Welcome to Oracle’s First Quarter 2016 Earnings Conference Call. As a reminder, this call is being recorded for replay purposes. I would like to now turn the call over to Ken Bond, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone and welcome to Oracle’s first quarter 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 Executive Chairman and Chief Technology Officer, Larry Ellison and CEOs Safra Catz and Mark Hurd. As a reminder, today’s discussion will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. Throughout today’s discussion, we will present some important factors relating to our business, which may potentially affect these forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today. As a result, we caution you against placing undue reliance on these forward-looking statements and we encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendments for a complete discussion of these factors and 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 revision to these forward-looking statements in light of new information or future events. Before taking questions, we will begin with some prepared remarks. With that, I will turn the call over to Safra. Safra?

Good afternoon, everyone. Thanks, Ken. I am actually offsite today, so hopefully this phone will work out. If you don’t hear me, I may have to reconnect, but I do have obviously Ken Bond on the call and Corey West, our Chief Accounting Officer is also I think in the room with Larry and Mark. I am going to focus today on our non-GAAP results for Q1. I will then review guidance for Q2, and I will actually give some guidance for the entire fiscal year, and then I will turn the call over to Mark and Larry for their comments. As you know, we didn’t provide you a stellar guidance for Q1 given the high volatility in exchange rates we are seeing at the time. As it happened, Q1 currency headwinds were actually 2% worse than we expected. The currency impact for both total revenue and hardware revenue ended up being 9% and for software and cloud revenue was 8%. Now, we do get benefit on the expense side, but because many of our expenses are in the United States, we get a very small benefit and of course our expenses are significantly lower than our revenues, and so our operating income was actually impacted by 12 points. Earnings per share was $0.06 lower, because of currency, $0.01 worse than we anticipated. With currency still volatile, we will continue to use constant dollar growth rates on our quarterly calls, so we can have some measure of consistency and also share with you how we look at the business. We have also changed the presentation of our income statement to better reflect how we look at the company now that cloud has become a significant contributor to revenue. Our software business is really two parts of one business: the on-premise…

Thank you, Safra. This is Larry. Over the last three years, we have been in the startup phase of our cloud business. We have developed services at all four layers of the cloud, a complete set of enterprise SaaS applications, plus our database and middleware platform services, plus compute and storage infrastructure services, and an expanding set of data systems. We have deployed those cloud services in 19 data centers and 14 countries around the world. During this startup phase of our cloud business, we have increased our data center service delivery capacity from 0.5 megawatt to 45 megawatts. That’s a 90x, not 90%, a 90x increase in our data center capacity in three years. We have installed over 40,000 physical devices, a 100,000 virtual machines and over 8 petabytes of storage. We now have in place the physical infrastructure to dramatically expand our cloud customer base. We are entering the rapid growth, scale-out phase of our cloud business. We are adding thousands of new SaaS, PaaS, IaaS and data customers to our existing data centers. With all that customer growth on top of our existing infrastructure, we expect that our cloud margins will double from 40% to 80% over the next two years. Mark, it’s your turn to tell everybody about all those great customer adds we had during Q1.

Thanks. By the process of elimination, this is Mark actually speaking. So, I thought I would do two things right to the Larry’s point, tell you about some wins, but also give you some facts about the quarter. Revenue grew 38% year-on-year, 8% quarter-on-quarter. Billings grew 70%, again growing much faster than Salesforce and Workday. Bookings were $191 million, a 165% growth. And like I always do, I want to tell you the number of customers we added. We added 612 new SaaS customers in the quarter, brand new logos. 616 expanded their SaaS business with us in the quarter. In HCM, it was 166 new customers, more than double what Workday added. In CX, 280 customers. In ERP EPM, it was 200 customers, double last year. That is also more than Workday’s lifetime sales. We now have 1,350 customers in our installed base. More than 300 are already live, including 100 that went live in just Q1. What’s taken Workday eight quarters to do, we did in one quarter. We never see SAP. PaaS, we added 800 new PaaS customers in the quarter, 2,500 in just two quarters. Bookings over $65 million. Now, I think we have a shot in Q2 to book more PaaS than we actually did in Q4. I think we have a shot. That’s how fast we see our pipeline growing in PaaS. I am going to wrap up and then I am going to read you some news, but I just want to connect a few dots between what Safra and Larry described on the Oracle SaaS, PaaS cloud. We are currently at a $1.8 billion run-rate in revenue. If you include IaaS, it’s $2.4 billion. We will book between $1.5 billion and $2 billion in SaaS, PaaS ARR in the fiscal year. Gross…

Great. Thank you very much, Mark. Operator, if you could please instruct the audience for questions.

