Oracle ORCL Q4 2026 Earnings Call Transcript

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DATE

Wednesday, June 10, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Michael D. Sicilia
• Chief Executive Officer — Clayton Magouyrk
• Chief Financial Officer — Hilary Barbara Maxson
• Investor Relations — Ken Bond

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TAKEAWAYS

• Total Revenue -- $19.2 billion, an increase of 21% in US dollars, driven by cloud infrastructure and cloud applications.
• Cloud Infrastructure Revenue -- Increased 93%, reflecting demand for AI workloads and database services.
• Cloud Applications Revenue -- $4.1 billion, up 10%, with SaaS deferred revenue up 16%.
• Non-GAAP Operating Income -- $8.6 billion, up 22% in US dollars, due to revenue growth and lower operating costs.
• Non-GAAP EPS -- $2.11, up 24%; excluding one-time investment gains, non-GAAP EPS rose 20%.
• Full-Year Revenue -- Exceeded $67 billion for the first time.
• Full-Year Non-GAAP Operating Income -- $29 billion, representing a 16% increase.
• Full-Year Non-GAAP EPS -- $7.63; without one-time investment gains, $6.83.
• Full-Year Cash Flow from Operations -- $32 billion, up 54%.
• Net Cash Outlay for Capital Expenditures -- $48 billion, considering prepayments and timing impact of ~$8 billion.
• Remaining Performance Obligations (RPO) -- $638 billion, up 363%, with 12% expected within 12 months and 34% between 13 and 36 months.
• Cloud Database Revenue -- Up 29%, with multicloud revenue up 404% and bookings up 325%.
• AI Infrastructure Contracts Signed -- $67 billion this quarter, primarily bring your own hardware or prepaid, reaching $75 billion to date.
• Q4 GPU Utilization Rate -- 97.5% globally.
• Capital Expenditure Guidance FY 2027 -- Projected net cash outlay of $70 billion, excluding $20 billion to $25 billion in customer prepayments or timing effects.
• FY 2027 Funding Plan -- Management expects to raise $40 billion in debt and equity, including $20 billion at-the-market equity issuance.
• FY 2027 Revenue Growth Guidance -- Total revenue growth expected at 34% in constant currency.
• FY 2027 Gross Margin Outlook -- Margin expected to decrease due to data center ramp-up and business mix, with improvement anticipated as utilization increases.
• FY 2027 Non-GAAP EPS Guidance -- $8.05, up 18% in constant currency, excluding onetime investment gains from Ampere and Bloom Energy.
• Q1 Revenue Guidance FY 2027 -- Expected growth between 27% and 29% in US dollars.
• Q1 Cloud Revenue Guidance FY 2027 -- Projected growth between 58% and 64%.
• Q1 Non-GAAP EPS Guidance FY 2027 -- Expected between $1.72 and $1.76, rising 17%-20% in US dollars.
• Customer Wins -- Over 300 Fusion customers went live in the quarter, including Exelon, Westfield Insurance, Piraeus Bank, and Wright County Sheriff's Office.
• Electronic Health Record Progress -- Supported 14 VA medical centers serving 29,000 clinicians and 500,000 veterans.
• New AI Commercial Models -- Token bundles and outcome-based pricing, with 33 customers purchasing token bundles in Q4.
• Largest Data Center Update -- Abilene, Texas delivered 42% of total capacity, with 35% more in 90 days and remaining balance next quarter.
• Long-term Financial Targets -- Leadership reconfirmed revenue CAGR of 31% and EPS CAGR of 28% through FY 2030.
• Infrastructure Delivery Pace -- Over 1.2 gigawatts delivered in FY 2026; Q1 FY 2027 delivery to approach 1 gigawatt.
• Large Customer Diversification -- Four customers each contracted for more than $8 billion this quarter.

SUMMARY

Oracle Corporation (NYSE:ORCL) presented a record fiscal quarter, underscored by aggressive expansion in cloud infrastructure and strong SaaS adoption, supporting material improvements in revenue, operating income, and cash flows. Management's outlook revealed an unprecedented $638 billion in remaining performance obligations, providing high visibility on future revenue, with committed large-scale contracts—particularly for AI infrastructure—driving forward capital deployment and enabling substantial customer prepayments. Leadership introduced expanded AI-driven commercial models, including outcome-based pricing and tokenized consumption, as part of a strategy to accelerate value alignment and deepen enterprise penetration. Guidance for fiscal 2027 targets accelerated top-line and cloud revenue growth alongside disciplined capital structuring, while long-term CAGR goals have been explicitly reaffirmed in the context of robust current demand and operational execution. Forward infrastructure delivery projections pinpoint near-term acceleration in data center capacity, with ongoing improvements expected in margin performance as utilization ramps to full contractual levels.

