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Date

Wednesday, Dec. 10, 2025 at 5 p.m. ET

Call participants

  • Chairman and Chief Technology Officer — Lawrence Ellison
  • Chief Executive Officer — Mike Cecilia
  • Chief Executive Officer — Clay McGork
  • Principal Financial Officer — Doug Caring
  • Senior Vice President, Investor Relations — Ken Bond

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Takeaways

  • Remaining Performance Obligations (RPO) -- $523.3 billion at quarter end, up 433% year over year, and up $68 billion since August, driven by new contracts including Meta and NVIDIA.
  • Short-term RPO growth -- RPO expected to be recognized within twelve months grew 40%, rising from 25% in the previous quarter.
  • Total cloud revenue -- $8 billion for the quarter, representing 33% growth and now accounting for half of Oracle's total revenue.
  • Cloud infrastructure revenue -- $4.1 billion, up 66%, with GPU-related cloud revenue increasing 177%.
  • Cloud database services -- Segment revenue up 30%; Autonomous Database up 43%; multi-cloud database consumption up 817%.
  • Cloud applications revenue -- $3.9 billion, up 11% overall; strategic back-office applications contributing $2.4 billion, up 16%.
  • Total revenue -- $16.1 billion, up 13%; prior-year growth was 9% in the same quarter.
  • Operating income -- $6.7 billion, increasing 8%.
  • Non-GAAP EPS -- $2.26, up 51% in Q2; GAAP EPS $2.10, up 86% in Q2.
  • Pretax gain from Ampere sale -- Recognized $2.7 billion in the quarter from this transaction.
  • Operating cash flow -- $2.1 billion in Q2.
  • Free cash flow -- Negative $10 billion; CapEx reached $12 billion, reflecting investment in revenue-generating equipment for data centers.
  • 2027 revenue forecast update -- $4 billion additional revenue expected for fiscal 2027 (ending May 31, 2027) based on accelerated RPO conversion; fiscal 2026 (ending May 31, 2026) total revenue guidance remains at $67 billion.
  • Third-quarter guidance -- Total cloud revenue projected to grow 37%-41% in constant currency (40%-44% in USD); total revenue expected to rise 16%-18% in constant currency (19%-21% in USD); non-GAAP EPS anticipated to grow 12%-14% (16%-18% in USD).
  • Cloud infrastructure capacity -- 147 live customer-facing regions, 64 additional regions planned; delivered almost 400 megawatts capacity in quarter, and 50% more GPU capacity than the prior quarter.
  • Marketplace and partner ecosystem -- Marketplace consumption grew 89%, led by partnerships with Broadcom and Palo Alto.
  • Dedicated region and Alloy consumption -- Grew 69% year over year; 39 live dedicated regions, 25 more scheduled.
  • OCI notable customer scale -- Uber exceeded 3 million cores usage on OCI; TMove approached 1 million cores during peak events.
  • Cloud application go-lives -- 330 customers went live on cloud applications during the quarter, including Virgin Atlantic Airways and Saudi Telecom.
  • Cloud application deferred revenue -- Increased 14%, outpacing cloud applications revenue growth.

Summary

Management identified accelerated cloud and infrastructure growth alongside the largest-ever RPO increase as pivotal market impacts. New contract wins with leading AI clients and multi-cloud expansion established Oracle (ORCL +0.75%)'s strategic role in AI-driven enterprise IT transformation. Senior leadership highlighted faster monetization of bookings and set an updated trajectory for fiscal 2027 revenue based on the near-term recognition of historically high RPO. Distinct cloud architecture and salesforce integration efforts were emphasized as catalysts for continued application growth acceleration, in contrast to reported sector headwinds affecting peers.

  • Chief Executive Officer Clay McGork explained, "when we give them capacity, they typically spend that capacity up in the order of you know, two two to three days," illustrating OCI infrastructure utilization velocity.
  • Oracle maintained a commitment to "investment-grade debt rating," while implementing flexible funding options, including vendor and customer-financed hardware to reduce capital outlays.
  • Chairman Lawrence Ellison stated, "Oracle's new database and AI data platform plus the latest versions of Oracle applications, enables all of those AI models to do multistep reasoning on your database and application data. While keeping that data private and secure."
  • Salesforce and product organization changes under the "One Oracle" structure were positioned as drivers of larger, multi-pillar deals and faster deal cycles.
  • OCI's multi-cloud, vectorized database advancements were explicitly cited as unique differentiators in AI-model enablement for enterprise data.
  • Principal Financial Officer Doug Caring disclosed that the majority of recent large backlog bookings relate to capacity available in the near term, supporting a faster revenue conversion cycle.