[Operator Instructions] And our first question will come from the line of Phil Winslow with Credit Suisse.

Hi, thanks guys and congrats on another great quarter in the cloud with that 70% billings growth and also thank you for the commentary on the gross margin there going forward, that was really helpful. I just wanted to double click on the cloud for a little bit, SaaS and PaaS, Mark you gave us some commentary on the PaaS side for Q2. And obviously, it sounds like that’s ramping. But if you focus in in on the SaaS side, what trends are you seeing there, HCM versus financials, maybe trends on adoption you can see there and go-live, any sort of color would be great?

Well, listen, I hate to compare our pillars, because individually, they are all doing quite well. So, I don’t want to compare them against each other. But it’s clear to me the ramp in ERP is its strength. I mean, when you look at the number of customers we’d be able to bring on board, remember, this is really our fifth quarter really in the business in the cloud. When you think of 1,350 customers that are now under contract, I think it’s – Larry can do this better than I can, but in roughly 23, 24 years, we are sort of already at, I don’t know, 10% of the on-prem base. It’s now in the cloud in terms of just sheer number of companies, and our pipeline is just full. So, ERP, we are highly differentiated and we are way ahead of wherever it is you think is number two, and it’s extreme – I think it’s a combination, Philip, what we have talked about before. It’s – our products have done nothing, but gets better and better and better. We are on now Release 10. Release 11 is now coming out, so our products have gotten better. Our people – we have got more people. They are better trained and we just have now a lot of go-lives and a lot of references and that’s true across each one of our pillars, Phil.

Yes. I would like to add a couple of things. One is that the products that we have are being translated into more and more languages and updated for statutory compliance in more and more countries. So, there are more markets we can sell them into. And we are adding supply chain and manufacturing with this release in ERP. So, we have – there is really nobody with a comprehensive suite of enterprise software products. And now – and we are able to sell it internationally. So, we think we have a huge advantage. I don’t know who you consider the competitor in ERP. Again, every quarter, I mean, if Workday is the competitor, every quarter, we sell – Q1 is our smallest quarter and we sold more deals in Q1 than Workday’s sold ERP deals, and Workday has sold since their company began. We view that every single quarter. So, our relative strength, I think as Mark said, I think all of our pillars are doing well. But on a relative basis, whoever is number two in ERP, they are a long, long way behind. And by the way, ERP is the largest segment of application in the cloud. That will be just like – people – SAP was the leading on-premise application software vendor in the last generation of applications, because they were number one in ERP. The leading vendor – applications vendor in the cloud this generation will also be whoever wins the ERP work.

Yes, Phil, we have fallen into the trap that I didn’t want to fall into as comparing pillars and you can tell how excited we are about ERP. But frankly, if you were in our marketing cloud business, you would be really excited. When you start running off the names that I run off in marketing cloud, we are highly differentiated and we are winning. We have done well in B2C. We have done well in B2B. You add what’s now occurred in service. I mean, we are starting to see again significant service growth in our service cloud and our sales cloud, while again small and very different than ERP, up against a big competitor. Our service cloud is showing very strong growth. And so if you looked in each of our pillars, we have added on some really cool stuff here, just while I am on a roll here. We have added on a very cool data as a service business. So, our data as a service business, what’s come to us with our BlueKai acquisition and our Datalogix acquisition is now another component of our marketing cloud, and that had tremendous performance in Q1. So, it’s really a story across sort of all of our pillars. ERP is of course exciting, because to Larry’s point, it’s the biggest pillar in terms of total available market and one that has a lot of pull. It pulls a lot of HCM. When we win an ERP, our connect rate of HCM to ERP is pretty high and growing, but the success is broad-based and that’s sort of the enthusiasm you hear keep coming from us as we talk about what we see happening across our SaaS business.

Next question please.

Your next question will come from the line of Michael Turits with Raymond James.

Hey, guys. I wanted to switch over from apps to database. I want to ask you broadly. I know the 12c is being adopted faster than 11. Can you give us an update on the adoption of multi-tenancy and in-memory options? And from a cloud perspective, how much traction you are getting with the SaaS providers and maybe we could say for database as a service, how is that working as part of the broader platform as a service offering?