• Management confirmed in direct remarks, "full reconfirmation from my side on the long term targets," explicitly maintaining prior multi-year growth projections.
• A notable $40 billion capital raise is planned for FY 2027, including a $20 billion at-the-market equity offering, to fund infrastructure buildout in line with committed RPO.
• CFO Hilary Barbara Maxson described steady-state infrastructure business return on invested capital as in the "high 20s," measured after-tax operating margin plus depreciation divided by gross investment.
• Contracting structures for AI and infrastructure, inclusive of "bring your own hardware," are confirmed to deliver margins at or above legacy contracts.
• Company outlined that customer prepayments and evolving hardware arrangements materially reduce direct cash capital requirements while preserving economic returns.
• Large-scale GPU allocations for major customers resulted in nearly full renewal rates, with a global GPU utilization rate of 97.5%, underscoring continued demand saturation.
• On pricing and cost management, leadership stated, "set of mechanisms that ensure that Oracle is not sitting there with reduced margins."
• SaaS deferred revenue growth of 16% outpaced reported app revenue, potentially implying robust forward consumption.
• Multi-cloud momentum is highlighted with revenue quadrupling year over year and bookings rising over threefold, with management signaling further multi-cloud enablement to drive future results.
• Outcome-based and tokenized AI pricing models are extending beyond sector-specific pilots to the full horizontal and vertical app suite, now applied across Fusion and industry solutions.

INDUSTRY GLOSSARY

• Remaining Performance Obligations (RPO): Total contracted revenue expected to be recognized over future periods; a forward indicator of revenue visibility in the software and cloud industry.
• Bring Your Own Hardware: Customer-supplied hardware deployed and managed within vendor (Oracle) cloud or infrastructure, enabling alternative capital deployment models.
• Token Bundles: Prepaid units of AI service consumption, enabling customers to access enhanced model capacity within Oracle’s application suites.
• Outcome-Based Pricing: Commercial model where fees align with measurable end-user business results rather than usage volume.
• Deferred Revenue: Income received for services or products to be delivered in the future, recognized as revenue as obligations are fulfilled.
• Fusion Applications: Oracle’s integrated SaaS suite covering major enterprise needs including ERP, HCM, EPM, and SCM.

Full Conference Call Transcript

Ken Bond: Thank you, Lisa, and good afternoon, everyone. Welcome to Oracle's fourth quarter and fiscal year 2 thousand 26 Earnings Conference Call. On the call today are Chief Executive Officer, Mike Cecilia, and Chief Executive Officer, Clayton Magouyrk, and Chief financial officer, Hilary Barbara Maxson. A copy of the press release including financial results tables, supplemental financial metrics and guidance are now available from the Investor Relations website. Also, a slide deck being introduced this quarter, which you will see momentarily, a GAAP to non GAAP reconciliation, other supplemental financial information, and a list of many customers who purchased Oracle Cloud Services, or went live on Oracle Cloud recently. These items will be available after today's call.

As a reminder, today's discussion will include forward looking statements and we will make important comments around factors relating to our business. 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 ks and 10 Q and any applicable amendments. And finally, we are not obligating ourselves to revise our results or these forward looking statements in light of new information or future events. Before taking any questions, we will begin with a few prepared remarks.

And with that, I will turn the call to Hillary.

Hilary Barbara Maxson: Thanks, Ken. Hillary, everyone. Great to be here with you today. And as new CFO, I thought I would start with a few thoughts on why I am so excited to join Oracle at this time. I have spent my career all around the world at companies that use technology and data to drive transformation, both internally and for customers. And I believe that the most valuable transformational change sits at the juxtaposition of the physical and virtual world across business models from infrastructure to enterprise software. Oracle understands that intersection and is now uniquely positioned for 1 of the most significant technology transitions we have seen in decades.

Very few companies can help customers across the entire technology stack, the cloud infrastructure that powers AI workloads to the mission critical applications that run their businesses. Oracle can do both. Plus, this is a company with deep technical expertise, differentiated technology, and a long history of helping customers turn technology innovation into tangible business value. And now I have only been here for 2 weeks, everything I have seen has reinforced my confidence in the company's strategy, execution, and opportunity ahead. And I am excited to be part of the team and look forward to helping Oracle on the opportunities in front of us to drive return on investment for shareholder value.

And as we pursue these opportunities, we will remain focused on disciplined capital allocation, maintaining a strong balance sheet, and preserving our investment grade credit rating. With that, let me turn to our Q4 and fiscal year 2020 6 results. And like Ken said, we have introduced a short presentation to accompany our earnings call so you can follow along with the numbers and key comments we will make today. In terms of Q4, it was a record quarter. Driven by strength in both our cloud infrastructure and cloud apps business. Revenue was $19.2 billion, up 21% in US dollars.

Cloud infrastructure revenue grew 93%, reflecting strong demand for both AI workloads and our database services, and Cloud Apps was up double digit at +10%. And Mike and Clayton will give more detail on these in just a moment. Our non GAAP operating income increased 22% in US dollars to $8.6 billion driven by our strong revenue progression. Our operating margin increased slightly with our gross margin declining driven by impacts from ramping up our data centers and the acceleration in our infrastructure revenue. This was more than offset in the quarter by a reduction in operating costs, and for us, that is the lines in our P&L, starting with sales and marketing.

