On Wednesday, Oracle (NYSE:ORCL) discussed fourth-quarter financial results during its earnings call. The full transcript is provided below.

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Watch the full earnings call below:

Summary

Oracle Corporation reported a record Q4 with revenue of $19.2 billion, up 21%, driven by strong demand for cloud infrastructure and cloud applications.

Cloud infrastructure revenue surged 93%, with a focus on AI workloads, while cloud applications grew by 10%.

Non-GAAP EPS increased by 24% for the quarter, driven partly by a one-time net gain on investments.

Oracle's remaining performance obligations (RPO) reached $638 billion, providing strong visibility into future revenue growth.

The company plans significant capital investments, with a net cash outlay for capital expenditures at $70 billion, supported by customer demand.

Oracle's fiscal year 2027 guidance includes expected revenue growth of 34% and non-GAAP EPS growth of 18%.

The company is expanding offerings in AI, with over 1,000 AI agents delivered across applications and new pricing models introduced.

Oracle's cloud database business grew by 29%, with multi-cloud revenue increasing by 404% year over year.

The company continues to innovate in cloud infrastructure, with AI infrastructure contracts totaling $67 billion this quarter.

Oracle plans to raise around $40 billion in debt and equity to support continued investment in infrastructure.

Full Transcript

OPERATOR

Well, good day everyone and welcome to the Oracle Corporation fourth quarter fiscal year 2026 earnings call. Just a reminder, this call is being recorded. If you have a question today, please press Star one on your telephone keypad. Please limit your questions to one. I would now like to hand the conference over to Mr. Ken Bond. Please go ahead, sir.

Ken Bond (Operator)

Thank you Lisa and 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 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 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 and we encourage you to to review our most recent reports, including our 10K and 10Q 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'll begin with a few prepared remarks and with that I'll turn the call to Hillary.

Hilary Maxson (Chief Financial Officer)

Thanks Ken. Hi everyone. Great to be here with you today. And 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 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 intersection of the physical and virtual world across business models, from infrastructure to enterprise software.

Oracle understands that intersection and 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. 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'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. And 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 26 results. And 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. 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 plus 10%.

And Michael 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 and for us that still lines in our P and 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 are 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 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 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 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, while all supported by long term contractual customer commitments and reflect 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 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 27 and Q1.

Clay Magouyrk

Thank you Hilary and welcome to Oracle. So 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. And 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. So 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 and 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 infusion 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 with Live with the Oracle Banking, just to name a few. All of these customers 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 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 United States.

And while not part of our Q4 bookings, the 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 FY27 applications business. In addition to discussions around AI within our applications, I'm 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 data sets.

This is why Claro, 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 OLIS, the Brazilian retailer and QXO, the fastest growing building building products distributor in the United States, combine 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 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 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 in Vodafone returned to us in Q4 to consolidate and modernize their operations. Vodafone select an OCI dedicated region and their data centers, our multi cloud database offering and 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 and pay for agent capabilities. Our new agent 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 agent capacity in a simple predictable way by purchasing bundles of tokens that can use prosper 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 30 free 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. And with that I will turn it over to Clay. Thanks Mike. Okay, you just heard from Mike about our applications and database businesses. Oracle has been in these businesses for decades and they continue to impress us because of their ability to continually grow aggregate margin dollars through a combination of durable differentiation and increasing market size. I want to share how we see our infrastructure business in that same category and the evidence that enforces that belief. 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 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 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 and miss solutions and deliver them to customers. Rep OCI has been the fastest growing cloud provider for years and 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 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 $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 finalized an impressive FY26 where we delivered more than 1.2 gigawatts to customers. Our pace of delivery continues to accelerate with our FY27 Q1 delivery approaching 1 gigawatt, nearly the same capacity as we've delivered in the previous four quarters combined.

There will be many winners in AI and 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 and 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 Agent Encoding. This is an area where we have a front row seat as both the provider and as a consumer. Agent Encoding Tools has 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 Shackleford, Texas. We contracted this in August of 2025. Customer delivery begins in the first half of FY27. Sorry, the first half of calendar year 27. 115 megawatts of power capacity is already available online more than one month ahead of schedule. If we take a look at Dona Ana County, New Mexico, we contracted this in September of 2025. Customer delivery begins in the first half of calendar year 27 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. And then to the final site I want to touch on Port Washington. Port Washington, Wisconsin.

This was contracted in September of 2025 and delivery begins in the second half of calendar year 27. 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 applications 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. And with that I'm going to hand it back to Hillary.

