP EPS is expected to be somewhere between $0.76 $0.82 in constant currency. And again, all of my guidance today is in constant currency and assumes a non GAAP tax rate of 24% and a GAAP tax rate of 23%.
Of course, it may end up being different, but that's what we've got in our model right now. With that, I'll turn it over to Mark for his comments.
Thanks, Safra. As usual, I'll try to give you some numbers behind the numbers. I think overall, a very solid quarter for Oracle and a great cloud quarter for Oracle. As Safra did, I'll give you numbers in CD. SaaS Pass revenue grew 33%.
Bookings ARR grew 130%, double last year and up double digits sequentially. Fusion bookings, ERP, HCM and SFA all grew triple digits. Fusion bookings have grown more than 200% every quarter this year. We added 800 brand customers, nearly 800. Nearly 530 existing customers expanded their cloud services in the quarter.
In HCM, 220 new customers. In customer experience, 4 70 new customers. In ERP, 160 new customers. ERP SaaS installed base is multiples the size of Workday. We're adding customers at more than 10x the rate of Workday.
Less than 25% of our ERP SaaS wins involve any on premise Oracle ERP customer, meaning that over 75% are net new to Oracle. I would give you a stat on SAP, but we never see them in cloud ERP. PaaS, more than 400 new PaaS customers in the quarter. Bookings up 200% sequentially. Q4 in PaaS is going to be very big.
Premise software grew 6%. We expect continued growth. Engineered systems grew 15% in the quarter. We sold more than 1,000 systems, including over 500 Exadata units booked. Giving competitor results, we're taking huge market share.
Oracle will be the leader in high end servers this year. In wrapping up, our cloud revenue is already above a $2,000,000,000 run rate. Our SaaS PaaS pipeline is already large and growing rapidly, and it's growing faster than what you're seeing in the bookings that being the pipeline. We now expect Q4 bookings of $300,000,000 $15,000,000 higher than before. We also expect FY 'fifteen bookings growth to be greater than 100%.
And you probably remember when Larry actually gave 50% growth in bookings as guidance at Financial Analyst Meeting. And we're going to double that number. Clearly, the migration to cloud is happening faster than we expected. And to Safra's point, that's great news for Oracle, great news for our customers and great news for our investors. And with that, I'm going to turn the call over to Larry.
Thank you, Mark. This quarter, Oracle sold cloud ERP systems to 160 new customers. That's more ERP customers than Workday has acquired in all the years they've been in the cloud business. Not one of our 160 cloud ERP deals was competitive with SAP. As Mark said, we just don't see them in the market.
By the end of this quarter, Oracle will have sold over 1,000 cloud ERP systems. We are on our way to building the largest ERP business in the cloud. Oracle now has a cloud revenue run rate of well over $2,000,000,000 a year. We're already the world's 2nd largest SaaS and PaaS company. On our last quarterly conference call, I predicted that in our fiscal year 2016, Oracle would likely sell more SaaS and PaaS new business than salesforce.com.
Well, I was way too cautious. Sorry, I'm just checking my notes here. Did I lose the call for a second? No, we're here. Okay.
Let me just back up one second. I think this is important. On our last quarterly conference call, I predicted that in our fiscal year 2016, Oracle would likely sell more SaaS and PaaS new business than salesforce.com. I was way too cautious and conservative. Our cloud business is growing a lot faster than even I expected.
Our cloud bookings are now growing at over 100% per year. So I'd like to revise my prediction. I now believe that Oracle will sell more new SaaS and PaaS business than salesforce.com in this current calendar year 2015. It's going to be close, but I think we're going to sell more in the cloud than they do this year. I suspect that might come as a big surprise to a lot of people out there.
You won't have to wait very long to find out who's going to win this. With that, I'll turn it back over to the operator. Operator, we'll go ahead and begin the Q and A portion of the call now, please.
Your first question will come from Jason Maynard with Wells Fargo.
Hey, good afternoon, everybody. I actually wanted to ask Larry a couple of questions about the database business.
First up, Larry, I would love if we could get a little bit
of insight on 12C adoption. Second thing is, I'd like to talk a little bit about some of the use cases driving the PaaS growth. And if you can indulge me maybe the last question is that you're remiss not to ask for a competitive assessment of S4HANA from SAP? Thanks. Okay.
Well, let's start with 12C adoption rates. The most important new feature we probably put in the database and sometimes in terms of customer enthusiasm is our in memory database feature. And that along with a multi tenancy feature are the 2 pieces that are really driving 12c adoption to higher rates than anything we've seen for a very, very long time. So I think people are moving very quickly. Again, it takes years for people to move to the next version of the database.
