Oracle FY2026 Q4 Earnings Call - AI Infrastructure Demand Surges Amid $70B CapEx Buildout

Lisa, Conference Operator: I would now like to hand the conference over to Mr. Ken Bond. Please go ahead, sir.

Ken Bond, Investor Relations, Oracle: Thank you, Lisa, good afternoon, everyone. Welcome to Oracle’s fourth quarter and fiscal year 2026 earnings conference call. On the call today are Chief Executive Officer, Mike Sicilia, Chief Executive Officer, Clay Magouyrk, and Chief Financial Officer, Hilary 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 is a slide deck being introduced this quarter, which you’ll see momentarily, a GAAP to non-GAAP reconciliation, other supplemental financial information, and lists 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, we will make some 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, we encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendments. 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’ll begin with a few prepared remarks. With that, I’ll turn the call to Hilary.

Hilary Maxson, Chief Financial Officer, Oracle: Thanks, Ken. Hi, everyone. Great to be here with you today. As new CFO, I thought I’d start with a few thoughts on why I’m so excited to join Oracle at this time. I’ve spent my career all around the world at companies that use technology and data to drive transformation, both internally and for customers. I believe that the most valuable transformational change sits at the juxtaposition of the physical and virtual worlds across business models, from infrastructure to enterprise software. Oracle understands that intersection is now uniquely positioned for one of the most significant technology transitions we’ve seen in decades. Very few companies can help customers across the entire technology stack, from the cloud infrastructure that powers AI workloads to the mission-critical applications that run their businesses. Oracle can do both.

This is a company with deep technical expertise, differentiated technology, and a long history of helping customers turn technology innovation into tangible business value. While I’ve only been here for two months, everything I’ve seen has reinforced my confidence in the company’s strategy, execution, and opportunity ahead. I’m excited to be part of the team and look forward to helping Oracle capitalize on the opportunities in front of us to drive return on investment and shareholder value. As we pursue these opportunities, we’ll 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 2026 results. Like Ken said, we’ve introduced a short presentation to accompany our earnings call so you can follow along with the numbers and key comments we’ll make today.

In terms of Q4, it was a record quarter, driven by strength in both our cloud infrastructure and cloud apps businesses. 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 digits at +10%. Mike and Clay will give more detail on these businesses 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, for us, that’s 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, partly due to a one-time 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 US dollars for the year. Our non-GAAP EPS was up 27% in US dollars to $7.63, including one-time gains on investment. Excluding these gains, our non-GAAP EPS was $6.83.

For the full year, our gross margin stepped down around five points, as expected, as we start to see the impacts 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 impacts 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.

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. These percentages are both expected to accelerate over the coming quarters based on our current long-term outlook. Mike and Clay will now get into a bit more detail on our cloud businesses, and then I’ll be back with our outlook for fiscal year 2027 and Q1.

Mike Sicilia, Chief Executive Officer, Oracle: Thank you, Hilary, and welcome to Oracle. I’m going to cover our Cloud Apps and Cloud Database business in a bit more detail, both of which performed quite well in Q4. We’re on the front end of one 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. 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 customer conversations, whether they’re existing Oracle customers or not. Our customers have moved past the experiment stage with AI.

They are ready to implement enterprise-grade, complete agentic solutions to help run their businesses. Over the past year, we have delivered more than 1,000 AI agents across our application suites. These agentic-based offerings can reason, decide, and execute work across processes. The quickest, most affordable, and most productive way customers can begin consuming AI is just to continue using Oracle’s applications, since every three 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. You can see it in our Q4 results. Oracle Cloud Applications generated revenues of $4.1 billion, which was 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 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 U.S. Department of Veterans Affairs. In Q4, we added four VA medical centers in Michigan, and in early June, added another four VA medical centers in Ohio. Oracle now supports 14 VA medical centers, serving 29,000 clinicians and 500,000 veterans across the U.S. While not part of our Q4 bookings, the U.S. Office of Personnel Management today announced an agency-wide award to Oracle for Fusion HCM.