Due to efficiency actions in our cost structure. Our non GAAP EPS reached $2.11, an increase of 24% in US dollars for the quarter. Due to a onetime net gain on investment. Excluding this, our non GAAP EPS increased by 20%. Turning to the full year, we surpassed revenues of $67 billion for the first time which translated into strong non GAAP operating income of $29 billion, up 16% in U. S. Dollars for the year. Our non GAAP EPS was up 27% in US dollars to $7.63, including onetime gains on investment. Excluding these gains, our non GAAP EPS was $6.83.

For the full year, our gross margin stepped down around 5 points as expected as we start to see the impact from the build out of our infrastructure business and the acceleration in its revenues, primarily offset by lower operating costs as a percentage of revenue driven by operating efficiencies. All of this translated into strong cash flow from operations of $32 billion, up 54%. We did continue with our program of capital investments tied to unlocking the strong growth opportunities in front of us. Our net cash outlay for capital expenditures for the full year was $48 billion, taking into account prepayments and timing impact of around $8 billion.

You can see the table showing the details of net cash outlay for CapEx in our press release. We think this measure is important to better understand our funding needs. And our remaining performance obligations, or RPO, finished at $638 billion, up 363%. This unprecedented level of RPO provides exceptional visibility into our future revenue growth, all supported by long term contractual customer commitments and reflects the strong customer demand we see across both AI infrastructure and cloud services. To give a bit more detail on our RPO, we expect 12% to be recognized in the next 12 months and another 34% between 13 and 36 months.

And these percentages are both expected to accelerate over the coming quarters based on our current long term outlook. Mike and Clayton will now get into a bit more detail on our cloud businesses, Then I will be back with our outlook for fiscal year 2020 7 and Q1.

Michael D. Sicilia: Thank you, Hillary, and welcome to Oracle. So I am going to cover our cloud app and cloud database business in a bit more detail. Both of which performed Quite well in Q4. We are on the front end of 1 of the most interesting times in the technology business. Our customers are now focused on how to leverage AI in their own businesses. They want AI to increase productivity, enhance customer service, and create real competitive advantages. So they want to do it quickly, and within their existing budget envelope. Oracle's unique advantage is that we deliver the applications, the data, the infrastructure, the AI tooling, and the industry expertise together.

That combination invariably puts us at the center of conversations, whether they are existing Oracle customers, or not. And our customers have moved past the experiment stage with AI. They are ready to implement enterprise-ready, complete agentic solutions to help run their businesses. Over the past year, we have delivered more than 1 thousand AI agents across our application suites. These agenda based offerings can reason, decide, and execute work across processes. So the quickest, most affordable, and most productive way customers can begin consuming AI is just to continue using Oracle's applications. Since every 3 months, they get more and more of the AI features built for them and ready to go.

This is a major shift in enterprise software, and Oracle is uniquely positioned to lead it. And you can see it in our Q4 results. Oracle Cloud applications generated revenues of $4.1 billion, which is up 10% and our SaaS deferred revenue was up 16% in the quarter. Across the company, we took thousands of customers live last quarter, over 300 in Fusion alone. Exelon adopted our utilities platform to manage operations. Wright County Sheriff's Office went live with our public safety suite. Westfield Insurance implemented Fusion ERP, and Piraeus Bank went live with the Oracle banking just to name a few.

All of these customers are upgrading to a better and modern applications platform that also comes with AI built right in. In Q4, we also continued our electronic health record deployment at the United States Department of Veterans Affairs. In Q4, we added 4 VA medical centers in Michigan and in early June, added another 4 VA medical centers in Ohio. The Oracle now supports 14 VA medical centers serving 29 thousand clinicians and 500 thousand veterans across The United States. And while not part of our Q4 bookings, United States government office of personnel management today announced an agency wide award to Oracle for Fusion HCM.

So this is obviously a strong start for us in our FY 2027 applications business. But in addition to discussions around AI within our applications, I am also having very interesting conversations with our customers around leveraging their own proprietary data sets with AI. Much of this data already sits in an Oracle database or is generated by Oracle applications. For many enterprises, inferencing against decades of rich operations data is where the benefits of AI compound exponentially. Oracle's full stack offerings allow customers to get up and running quickly leveraging AI together, with their private datasets.

This is why Clay, a major telecommunications provider in Latin America, chose OCI Field services applications and our AI data platform to automate customer service for their 30 million subscribers this quarter. UK National Health Services share business services, Lojas, the Brazilian retailer, and QXO, the fastest growing building products distributor in The United States. Combines AI ready Oracle infrastructure or database products with Oracle applications, to move their businesses forward. Again, just to name a few. Last quarter, we also released a long list of major new AI functionality in the Oracle database. Here are just 2 examples. The Oracle AI agent memory is a library that helps developers build agents that remember reason, and act with enterprise context.

Oracle Deep Data Security has data access rules at the database level. This protects against both unauthorized access. It limits precisely what data a user and any AI agent acting on their behalf to see or act upon. All of these innovations I have just described and many more are available in our cloud, our partners' clouds, and in our customers' environments. In Q4, our cloud database business revenue grew by 29% with multi cloud growing much faster. Multi cloud revenue was up 404% year-over-year and bookings were up 325% year-over-year. 1 example of an enterprise using a wide range of Oracle technologies is Vodafone. Who turned to us in Q4 to consolidate and modernize their operations.