People are very cautious. But they're moving more quickly than historical precedent to adopt 12c for 2 big reasons. 1 is multi tenancy and the other is our in memory database option. So that's going exceptionally well. The use cases that are spurring adoption of Oracle the Oracle database in the cloud is the very simple fact you can take any workload, any database that you currently have running in your data center and move your database with a push of a button and move your application with a push of a button and run it in the Oracle Cloud.
Nobody else can do that. If you look at the other past vendors, well, the 2nd biggest past vendor well, actually, maybe they're the biggest past vendor still with it. I'm not sure they break out their number. Salesforce.compass is based on proprietary technology that allows you to extend salesforce.com applications. Our PaaS, our platform as a service is based on 2 products: Java, the world's most popular programming language and an industry standard and the Oracle database, the world's most popular relational database and an industry standard.
We have enormous on premise usage of Java and the Oracle database. And now people can don't have to decide where they're going to run things. They can do test and development in the Oracle Cloud and run production in on premise. And then they can decide if they need more capacity, they can go from on premise into the cloud and back to on premise. We're the only ones that allow you to move data and workload back and forth between the cloud and on premise.
That's the primary use case we think that's going to drive Oracle PaaS to be the number one PaaS in the cloud very, very quickly. The other the third question is S4HANA and the cloud. Well, very simply, I mean, I talked to a lot of people at SAP actually about S4HANA in the cloud and people who have recently been at SAP. And you got to understand one thing. This is the same old SAP.
This is all written in the ABAP. There's 30 year old code in S4 Business Suite. There's nothing new about this. They're simply hosting it on someone else's computer. I also can't find the website where you log on and try it.
Everyone else lets you log on. You go to a website, if you want to buy our stuff, you want to buy SaaS, you want to buy SaaS, you go to a website, you get provisioned and you go. Not so with SAP. This is 30 year old code renamed S4HANA. Now they did add a new user interface called Fiori to the old code, but that's all they did.
They did add another database that they support. They now support in addition to Oracle and Sybase and IBM DB2 and Microsoft SQL Server, they also support HANA. That's it. They've added one new database. They've added a more modern UI.
All the old code in the middle is written in ABAP. Ask them. It's written in ABAP. It's 30 years old. We don't see them as a cloud competitor.
We actually almost never talk about them except when we get a question on the call. That's it.
Next question, please. All right. And your next question will come from Heather Bellini with Goldman Sachs.
Hi, great. Thank you for the question. I actually had 2 of them. I wanted to know if you all could discuss, I know you mentioned it a little bit, but going through a little more detail about how you're seeing the competitive environment changing versus salesforce.com and Workday, kind of what you've noticed over the last even 3 to 6 months? And then Zafar, I might have missed it, I apologize.
But could you talk about your support growth in constant currency, please? I think I might have missed the number.
Sure. How about Mark, you do Sure. I'll start
on the competitive environment. I would say that competitive environment with Workday is different in HR than in ERP, EPM. In ERP, EPM, our position is extremely strong. I would not call Workday competitive in that market at all. So let's put that aside.
In the context of HCM, I think with each subsequent release of HCM, whether it have been release 7, release 8, release 9 and now release 10, we have simply engineered now a better product than Workday. And so I think from an HCM perspective, head to head, there in the United States, some strong fights. I think as our awareness, the education of our sales force and our references have gotten better. We now win more than half the deals in the United States. Outside the United States, our win rate goes up actually exponentially because of the breadth of our distribution in those markets.
So that's sort of how I would characterize Workday. Also, any deal that comes up that's multi pillar. In many cases, you wind up with an ERP competitive environment that, that actually many times can drag in HR. And so we think competitively, Heather, the fact that we have ERP and EPM in the cloud in SaaS with a strong lead also benefits our HCM business as well. So out engineering, out distributed in almost all the world.
As I described, big lead in ERP, PM where I would not describe Workday is extremely competitive. Salesforce, I think perhaps different. Salesforce is clearly the incumbent in most accounts, not oral. We're frankly the guy coming up with a challenger capability, and we now bring a suite of capability with marketing in addition to sales automation. And we do a lot of things that they don't do.
We really come to the customer with a different approach as opposed to trying to help the customer basically report what the sales force is bidding on, we actually come to market trying to help the sales force, being our customer sales forces, sell more stuff all the way from automating a marketing campaign to the actual process by which they communicate to the customer, get information about the customer and actually go through a whole engineering selling process with the customer. And this is proven you've heard it with our numbers. Our sales automation solutions in the quarter were superb. Marketing had a fantastic quarter. We are the leader in marketing.