This is obviously a strong start for us in our FY 2027 applications business. In addition to discussions around AI within our applications, I am also having very interesting conversations with our customers around leveraging their own proprietary datasets 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 Claro, a major telecommunications provider in Latin America, chose OCI, Field Services applications, and our Oracle AI Data Platform to automate customer service for their 30 million subscribers this quarter. NHS Shared Business Services.

Ammi, the Brazilian retailer, and QXO, the fastest growing building products distributor in the U.S., combined 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 two examples. The Oracle AI Agent Memory is a library that helps developers build agents that can remember, reason, and act with enterprise context. Oracle Deep Data Security adds 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 can see or act upon. All of these innovations I’ve 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. One 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 in their data centers, our multi-cloud database offering in 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 agentic capabilities. Our new agentic pricing aligns with customer value. Much of our AI innovation in our core applications continues to be included at no extra charge.

Customers can also purchase additional agentic capacity in a simple, predictable way by purchasing bundles of tokens that can be used across our application suites. We’re 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, we started a limited rollout of our token bundles and had 33 customers, like Aon Services Corporation and Liberty Energy, pre-purchase tokens that have access to more advanced reasoning and models. All of this helps our customers control their costs and align their spending with the value being generated. With that, I will turn it over to Clay.

Clay Magouyrk, Chief Executive Officer, Oracle: Thanks, Mike. You just heard from Mike about our applications and database businesses. Oracle has been in these businesses for decades, they continue to impress us because of their ability to continually grow aggregate margin dollars through a combination of durable differentiation and increase in market size. I want to share how we see our infrastructure business in that same category and the evidence that enforces that belief. 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 Accelerons that provide the highest performance and lowest cost networks. We combine the power of OCI and Fusion applications to 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 anywhere. Oracle has 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, invent solutions, and deliver them to customers rapidly. OCI has been the fastest-growing cloud provider for years. Now with AI infrastructure, we’ve shown to everyone the power of the organization we’ve built, the technology we’ve created, and the value we’re 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 per year. Combined with our previously outlined 30%-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 contracts 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 the capital themselves. Design, delivery, and operation of this large-scale infrastructure is extremely demanding. Q4 finalizes an impressive FY 2026, where we delivered more than 1.2 GW to customers.

Our pace of delivery continues to accelerate, with our FY 2027 Q1 delivery approaching 1 GW, nearly the same capacity as we’ve delivered in the previous four quarters combined. There will be many winners named, our strategy is to have them all as customers. We continue to diversify across our largest customers, with four customers contracting for more than $8 billion this quarter. Our infrastructure is fundamentally multi-tenant, we continually allocate capacity between customers. In Q4, 35,000 GPUs from 59 separate customers were up for renewal. 49% of those customers renewed for 92% of those GPUs. That doesn’t 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’s also clear that AI is here to stay.

AI is delivering value on multiple fronts, but the most clear and obvious is agentic coding. This is an area where we have a front-row seat as both the provider and the consumer. Agentic coding 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 five largest sites and the significant progress we’re 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 Shackelford, Texas. We contracted this in August of 2025. Customer delivery begins in the first half of calendar year 2027. 115 megawatts of power capacity is already available online, more than one month ahead of schedule. If we take a look at Doña Ana County, New Mexico. We contracted this in September of 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, Michigan. We contracted this in October of 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. To the final site I want to touch on, Port Washington, Wisconsin.

This was contracted in September of 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’re making across a very large number of sites. It’s an incredible time to be in technology and to have the privilege of doing that at a company like Oracle. It’s especially fun to have an inside view of the birth of a new business that can join the likes of our application and database businesses. Hopefully, these beliefs and the data points give you some insight into why we are so excited about OCI and where that’s going to take Oracle. With that, I’m going to hand it back to Hilary.