Vodafone selected OCI dedicated region at their data centers our multi cloud database offering, a partner cloud and our applications to reduce costs and run their processes faster, in some cases, up to 60% faster. Finally, we are working with our customers to deliver quick ROI within their AI budgets. To do so, we are simplifying how customers consume and pay for agenda capabilities. Our new agenda pricing aligns with customer value. Now much of our AI innovation in our core applications continues to be included at no extra charge. However, customers can also purchase additional Agenza capacity in a simple predictable way by purchasing bundles of tokens that can be used across our application suites.

We are also introducing outcome based commercial models that align pricing directly to the value derived. For example, interview agents that are priced based on the number of candidates screened. Or hospitality upsell agents priced on the percentage of end consumer upsell transactions. In Q4, started a limited rollout of our token bundles and had 33 customers. Aon Services Corporation and Liberty Energy pre-purchased tokens that have access to more advanced reasoning in models. All of this helps our customers control their costs and align their spending with the value being generated. And with that, I will turn it over to Clayton.

Clayton Magouyrk: Thanks, Mike. Okay. You just heard from Mike about our applications and databases. Oracle has been in these businesses for decades, and they continue to impress on because of their ability to continually grow aggregate margin dollars through a combination of durable differentiation increasing market size. I wanna share how we see our infrastructure business in that same category and the evidence that reinforces that view. Okay. Differentiation comes in many forms. Technological innovation, supply chain execution, operational ability, and more. We created OCI as the most highly secure, highest performance, most flexible, lowest cost infrastructure available anywhere. We deliver that through innovation across all layers.

From deploying the smallest and the largest clouds to inventing technologies like Acceleron that provide the highest performance and lowest cost networks. We combine the power of OCI and Fusion applications implement an incredibly efficient and flexible supply chain. We architect across data center design, power distribution, data hall layout, and networking to deliver the most efficient and the most flexible infrastructure available to anywhere. Oracle had a long track record of durable differentiation. This is because we know the real differentiator is the organization. The people, the company itself that can adapt to new requirements, invest in solutions, and deliver them to customers.

OCI has been the fastest growing cloud provider for years, And now with AI infrastructure, we have shown to everyone the power of the organization we built, the technology we created, the value we are delivering to customers. OCI is continually releasing new services, hardware, networks, and cloud regions to ensure we are always the best place for our customers' infrastructure workloads. Cloud infrastructure has become a very large market, because of the ever growing demand for server side computing. AI infrastructure makes the existing cloud infrastructure market look small. Everything we see shows this market size is trillions of dollars per year.

Combined with our previously outlined 30% to 40% margin profile, OCI should grow into an extremely large and extremely profitable business. These beliefs are supported by compelling and multiplying amounts of evidence. We signed $67 billion in AI infrastructure contract this quarter, the majority of which was either bring your own hardware or prepaid. This increases our combination of bring your own hardware or prepaid customer contracts to $75 billion, with those contracts having no degradation in margin compared to our other contracts. Customers are showing they chose OCI, to deliver their infrastructure even when they are bringing in capital themselves. Design, delivery, and operation of this large scale infrastructure is extremely demanding.

Q4 finalized an impressive FY 2026, where we delivered more than 1.2 gigawatts to customers. Our pace of delivery continues to accelerate, our FY 2027 Q1 delivery approaching 1 gigawatt, nearly the same capacity as we have delivered in the previous 4 quarters combined. There will be many winners named, and our strategy is to have them all as customers. We continue to diversify across our largest with 4 customers contracting for more than $8 billion this quarter. Our infrastructure is fundamentally multi tenant, we continually allocate capacity between customers. In Q4, 35 thousand GPUs from 59 separate customers were up for renewal. 49% of those customers renewed for 92% of those GPUs.

That does not mean, though, that 8% of those GPUs are idle. Most of those GPUs themselves were subsequently sold to other customers in the same quarter. Our global GPU utilization rate is 97.5%. it is also clear that AI is here to stay. AI is delivering value on multiple fronts. But the most clear and obvious is agent decoding. This is an area where we have a front row seat as both the provider and the consumer. Agent encoding tools have completely changed how Oracle operates, and we see no slowdown in our own demand for such capabilities. The same is true for all the customers and partners we work with.

The demand for AI infrastructure in this domain alone is enormous. Ignoring the many, many other growth areas. Okay. Now before I end, let's look at a summary of our 5 largest sites and the significant progress we are seeing across all of them. To begin, let's look at Abilene, Texas. Abilene, Texas today has delivered 42% of the total capacity. An additional 35% of capacity will be delivered in the next 90 days, with the remainder delivering in the subsequent quarter. Moving forward to Shackleford, Texas. We contracted this in August 2025. Customer delivery begins in the first half of FY 20 I am sorry. The first half of calendar year 2027.

115 megawatts of power capacity is already available online, more than 1 month ahead of schedule. If we take a look at Doña Ana County New Mexico, we contracted this in September 2025. Customer delivery begins in the first half of calendar year 2027 as well. Power design is based on gigawatts of clean, energy-efficient Bloom fuel cells. We look at Saline County, Michigan. We contracted this in October 2025. Customer delivery begins in the second half of 2027. The network core is ahead of schedule and delivered at the end of this calendar year. And then to the final slide I want to touch on, Port Washington, Wisconsin.