Industry glossary

  • OCI: Oracle Cloud Infrastructure, the company’s cloud services platform for applications and AI workloads.
  • RPO: Remaining Performance Obligations, representing backlog of contracted revenue not yet recognized.
  • Dedicated region: A version of Oracle Cloud deployed for a single customer or location, with full OCI functionality.
  • Alloy: Oracle's program enabling partners to operate and sell their own branded cloud using OCI technology.
  • AI data platform: Oracle’s unified solution allowing AI models to access and analyze enterprise data across heterogeneous sources.
  • Multi-cloud universal credits: A credit system enabling customers to apply purchased Oracle database services in any public cloud with unified pricing.

Full Conference Call Transcript

Ken Bond: Thank you, Tiffany. Afternoon, everyone, and welcome to Oracle's second quarter fiscal year 2026 earnings conference call. On the call today are Chairman and Chief Technology Officer, Lawrence Ellison, Chief Executive Officer, Mike Cecilia, Chief Executive Officer Clay McGork, and Principal Financial Officer, Doug Caring. A copy of the press release and financial tables, which includes 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, will be available from our Investor Relations website. As a reminder, today's discussion will include forward-looking statements, and we will discuss some important 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 from placing undue reliance on these forward-looking statements and we encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendments. And finally, we are not obligating ourselves to revise our results or these financial-looking statements. Before taking questions, we'll begin with a few prepared remarks and I'll turn the call over to Mike. No. It's actually to me, Ken. Appreciate it. This is Doug.

As it relates to the numbers we are about to present, the following apply to both the results for Q2 and to our guidance for Q3. First, we'll be discussing our financials using constant currency growth rates as this is how we manage the business. Second, we'll be presenting our numbers on a non-GAAP basis, except where we indicate otherwise. Finally, as it relates to currency, it had a 1% positive impact on revenue, and 3¢ positive impact on earnings in Q2. For Q3, assuming currency exchange rates remain the same as they are now, currency should have a two to 3% positive effect on revenue and have a 6¢ positive effect on EPS depending on rounding.

In terms of the result for Q2, we had another excellent quarter of execution. Remaining Performance Obligations, or RPO, ended the quarter at $523.3 billion, up 433% from last year and up $68 billion since August. Driven by contracts signed with Meta, NVIDIA, and others as we continue to diversify our customer backlog. RPO expected to be recognized in the next twelve months grew 40% year over year, compared with 25% last quarter, and 21% last year. Total cloud revenue, which includes both applications and infrastructure, was up 33% at $8 billion. Representing a significant acceleration from the 24% growth rate reported last year. Cloud revenue now accounts for half of Oracle's overall revenue.

Cloud infrastructure revenue was $4.1 billion, up 66% with GPU-related revenue growing 177%. Oracle's cloud infrastructure businesses continue to grow much faster than our competitors. Cloud database services revenue was up 30%, with Autonomous Database revenue up 43% and multi-cloud consumption up 817%. Cloud applications revenue was $3.9 billion and up 11%. Our strategic back-office applications revenue was $2.4 billion and up 16%. We finished combining our industry-based cloud apps and our Fusion cloud apps under one selling organization in each region across the world, have been seeing increasing cross-selling synergies that are expected to drive higher cloud applications growth rates in the future.

All in, total revenues for the quarter were $16.1 billion, up 13% and higher than the 9% growth reported in Q2 last year. Continuing our trend of accelerating total revenue growth. Operating income grew 8% to $6.7 billion. Non-GAAP EPS was $2.26 up 51% while GAAP EPS was $2.10, up 86%. We recognized a pretax gain of $2.7 billion in the quarter, stemming from the sale of our interest in Ampere. Turning to cash flow. Operating cash flow in Q2 was $2.1 billion, while free cash flow was a negative $10 billion and CapEx was $12 billion reflecting the investments being made to support our accelerating growth.

As a reminder, the vast majority of our CapEx investments are for revenue-generating equipment that is going into our data centers. And not for land, buildings, or power that collectively are covered via leases. Oracle does not pay for these leases until the completed data centers and accompanying utilities are delivered to us. Rather, the equipment CapEx is purchased very late in the data center production cycle allowing us to quickly convert cash spent into revenues earned as we provision cloud services to our contracted and committed customers. In terms of funding our growth, there are a variety of sources available to us throughout our debt structure in public bond, bank, and private debt markets.

In addition, there are other financing options through customers that may bring their own chips to be installed in our data centers and suppliers who may lease their chips rather than sell them. Both of these options enable Oracle to synchronize our payments with our receipts and borrow substantially less than most people are modeling. As a foundational principle, we expect and are committed to maintaining our investment-grade debt rating. Turning to guidance. Let me start with the impact of the added RPO that occurred in Q2 on our future results. The vast majority of these bookings relate to opportunities where we have near-term capacity available, which means we can convert the added backlog to revenue sooner.