Okay. So, we have never had any of our options for the database, have an update as fast as we are seeing with multi-tenancy and in-memory. We never experienced people that want to get these two particular pictures turned on. And this is in our on-premise customer base. As you know, most major SaaS companies run Oracle. SAP runs Ariba on Oracle. SAP runs SuccessFactors on Oracle. SAP runs Concur on Oracle. NetSuite runs on Oracle. Salesforce runs on Oracle. And all of them are able to deliver more efficiency in terms of query processing by turning on the in-memory feature. All of them are able to, by more efficiency they use less hardware and they deliver better performance. So, they lower their internal cost and deliver their performance. All of them are much more efficient in the usage of hardware resource by turning on multi-tenancy. Now, these guys have multi-tenancy built into their application. That doesn’t mean they don’t layer things. So, they have multi-tenancy at the application level, multi-tenancy at the database level, and then multi-tenancy at the operating system level, which is called VM. All of those things kind of conspire together to more efficiently utilize your hardware, provide better recovery in security systems. So, we see the demand from our traditional on-prem customers and the new generation of cloud customers for these two new options unlike anything that’s out before.

Next question, fine Michael, go ahead, Michael.

Yes, just if I was curious as to two things. One is how is database as a service fitting in with your broader platform as a service offering? And is there any slowing of database and expectations of Release 2 for 12c?

I don’t think – as you know, if you buy the database now and you get all – and you maintain support, you get all the subsequent versions. So, no, I don’t think there is any slowing. However, we are encouraging people to run all their dev tests, all their development and test in our cloud as opposed to on-prem, which does imply a shift from database on-prem to our database service. That’s what we want them to do. We think that lowers their cost and raises our revenue and profits. We think it works very well for us. So, you really have to look at those two businesses added together. And I think that’s what Safra is saying in her presentation. You can’t look at database on-premise separately from PaaS, to database as a service. It’s really that some of those that have to grow. Some of those have to grow at the top line level and that some of those have to grow in terms of profitability. And we see that happening right now. So, we think PaaS, yes, some people will like to buy database as a service as opposed to running dev test on-prem, but we think that’s a good thing. We think we – they get a more efficient service. They spend less. We get more.

I think one thing Michael that I would add to it is that from a customer’s point of view, these decisions aren’t necessarily binary. I mean, that I am going to run database as a service as opposed to database on-prem. What the major differentiation for Oracle is nobody else can do is that we can actually do this on-premise for you and do it for you in the cloud. And we can do it at the exact same time. We can deliver to you a capability in the cloud and we can go over the exact same capability to you on-premise and move those workloads back and forth, whether that’s database as a service, some dev test and then dev test in our cloud into your data center to run your production applications. It’s important to understand this is a huge differentiator that only this company can deliver. We are not just cloud. We have a fantastic hyper growth cloud with on-prem capability that nobody else brings the two together like Oracle.

For example, we have Exadata as a service that we are rolling out at Oracle OpenWorld. So, we have Exadata as a service in our cloud. And we obviously sell Exadata as a machine to run on-premise, the most modern way, most cost effective way to run our database. So, you can run part of your database workload on-prem on that Exadata platform. Part of that database workload in our cloud on that Exadata platform and our management tool. When you are running your data center assets and our cloud assets, the person who is running that thinks that’s one pool of assets with one set of management tool that allow you to run your Exadatas and the Exadatas in the cloud together, move data back and forth, move workloads back and forth. There is – this coexistence of cloud and on-premise computing is going to be a decades-long process, if not forever. But during this long period of coexistence, we think it’s very important to have absolute compatibility between on-prem and in the cloud. And Mark makes – Mark points out our biggest differentiator in this business. We have great on-premise technology with some of our fancy appliances like Exadata, Big Data Appliance, Exalogic and go on and on and we offer those that same advanced technology in the cloud and we lace it together and make it look like one set of assets.

At the risk of over-answering your question, I am going to stop here. By the time we get to OpenWorld and Larry presents on Sunday night, we will have now fundamentally all of our software assets redone for the modern cloud. So, the ability to do what Larry said is not something that’s 5 years away, 4 years away, 3 years away, we can start delivering Exadata as a service and these are opportunities that Larry described now.

Thanks, Larry. Thanks Mark.

Thank you, Mike. Next question please.

Your next question will come from the line of Heather Bellini with Goldman Sachs.

Thank you so much. This is a question for Mark. I was just wondering if you could share with us, if you were to characterize what inning we are in of the SaaS transition if you could kind of help us think about that? And also when do you think we start to see – I know you mentioned some commentary about momentum in PaaS, but when do we see that become a material part of that SaaS, PaaS revenue line? And then I guess the follow-up to that would just be, you touched I think on Phil’s question about the SaaS competitive dynamics, but can you walk us through how you are thinking about the competitive environment for PaaS as well? Thank you.