We are challenging very aggressively in sales automation, and we expect to give them a run for their money in every sales automation deal in the planet. But our differentiation, Heather, comes from bringing a suite of capability to help the sales or our customer sales organization sell.
Okay. And Heather, as far as sequential growth in support, in constant currency, it's up sequentially between 1% 2%. The only change you see in the tables is as a result of currency. So sequentially up in software license updates and product support.
Great, thanks. Thank you very much.
Our next question will come from the line of Brad Reback with Stifel Nicolaus.
Hi, thanks. Sorry about that. Just one quick question, Safra.
Can you give us a sense of what the FX impact was on cash flow in the quarter?
So about it was well, about half of the decline in cash flow, a little bit more, I think, was actually entirely currency. And a little of it, frankly, was tax payments that under circumstances in some jurisdictions where you pay and then you discuss it. And then a little of it actually ended up being an inventory buildup that we're doing right now, about $100,000,000 of inventory buildup in preparation for all of the engineered systems that go out in Q4. So we do the buildup of the pieces in Q3. So I'd say I know you asked about currency, but currency is about half of it.
Great. Thanks very much.
And our next question will come from Kash Rangan with Bank of America Merrill Lynch.
Hi. Thank you very much. Mark, could you talk about the Engineered Systems business? Certainly, growth of 15% is outpacing the market, but how is the split of business between the quarter rack, half rack, full rack or if you want to look at it based on the products Exadata, Exologic, Exalytics, how is that shaping out? Where do you think the mix shift in this business is going to look like in the next 12 months or so?
What I'm trying to get an angle on is, can the business get better as a result of greater 12C adoption as well? Thank you.
Yes. So let me there was a lot of questions tied up there. So let me try to hit as many as I can. First, I think to your point, when you look at our competitive results in high end servers, we're gaining a ton of share. So just to make sure you said growing a bit faster, all of our competitors really in this space are highly negative.
And as we talked about, growth was 15% in the quarter. It is spread between a solid I would say a solid Exadata quarter all the way around. We grew in Exadata. And this is going against I know you know this cash, fairly tough comparisons with the success of Exadata last year. But we had very strong performance on some of our new engineered systems.
So it was pretty well dispersed. We had strong growth in Supercluster in the quarter. We had strong growth in our Oracle database appliance. We had good growth in our big data appliance, which is our Hadoop Oracle appliance that we brought to market. Our Zero Data, one of my favorite named products that we have in the company, the 0 Data Loss Recovery Appliance contributed growth in the quarter.
So the suite of products that we brought to market in Engineered Systems as a group had a really strong quarter. And while some of the numbers are small coming off of a baseline, they all contributed and they are all growing. And in aggregate, we grew 15%. So I think our pipelines are up overall. And so we feel great about the quarter Engineered Systems delivered and great about our pipeline.
And the hardware refresh as it relates to 12C mainstream adoption, could you get a benefit there?
Yes. I mean, I think, listen, we've seen a strong uptake of well, I shouldn't say let me say it another way. The beginnings of the uptake of 12c, I believe that also helps, and it also helps in the context of what we see as 12C and the emergence of private clouds that exist within our customers, where you see many of these architectural moves to these engineered systems as well.
Our next question will come from the line of Rick Shirlen with Nomura.
Thanks. Larry, two questions. First is we talked to companies that are native to the SaaS market. They indicate that they'll continue to win business because they have an inherent advantage being natively built for the cloud with ease of implementation and ease of use. And I wonder if you could comment on how you think you stack up now and future releases of Fusion if there's more to be done on that front?
And then secondly, you talked about in memory in 12.1.
Can I interrupt you, right, Anewen? Was the question some people are SaaS people are saying SAP was natively built for the cloud?
No, no. These are the native SaaS companies. I'm sorry.
Native SaaS company. Okay, I misunderstood. Okay, got it. Yes. Okay.
Well, let me just answer the first part of your question now. We made a big announcement almost 10 years ago that we're rebuilding all of our applications for the cloud. Now it wasn't called the cloud 10 years ago, it was called SaaS. But we said we're rebuilding everything in this thing called Fusion, which we're going to rebuild our middleware for the cloud, build our applications on top of our cloud middleware and change our database for the cloud, make it multi tenant, make it in memory, do all of those things. We started a project 10 years ago to rewrite everything.
