Oracle Corporation (NYSE:ORCL) Q2 2017 Earnings Conference Call - Final Transcript
Dec 15, 2016 • 05:00 pm ET
second penny. None of this was in my guidance for the quarter.
Cloud, SaaS, and PaaS revenues for the quarter were $912 million, up 89% from last year. You can also see the continuing acceleration of our cloud business in the SaaS and PaaS billings and deferred revenue. The gross deferred revenue balance is now over $1.6 billion, up 51% in U.S. dollars; and SaaS and PaaS billings grew 39% in U.S. dollars this quarter. We've put the billings numbers up on our website for you to see the detail as usual.
When you add together cloud, SaaS and PaaS revenues, and new software license revenue, they grew 5% in constant currency. And by the way, Database as a Service and database new software license revenue together also grew. These are significant milestones in our transformation with the combination of our cloud and new software license businesses added together are growing.
As cloud becomes an even larger percentage of the total, the growth will only accelerate with earnings and cash flow following along. As our SaaS and PaaS business continues to scale and grow dramatically, the gross margin continues to expand. Q2 gross margin for SaaS and PaaS was 61%, up from 43% last year, and I expect to see further improvement in Q3 and Q4. And from there, we'll be targeting 80%.
Cloud infrastructure as a service revenue was $175 million, up 9% from last year. The Q2 gross margin was 37%. Now, that's lower than prior quarters as we are making the necessary investments to scale out this business. Now, I want to spend a moment explaining it to you, because you're going to see some effects.
What's happening with the infrastructure as a service gross margin is similar to what we experienced with the SaaS and PaaS gross margin, except that it's off a much smaller revenue base and thus the margin impact is more at the beginning.
To refresh for everyone, when we invested in our SaaS, PaaS business in advance of the revenue scale out, the gross margin declined 16 percentage points before bottoming at 40%; it's now up to 61%. And as I just mentioned, will climb to 80% over time.
Similarly, I expect the infrastructure as a service gross margin will decline future over the next few quarters, as we make investments in the business to hit our expenses immediately while the revenue is recognized over time. But for modeling purposes, I would use 20% as a trough gross margin. Probably, it doesn't need to go quite that low but just for modeling purposes you can aim there, after which I expect the gross margin will climb to nearly 40% as the business scales probably higher.
Total cloud revenue in the quarter was over $1 billion for the first time at nearly $1.1 billion, up 69% in constant currency from last year. Total on-premise software revenues were $6.1 billion with software updates and product support revenues at $4.8 billion, up 3% from last