Okay. So, that was one of those. Let me give you a question, six parts type thing.

Exactly.

Heather, I will try. So, in the baseball analogy, I don’t know, top of the first. We are in the very beginning stages. It depends a little which pillar we are talking about.

Well, for SaaS first and then for PaaS.

Server SaaS and I am talking about SaaS and I am talking across each pillar. I mean, the ERP opportunity has just started. Now, what happens that we are ramping incredibly fast. I think if I had said four quarters ago and said, hey, I think we will have 1,350 customers signed up to run in our cloud in about four or five quarters, you should go seek some help, because it won’t happen like that. It has. That said, we are only now getting to the point, Heather, where we actually have all the references required, we have got our sales force scaled. I think we are in – and by the way, to Larry’s point, I thought Larry made a great point. We are releasing a lot of new products. It may not – you may not come across that way, but with the next release, we now release products that are localized for many, many more countries, markets that frankly we just weren’t in given six months ago in addition to the fact that an ERP we are releasing supply chain manufacturing now. So, we can now look after manufacturers as well. I made a comment about what we have added now in marketing in terms of our data cloud that we have now supplemented our marketing cloud with. We have new releases coming in service cloud. So, there is just a whole suite of products. I would tell you top of the first, this is a multiyear long, long gain. We just happen to be extremely well positioned as the only one who has a suite of products and the only one that has best-of-breed products that are in a suite that can then combine it, to your point, with a PaaS capability that allows you to extend those applications without destroying the upgradeability of the application suite that you bought. So, it’s great – our pipeline a year ago at SAM, I made a statement about the size of our pipeline. Probably nobody remembers it because it seems like a long time ago. Think about since then, our pipeline in SaaS, this is our annualized pipeline, has more than doubled, more than doubled off of a really big number. So, now you have got a pipeline scale. And the great thing is I know nobody thought it at the time. You have seen it now come through the pipeline and turn into bookings. And my expectations are very favorable as I have indicated about what SaaS bookings are going to look like for the rest of the year.

Next question, please. Operator?

Next question will come from the line of Ross MacMillan with RBC Capital.

Thanks a lot. Safra, I would like to drill into your comments on cloud gross margins and the expansion that you are expecting as we exit this year and look further out, pretty significant. And I guess the question is, is that really just driven by revenue scale? And is there a certain level of revenue scale in PaaS and SaaS that you need to achieve the target 80% in two years? Thanks.

Okay. Well, it’s actually going to hit in many ways on – in both revenue and expenses, because we have, as Larry explained, we have invested immense resources in building up our infrastructure. And as I mentioned on the call, our capital expenditure numbers have been very, very large as compared to what we are used to historically. And so we have put out those expenditures and we have started to amortize them. However, in the second half of this year, our capital expenditure numbers are going to be significantly lower, even significantly lower than even this quarter. You will see, I believe, at least another $100 million decline and then a continuing reduction. And the reason that matters is because what you will simultaneously be seeing is a massive amount of revenue which can finally be recognized. That is going to start in true earnest in the second half of the year, in Q3 and Q4 while simultaneously we will not be adding capacity. In fact, we will be spending less than we historically have spent on capital expenditures. We will be back to numbers that you would have looked at and seen in fiscal year ‘14. So, as expenses – and in addition, you understand, it’s not only capital expenditures, it’s all sorts of staffing and labor and tools, etcetera that have all been put in place. And we will not have to add them while the revenue is going to start flowing both out of the balance sheet, which is extremely apparent and you will be able to look at it in detail in the Q filing that we should do either at the end of this week or at the beginning of next and in our new sales. So, that’s what it is. Revenue up, expenses stabilizing, and actually going down.

Thank you, Safra. Next question.

Thanks, Safra.

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

Hey, thanks for taking my questions. My question is for Safra. Safra, how do you view the investment trade-off between the license business and the cloud business, because I think it’s pretty apparent to us that one business has higher growth but lower margin? And when I parse your comments, it looks like CapEx is going to come down for the cloud business. So, are we at a point where the license business has trough and it’s not going to decline anymore and that the profit growth out of the cloud business will start to add on? And that this year, in some sense it’s the trough in your operating profits. A lot of the other software companies have been attempting to make this model transition, have been resetting their numbers for the license business by their own volition is coming down troughing and then the cloud business starts to pick up. So, where is – how should we look at Oracle in the context of a shift that’s happening? Thank you very much.