Fusion ERP, every single line of code is brand new. Fusion HCM, every single line of code is brand new. I can go on and on with all of these probably they are completely rewritten for the cloud as is our data and our database was not completely rewritten. We added specific features to the database to make it work properly in the cloud, the most prominent of which is the multi tenancy feature. We think we put multi tenancy at the right level of the stack in the database rather than multi tenancy in the application, which creates real security problems, which I'm not going to go into.
But we think we have a huge advantage over these someone like Workday that doesn't have a database. They built Workday kind of built their own little database. And that's what you're buying into when you buy Workday. We build our own little database. It's called Oracle.
Workday has its own programming technology. We use this programming technology called Java. So we and we built everything, everything from scratch, every I'm telling you, every single line of code in Fusion HCM is new for the cloud. Every single line of code for Fusion ERP is new for the cloud. And those new cloud applications are based on by far the strongest platform.
Workday doesn't even have a platform that they sell. They have Mil platform. They have a platform that they kind of use internally. Salesforce has a platform that we also think is not competitive with our platform. So you're going to have to be very specific as what advantages these small companies think they have over us in the cloud when we have, I think, very clearly the strongest platform based on industry standards and years years of experience.
We've adapted that for the cloud. Give you an example of how strong our cloud platform is. Salesforce.com uses our cloud platform. NetSuite uses our cloud platform. In fact, every single cloud company of size, the top 10, 9 of them, 9 of them use our database in the cloud.
Workday is the only one that doesn't. But tell me again the advantages they think they have.
Yes. Ease of implementation and ease of use?
I don't easy to implement it's easy to say. But we're getting our ERP customers can you tell me ease of implementation of what? And we think our cloud ERP is very is the best of breed in cloud ERP. We think our cloud HCM is now the best of breed in cloud HCM in the areas of user interface, which is usually what the people mean by ease of use, better adaptive technology, which makes the implementation very, very we have very rapid implementations, very low cost implementations that we think are competitive with anyone out there. In fact, one of the reasons why our consulting business keeps getting smaller is because our applications implementations take so much less time and effort.
Okay. Larry, the second question was within memory capabilities. Do you think it's possible that we see a lot more innovation in terms of the type of business processes that we can automate with this next generation of apps in the cloud?
Well, I think a lot of things that used to take a long time will take less time. So manufacturers will run MRP much, much faster than they used to. People that used to get reports overnight will get those reports instantaneously. So they'll have access to more information. I think there will be there's some very interesting applications in terms of security for immediate detection of intrusion, being able to analyze the data so quickly, we actually can do a better job in security.
That's one of the big things that we've been working on for some time. I think there are a lot of existing applications that used to wait overnight for. You'll get that data instantaneously, and then there'll be a host of new applications. But how revolutionary that will be, I think this is going to happen. People will discover these new applications over a fairly long period of time.
So as excited as we are about in memory databases and we have by far the fastest in memory database in the world. But again, the first benefit is to make the existing apps run much faster. The second benefit and that will happen right away. The second benefit will trickle in over the years as people as smart people discover new ways to build applications they never thought that were just were impossible before the in memory database.
Thank you.
Next question, please.
Your next question will come from the line of Kirk Materne with Evercore ISI.
Great. Thanks very much. Mark, just two quick questions. First, I want to follow-up on your earlier comments regarding the customer experience pillar. Specifically, can you talk about your position today versus 12 months ago in terms of your visibility with actually with the Chief Marketing Officers?
Obviously, you guys have extremely strong relationships with CIOs. But I'm wondering how your relationships on the marketing side and with the CMOs has changed over the last 12 months? And then secondarily, can you talk about just your industry solution trends and how they're doing and how important having some of that domain expertise is in terms of differentiating you all versus some of your competitors that don't have sort of that deep expertise in certain verticals? Thanks.
Sure. In marketing, we've obviously made a significant investment between the acquisitions of Responsys and Eloqua, respectively. We're their leader, the leader in B2C marketing and B2B marketing. We've added Bluekai. We've added Compendium.
We've just added a really nice company in Datalogics. And Bluekai and Datalogics with their data capabilities now differentiate us just not on the marketing automation process and what you do with CMOs and automating that process, but also in the under SaaS marketing. And that frankly, your point, Kirk, has caused us to now, as we've done with our sales forces, pointed our sales force directly at a buyer, and that buyer is the CMO, very similar to what we do in HR. We'll be calling the head of HR. In marketing, we call on the head of marketing.
And I think the best testimony to our success and our relationships are our numbers. Our growth in marketing in the quarter was over 200%. And when you look at our competitors, whether those be Adobe, the acquisition that salesforce.com made, you just see that we are simply growing faster and we are taking market share in marketing SaaS. So that was that's what I would describe in marketing. You had another question.