The result is we now expect $4 billion of additional revenue in FY 2027. Our full-year FY 2026 revenue expectation of $67 billion remains unchanged. However, given the added RPO this quarter, can be monetized quickly starting next year, we now expect fiscal 2026 CapEx Finally, we are confident that our customer will be about $15 billion higher than we forecasted after Q1. Backlog is at a healthy level and that we have the operational and financial strength to execute successfully. While we continue to experience significant and unprecedented demand for our cloud services, we will pursue further business expansion, only when it meets our profitability requirements, and the capital is available on favorable terms.

As it relates to specific guidance for Q3, total cloud revenue is expected to grow from 37% to 41% in constant currency, and is expected to grow from 40% to 44% in USD. Total revenues are expected to grow from 16% to 18% in constant currency, and are expected to grow from 19% to 21% in USD. Non-GAAP EPS is expected to grow between 12% to 14%, and be between $1.64 and $1.68 in constant currency, and grow between 16% to 18% and be between $1.70 and $1.74 in USD. And with that, I'll turn it over to Clay.

Clay McGork: Thank you, Doug. Our infrastructure business has grown at an accelerating 66% year over year. You are well aware of the strong demand for AI infrastructure. But multiple segments across OCI are also contributing to this accelerating growth rate, including cloud natives, dedicated regions, and multi-cloud. Our diversity of capabilities within infrastructure differentiates us from AI infrastructure neo clouds. Our unique combination of infrastructure and applications differentiates us from other hyperscalers. We have ambitious, achievable goals for capacity delivery worldwide. OCI now operates 147 live customer-facing regions with 64 more regions planned. In the last quarter, we handed over close to 400 megawatts of data center capacity to our customers.

We also delivered 50% more GPU capacity this quarter than Q1. Our super cluster in Abilene, Texas is on track more than 96,000 NVIDIA Grace Blackwell GB 200 delivered. We also began delivering AMD MI 355 capacity to customers this quarter. Our pace of capacity delivery continues to accelerate. We continue to see strong demand for AI infrastructure across training and inferencing. We follow a very rigorous process before accepting customer contracts. This process ensures that we have all the necessary ingredients delivered to customer success at margins that make sense for our business.

We analyze, land and power for data center buildings, component supply, including GPUs, network gear, and optics, labor costs for all phases of construction and low voltage work, engineering capacity to design, build, and operate, revenue and profitability, and capital investments required. Only when all these components come together do we accept customer contracts. Having the confidence we can deliver on schedule with the highest quality. As Doug said, this quarter, we contracted for an additional $68 billion of RPO. These contracts will quickly add revenue and margin to our infrastructure business. We continue to carefully evaluate all future infrastructure investments, invested only when we have alignment across all necessary components to ensure profitable delivery for our customers.

The holiday season is a peak period for many of our retail and consumer customers. It is our responsibility at OCI to deliver the most secure, highest performance, and highest availability infrastructure to support these customers at the scale they need. Uber has now surpassed 3 million cores on OCI. Powering their highest traffic ever this Halloween. TMove scaled to nearly 1 million cores for Black Friday and Cyber Monday. In addition, we also supported thousands of other customers across our retail and other applications through their largest and most successful holiday period yet. OCI is constantly expanding in features and services.

We recently launched Acceleron, delivering enhanced networking to all OCI customers, and other services like our AI agent service. However, we cannot deliver everything ourselves. And we rely on our rapidly expanding partner community to provide the best experience on OCI. Added new AI models from Google, OpenAI, and xAI to ensure our customers have the latest and greatest AI capabilities. Our marketplace consumption has grown 89% year over year, powered by partners like Broadcom and Palo Alto. Those same partners drive OCI consumption by building their SaaS businesses on OCI. Palo Alto released their SASE and Prisma Access platform on OCI, and Cyber Reason and New Fold Digital continue to scale their businesses rapidly.

These partnerships make our ecosystem richer, which helps our customers, and that growth translates directly more OCI growth as our partners build their solutions on our infrastructure. Oracle database services see increasing demand across all clouds. Multi-cloud database consumption has increased 817% year over year. We launched 11 multi-cloud regions this quarter, bringing us to 45 regions live across AWS, Azure, and GCP 27 more planned over the next month. We see increasing customer demand with billions in identified pipeline. We launched two important programs this quarter for multi-cloud. The first is multi-cloud universal credits, enables customers to commit once to Oracle database services and use it anywhere in any cloud with the same price and flexibility.

