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Item 2. Management’s Discussion and Analysis

2025-09-10 compared with 2025-03-11 · 196 added, 247 removed, 280 unchanged (61% of the section changed)

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We have three businesses:

cloud and license;

cloud and software (formerly referred to as cloud and license);

and services;

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The descriptions set forth below as a part of this Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations and the information contained within Note 8 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report provide additional information related to our businesses and operating segments and align to how our chief operating decision makers (CODMs), which are our Chief Executive Officer and Chief Technology Officer, view our operating results and allocate resources.

Cloud and License Business

Our cloud and license business, which represented 85% of our total revenues on a trailing 4-quarter basis, markets, sells and delivers a broad spectrum of enterprise applications and infrastructure technologies through our cloud and license offerings.

Revenue streams included in our cloud and license business are:

• Cloud services and license support revenues, which include:

o cloud services revenues, which are earned by providing customers access to Oracle Cloud applications and infrastructure technologies via cloud-based deployment models that Oracle develops, provides unspecified updates and enhancements for, deploys, hosts, manages and supports and that customers access by entering into a subscription agreement with us for a stated period.

Cloud and Software Business

Our cloud and software business, which represented 86% of our total revenues on a trailing four-quarter basis, markets, sells and delivers a broad spectrum of enterprise applications and infrastructure technologies through our cloud and software offerings.

Revenue streams included in our cloud and software business are:

• Cloud revenues, which are earned by providing customers access to Oracle Cloud applications and infrastructure technologies via cloud-based deployment models that Oracle develops, provides unspecified updates and enhancements for, deploys, hosts, manages and supports and that customers access by entering into a subscription agreement with us for a stated period.

Oracle Cloud Applications and Oracle Cloud Infrastructure (collectively Oracle Cloud Services) arrangements generally:

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and are recognized as revenues ratably over the contractual period of the cloud contract or, in the case of usage model contracts, as the cloud services are consumed over time;

o license support revenues, which are earned by providing Oracle license support services to customers that have elected to purchase support services in connection with the purchase of Oracle applications and infrastructure software licenses for use in cloud, on-premise and other IT environments.

Substantially all license support customers renew their support contracts with us upon expiration in order to continue to benefit from technical support services and the periodic issuance of unspecified updates and enhancements, which current license support customers are entitled to receive.

License support contracts are generally:

priced as a percentage of the net fees paid by the customer to purchase a cloud license and/or on-premise license;

• Software revenues, which include:

o software license revenues, which are earned by providing the licensing of our software products including Oracle Applications, Oracle Database, Oracle Middleware and Java, among others, which our customers deploy within cloud-based, on-premise or other IT environments.

Our software license transactions are generally perpetual in nature and are generally recognized as revenues up front at the point in time when the software is made available to the customer to download and use.

Revenues from usage-based royalty arrangements for distinct software licenses are recognized at the point in time when the software end user usage occurs.

The timing of a few large software license transactions can substantially affect our quarterly software license revenues due to the point-in-time nature of revenue recognition for software license transactions, which is different than the typical revenue recognition pattern for our cloud and software support revenues in which revenues are recognized over time.

Software license customers have the option to purchase and renew software support contracts, as further described below;

o software support revenues, which are earned by providing Oracle software support services to customers that have elected to purchase support services in connection with the purchase of Oracle applications and infrastructure software licenses for use in cloud, on-premise and other IT

environments.

Substantially all software support customers renew their support contracts with us upon expiration in order to continue to benefit from technical support services and the periodic issuance of unspecified updates and enhancements, which current software support customers are entitled to receive.

Software support contracts are generally:

priced as a percentage of the net fees paid by the customer to purchase a software license;

billed in advance of the support services being performed;

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and recognized as revenues ratably over the contractual period that the support services are provided, which is generally one year.

• Cloud license and on-premise license revenues, which include revenues from the licensing of our software products including Oracle Applications, Oracle Database, Oracle Middleware and Java, among others, which our customers deploy within cloud-based, on-premise or other IT environments.

Our cloud license and on-premise license transactions are generally perpetual in nature and are generally recognized as revenues up front at the point in time when the software is made available to the customer to download and use.

Revenues from usage-based royalty arrangements for distinct cloud licenses and on-premise licenses are

recognized at the point in time when the software end user usage occurs.

The timing of a few large license transactions can substantially affect our quarterly license revenues due to the point-in-time nature of revenue recognition for license transactions, which is different than the typical revenue recognition pattern for our cloud services and license support revenues in which revenues are recognized over time.