Hilary Maxson, Chief Financial Officer, Oracle: Thanks, Clay. Before I get to our fiscal year 2027 and Q1 guidance, I’d like to share some comments on our funding expectations. We already mentioned throughout the call the compelling opportunities we see at Oracle based on our portfolio positioning. Our strong Q4 results reflect this well. Customer demand and our growing visibility into future revenues is what underpins the long-term financial outlook we shared at our most recent Analyst Day of plus 31% revenue CAGR and plus 28% EPS CAGR through our fiscal year 2030. In order to unlock this unique growth opportunity, we started a program of capital investments. We’ll continue those investments in our fiscal year 2027, 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-$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’re 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 2027. That includes our already announced $20 billion at-the-market equity issuance. We don’t anticipate raising additional debt funding in calendar year 2026. To our fiscal year 2027 guidance, you can start to see the strong translation of our RPO into revenues, with expected growth in our total revenues of +34% in constant currency, surpassing the five-year revenue CAGR included in our long-term outlook.

Our fiscal year 2027 gross margins 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 the near term to 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-net, we expect our non-GAAP EPS for the year to be $8.05, up 18% in constant currency, excluding the net one-time investment gains we booked in fiscal year 2026 from Ampere and Bloom Energy. I’ll finish with guidance for our Q1 2027. In Q1, we’d expect growth in total revenues of between 27% and 29% in US dollars.

Of that, we 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 US dollars. 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. I 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 28th in Las Vegas. With that, I’ll turn the call back to Ken for the Q&A.

Ken Bond, Investor Relations, Oracle: Thank you, Hilary. Lisa, if you’d please poll the audience for any questions they might have.

Lisa, Conference Operator: Absolutely. Ladies and gentlemen, once again, that is star one if you have a question. We ask that you limit your questions to one. The first question comes from John DiFucci from Guggenheim Securities.

John DiFucci, Analyst, Guggenheim Securities: Thank you. My question is a question that I’ve dealt with all this quarter. Clay, that was a ton of information you gave, which is helpful, really helpful. There’s one little nuance here. You spent a little bit more this quarter on CapEx than we expected, and that’s sort of the topic a little bit, it adds into it. We all know that component costs have gone up a lot, especially memory. It’s grown significantly, right? Even though you said that most 3Q and 4Q contracts are large-scale AI contracts that were prepaid for GPUs, you have a lot of other contracts. This has been an issue for a lot of software companies and large cloud companies. I don’t think it’s as much of an issue for you, given my understanding of how you construct your contracts.

Can you explain that to investors, like when it comes to these very long-term contracts, like between you and the end customer and the suppliers?

Clay Magouyrk, Chief Executive Officer, Oracle: Sure. Yeah. Good question, John. Good to talk to you again, as always. Look, I’ll answer, I think, that in two parts. In terms of the capital expenditures, at least from what we’re seeing in Q4, any increase in CapEx that is not due to component prices from our perspective, that’s largely around timing. Right? Part of my job is to figure out ways to actually accelerate CapEx. Hilary has a tough life. My job is to try to spend the money a little bit faster so I can get ramped revenue sometimes. I don’t see that as related to component prices. Now, talking about component prices in general, look, I think everyone knows that memory prices have definitely gone up, SSD prices, hard drive prices, et cetera. One of the things that we do, John, is it’s actually quite simple.

When we’re selling stuff at a time period where we have certainty, whether that be certainty because the capacity’s already deployed, or we have certainty because we have locked prices across the spectrum, whether it be space and power costs, energy costs, people costs, component costs. When we know those costs, we will then do fixed price contracts. Times that we don’t know those costs because it’s out too far in the future, or we have too much supply chain risk, whether that be due to 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. We have a mechanism whereby those costs end up being floating. I don’t like it when costs go up. Our customers don’t like it when costs go up, and honestly, I don’t think our suppliers do.

I think they’d love to be able to give us everything we want. When the costs do go up, we have, I think, a very robust set of mechanisms to ensure that Oracle is not sitting there with reduced margins.

John DiFucci, Analyst, Guggenheim Securities: That is really helpful. It makes a ton of sense. If I could, just a quick one. Hilary, you kind of alluded to what I’m going to ask, but this is the second question I get a ton of questions on. You have long-term targets out there. You’re a new CFO, right? Congrats, it’s great to have you on the line. Can you just comment on those long-term targets at all? I know you’ve only been there a couple of months.