The second is our multi-cloud channel reseller program. Which enables customers to procure Oracle database services through their preferred chart channel partners. We also launched nine services across the different clouds. Such as Oracle Autonomous AI Lakehouse. This combination of the best services, universal availability, consistent and easy pricing and procurement, and partner support is accelerating the adoption of Oracle database services across our entire customer base. OCI is the only full cloud available to individual customers. We launched dedicated region 25, which provides the full capability of OCI in a tiny three-rack footprint. OCI is also the only cloud that enables partners to become cloud providers themselves through our alloy program.

And our new footprint is available for all alloy providers. Dedicated region and alloy consumption grew 69% year over year. We launched one dedicated region for Ithka Group in Oman, and both NTT Data and SoftBank launched one alloy region each this quarter. This brings our live dedicated regions to 39 with 25 more planned. In summary, the four segments of our business are growing at incredible rates. This will contribute to a continued acceleration in our infrastructure revenue in the coming quarters. Customers are choosing OCI for its performance-optimized architecture, unrelenting focus on security, consistently low and predictable pricing, and unmatched depth in database and enterprise integrations.

Those priorities have been our strategy from the beginning and are the driving force behind this growth. OCI is in a constant state of reinvention, you can see the value that has for our customers. When you combine our commitment to deliver the best in performance, efficiency, and security with the growing customer demand for cloud infrastructure services we are seeing. I couldn't be more excited about what's coming next. And with that, over to Larry.

Lawrence Ellison: Thank you very much, Clay. Over the years, Oracle has developed software in three important areas. Database applications, and the Oracle Cloud. We used AI to make our database software and our autonomous software eliminates human labor. And human error. Thus lowering operating costs and making our systems faster, more reliable, and more secure. Now with the development of the Oracle AI database, and the Oracle AI data platform, we're bringing all three layers of our software stack together to solve another very important problem. Enabling the latest and most powerful AI models to do multistep reasoning on all your private enterprise data while keeping that data private and secure.

Training AI models on public data is the largest, fastest-growing business in history. AI models reasoning on private data will be an even larger and more valuable business. Oracle databases contain most of the world's high-value private data. Oracle applications also all hold huge amounts of exceptionally valuable private data. The Oracle Cloud includes all the top AI models OpenAI ChatGPT, xAI Grok, Google Gemini, and MetaLama. Oracle's new database and AI data platform plus the latest versions of Oracle applications, enables all of those AI models to do multistep reasoning on your database and application data. While keeping that data private and secure. All our database and application customers want to do this.

Because for the first time, they get a unified view of all of their data. AI models can respond to a single inquiry by reasoning across all your databases, all of your applications. By treating all of your data holistically, the combination of AI models both the Oracle AI database and AI data platform, breaks down the walls that isolate and fragment your data. The Oracle AI data platform makes all your data all your data accessible to AI models not just Oracle databases. And Oracle applications. The data in the Oracle databases and Oracle applications but data from other databases. Cloud storage from any cloud, even data from your own custom applications.

Are accessible to AI models using the Oracle AI data platform. Using our AI data platform, you can unify all your data and reason on all of your data using the very latest AI models This is the key to finally unlocking all the value in all your data. Very soon, through the lens of AI, will be able to see everything happening in your business as it happens. Mike, over to you.

Mike Cecilia: Thanks, Larry. As Doug shared, the total revenue growth of 13% in constant dollars, I think it's worth noting that's three consecutive quarters now where total revenue growth has been in double digits. So a solid quarter, and we see even better days ahead of us. So let me break down a few of the numbers a bit further, and I'll do so all in constant currency. Cloud applications revenue was up 11%, and that brings us to about a $6 billion annualized run rate. Within that, Fusion ERP up 17%. Fusion SCM up 18%, Fusion HCM up 14%, NetSuite grew by 13%. Fusion CX is up 12%.

In our industry cloud, specifically hospitality, construction, retail, banking, restaurants, local governments, and communications all combined were up 21% in the quarter. So big growth rates on a big base. In our health care business, we now have 274 customers live in production on our clinical AI agent, and that number continues to rise daily. Also in health care, our brand new AI-based ambulatory EHR is generally available and that it's received US regulatory approval. We expect both our bookings and our revenue in Q3 to accelerate materially. So overall, cloud apps were up 11% on a bigger base. This is very meaningful because we see this business as continuing to accelerate going forward.

We achieved this growth while we also undertook a major Salesforce reorg in many regions throughout the world. This is something we've been talking about for many years, and that is the synergies between our back-office applications and our industry applications. We're seeing more and more deals where our industry apps are pulling fusion or the fusion apps are pulling the industry apps. And as a result of seeing more and more deals, we're also seeing larger deals with more components. So recently, we combined our industry application sales team and our fusion sales teams into a single selling organization.