Sure. Well, first of all, the way we look at the on-premise business and I am not sure I am entirely understanding your question, but there is the new licenses, and of course, our massive installed base of license subscription. We look at that as the on-premise business. And that business is steady, growing slightly, very profitable of course, because we are at scale. We still make a lot of investments in that area. However, you should be thinking about the cloud business as another way for us to offer that same software to our customers in a different way, where we are actually hosting the software and doing a lot more of the labor. And because we will have economies of scale, they could not possibly have as individual customers. So, really it’s all one business. However, more and more, when we provide it as a cloud provider, we are providing the hardware, the software, the labor all in a package and that gives us a significantly larger amount of their wallet share. Simultaneously, the customer is actually spending less overall, because we can supply this package in a very economical way. But also since all of it is our own differentiated intellectual property, we can do it at much higher margins. And the more scale we get, the more profitable we will be. We have been in a startup mode in this whole area. We have done it basically within our profit envelope. However, this extremely quick transition, which you are truly seeing the pivot in this fiscal year, which is the reason we are breaking it out for you and really breaking our own rules of guidance where we are actually giving you a full year guidance so you can see how we are coming out of it.

So Safra, I want to conclude this and take this the financial implication, could this year be the operating profits? And then as a result of the nice investments, we start to see the operating income of the company start to grow from next fiscal year?

I believe it is, yes, absolutely.

That’s great. Thank you.

Next question please.

That’s it for me.

Our next question will come from the line of Brent Thill with UBS.

Thanks. Mark and Safra, I think your investors understand this transition to cloud is going to take time, but the ramp is definitely taking longer than some of the financial forecasts you have given the last several quarters. And now you are calling for a weaker first half, but a better second half. I guess just what’s underpinning your confidence that this ramp is going to happen in the back half?

Frankly, it’s not possible that it does not happen. These are – there is a lot of revenue on the balance sheet that will be recognized in the second half. It cannot be. It is appropriate to do that to the extent that in some cases, customers have been through their promotion period and also we just have booked so many contracts that are ramping up and billing and starting to bill, there really is – it’s not avoidable. It is inevitable that Q2 is – that have to – second half is going to be very significant.

Brent, I just to add to it, first, we have the contract. Second, when you look at the balance sheet, you see the $1 billion of deferred, you can just do the math. So, we have the contracts and so it’s just not, to Safra’s point, it’s not a guessing game.

Okay, that’s very helpful. Just to follow-up on the license guide, Safra, for the full year, you mentioned that, that will stabilize versus what you saw last year in terms of the decline. What was giving you the confidence there that, that will stabilize versus what you saw last year?

Well, I have my forecast. I have my closure rates that I am expecting. Remember, it’s not new license only, it is a software. It is our software installed base with extremely high renewal rates that continues when we sell new licenses in addition to our base then we get additional growth. Again, it’s – the only question is what level is decline we have in new license. We are being conservative. There is always risk that it won’t be. But again, new license has gotten to be a smaller percentage of that whole on-premise business. And we are doing the same type of estimating that we do, do our best with all the data we have.

Great. Thanks for the color.

Your next question will come from the line of Raimo Lenschow with Barclays.

Hey, thanks for taking my question. Safra, I wanted to stay on that point a little bit. So, if you look at the license number that we see at the moment, it was like last quarter was minus 10, this quarter was minus 9. And obviously with the cloud transition going on which impacts you negatively, can you talk a little bit about other factors that might impact us and we all heard about the issues around China, etcetera. So, maybe talk a little bit about what you see in the different regions that might impact that growth number as well? Thank you.

Sure. I mean, look, there is no question that internationally, there is quite a lot of chaos to say the least. And the currency impact of countries that we have been doing very well is not helping. Even though my Latin America team is executing out of the park in constant currency, the devaluation of the different currencies in LAD, for example, are very negatively affecting my U.S. dollar results. Obviously, there is quite a lot going on in Europe in different parts and both that and currency. I feel that Asia-Pacific for us is actually stabilizing. China is not a big country for us historically. So, that’s less of an issue for us directly, but the countries and businesses that are impacted by the China trade like Australia, Canada, Brazil, those can be at risk. So, I am not an economist. I – these things are impacted by especially transactional business like new hardware sales or new license sales are impacted by these regional issues. But in general, on-premise software, which is dominated by software updates and product support customers renew because that is software that is very important to them and is doing the most important work in their companies, governments or non-profits. And so that is obviously very, very steady for us and continues to do well, but the transactional business is at the same potential risk. However, the cloud momentum is so strong that overall, we expect very significant growth and that is from contracts already in hand in most cases.