This was contracted in September 2025, and delivery begins in the second half of calendar year 2027. I think you can see from all of these pictures the massive progress that we are making across a very large number of sites. it is an incredible time to be in technology. To have the privilege of doing that at a company like Oracle. it is especially fun to have an inside view of the birth of a new business that can join the likes of our applications and database businesses. Hopefully, beliefs and the data points give you some insight into why we are so excited about OCI and where that is going to take Oracle.

And with that, I am going to hand it back to Hillary.

Hilary Barbara Maxson: Thanks, Clayton. Before I get to our fiscal year 2027 and Q1 guidance, I would like to share some comments on our funding expectations. We already mentioned throughout the call the compelling opportunities we see, based on our portfolio positioning, and our strong Q4 results reflect this well. Customer demand and our growing visibility into future revenue is what underpins the long term financial outlook we shared at our most recent Analyst Day of +31% revenue CAGR and +28% EPS CAGR through our fiscal year 2020 30. In order to unlock this unique growth opportunity, we started a program of capital investments.

We will continue those investments in our fiscal year 2020 7, with an expected net cash outlay for capital expenditures of around $70 billion. This includes customer prepayments and timing impacts expected at around $20 billion to $25 billion so our reported CapEx will be higher by this amount. Importantly, these investments are being driven by committed customer demand reflected in our record RPO giving us confidence in our long term outlook as well as strong returns on the capital we are deploying. As Clay already mentioned, this demand is allowing us to garner customer prepayments and bring your own hardware at similar or better margins than the rest of our contracts.

To support our capital investments program, we expect to raise around $40 billion in debt and equity in our fiscal year 2020 7 and that includes our already announced $20 billion at the market equity issuance. We do not anticipate raising additional debt funding in calendar year 2026. Our fiscal year 2020 7 guidance, you can start to see the strong translation of our RTO into revenues. With expected growth in our total revenues of +34% in constant currency, surpassing the 5 year revenue CAGR included in our long term outlook.

Our fiscal year 2020 7 gross margin will step down due to timing for the ramp up of our data center projects into their full revenue contribution plus impacts from mix. While these investments are creating pressure on near-term gross margins in our infrastructure business, we expect margin performance in infrastructure to improve rapidly as we reach full contractual revenue levels at our data centers. Operating costs, we expect to be slightly negative year over year in dollar terms due to efficiency actions, driving improved operating leverage.

Net, we expect our non GAAP EPS for the year to be $8.05, up 18% in constant currency excluding the net onetime investment gains we booked in fiscal year 2020 from Ampere and Bloom Energy. I will finish with guidance for our Q1 27. In Q1, we would expect growth in total revenues of between 27% and 29% in US dollars. Of that, expect growth in cloud revenues of between 58% and 64%. In non GAAP EPS, we expect between $1.72 and $1.76 up between 17% and 20% in U.S. Dollars. And we anticipate revenues and earnings will accelerate in the second half of the year as we bring further megawatts online at our data centers to fulfill customer demand.

Look forward to speaking further with all of you over the next few weeks and months leading into our Q1, and at our next Oracle Investor Day scheduled for October 28 in Las Vegas.

Ken Bond: With that, I will turn the call back to Ken for the Q and A. Thank you, Hillary. Lisa, if you would please poll the audience for any questions they might have.

Operator: Absolutely. And ladies and gentlemen, once again, that is *1 if you have a question. We ask that you limit your questions to 1. First question comes from John DiFucci from Guggenheim Securities.

John DiFucci: Thank you. So my question is a question that I have dealt with all this quarter. And Clay, that was a ton of information you gave, which is helpful, really helpful. But there is 1 little nuance here. You spent a little bit more this quarter on CapEx than we expected. We all know and that is sort of the topic a little bit. bit. It adds into it that component costs have gone up a lot, especially memory. it is grown significantly. Right? And even though you said that most Q3 and Q4 contracts are large scale AI contracts that were prepaid for GPUs, you have a lot of other contracts. You know, this has been an issue.

For a lot of software companies and large cloud companies. I do not think it is as much of an issue for you given my understanding of how you construct contracts. Mike, But can you explain that to investors, like, when it comes to these very long term contracts? between you and the end customer and the suppliers, Sure.

Clayton Magouyrk: Yeah. Good question, John. Good to talk to you again as always. Look. I will answer, I think, that in 2 parts. In terms of the capital expenditures, at least from what we are seeing in Q4, any increase in CapEx that is not due to component prices from our perspective that is largely around timing. Right? I mean, part of my job is to figure out ways to actually accelerate CapEx. You know, it is Hillary has a tough life. My job is to try to spend the money a little bit faster so I can get ramped revenue sometimes. So I do not see that in the is related to component parts.