Hilary Maxson (Chief Financial Officer)

Thanks Clay. Before I get to our fiscal year 27 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 and 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 to 25 billion dollars, 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 27 and that includes our already announced $20 billion aftermarket 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 total revenues of plus 34% in constant currency surpassing the 5 year revenue CAGR included in our long term outlook, Our fiscal year 2027 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 the near term to gross margins in our infrastructure business, we expect margin performance in infrastructure to improve rapid 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 26 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 the US dollar 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.

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 and A.

Ken Bond (Operator)

Thank you, Hilary.

Lisa

Lisa, if you'd please poll the audience for any questions they might have. Absolutely. And ladies and gentlemen, once again, that is Star One. If you have a question, we ask that you limit your questions to 1. The first question comes from John De Fucci from Guggenheim Securities.

John De Fucci (Equity Analyst at Guggenheim Securities)

Thank you. So my question is a question that I've dealt with all this quarter. And Clay, that was a ton of information you gave, which is helpful, really helpful. But 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 know, we all know that component costs have gone up a lot, especially memory. It's grown significantly. Right. And 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.

You know, 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. But 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? Sure. Yeah.

Clay Magouyrk

Good, 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. I mean, part of my job is to figure out ways to actually accelerate CapEx. You know, it's Hilary has a tough life. My job is try to spend the money a little bit faster so I can get ramp revenue sometimes. So, so I don't see that as a, is related to component prices. 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, etc. So 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 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 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, 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 floated. So, you know, 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, they'd 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 De Fucci (Equity Analyst at Guggenheim Securities)

That is really helpful. It makes a ton of sense. And if I could just a quick one. Hillary 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 a, you have long term targets out there, you're a new cfo, right? And congrats, it's great to have you

Hilary Maxson (Chief Financial Officer)

on the, on the, on the line. But can you just comment on those large long term comp targets at all? You know, I've only, I know you've only been there a couple of months. You know, I think, and that was the intention of putting it in the slide, I think that we're reconfirming those long term targets and the, in the sense of the CAGRs that we put into the, 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. All very clear.

John De Fucci (Equity Analyst at Guggenheim Securities)

Thank you very much. Nice job you guys.

Lisa

The next question comes from Brad, Deutsche Bank.

Brad

Thank you so much for taking the question. And Hilary, 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 Maxson (Chief Financial Officer)

Yeah, so the way I think about it, and as 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 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 and as we're generally able to preserve and improve margins, in the case of things like bring your own hardware, the ROIC structures, the ROIC for those types of structures will be even higher. And again, that backup 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. And of course, we're happy to talk more about that over the next couple quarters.

Brad

That's really helpful, Hillary, thank you. And congrats to the whole team on the execution this quarter.

Lisa

Nice shop to everybody. Thank you.

Mark Mordler (Equity Analyst at Bernstein)

Up next, we'll take a question from Mark Mordler from Bernstein. Thank you very much for taking my question and also congrats on the quarter and Hilary, welcome. And we're really looking forward to working with you, Clay and Hillary. 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, etc. 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. Yeah, thanks. Thanks, Mark. Look, I think that

Clay Magouyrk

it's very important that we stay focused on customers. So 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, a lot of things happening in the market, but we have a large, diverse set of customers, both very large and also 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 as happy as possible with us?

And that's know when, when I shared 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'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, you Know, several years in, there's still a massively higher demand than there is supply. And so I think that's going to, there are going to be more and more people trying to figure out how to meet that demand. But 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.

And 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. And we're fundamentally in the service business. It's, it's one if, if you think that you're just buying something and then you're, you're done with it, 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. And our ability to do that extremely well creates an extremely positive relationship that then ensures that renewals go well.

And then in terms of the margin profile, look, you know, I, 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 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'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 that is on our shoulders and what we've been doing over the past decade, it's why the biggest and most robust customers come our way.

Mark Mordler (Equity Analyst at Bernstein)

That's really helpful. I do really appreciate it. Thank you.

Keith Bachman (Equity Analyst at Bank of Montreal)

The next question today is Keith Bachman from 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. 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 is this related to what modules? In other words, assume this is the SAS portfolio erp, acm, you know, what models might this relate to? And then finally, how do you think this might impact growth? That's it for me. Many thanks.

