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 Q2 FY26 earnings 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 then the number one on your telephone keypad. I would now like to turn the call over to Ken Bond, Head of Investor Relations. Sir, please go ahead.

Thank you, Tiffany. Good 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 Larry Wilson, Chief Executive Officer Mike Cecilia, Chief Executive Officer Clay McGuirk, and Principal Financial Officer, Doug Kering. A copy of the press release and financial tables, which includes a gap to non-gap 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 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're not obligating ourselves to revise our results or these financial-looking statements. Before taking questions, we'll begin with a few prayer remarks. And I'm going to ask 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 cents positive impact on earnings in Q2. For Q3, assuming currency exchange rates remain the same as they are now, currency should have a 2% to 3% positive effect on revenue and have a 6 cents positive effect on EPS, depending on rounding. In terms of the results 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 the end of 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 12 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%. As we finished combining our industry-based cloud apps and our fusion cloud apps under one selling organization in each region across the world, we 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 recognize a pre-tax gain of $2.7 billion and a 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 FY27. Our full year FY26 revenue expectation of 67 billion remains unchanged. However, given the added RPO this quarter that can be monetized quickly starting next year, we now expect fiscal 2026 CapEx will be about 15 billion higher than we forecasted after Q1. Finally, We are confident that our customer 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.