This enables our sellers to have more strategic One Oracle conversations with our customers to sell higher and to sell more. We think about our very large installed base of on-premise application customers, these strategic conversations are driving upgrades. And you've heard us say before, just moving a customer to the cloud results in a three to five x annual revenue lift compared to support revenue. Now on top of all of that, top of the Salesforce, the one off of go to market, one or four go to market motions, the industry suites, think about combining our AI data platform. With this unmatched suite of applications.

This creates an incredibly unique opportunity for our customers to gain value very quickly from enterprise-grade AI. The combination allows customers to unite the industry-leading foundational models with company-specific proprietary data, as Larry mentioned, much of which comes from the Oracle applications. And, of course, the AI data platform also ties in non-Oracle applications, competitive data sources like MongoDB or Snowflake, object stores, and even complete bespoke unstructured data. So we think this allows our customers to very easily build enterprise lake houses, AI agents, and applications that leverage built-in, not bolted on, but built-in AI to transform their business. So just to repeat, AI, of course, is a great OCI play. It's also a broader software play for Oracle.

It's driving growth in our applications. And our database businesses as well. Let me highlight a few key wins. In communications, the communications industry, Digital Bridge Holdings selected ERP and SCM. Ethihard Salam Telecom SCM. Motorola Solutions, ERP, SCM, and CX. Tim Brazil, who is the, the country the country Brazil's 5G leader, just signed a new five-year expansion to accelerate AI adoption and to transform customer experience at scale. All built on OCI. This actually this five-year deal was an expansion or extension of a partnership that began with TIM Brasil's full data center migration to OCI back in 2021.

So they're now building AI agents that are powering real customer interactions, including the content agent which compares bills for customers across months, and explains variations automatically. Already in the pilot, 18% faster issue resolution with the AI agents built. On OCI. Expecting even further, improvements as we roll out. Continues. They've got 24 projects in motion. Seven of them are already in production. It's just a matter of months Six more launching soon. All enabled by a multi-cloud architecture with Oracle as the key AI infrastructure, partner. Already as a result of this initial rollout, customer satisfaction, is up 16%, and call center flows are managing end to end with 90% accuracy.

Resulting in 30% faster services times for customers, and a 15% fewer network failure interventions all using predictive analytics and, again, AI Copilot's built in OCI. So we are the AI engine for TIM Brasil to enable personalization at national scale. In financial services, course CoreCivic selected ERP. SCM, and HCM. PrimeLife Technologies ERP Jewelers Mutual Insurance, ERP. In public sector, city of Costa Mesa, ERP, SCM, HCM. The United States Space Force, ERP, and HCM. The city of Santa Ana, ERP, SCM, and HCM. In the high-tech industry, SolarEdge Technologies, ERP, and SCM. Zscaler, ERP. Dropbox, ERP. And SCM.

I could go on and on about these wins, but I think it gives you the flavor of just the sheer amount of multi-pillar wins why it's so important, that we have, you know, so many different options for customers and back office and front office. In terms of go lives, we had 330 cloud apps customer go lives this quarter. That's multiple go lives per day. Virgin Atlantic Airways went live in September on Fusion ERP. And HCM and payroll, Broadridge just recently relaunched their Fusion ERP and EPM. Go live. LifePoint Health just went live on their third wave of Fusion ERP as SCM, and HCM. Saudi Telecom is live on Fusion SCM.

With ERP and HCM to follow soon. DocuSign is now live on Fusion Data Intelligence. Again, I could go on about to go live. So with 330 of them in the quarter, gives you a flavor of some of the some of the really important go lives that we had recently. The cloud application deferred revenue is up 14%. That is higher than the cloud apps revenue growth of 11% Just to reinforce my earlier statements, that we expect continued apps growth acceleration. So a solid quarter across the board.

We're on the back end of a sales reorg that was focused on unified selling, across our applications portfolio, We're seeing a clear AI halo effect for our cloud applications, which is driving upgrades our AI data platform, combined with our applications is an absolute conversation changer it brings the Oracle database and all of our applications into the center of the modern ejectic enterprise. Looking ahead, we're executing well on a big and growing pipeline and I expect revenue and earnings growth to accelerate off an even larger base. With that, Ken, I'll turn it back to you. Mike, Tiffany, if you could please poll the audience for questions.

Operator: At this time, if you would like to ask a question, press star. Then the number one on your telephone keypad. To withdraw your question, simply press star 1 again. Your first question comes from the line of Brad Zelnick with Deutsche Bank. Please go ahead.