Cloud license and on-premise license customers have the option to purchase and renew license support contracts, as further described above.

Providing choice and flexibility to our customers as to when and how they deploy Oracle applications and infrastructure technologies are important elements of our corporate strategy.

In recent periods, customer demand for our applications and infrastructure technologies delivered through our Oracle Cloud Services has increased.

To address customer demand and enable customer choice, we have certain programs for customers to pivot their applications and infrastructure software licenses and the related license support to the Oracle Cloud for new deployments and to migrate to and expand with the Oracle Cloud for their existing workloads.

The proportion of our cloud services revenues relative to our total revenues has increased and we expect this trend to continue.

Cloud services revenues represented 44% and 43% of our total revenues for the three- and nine-month periods ended February 28, 2025, respectively, and 38% and 37% of our total revenues for the three- and nine-month periods ended February 29, 2024, respectively.

Our cloud and license business’ revenue growth is affected by many factors, including the strength of general economic and business conditions;

To address customer demand and enable customer choice, we have certain programs for customers to pivot their applications and infrastructure software licenses and the related software support to the Oracle Cloud for new deployments and to migrate to and expand with the Oracle Cloud for their existing workloads.

The proportion of our cloud revenues relative to our total revenues has increased and we expect this trend to continue.

Cloud revenues represented 48% and 42% of our total revenues for the three-month periods ended August 31, 2025 and 2024, respectively.

Our cloud and software business’ revenue growth is affected by many factors, including the strength of general economic and business conditions, including the effects of inflation, tariffs and trade policy, geopolitical conditions and other macroeconomic factors on customer demand;

governmental budgetary constraints;

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customer satisfaction with our offerings;

the continued renewal of our cloud services and license support customer contracts by the customer contract base;

substantially all customers continuing to purchase license support contracts in connection with their license purchases;

the pricing of license support contracts sold in connection with the sales of licenses;

the continued renewal of our cloud and software support customer contracts by the customer contract base;

substantially all customers continuing to purchase software support contracts in connection with their license purchases;

the pricing of software support contracts sold in connection with the sales of licenses;

the pricing, amounts and volumes of licenses and cloud services sold;

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and foreign currency rate fluctuations.

On a constant currency basis, we expect that our total cloud and license revenues generally will continue to increase due to:

• expected growth in our cloud services offerings;

• continued demand for our cloud license and on-premise license and license support offerings.

We believe these factors should contribute to future growth in our cloud and license business’ total revenues, which should enable us to continue to make investments in research and development and our cloud operations to develop, improve, increase the capacity of and expand the geographic footprint of our cloud and license products and services.

Our cloud and license business’ margin has historically trended upward over the course of the four quarters within a particular fiscal year due to the historical upward trend of our cloud and license business’ revenues over those quarterly periods and because the majority of our costs for this business are generally fixed in the short term.

The historical upward trend of our cloud and license business’ revenues over the course of the four quarters within a particular fiscal year is primarily due to the addition of new cloud services and license support contracts to the customer contract base, which we generally recognize as revenues ratably or based upon customer usage over the respective contractual terms and the renewal of existing customers’ cloud services and license support contracts over the course of each fiscal year, which we generally recognize as revenues in a similar manner;

and the historical upward trend of our cloud license and on-premise license revenues, which we generally recognize at a point in time upon delivery;

On a constant currency basis, we expect that our total cloud and software revenues generally will continue to increase due to:

• expected growth in our cloud offerings;

• continued demand for our software offerings.

We believe these factors should contribute to future growth in our cloud and software business’ total revenues, which should enable us to continue to make investments in research and development and our cloud operations to develop, improve, increase the capacity of and expand the geographic footprint of our cloud and software products and services.

Our cloud and software business’ margin has historically trended upward over the course of the four quarters within a particular fiscal year due to the historical upward trend of our cloud and software business’ revenues over those quarterly periods and because the majority of our costs for this business are generally fixed in the short term.

The historical upward trend of our cloud and software business’ revenues over the course of the four quarters within a particular fiscal year is primarily due to the addition of new cloud and software support contracts to the customer contract base, which we generally recognize as revenues ratably or based upon customer usage over the respective contractual terms and the renewal of existing customers’ cloud and software support contracts over the course of each fiscal year, which we generally recognize as revenues in a similar manner;

and the historical upward trend of our software license revenues, which we generally recognize at a point in time upon delivery;

in each case over those four fiscal quarterly periods.

Our margin for this business may be adversely impacted due to increases in supply chain and energy costs, the impact of tariffs and trade policy and other factors.