Now talking about component prices in general, look, I think everyone knows that you know, memory prices have definitely gone up, SSD prices, hard drive prices, etcetera. So 1 of the things that we do, John, is it is it is actually quite simple. When we are selling stuff in a time period where we have certainty, whether that be certainty because the capacity is already deployed, or we have certainty because we have locked prices across the spectrum, whether it be you know, space and power costs, energy costs, people costs, component costs. When we know those costs, we will then do fixed price contracts, but times that we do not know those costs.

Because it is out too far in the future or we have too much supply chain risk, whether that be due to, you know, just the way the world works or a lack of things being locked in. We then do not do fixed price contracts with our customers. And we have a mechanism whereby those costs end up being passed through. So you know, I do not like it when costs go up. Our customers do not like it when costs go up. And, honestly, I do not think our suppliers do. I think they would love to-- they would love to be able to give us everything we want.

But when the costs do go up, we have a I think, a very robust set of mechanisms that ensure that Oracle is not sitting there with reduced margins.

John DiFucci: That is really helpful. It makes a ton of sense. And if I could, just a quick 1. Hillary, you kind of alluded to what I am going to ask, but this is a second question I get a ton of questions on. You have long term targets out there. You are a new CFO. Right? And congrats. it is great to have you on the line. But can you just comment on those long-term comp targets at all You know, I know you have only been there a couple of months.

Hilary Barbara Maxson: You know, I think that was the intention of putting in the next slide. I think that we are reconfirming those long term targets in the sense of the CAGRs that we put into the slide today. So we feel comfortable with that. And you can see the RPO building to the level that you can start to have a lot of belief, I think, in those long term targets exactly. So full reconfirmation from my side on the long term targets.

John DiFucci: All very clear. Thank you very much. Nice job, guys.

Operator: Next question comes from Brad Dzellnik, Deutsche Bank.

Brad Zelnick: Great. Thank you so much for taking the question. And, Hillary, welcome to Oracle. Hillary, as you come to Oracle from a capital intensive business in another industry, how would you suggest that investors evaluate Oracle's progress and returns during this period of heavy investment?

Hilary Barbara Maxson: Yeah. So the way I think about it, and we said in the earnings call, we feel the returns for the infrastructure business So that CPU and GPU business are quite strong. Probably from a back of envelope standpoint, the way I think about return from that business model is in return on invested capital. And what we see is return on invested capital in the high 20s at a steady state. So once the revenues have ramped for large projects at the project level. And that does not take into account, unlike Mike, who knows if, you know, the GPUs do not need to be replaced over the long term and things like that.

Just purely in the steady state. When we are at the steady state of the contracts that we have. And if we are generally able to preserve and improve in the case of things like bring your own hardware, the ROIC structure for those types of structures will be even higher. And again, that back-of-the-envelope, I am just calculating return on invested capital as after tax operating margin plus depreciation. Divided by gross investments, so total gross CapEx at the project level. Maybe that gives you a little bit of an idea. And, of course, we are happy to talk more about that over the next couple quarters.

Brad Zelnick: that is really helpful, Hillary. Thank you. And congrats to the whole team on the execution this quarter. Nice job to everybody.

Clayton Magouyrk: Thank you.

Operator: Up next, we will take a question from Mark Moerdler from Bernstein.

Mark Moerdler: Thank you very much for taking my question, and also congrats on the quarter. And Hillary, welcome, and we are really looking forward to working with you. Clayton and Hillary, with so many vendors entering the market, to deliver AI data centers, including the Neo Cloud, SpaceX, which is now going to build data centers in space, etcetera. Where does Oracle see itself in the competitive landscape? And how do you see that increase in capacity impacting your ability to, 1, retain customers renew contracts, 2, capture new customers, and 3, maintain or improve margins. Thank you.

Clayton Magouyrk: Yeah. Thanks, Mark. Look. I think that first, I think it is very important that we stay focused on customers. So, the nice thing is that think where you see it from existing RPO or increased contracts that we are getting. Yes. there is a lot of a lot of things happening in the market, but we have a large, diverse set of customers, both very large and smaller customers. And what I spend all of my time doing is I wake up every day, and I go, how do I make sure those customers are happy as possible with us?

And that is you know, when I share the numbers, for example, in my in the in the prepared remarks about the extremely high utilization rate, Even when things come back for renewal, they are instantly snapped up. Those are all indicators that we have great customer relationships. They are happy with the products, and they are very satisfied with the prices that we are charging for them. But I think there is going to be a lot of people who have entered the space. I think there is clearly you know, several years in, there is still a massively higher demand than there is supply.

So I think that is going to there are going to be more and more people trying to figure out how to meet that demand but I do not worry about that. I really focus on how do we make sure that we can meet as much of that demand at a reasonable margin profile. And that is what I think you have seen us invent new business models to go out and try to serve. In terms of how does that affect our future renewals, I find that largely what affects future renewals is that several years relationship that we are going to have between now and then.

And we are fundamentally in the service business. it is-- you think that you are just buying something and then you are you are done with it, it is not the way it works. Right? These people are relying on what we do at Oracle to run and maintain these massive clusters every day. And our ability to do that extremely well creates a extremely positive relationship that then ensures that renewals go well. And then in terms of the margin profile, look. on OCI. You know, I have been at Oracle now for 12 years.