Brad Zelnick: Thank you. Congratulations and a particular shout out to Mahesh and the team for standing up a massive amount of capacity. In this quarter. My question is for Clay or maybe Doug. Oracle is clearly the destination of choice for the most sophisticated AI customers but this is a far more capital-intensive proposition unlike any business Oracle's ever been in before. Very specifically, how much money does Oracle need to raise to fund its AI growth plans ahead? Thank you. Thanks for the question, Brett. This is Clay. So look. I'll answer that question in two parts. First, let me give you kind of the reason why it's hard to answer that question exactly.

So thing I think that a lot of people don't understand is that we actually have a lot of different options how we go about delivering this capacity to customers. There's obviously the way that people think about it, which is we buy all the hardware upfront. And as we and I talked about it in my financial analyst meeting, we don't actually incur any expenses for these large data centers until they're actually operational. So then it goes on to, well, how do you pay and what's the kind of cash flows look like the stuff that goes into the data center?

Well, we have some other interesting models that we've been working One of them is that customers can actually bring their own chips. And in those models, Oracle obviously doesn't have to incur any capital expenditures upfront. For that model. Similarly, we have different models that we're working on with different vendors where some vendors are actually very interested in a model where they rent their capacity rather than selling their capacity. And as you can imagine, that comes with different cash flow impacts that are favorable reduce the overall borrowing needs and capital required for Oracle.

So as you can imagine, as we look at all of these kinda commitments, we will use a range and a variety of those. That we minimize the overall cost of capital. As well as, you know, in certain cases, we'll be raising our own funds. As part of that, I think it's important that everyone understand that we're committed to maintaining our investment-grade debt rating. So now to give you some more specifics, what I would say is we've been reading a lot of analyst reports, and we've read quite a few that show an expectation of upwards of a $100 billion for Oracle to go out and kinda complete these build out.

And based on what we see right now, we expect we will need less if not substantially less, you know, money raised than that amount. To go and fund this build out. So, hopefully, that helps answer your question, Brad.

Brad Zelnick: It does. Thank you. It's very helpful, and thanks for taking the question.

Operator: Your next question comes from the line of Ben Reitzis with Melius Research. Please go ahead.

Ben Reitzis: Hey, guys. Thanks a lot. Appreciate it. Good to speak with you. In light of the answer to that question, the path for OCI margins seems very important to improving the EBITDA and cash flow. So at the analyst meeting, you said margins for AI workloads for OCI. Would be in the 30 to 40% range over the life of a customer contract. I guess, my question is how long will it take your AI margins across all your OCI data centers to ramp to that level? And what needs to happen to get there? Yeah. Thanks for the question, Ben. Look. The answer is it really depends.

So the good thing is that as I mentioned earlier, we don't actually incur any expenses for the data centers until they're actually built up and running. And then we've highly optimized our process by which we actually put in and then are able to hand that over to customers, which means that the period of time where we're incurring expenses without that kind of revenue and the gross margin profile that we talked about is really on the order of a couple of months. So in that, you know, scenario, that time period is not material. So a couple of months is not a long time.

The what actually, you know, matters much more is the overall mix of the data centers that we have online right, and how they're growing compared to the total amount that we're scaling across the world. And so I think as we go through this build-out phase, Right? Right now, we're in a phase of very rapid build-out without the majority of the capacity online. Obviously, the aggregate mix is going to be lower. But as we actually get the majority of this capacity online, and that's really our focus, the best way to improve margins quickly, is to actually go out and deliver capacity faster.

That ends up very rapidly ensuring that we get to that 30 to 40% gross margin profile for all of the AI data centers. Thanks.

Operator: Your next question comes from the line of Tyler Radke with Citi. Please go ahead.

Tyler Radke: Yes. Thank you for taking the question, and this question for Larry or Clay. So Oracle has clearly established itself as a leading provider, for AI infrastructure. To AI labs and, in some cases, enterprise clients. How are you thinking about the opportunity to sell additional services such as database, middleware, other pieces of the portfolio similar to how we saw cloud providers add that on at the early days of the public cloud space, and what might be some of the similarities or differences that you see with the emerging AI platform as a service market versus the traditional cloud platform as a service market. Thank you. Well, let me start with traditional cloud and traditional cloud. Oracle database.

So I think the biggest change we've made there was to make database available in everyone's cloud. So you can buy the Oracle database at Google or Amazon, That it's it's available at Microsoft Azure. As well as well as OCI. So that was the most maybe that was the first move we made. We call it we call it multi-cloud, and we embed OCI data centers within, the other clouds. So they get the latest, greatest you know, version of the Oracle database. Second thing we did is we actually converted the Oracle database or added capabilities to the Oracle database. To allow you to vectorize all of your data. So it's a vector database.