Hardware Business

Our hardware business, which represented 5% of our total revenues on a trailing 4-quarter basis, provides a broad selection of enterprise hardware products and hardware-related software products including Oracle Engineered Systems, servers, storage, industry-specific hardware offerings, operating systems, virtualization, management and other hardware-related software and related hardware support.

Each hardware product and its related software, such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a combined performance obligation.

The revenues for this combined performance obligation are generally recognized

at the point in time that the hardware product and its related software are delivered to the customer and ownership is transferred to the customer.

Our hardware business, which represented 5% of our total revenues on a trailing four-quarter basis, provides a broad selection of enterprise hardware products and hardware-related software products including Oracle Engineered Systems, servers, storage, industry-specific hardware offerings, operating systems, virtualization, management and other hardware-related software and related hardware support.

Each hardware product and its related software,

such as an operating system or firmware, are highly interdependent and interrelated and are accounted for as a combined performance obligation.

The revenues for this combined performance obligation are generally recognized at the point in time that the hardware product and its related software are delivered to the customer and ownership is transferred to the customer.

We expect to continue to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services.

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Hardware support contracts are entered into and renewed at the option of the customer, are generally priced as a percentage of the net hardware products fees and are generally recognized as revenues ratably as the hardware support services are delivered over the contractual terms.

We generally expect our hardware business to have lower operating margins as a percentage of revenues than our cloud and license business due to the incremental costs we incur to produce and distribute these products and to provide support services, including direct materials and labor costs.

We generally expect our hardware business to have lower operating margins as a percentage of revenues than our cloud and software business due to the incremental costs we incur to produce and distribute these products and to provide support services, including direct materials and labor costs.

Our quarterly hardware revenues are difficult to predict.

Our hardware revenues, cost of hardware and hardware operating margins that we report are affected by many factors, including our manufacturing partners’ abilities to timely manufacture or deliver a few large hardware transactions;

our strategy for and the position of our hardware products relative to competitor offerings;

Our hardware revenues, cost of hardware and hardware operating margins that we report are affected by many factors, including our manufacturing partners’ abilities to timely and cost-effectively manufacture or deliver a few large hardware transactions;

our strategy for and the pricing and position of our hardware products relative to competitor offerings;

customer demand for competing offerings, including cloud infrastructure offerings;

the strength of general economic and business conditions;

the strength of general economic and business conditions, including the effects of inflation, tariffs and trade policy, geopolitical conditions and other macroeconomic factors on customer demand;

governmental budgetary constraints;

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the percentage of our hardware support contract customer base that renews its support contracts;

the effect of tariffs and other trade barriers on our costs, and our ability to pass such costs on to customers;

the geographic locations of our customers;

the close association between hardware products, which have a finite life, and customer demand for related hardware support as hardware products age;

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Services Business

Our services business, which represented 10% of our total revenues on a trailing 4-quarter basis, helps customers and partners maximize the performance of their investments in Oracle applications and infrastructure technologies.

Our services business, which represented 9% of our total revenues on a trailing four-quarter basis, helps customers and partners maximize the performance of their investments in Oracle applications and infrastructure technologies.

We believe that our services are differentiated based on our focus on Oracle technologies, extensive experience, broad sets of intellectual property and best practices.

Our services offerings include consulting services and advanced customer services.

Our services business has lower margins than our cloud and license and hardware businesses.

Our services business has lower margins than our cloud and software and hardware businesses.

Our services revenues are affected by many factors including our strategy for, and the competitive position of, our services;

customer demand for our cloud and license and hardware offerings and the related services that we may market and sell in connection with these offerings;

customer demand for our cloud and software and hardware offerings and the related services that we may market and sell in connection with these offerings;

general economic conditions;

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Investment in Ampere Computing Holdings LLC

From time to time since 2017, we have made investments in Ampere Computing Holdings LLC (Ampere), a related party entity, in the form of equity and convertible debt instruments.

The total carrying value of our investments in Ampere, after accounting for losses under the equity method of accounting, was $1.5 billion as of February 28, 2025.

We currently expect Ampere to continue to generate net losses in future periods, but we remain confident in the long-term potential of Ampere’s server chips.

Our equity investments in Ampere represent an ownership interest of approximately 29% as of February 28, 2025.

From time to time since 2017, we have made investments in Ampere Computing Holdings LLC (Ampere), an equity method investee, in the form of equity and convertible debt instruments.

The total carrying value of our investments in Ampere, after accounting for losses under the equity method of accounting, was $1.7 billion as of August 31, 2025.