Mike Sicilia

Sure. Yeah, thanks for the question, Keith. So outcomes based pricing is not entirely new for us. So this is something we've been doing in our construction business based upon construction value under management subcontractor, a general contractor to 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 where automating doctor's notes, we're automating lab orders, we're able to measure and actually price based on patient throughput, which is what the providers, one of the things providers care about is how many people can we get through a healthcare system, reduce weight and queues, be 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 fees. Now the sort of difficult thing is if you're not creating the outcome in the first place, that's, that's a tricky thing, a tricky thing to press in. But since we've made this full stack investment and since we're able to very easily take, you know, the best of the output from the large language models to our, 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, you know, 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. So I think we have a very unique advantage since we're in the infrastructure business. We have large language model, 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 to measure. So I think it's a unique offering. It relies on the full stack investment that we made and as I mentioned, early days, early days, but certainly resonating very, very relevant customers.

They appreciate the transparency, they appreciate being able to align outcomes to AI. I also mentioned the token models. If customers want is again a lot of what we're doing. Our fusion applications, our industry applications, we continue to add at no additional charge. The customers want access to advanced reasoning. If they want it, they want to, they want, you know, essentially pro, more tokens at the models. We have pre package bundles to allow them to do that. So we're allowing as much flexibility, as much alignment to value in our pricing models across our entire application suite as we possibly can.

And 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, you know, certainly should, should be helpful for our growth story as well.

Keith Bachman (Equity Analyst at Bank of Montreal)

Thanks Mike.

Ramo Lenshau (Equity Analyst at Barclays)

Your next question is from Ramo Lenshau from Barclays. Hey perfect. And welcome to the team as well. For me 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. And you know, there's a lot of kind of noise in the market at the moment, especially on the investor side, what's happening to software, etc. Can you kind of address a little bit what you're seeing on the database side? You know there's OCI at Azure, et cetera 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 see what you see? Can you talk to what you see in the classic business?

Mike Sicilia

Thank you. Yeah, sure. It's Mike. So I'll take a stab here and then ask Clay to jump in as well. So 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%. So when our deferred position is going faster than our in quarter revenue, it gives us, it gives us confidence.

You know, as far as impact of I would say maybe a couple quarters ago there were some delayed decision cycles out there as customers thought 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 realize that you know, enterprise software, particularly when you have AI built into our SaaS solutions is, you know, is certainly a very good approach and is necessary to move forward for the modernization and protection of their businesses.

So I expect that our applications business will continue to be to be a healthy contributor to Oracle as it has been as far as database, I mean they cloud innovation of 29% in a quarter with multiple, as I mentioned, growing even you know, multi cloud revenue growing at 4x bookings, growing at 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 the, with the, with our competitor Clouds.

We expect that business to continue to be, you know, an outsized growth engine for Oracle going forward. And I'll say the final piece is that in addition to multiclock you did the innovation in the database. I mentioned a couple of deep data 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. The data strategy matters, data architecture matters.

And as the inferency market starts to take hold, which is again also in early days, a lot of that data system in Oracle database across the world and we expect to see continued investment and growth in our database business as a result. Multi cloud, you know, 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.

Ramo Lenshau (Equity Analyst at Barclays)

Perfect, thank you.

Kirk Matern (Equity Analyst at Evercore ISI)

And our last question today comes from Kirk Matern from 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 Hillary, 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? And when you go into these type of deals, especially on the bring your own hardware side, you know, what's the value differentiation that maybe those deals have that, you know, some of the ones that include, you know, I guess how does that differ versus the, you know, 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, that was excluding I think 25 billion from some of these prepaid deals.

Clay Magouyrk

So could you just I guess talk about this dynamic as it relates to, sir, your CapEx outlook. Thanks. Yes, I'll start and hand it to Hillary. Look, I mean I, I would like to tell you that we have, 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.

And so, you know, 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 uses of that. But 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 complementary set of services around this 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're not just buying a single rack and putting it into your and 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're seeing is that you've got different entrants in the market around accelerators that are helping customers find ways to procure their, their accelerators. And you've got different customers who have different ways of thinking about that. And so 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.

But 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 Maxson (Chief Financial Officer)

Hillary, so 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. So 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. So indeed, for 2027 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's some timing difference is in there, but it's just associated with third party manufacturers, not vendors, not vendor financing, just third party manufacturers. So 20 to 25 billion, the sum of those is our reported CapEx. But 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.

And also from an economic standpoint, of course, because we're collecting money up front. 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 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 Matern (Equity Analyst at Evercore ISI)

Thank you Hillary. Very helpful. Thank you all.

Ken Bond (Operator)

Thank you, Hillary. So for next quarter, this is a new for everybody. We expect our Q1 fiscal year 27 earnings results will be announced on September 10th. Any changes date will be publicly announced. Also as a reminder, Hillary 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. And 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

Lisa

to Lisa for closing. And once again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation today.

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