Oracle Corporation

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oracle Corporation Q1 FY2026 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star Vending number one on your telephone keypad. I would now like to turn the call over to Ken Bond, head of investor relations. Ken, please go ahead.

Thank you, Tiffany. Good afternoon, everyone, and welcome to Oracle's first core fiscal year 2026 earnings conference call. A copy of the press release and financial tables, which include a gap to non-gap reconciliation and other supplemental financial information, can be viewed and downloaded from our investor relations website. Additionally, a list of many customers who purchased Oracle Cloud services or went live on Oracle Cloud recently will be available from the Investor Relations website. On the call today are Chairman and Chief Technology Officer Larry Ellison and Chief Executive Officer Safra Katz. As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates, or other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business, which may potentially affect these forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today. As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-K and 10-Q, and any applicable amendments for complete discussion of these factors. and other risks that may affect our future results or the market price of our stock. 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 questions, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra.

Thanks, Ken. And good afternoon, everyone. Clearly, we had an amazing start to the year because Oracle has become the go-to place for AI workloads. We have signed significant cloud contracts with the who's who of AI, including OpenAI, XAI, Meta, NVIDIA, AMD, and many others. At the end of Q1, remaining performance obligations, or RPO, now top $455 billion. This is up 359% from last year and up $317 billion from the end of Q4. Our cloud RPO grew nearly 500% on top of 83% growth last year. Now to the results using constant currency growth rate. As you can see, we've made some changes to the face of our income statement to better reflect how we manage the business, and so you can understand our cloud business dynamics more directly. So here goes. Total cloud revenue, that's both apps and infrastructure, was up 27% to $7.2 billion. Cloud infrastructure revenue was $3.3 billion, up 54%, on top of the 46% growth reported in Q1 last year. OCI consumption revenue was up 57%, and demand continues to dramatically outstrip supply. Cloud database services which were up 32%, now have annualized revenues of nearly 2.8 billion. Autonomous database revenue was up 43%, on top of the 26% growth reported in Q1 last year. Multi-cloud database revenue, where OCI regions are embedded in AWS, Azure, and GCP, grew 1,529% in Q1. Cloud application revenue was 3.8 billion and up 10%, while our strategic back office application revenue was 2.4 billion, up 16%. Total software revenue for the quarter was 5.7 billion, down 2%. So all in total revenues for the quarter were 14.9 billion up 11% from last year and higher than the 8% growth reported in Q1 last year. Operating income grew 7% to 6.2 billion. We have also been on an accelerated journey to adopt AI internally to run more efficiently. I expect our operating income will grow mid-teens this year and higher still in FY27. Non-GAAP EPS was $1.47 in U.S. dollars, while GAAP EPS was $1.01 in U.S. dollars. The non-GAAP tax rate for the quarter was 20.5%, which was higher than the 19% guidance and caused EPS to be 3 cents lower. For the last four quarters, operating cash flow was up 13% to 21.5 billion, and free cash flow was a negative 5.9 with 27.4 billion of CapEx. Operating cash flow for Q1 was $8.1 billion, while free cash flow was a negative $362 million with capex of $8.5 billion. At quarter end, we had $11 billion in cash and marketable securities and short-term deferred revenue balance was $12 billion, up 5%. Over the last 10 years, we've reduced the shares outstanding by a third at an average price of $55, which is at this point, much less than a quarter of our current stock price. This quarter, we repurchased 440,000 shares for a total of 95 million. In addition, we paid out dividends of 5 billion over the last 12 months, And the board of directors again declared a quarterly dividend of 50 cents per share. Given our RPO growth, I now expect fiscal year 26 CapEx will be around 35 billion. As a reminder, the vast majority of our CapEx investments are for revenue generating equipment that is going into the data centers and not for land or buildings. As we bring more capacity online, we will convert the large RPO backlog into accelerating revenue and profit growth. Now, before I dive into specific Q2 guidance, I'd like to share some of the overarching thoughts on fiscal year 26 and the coming year. Clearly, it was an excellent quarter and demand for Oracle Cloud infrastructure continues to build. I expect we will sign additional multi-billion dollar customers and that RPO will likely grow to exceed half a trillion dollars. The enormity of this RPO growth enables us to make a large upward revision to the cloud infrastructure portion of our financial plan. We now expect Oracle Cloud infrastructure will grow 77% to $18 billion this fiscal year, and then increase to $32 billion, $73 billion, $114 billion, and $144 billion over the following four years. Much of this revenue is already booked in our $455 billion RPPO number, and we are off to a fantastic start this year. Now, while much attention is focused on our GPU-related business, our non-GPU infrastructure business continues to grow much faster than our competitors. We are also seeing our industry-specific cloud applications drive customers to our back office cloud apps. And finally, the Oracle database is booming with 34 multi-cloud data centers now live inside of Azure GCP and AWS, and we will deliver another 37 data centers for a total of 71. All these trends point to revenue growth going higher. For fiscal year 2026, we remain confident and committed to full year total revenue growth of 16% in constant currency. Beyond fiscal year 2026, I'm even more confident in our ability to further accelerate our top and bottom line growth rate. As mentioned, we will provide an update on our long-range financial targets at our financial analyst meeting at Oracle AI World in Las Vegas in October. Now, let me turn to my guidance for Q2, which I'll review on a non-GAAP basis and assuming currency exchange rates remain the same as they are now. Currency should have a $0.03 positive impact on EPS, and a 1% positive effect on revenue, depending on round trip. However, the actual currency impact may be different as it was in Q1. Here it goes. Total revenue are expected to grow from 12 to 14% in constant currency and are expected to grow from 14 to 16% in US dollars at today's exchange rate. Total cloud revenue is expected to grow from 32 to 36% in constant currency and is expected to grow from 33 to 37% in USD. Non-GAAP EPS is expected to grow between 8% to 10% and be between $1.58 and $1.62 in constant currency. Non-GAAP EPS is expected to grow 10 to 12% and be between $1.61 and $1.65 in USD. And lastly, my EPS guidance for Q2 assumes a base tax rate of 19. However, one-time tax events could cause actual tax rates to vary, as they did this quarter. Larry, over to you.