Perfect. Thank you.

And our final question today will come from the line of John DiFucci with Jefferies.

Thank you. Safra, I would like to better understand something I thought I understood, but it’s how exactly your bookings of SaaS and PaaS convert to revenue. For instance, bookings – PaaS and SaaS bookings last quarter were somewhere around $425 million. And if you assume this was signed towards the end of the quarter, I would expect cloud revenue SaaS and PaaS to grow sequentially by about a quarter of this number or by about $100 million, but it only grew by little more than $30 million. And I am just curious is PaaS, because it sounded like PaaS was like a real big quarter last quarter. Is the revenue recognition like SaaS, where it’s recognized immediately in the same amount over like the three years of the contract or is it recognized a little differently where it’s recognized as the customer consumes the technology? What am I missing here?

You are actually not missing anything. You are exactly asking the right question. And unfortunately, the answer is it depends because depending on what kind of agreement the customer signed, they may have signed a metered agreement, which means it will be recognized as they use it. However, it will expire after a certain time period if they don’t use it, when that is what we call metered. On the other hand, to the extent that they have a subscription, then let’s say, one month’s worth is recognized and then another month whether they use it or not. So, SaaS is almost always a subscription. PaaS can be either metered or a subscription. And so it is recognized differently and that’s it.

That actually makes a ton of sense. It’s really helpful. But just one quick question follow-up to that, once if it’s a metered PaaS deal and it expires, at that time, given the contract terms, the customers, does that you recognize anything remaining on that contract at the time of expiration?

If it’s expired, let’s say, they bought $100,000 metered, you could almost consider it a gift card. If they use it all on the first day, I book it alright then. If they don’t use it at all, I book it when it expires.

Perfect. That’s really helpful. Thanks, Safra.

John, I will just add on SaaS, just to make sure you understand what’s happening as we get to Q3, because Safra talked about Q3 and Q4. So, when we entered the SaaS market, we had a series of promotions, meaning that you would get some time to install. Our strategy was to give you an incentive when you bought that you had time to then implement and that promotion had a certain amount of time associated with it. Obviously, that was part of building up our reference base. Secondly, as we built up our reference base, we actually shortened the promotions. So, that actually – it actually went down by half the period of time. The two sets of promotions over the last couple of years, just by coincidence, coterminously end at the end of Q2. So, the percent of the bookings that were on those types of promotions both end at the end of Q2 of this fiscal year. So, that’s why one of the reasons in SaaS, why you will see a jump in revenue that also will not be explained by bookings. So, again, while you said I couldn’t explain Q2 to bookings, you won’t be able to explain exactly the alignment of the increase in revenue based on the bookings either, because underneath it is this promotions. So, there are multiple dimensions here. There is just promotion dimension. There is the dimension that Safra described, which is about 1% of our PaaS is metered and 1% of our PaaS is subscription. So, there is a couple of different ways you can consume the PaaS. In addition to it, it takes a certain amount of time for us in some cases, I told you about a win, for example, last quarter at HSBC, a very large ERP in the cloud win. It will take us several months to fully provision that ERP for HSBC. So, it’s those factors together that formulate the conversion of the booking to revenue.

But just to be clear, Mark…

And one more time why we are so confident? We have the contracts. We know the expiration of the promotions. We know exactly when the PaaS expires. And in addition, you see all of that as it relates to deferred on the balance sheet.

Great. And just to be clear, Mark, once you start – you are really giving in the SaaS, the SaaS examples you gave, it’s still once it starts to be – you may delay the beginning when you should begin to start recognizing the revenue, but it will be recognized as a subscription so evenly over the term?

Yes, it is. It’s a very important tool, John, because instead of discounting, you actually renew against a higher rate and the promotion is basically a window by which you have time to get installed. And it’s a very important tool as you are building up a reference base. And that’s what we have done. Now, the promotions over that period of time, call that a two or three-year period of time have declined and declined and declined. So, the amount of promotion that’s available in our SaaS portfolio today is materially smaller than it was two years ago and materially smaller than it was a year ago. And so what happens is we think the confluence of events really come together in Q3, which is where you see this pop in our revenue. And then from there, you will begin to see a more ratable alignment of bookings to revenue sort of save the one point about the PaaS consumption that Safra was making.

Okay, great. That’s all really helpful. Thanks Mark.

Thanks, John.

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