Hilary Maxson, Chief Financial Officer, Oracle: Yeah, that was the intention of putting it in the slides. I think that we’re reconfirming those long-term targets in the sense of the CAGRs that we put into the slide today. We feel comfortable with that. 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. Full reconfirmation from my side on the long-term targets.

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

Lisa, Conference Operator: The next question comes from Brad Zelnick, Deutsche Bank.

Brad Zelnick, Analyst, Deutsche Bank: Great. Thank you so much for taking the question. Hilary, welcome to Oracle. Hilary, 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 Maxson, Chief Financial Officer, Oracle: Yeah. The way I think about it, as we said in the earnings call, we feel the returns for the infrastructure business, that CPU and GPU business, are quite strong. Probably from a back-of-envelope standpoint, the way I’d think about return from that business model is in return on invested capital. What we see is return on invested capital in the high 20s at a steady state, once the revenues have ramped for large projects at the project level. That doesn’t take into account upsides like who knows if the GPUs don’t need to be replaced over the long term and things like that. Just purely in the steady state, when we’re at the steady state of the contracts that we have.

As we’re generally able to preserve and improve margins in the case of things like bring your own hardware, the ROIC for those types of structures will be even higher. Again, that back of envelope, I’m just calculating return on invested capital as after-tax operating margin plus depreciation divided by gross investment, so total gross CapEx at the project level. Maybe that gives you a little bit of an idea. Of course, we’re happy to talk more about that over the next couple quarters.

Brad Zelnick, Analyst, Deutsche Bank: That’s really helpful, Hilary. Thank you, and congrats to the whole team on the execution this quarter. Nice job to everybody. Thank you.

Lisa, Conference Operator: Up next, we’ll take a question from Mark Moerdler from Bernstein.

Mark Moerdler, Analyst, Bernstein: Thank you very much for taking my question, and also congrats on the quarter. Hilary, welcome, and we’re really looking forward to working with you. Clay and Hilary, with so many vendors entering the market to deliver AI data centers, including the Neocloud, SpaceX, which is now going to build data centers in space, et cetera. Where does Oracle see itself in the competitive landscape, and how do you see that increase in capacity impacting your ability to, one, retain customers, renew contracts, two, capture new customers, and three, maintain or improve margins? Thank you.

Clay Magouyrk, Chief Executive Officer, Oracle: Yeah. Thanks, Mark. Look, first, I think it’s very important that we stay focused on customers. The nice thing is that I think whether you see it from existing RPO or increased contracts that we’re getting, yes, there’s a lot of things happening in the market, but we have a large, diverse set of customers, both very large and also smaller customers. 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 as happy as possible with us?" When I shared the numbers, for example, in the prepared remarks about the extremely high utilization rate, even when things come back for renewal, they’re instantly snapped up.

Those are all indicators that we have great customer relationships, they’re happy with the products, and they’re very satisfied with the prices that we’re charging for them. Look, I think there’s going to be a lot of people who enter the space. I think there’s clearly, several years in, there’s still a massively higher demand than there is supply. I think there are going to be more and more people trying to figure out how to meet that demand. I don’t 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. That’s what I think you’ve 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 the several years relationship that we’re going to have between now and then. We’re fundamentally in the service business. If you think that you’re just buying something and then you’re done with it’s 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. Our ability to do that extremely well creates a extremely positive relationship that then ensures that renewals go well. In terms of the margin profile, look, I’ve been at Oracle now for 12 years, the whole time I’ve been working on OCI. What I can tell you, it’s not easy to build a extremely efficient, highly secure, robust cloud.

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. I think that over time, as 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’s ways that Oracle gets higher and higher margins, but we actually can offer lower and lower prices to our customers. That’s ultimately the job that is on our shoulders. What we’ve been doing over the past decade is why the biggest and most robust customers come our way.

Mark Moerdler, Analyst, Bernstein: That’s really helpful. I do really appreciate it. Thank you.

