The transcript of Oracle’s second quarter FY2026 earnings call is below:
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Operator
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.
Ken Bond (Head of Investor Relations)
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 Ellison, Chief Executive Officer Mike Sicilian, Chief executive officer Clay Magouyrk and principal financial Officer Doug Kehring. 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 10K and 10Q and any applicable amendments. And finally, we are not obligating ourselves to revise our results or these financial statements. Before taking questions, we’ll begin with a few prepared remarks and I now turn the call over to Mike.
Larry Ellison (Chairman and Chief Technology Officer)
No, it’s actually me. Ken, appreciate it.
Doug Kehring (Executive Vice President and Head of Operations)
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 $0.03 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 $0.06 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 contract 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 recognized a pretax gain of $2.7 billion in the quarter stemming from the sale of our interest in Ampere Computing.
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 markets,, 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 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 Magouyrk (Co-CEO)
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, native 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 supercluster in Abilene, Texas is on track with more than 96,000 Nvidia Grace Blackwell GB200 hundreds delivered. We also began delivering AMD MI300X 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 to deliver to customer success at margins that make sense for our business. We analyze land and power for data center buildings, component supply including GPU,s, 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, investing only when we have alignment across all necessary components to ensure profitable delivery for our customers.
The holiday season is 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, TEMU 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. We 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 Region 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 into 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 with 27 more planned over the next months. 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 which enables customers to commit once to Oracle database services and use them 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 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 IFCA 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 infrastructure business are growing at incredible rates. Infrastructure 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, ...