Would you refresh me on what that was?
Sure. Just your industry solutions, how they're doing and how important that is in terms of differentiating yourselves versus competitors? Thanks.
Yes. And they had a frankly, we've got so much going on in the company, we probably ought to talk about them more. They had a very good quarter in Q3 as they've had over the past several quarters. Obviously, our position in retail was extremely strategic to our customers, and we've now added Micros, which brought with it a great depth in hospitality and food and beverage. So our retail suite of expertise is now not just in general merchandising, but across food and beverage and hospitality as well.
We had a very strong quarter in banking. And our expertise now in banking, we've grown our sales force, our ability now to help banks in compliance, in any money laundering. Many of the issues that our banking customers are facing today has become a tremendous asset for us. We've had a good quarter and we continue to have good success in communications. And without going through each one of them, they do give us strong differentiation because when we sell in these industries, we're talking to business buyers.
When we're talking to retailers, we're talking to CEOs, we're talking to Head of Merchandising. And I think next week, Larry and I will be at our conference, our Industry Connect Conference, and we'll have roughly 2,000 of our customers there and they will be business buyers. They will not be what you would think of as typically CIOs. They will be people on the business side. And it gives us a reach into our customers that frankly we wouldn't have without the investment we've made in our GBUs.
Next question, please.
And our final question today will come from the line of Ross MacMillan with RBC Capital Markets. Ross, your line is open.
Can you hear me now?
Yes, go ahead, sir.
Thank you. Mark, I had two quick questions. We've seen 2 quarters in a row of hardware growth in constant currency and you mentioned double digit growth in Engineered Systems. But I'm curious on the core M and T server lines and storage and what's happening there and your visibility into the entire hardware bucket growth being sustainable going forward? And then I'd love also your thoughts on large company appetite to move core ERP to the cloud, especially as we think outside of North America in the international sphere?
Thank you. To your point, Engineered Systems, I already went through it. It is now a significant part of our hardware portfolio and grew 15%. M, while down, is a smaller piece of our hardware portfolio being the M Series of Spark. T was down in the quarter, again, all offset by the growth we've seen in Engineered Systems.
Storage grew in the quarter. We had significant or very strong growth in ZFS, if you will, our network attached storage product. That is not a new story, or ZFS growth, and I predict that will continue as we go forward. We have just released a new SAN product, FS1, that came to us through the Pillar acquisition that our engineering team has done a super job for us. And that represents really a whole new storage market for us now to go compete head up against EMC.
So I believe going forward, you will see a continuation of storage growth, the continuation of ZFS along with now FS1, a continued growth in Engineered Systems, and we'll continue to push refreshing our Spark base as we have and as we've got as we go forward. As it relates to ERP, and you asked specifically about international markets, I mean, just for example, in the quarter, just to give you some flavor for this, we closed ERP SaaS deals at FEMSA in Mexico, at Saudi Telecom, at BAE Systems, at Hawaiian Airlines, at KPMG. I mean, these are all certainly very strong brands that are going to ERP and ERP on cloud and at least 75% of what I just named are outside the United States. So we've got very strong back to just sort of the cloud context, which probably is at the core of your questions. I think I said a couple of quarters ago, we're just going to get better and better at this.
And while the numbers are faster than I predicted and I'm I wish I could have predicted them better 2 or 3 quarters ago, our sales force has simply just gotten more productive. They're better educated with better products and they now have references in virtually every single discipline and pillar that we sell in almost every country that we sell. And so what's happening, it's very interesting. We're getting bigger and we're growing faster as we're getting bigger. And it's because of a multitude of these issues that I'm describing that have all now tilted our way after frankly 2, 2.5 years of hard work of getting our customers, similar to the last question, who now know their functional buyer.
They know the Chief Marketing Officer. They know the Chief Human Resource Officer. Our products have now gotten extremely mature, and we've got references. And I think now that we add PaaS to our cloud offerings, and I probably should have said this earlier, but I've been doing this a long time. And I've really never seen a pipeline grow as fast as our pads pipeline has grown.
We really released this at OpenWorld in October. And the speed of our pipeline growth, you see it just in the conversion to bookings. I actually it's after I get to see it in the benefit of the pipeline, and it is just exciting times for Back to Ken. Thank you, Mark. A telephonic replay of this conference call will be available for 24 hours.
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for closing. Thank you. This concludes today's conference call. You may now disconnect. Thank you for your