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

Keith Bachman, Analyst, Bank of Montreal: Yes, thank you very much for the question. Mike, I wanted to direct this to you, if I could. You mentioned two things, as net new. One was moving towards outcome-based commercial pricing models. The other was rolling out some incremental token packages. I wanted to see if you could flesh out the why. More specifically on the outcome-based commercial pricing models, how do you think this reduces friction, and is this related to what modules? In other words, I assume this is the SaaS portfolio, ERP, HCM. What models might this relate to? Then finally, how do you think this might impact growth? That’s it for me. Many thanks.

Mike Sicilia, Chief Executive Officer, Oracle: Sure. Yeah. Thanks for the question, Keith. Outcomes-based pricing is not entirely new for us. This is something we’ve been doing in our construction business, based upon construction value under management, a general contractor, a subcontractor, cash flow and payments, upsell wheels, as I mentioned in my prepared remarks, with hospitality and even in healthcare, in our new AI-based, automated agents, we’re automating doctors’ notes, we’re automating lab orders. We’re able to measure and actually price based on patient throughput, which is one of the things providers fear about is how many people can we get through a healthcare system, reduce waiting queues, give better service to patients. What is new is that we’re now expanding that offering across our entire fleet, as you mentioned, across all of our applications, including our Fusion piece.

Clay Magouyrk, Chief Executive Officer, Oracle: The sort of difficult thing is if you’re not creating the outcome in the first place, that’s a tricky thing to price in. Since we’ve made this full stack investment, and since we’re able to very easily take the best of the output from the large language models to our customers, pair that with both our horizontal applications and our industry applications, we have a very easy way to measure outcomes for our customers. As I mentioned, one of the things we’re increasingly hearing from customers is, "How much am I going to spend on AI, and how do I get ROI very quickly?" I think we have a very unique advantage. Since we’re in the infrastructure business, we have large LLM vendors training on there. We’ve got all of our applications business, both horizontal and vertical businesses.

We are naturally generating these outcomes for customers, and it really gives us the ability to help them understand their own AI budgets, as well as align that to the value, again, which is really easy

Mike Sicilia, Chief Executive Officer, Oracle: to measure. I think it’s a unique offering. It relies on the full stack investment that we made, and as I mentioned, early days, but certainly resonating very well with customers. They appreciate the transparency. They appreciate being able to align outcomes to AI spec. I also mentioned the token models. If customers want this, again, a lot of what we’re doing in our Fusion applications, our industry applications, we continue to add at no additional charge. If customers want access to advanced reasoning, if they want it, essentially, for more tokens at the models, we have prepackaged bundles to allow them to do that. We’re allowing as much flexibility and as much alignment to value in our pricing models across our entire application suite as we possibly can.

I expect 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.

Keith Bachman, Analyst, Bank of Montreal: Thanks, Mike.

Lisa, Conference Operator: Your next question is from Raimo Lenschow from Barclays.

Clay Magouyrk, Chief Executive Officer, Oracle0: Hey, perfect. Welcome to the team as well from me. The question I had was, we talked a lot about AI and the growth, great momentum you have today, but you still have the classic Oracle business that we all grew up with. There’s a lot of noise in the market at the moment, especially on the investor side, what’s happening to software, et cetera. Can you address a little bit what you’re seeing on the database side? There’s OCI, Azure, et cetera, and overall database momentum. 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.

Mike Sicilia, Chief Executive Officer, Oracle: Yeah, sure. It’s Mike. I’ll take a stab here and then ask Clay to jump in as well. On the applications business, we think double-digit growth on an in-quarter run rate of $4.1 billion is pretty good, and we’re certainly happy with our continued double-digit growth. As I mentioned, our deferred position in the quarter grew by 16%. When our deferred position is 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 as customers thought through that.

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 enterprise software, particularly when you have AI built into our SaaS solutions, is certainly a very good approach and is necessary to move forward for the modernization and protection of their businesses. I expect that our applications business will continue to be a healthy contributor to Oracle as it has been. As far as the database, look, they grew cloud database 29% in the quarter, with, as I mentioned, multi-cloud revenue growing at 4X, tokens growing 3.25X in the quarter. And here’s the really good news on database. We’re in early innings, very early days on multi-cloud database. We continue to unlock new regions and unlock new partnerships, in some cases with our competitor clouds.