Whole time I have been working What I can tell you is it is not easy to build an extremely efficient, highly secure, robust cloud. So I think that our customers see and appreciate the value of what we provide. The flexibility that we give them, the comprehensive set of services that we provide.

So I think that over time, as, you know, the market continues to mature, and we deploy more and more of our research and development dollars into making things more efficient, I think there is ways that Oracle gets higher and higher margins, but we offer lower and lower prices to our customers. that is ultimately the job that is on our shoulders and what we have been doing over the past decade is why the biggest and most robust customers come our way.

Mark Moerdler: that is really helpful. I do really appreciate it. Thank you.

Operator: The next question today is Keith Bachman from Bank of Montreal.

Keith Bachman: Yes. Thank you very much for the question. Mike, I wanted to direct this to you, if I could. You mentioned 2 things as net new. 1 was moving towards outcome based commercial pricing models. The other was rolling out some incremental token packages. And I wanted to see if you could flesh out the why, and more specifically, on the commercial outcome based commercial pricing models, how do you think this reduces friction And what is this related to what modules? In other words, I assume this is the SaaS portfolio. ERP, HCM. You know, what models might this relate to? And then finally, how do you think this might impact growth? that is it for me. Many thanks.

Michael D. Sicilia: Sure. Yeah. Thanks for the question, Keith. So outcome-based pricing is not entirely new for us. So this is something we have been doing in our construction business, based upon construction value under management, subcontract subcontractor, a general contractor to subcontractor cash flow and payments. Also, as I mentioned in my prepared remarks, with hospitality, and even in health care, in our in our new AI based automated agents where automating doctor's notes. We are automating lab orders.

Able to measure and actually price based on patient throughput, which is which is what the provider 1 of the things providers care about is how many people can we can we get through a health care system, reduce waiting queues, get better service to patients? what is new is that we are now expanding that offering across our entire fleet, and as you as you mentioned, across all of our applications, including Fusion suite. Now that the sort of difficult thing is if you are not creating the outcome in the first place, that is a tricky thing to price in.

Since we have made this full stack investment, since we are able to very easily take, you know, the best of the output from the large language models to our customers, pair that with our both our horizontal applications and our industry applications, we have a very easy way to measure outcomes for our customers. And as I mentioned, know, 1 of the things we are we are increasingly hearing from customers is how much are they gonna spend on AI, and how do I get an ROI for that? So I think we have a very unique advantage. Since we are in the infrastructure business, We have large language model vendors training on there.

We got we have got all of our applications business, both horizontal and vertical businesses. Are naturally generating these outcomes for customers. And it really gives us the ability help them understand their own AI budgets as well as align that to the value again, which is really easy to measure. So I think it is a unique offering. It relies on the full stack investment that we made. And as I mentioned, early days, but certainly resonating very, very well very well with customers. They appreciate the transparency. They appreciate being able to align outcomes to AI spec. I also mentioned the token bundles.

If customers want this again, a lot of what we are doing in our fusion applications, our industry applications, we continue to add at no additional charge. If customers want access to advanced reasoning, and they want-- you know, essentially, essentially, for more tokens at the models, we have prepackaged bundles to allow them to do that. So allowing as much flexibility and as much alignment with the value in our pricing models across our entire application suite. As we possibly can.

And I expect that I expect that, that will continue to resonate well with customers as it did in the quarter and as we roll it out across our entire fleet certainly should be helpful for our growth story as well. Thanks, Mike.

Operator: Your next question is from Raimo Lenschow from Barclays. Barclays.

Raimo Lenschow: Hey, perfect. And welcome to the team from me as well. The question I had was we talked a lot about, like, AI and, you know, the great momentum you have today, but you still have, like, the classic Oracle business that we all grew up with. You know, there is a lot of kind of noise in the market at the moment, especially on the investor side with what is happening to software, etcetera. You kind of address a little bit what you are seeing on the database side? You know, there is OCI, Azure, etcetera, and overall database momentum.

And then on the application side, the growth rate ticked down a little bit, but then you also mentioned on the call some very nice customer wins. Can you talk to what you see in the classic business? Thank you.

Michael D. Sicilia: Yeah. Sure. it is Mike. So I will take a stab here and then ask Clayton to jump in as well. So on the on the applications business, we think double digit growth on a on an in-quarter-- you know, in quarter run rate of $4.1 billion is pretty good. And we are certainly happy with our continued double digit growth. As I mentioned, our deferred position in the quarter grew by 16%. So what our preferred position growing faster than our in quarter revenue, it gives us confidence. As far as impact of SaaS apocalypse, I would say maybe a couple quarters ago, there were some delayed decision cycles out there or customers saw through that.

But really, particularly in the mission critical system space, which is where we play at Oracle, people have quickly moved on to that and realized that is, you know, enterprise software particularly when you have AI built into our SaaS solutions, is--, it is certainly a very good approach and is nest necessary to move forward for the modernization and protection of their businesses. So I expect that our applications business will continue to be a healthy contributor to Oracle as it has been. As far as database, look. I mean, they caught the innovation of 29% in the quarter.