Some people call that an AI database. So it's designed to make data available to models. You can then once you back your data, you can place AI models on top of that. And the AI models can understand what's in the database and reason with the data that's in the database. So we think that combination of making our the data the data available on our database also accessible by AI models dramatically increases the value of the data. We think that's very so far, none of the other large-scale databases have been able to do that. We can do that. Not only we can do that and keep your data secure. That's one of the bigger issues.

We have to scale it, keep your keep everything reliable, keep it secure. And we actually have to add all of those capabilities and features to the Oracle database. So that was step two. First multi-cloud, Second, vectorize all the data. And make it accessible, by you know, all of the popular AI models. Third step, Well, you know, it's great that we're making the Oracle data Oracle database data, data available to these AI models. But companies actually have data that's not stored in an Oracle database. It's not stored in an Oracle application. So we built an AI lake house. We call the AI data platform.

That actually points to and vectorizes all of your data whether it's in an object store in different clouds, whether it's a bespoke application, whether, it's in another database, it really will take the universe of your data that catalog that data, vectorize it, and allow an AI an LLM to do multi-step reasoning on all of that data. Now the thing that's really remarkable about that is think about asking one query. Asking one question. And the model looks at all of your data. When you ask a question, you have to direct it to this database or this application. You can't say, look.

I just like to know who whose next customer I should I should be selling to. I'm I'm a salesperson in territory. I'm I wanna look at all the accounts in my territory, and I want to see who's the best prospect in my territory. Well, that means looking at contractual data, means looking at public publicly available data. That means looking at looking at our sales system. At our support system, all of these separate systems. Well, suddenly, all of that data is unified. We take all of your data and unify it.

So you can ask a single question and it and the and the AI models can find the answer to that question regardless of what data store it's in. That's really a unique proposition, and we think that thing is gonna turbocharge the use of our database and the use of our cloud dramatically. Thank you.

Operator: Your next question comes from the line of Brent Thill with Jefferies and Company. Please go ahead.

Brent Thill: Thanks. Question for Larry and Clay on the fungibility of your infrastructure What would you have to do to convert a data center from one customer to another such as one of the larger customers was unable to pay?

Clay McGork: Yeah. Thanks. Thanks, Brent. So I think the first thing to understand is that what we deliver for our AI infrastructure is exactly the same cloud that we deliver for all of our customers. You know, we made specific choices at the beginning of OCI around bare metal virtualization, and the way in which we do things like secure wipe of hardware, etcetera. But the reason I bring that up is that take as an example, you anyone right now with a credit card should show up and sign up for any one of those hundreds of regions that I talked about earlier, and you can spin up a bare metal computer in as quickly as a few minutes.

And at the end of that, you can turn it off, and I will recycle that. And I can hand it to their customer you know, in less than an hour. And so when you ask the question of, well, how long does it take to transfer capacity from one customer to another? It's on the order of hours. And know, what actually I think is kind of a corollary to that question is, is, well, then how long does it take customers to adopt it? And, thankfully, we have a lot of experience getting, you more than 700 AI customers on our platform, including the vast majority of the large model providers. Already run on OCI.

And when we give them capacity, they typically spend that capacity up in the order of you know, two to three days. And so when I think about how long does it take for me to you know, take capacity handed to the customer, it is not a laborious process. It is not a unique And something else I would say that I think a lot of people don't realize about our cloud is this is actually happening all the time.

So, you know, we have lots of customers that might sign up for a few a thousand of one type of GPU, then they'll come back and say, well, actually, you know, I'd like to get even more capacity somewhere else. Will you take this back? And we do that all day every day. We're constantly moving customers around. And, you know, adding aggregate net capacity. So we have the technology. We have a secure base from which to do that, and we also have a customer base of a lot of demand such that whenever we find ourselves with capacity that's not being used, it very quickly gets allocated and provisioned.

Operator: Your next question comes from the line of Mark Moerdler with Sanford Bernstein. Please go ahead.

Mark Moerdler: Congrats on the quarter. Doug, you gave some color earlier tonight that I'd like to dig in on. Clay presented a slide at the financial analyst meeting where he showed the revenue and expenses for a single data center. Doug and Clay, can you talk about the cash flow for that same data center? Starting with the commitment for the data center and then the hardware and how that flows into becoming cash flow positive, and then how that rolls up across multiple data centers. Any color would be really appreciated.