We expect that business to continue to be an outsized growth engine for Oracle going forward. And I’ll say the final piece is that in addition to multi-cloud, the innovation in the database, I mentioned a couple of the database security and Agent Memory that we put in the database. Things like vector database search and features that we’ve been adding into the database are part and parcel to companies’ AI strategies. Data strategy matters, data architecture matters, and as the embracing market starts to take hold, which is in, again, also in early days, a lot of that data’s just in an 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 the bespoke workloads in the world that are running Oracle database. Prognosis is very good.

Clay Magouyrk, Chief Executive Officer, Oracle0: Perfect. Thank you.

Lisa, Conference Operator: Our last question today comes from Kirk Materne from Evercore ISI.

Kirk Materne, Analyst, Evercore ISI: Yeah. Thanks very much for taking the question. I had one, maybe sort of a two-parter around the bring your own hardware and prepaid dynamics, maybe for Clay and then for Hilary. I guess, Clay, for you, about 12% of RPO is now related to these type of deals. When you look at the pipeline, where do you think that split could ultimately go? When you go into these type of deals, especially on the bring your own hardware side, what’s the value differentiation that maybe those deals have that some of the ones that include GPUs, or I guess, how does that differ versus the GPU-type deals? Hilary, 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.

Could you just, I guess, talk about this dynamic as it relates to sort of your CapEx outlook? Thanks.

Clay Magouyrk, Chief Executive Officer, Oracle: Yeah. I’ll start and then hand it to Hilary. Look, I would like to tell you that we know all about how things are going to change in the future. I can’t say that today. The reality is that what’s 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 different customers. You have a lot of different business arrangements. Ultimately, one of the things that Oracle can provide to our customers is that we can go out and put up front capital and then depreciate that over a period of time and help finance the customer’s usage of that. That’s not the only thing we provide, and for a lot of customers, it’s not even the most important thing to 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 complimentary set of services around the specific hardware, because it turns out that a set of these accelerators on their own is not a 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. Anyone that thinks that these things are easy to operate is very confused. You’re 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.

When you add all that together, I think that what you’re seeing is that you’ve got different entrants in the market around accelerators that are helping customers find ways to procure their accelerators. You’ve got different customers who have different ways of thinking about that. I can’t tell you exactly the mixture of when we do bring your own hardware versus when we do prepay versus when we bring the capital. What I can say is that, I think you’ll continue to see innovation and evolution in this model, given the rapid changes that are happening across this entire ecosystem. Hilary?

Hilary Maxson, Chief Financial Officer, Oracle: Let me just start. We said on the call a couple of times that we also see the margins in those structures, either at or better than the prior contracts that we have. That’s 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. Indeed, for 2027, fiscal year 2027, we expect around $70 billion in net cash outlay for capital expenditures. That does exclude the $20 billion-$25 billion in repayments that we will collect, or there’s some timing difference is in there, but it’s just associated with third-party manufacturers. Not vendor financing, just third-party manufacturers. $20 billion-$25 billion. The sum of those is our reported CapEx.

From a funding standpoint, what’s 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. Also from an economic standpoint, of course, because we’re collecting money up front. 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 up front, and actually, so that doesn’t come out of our funding to pay for the CapEx or not 100% of it. Therefore, the return on capital is going to be a bit better as well.

Kirk Materne, Analyst, Evercore ISI: Super.

Thank you, Hilary.

Ken Bond, Investor Relations, Oracle: That’s very helpful. Thank you all. Thank you, Hilary. For next quarter, this is new for everybody, we expect our Q1 fiscal year 2027 earnings results will be announced on September 10th. Any changes in the date will be publicly announced. Also, as a reminder, Hilary brought this up earlier, but our Investor Day will be held on October 28th 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. As a reminder, the slides that you saw today will be posted up to the website shortly. Thank you for joining us today. With that, I’ll turn the call back to Lisa for closing.

Lisa, Conference Operator: 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.