With multi cloud, as I mentioned, growing even-- you know, 4 multi cloud revenue growing 4x, spoken growing 3.25x in the quarter. And here's some really good news on database. We are in early innings, very early days on multicloud database. We continue to unlock new regions and unlock new partnerships, in some cases, with our competitor cloud. Expect that business to continue to be an outsized growth engine for Oracle going forward. And I will I will say that the final piece is that in addition to multicloud, you did the innovation in the database. I mentioned a couple of the of the deep data security and agent memory that we put at the database.

You know, things like vector database search and features that we have we have been adding into the database are part and parcel of the company's AI strategy. The data strategy matters. Data architecture matters. And as the emerging markets start to take hold, which is, again, also in early days, a lot of that data is just in the Oracle database across the world. And we expect to see continued investment and growth on our database business as a result. Multi cloud all facets of database, Oracle Cloud, multi cloud, as an underpinning support pillar for all of our applications and all of the workflows in the world that are running on the Oracle database. Prognosis is very good.

Raimo Lenschow: Perfect. Thank you.

Operator: And our last question today comes from Kirk Materne from Evercore ISI.

Kirk Materne: Yes. Thanks very much for taking the question. I had 1 and maybe sort of a 2 parter around the bring your own hardware and prepaid dynamics. Maybe for Clayton and then for Hillary. I guess, Clayton, for you, you are about 12% of RPO is not related to these types of deals, and when you look at the pipeline, where do you think that split could ultimately go? And when you go into these type of deals, especially on the bring your own hardware side, you know, what is the value differentiation that maybe those deals have that some of the ones that include or, I guess, how does that differ versus the GPU type deals?

And then Hillary, just to clarify on the CapEx guide, I think you said $70 billion in CapEx. But that was excluding, I think, $25 billion from some of these prepaid deals. So could you just, I guess, talk about this dynamic as it relates to sort of your CapEx outlook? Thanks.

Clayton Magouyrk: Yes. So I will start and then hand it to Hillary. Look, I mean, I would like to tell you that we have we know all about how things are gonna change in the future. I cannot say that today. The reality is that what is driving, I think, the mix change is an evolving business model. Right? You have a lot of different types of accelerators. You have a lot of customers. You have a lot of different business arrangements.

And so you know, ultimately, 1 of the things that Oracle can provide to our customers is that we can go out and put upfront capital and then depreciate that over a certain period of time and help finance the customer's uses of that. But that is not the only thing we provide. And for a lot of customers, it is not even the most important thing we provide. What they contract with us for is the ability to go out and get these data centers constructed, design them properly, secure them, design networks that go inside of them, install a cloud, give the complementary set of services around the specific hardware.

Because it turns out that a set of these accelerators on their own is not functioning cloud. You need general purpose compute. You need general purpose storage. You need load balancers. You need security functions. You need identity. You need all of that to actually make this stuff usable and Oracle provides all of that. And then anyone that thinks that these things are easy to operate is very confused. You are not just buying a single rack and putting it into your data hall. These are extremely complex clusters that require constant care and feeding constant maintenance, across the network and the hardware itself.

And so when you add all that together, I think that what you are seeing is that you have got different entrants in the market around accelerators that are helping customers find ways to procure their accelerators. You have got different customers who have different ways of thinking about that. And so I cannot tell you exactly the mixture of what we do bring your own hardware versus when we do prepay versus when we bring the capital, but what I can say is that I think you will continue to see innovation and evolution in this model given the rapid changes that are happening across this entire ecosystem. So let me just start.

Hilary Barbara Maxson: We said on the call a couple of times, but we also see the margins in those structures either at or better than the prior contracts that we have. So that is good news in terms of economics. We did introduce this quarter this net cash outlay for capital expenditures, which I think is pretty important. To understand our funding requirements. So indeed, for fiscal year 2027, we expect around 70 billion in net cash outlay for capital expenditures. That does exclude the 20 to 25 billion in prepayments that we will collect, or there is some timing differences in there, it is just associated with third party manufacturers, not vendors, not vendor financing, just third party manufacturers.

So, $20 billion to $25 billion The sum of those is our reported CapEx. But from a funding standpoint, what is happening here is that these structures are enabling us to have a lower cash CapEx requirement when we look at how we plan our business, and also from an economic standpoint of course, because we are collecting money upfront, so, in normal cases, we would put out the CapEx amount, and then later, we would collect money from customers. Here, we collect money from customers upfront and actually so that does not come out of our funding to pay for the CapEx or not 100% of it.

Therefore, the return on capital is gonna be a bit better as well.

Kirk Materne: Super. that is helpful. Thank you all.

Ken Bond: Thank you, Hillary. So for next quarter, this is a new for everybody. We expect our Q1 fiscal year 2020 7 earnings results will be announced on September 10, Any change in the date will be publicly announced. Also, as a reminder, Hillary brought this up earlier. But our Investor Day will be held on October 28 in Las Vegas. We look to see you all there as part of AI World. A telephonic replay of this conference call will be available for 24 hours on our Investor Relations website. And as a reminder, the slides that you saw today will be posted to the website shortly. Thank you for joining us today.

With that, I will turn the call back to Lisa for closing.

Operator: And once again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.

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