Clay McGork: Sure. Happy to answer, Mark. So as we talked about earlier in this call, it starts with the actual data center and the power capacity along with it. And the way in which we structure that is that we incur no cash expenses until that's fully delivered and provisioned and fit for purpose. So then it really comes down to what does the cash flow look like for the capacity going inside the data center. And as I as I talked about earlier, that really depends on kind of the business model and the financial model that we've we've used procuring that.

In some cases, customers actually wanna bring their own hardware, in which case, we don't have any capital expense. It's really around you know, the data center itself possibly networking gear, well as a human labor cost. We have other models where vendors want to, you know, rent that capacity. Which case, those rent payments start when the is provisioned for the customer. And so customer, you know, cash flow comes in, We're then taking that cash flow and pushing that out to all of the different suppliers. And then, obviously, you got the model where Oracle takes its own cash, pays up front for the hardware, and then puts the capacity in. That's obviously the most cash intensive upfront.

And then there's a depreciation schedule over the next several years. So it really depends on the exact business and financial model used for each of the data centers. And then you ask well, how do they layer together? Well, thankfully, they're they're not we don't need calculus for this one. Basic arithmetic is enough because they actually just layer on top of each other. So if you have a time schedule for one data center and a time schedule for a second data center, the cash flows add together. And, obviously, if the data center comes in sooner, you'll have the expenses as well as revenue coming in sooner.

If data moved out, then the expenses and the revenue also move out.

Mark Moerdler: That's very helpful. I appreciate

Operator: Your final question comes from John DiFucci with Guggenheim Securities. Please go ahead.

John DiFucci: Okay. I won't make you kiss my ring. It's it's actually John DiFucci. Anyway, I'm sorry. Listen, lot of my questions on infrastructure have already been asked, and they're really important questions because that's that's a big part that's your big part of your growth. But I have a question on the applications business. Mike, you said applications are gonna accelerate this year. Why the confidence in this business when all your large SaaS peers are seeing just the opposite where growth is decelerating, especially because you know, we thought that something similar about Oracle's application business last year. We didn't really start to see it until the fourth quarter.

We've heard some things in the field around One Oracle, your go to market motion where apps and infrastructure are more combined versus separate. And you also talked about combining vertical and horizontal apps teams here. Is that it? Is it mostly go to market? Is there something more about the products or something else that we should be thinking about? Thank you.

Mike Cecilia: Well, yep. Thanks for the question, Doug. First, I think I think it's a combination of things. But let me just start with the with what I think is happening in the industry. All of our competitors are largely in the best of breed business. Because they're not in the applications business in totality. They're not in the back office business. They're not in the industry business, and they're not in everything in They're not in the front of the house, the back of the house, and the middle of the house. We are the only applications company in the world that's selling complete application suites.

Then you add in baked in AI, the AI halo, baked in AI right into right into our application. So we're over 400 AI features live in Fusion already. I mentioned 274 customers live on our Clinical AI agent So, you know, the go lives for these clinical AI agents are a new breed of SaaS applications for us, are measured in a matter of weeks. So you're looking at an industry like health care where it would take months or years to get anything done at that magnitude. Weeks. And by the way, the customers are implementing these things. All by themselves. Right? They're they don't need us to help them. You just roll them out and they work.

So we're in the we're in we're in the applications industry suite business. We're building AI into our back office applications, our front office applications, and we are building applications that are also AI agents themselves. Are in fact AI agents. That's why you see the growth rates in our industry applications of 21% in the quarter. Our fusion ERP is up 17 SCM up 18%. HCM up 14%. CX up 12%. Again, all on a bigger base. Then I think the next piece of this is you add in the AI data platform. So if you'd like an industry suite, of applications then you'd like to create your own AI agents.

You'd like to create and unlock your own enterprise data on top of it all We are the only all of those ingredients for a customer. And I and I think as you as you look at customers' you know, tiring of spend on best of breed because the integration costs are so high, and it's hard to bolt AI onto all that because you're actually not retiring anything in the process. We're in a very unique position. And I think we're starting to see it in the numbers too, John, with the deferred revenue for apps growing at 14% now. You know, faster than the in quarter revenue growth of 11%.

For all those reasons, I'm optimistic on our apps business going forward that it's a continued growth measure. For Oracle.

John DiFucci: Thank you, Mike. When I when you as you were talking, I sort of clarified in my mind. When I think of one Oracle, I used to think of I thought of it when I started to hear about it as a go to market motion, but it's more than that. It's actually a it's a product thing too. It's everything. So thanks a lot.

Mike Cecilia: Thank you. Thank you, John.

Ken Bond: A telephonic replay of this conference call will be available twenty-four hours on our Investor Relations website. Thank you for joining us today. And with that, I'll now turn the call back to Tiffany for closing.

Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining, You may now disconnect.