Our equity investments in Ampere represent an ownership interest of approximately 29% as of August 31, 2025.

We also own convertible debt investments in Ampere which, under the terms of an agreement with Ampere and other co-investors, will mature in June 2026 and are convertible into equity securities at the holder’s option under certain circumstances.

During the nine months ended February 28, 2025, we invested an aggregate of $225 million in convertible debt instruments issued by Ampere.

During the three months ended August 31, 2025, we invested an aggregate of $90 million in convertible debt instruments issued by Ampere.

In accordance with the terms of an agreement with other co-investors, we are also a counterparty to certain put (exercisable by a co-investor) and call (exercisable by Oracle) options at prices of approximately $500 million to $1.5 billion, respectively, to acquire additional equity interests in Ampere from our co-investors through January 2027.

If either of such options is exercised by us or our co-investors, we would obtain control of Ampere and consolidate its results with our results of operations.

On March 19, 2025, SoftBank Group Corp.

announced that it had entered into an agreement with Ampere and its equity holders to acquire all of the equity interests of Ampere.

The transaction is subject to customary closing conditions, including regulatory approvals.

When the Ampere Acquisition closes, we will cease to be an investor in Ampere.

During the period prior to the closing of the Ampere Acquisition, the amount of our investments in Ampere could increase for a variety of reasons and we will continue to recognize our share of loss in Ampere’s net earnings until the closure of the acquisition.

Critical Accounting Estimates

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To the extent that there are differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected.

We have critical accounting estimates in the areas of business combinations, income taxes and non-marketable investments.

During the first quarter of fiscal 2025, we completed an assessment of the useful lives of our servers and increased the estimated useful lives from five years to six years, effective at the beginning of fiscal 2025.

Refer to Note 1 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for more information.

There were no other significant changes to our critical accounting estimates.

We have critical accounting estimates in the areas of income taxes and non-marketable investments.

During the first quarter of fiscal 2026, there were no significant changes to our critical accounting estimates.

Refer to “Critical Accounting Estimates” under Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended May 31, 2025 for a more complete discussion of our critical accounting estimates.

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We also present a GAAP-based discussion below for substantially all of the other expense items as presented in our condensed consolidated statements of operations that are not directly attributable to our three businesses.

In addition, we discuss below the results of each of our three businesses—cloud and license, hardware and services—which are our operating segments as defined pursuant to ASC 280, Segment Reporting .

In addition, we discuss below the results of each of our three businesses—cloud and software, hardware and services—which are our operating segments as defined pursuant to ASC 280, Segment Reporting .

The financial reporting for our three businesses that is presented below is presented in a manner that is consistent with that used by our CODMs.

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Consistent with our internal management reporting processes, research and development expenses, general and administrative expenses, stock-based compensation expenses, amortization of intangible assets, certain other expense allocations, acquisition related and other expenses, restructuring expenses, interest expense,

non-operating (expenses) income, net and provision for income taxes are not attributed to our three operating segments because our management does not view the performance of our three businesses including such items and/or it is impracticable to do so.

non-operating income, net and provision for income taxes are not attributed to our three operating segments because our management does not view the performance of our three businesses including such items and/or it is impracticable to do so.

Refer to “Supplemental Disclosure Related to Certain Charges” below for additional discussion of certain of these items and Note 8 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for a reconciliation of the summations of total segment margin as presented in the discussion below to total income before income taxes as presented per our condensed consolidated statements of operations for all periods presented.

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Dollars at constant exchange rates (i.e., the rates in effect on May 31, 2025, which was the last day of our prior fiscal year) rather than the actual exchange rates in effect during the respective periods.

For example, if an entity reporting in Euros had revenues of 1.0 million Euros from products sold on February 28, 2025 and February 29, 2024, our financial statements would reflect reported revenues of $1.05 million in the first nine months of fiscal 2025 (using 1.05 as the applicable average exchange rate for the period) and $1.08 million in the first nine months of fiscal 2024 (using 1.08 as the applicable average exchange rate for the period).

The constant currency presentation, however, would translate the results for each of the first nine months of fiscal 2025 and 2024 using the May 31, 2024 exchange rate and indicate, in this example, no change in revenues between the periods compared.

For example, if an entity reporting in Euros had revenues of 1.0 million Euros from products sold on August 31, 2025 and 2024, our financial statements would reflect reported revenues of $1.16 million in the first quarter of fiscal 2026 (using 1.16 as the applicable average exchange rate for the period) and $1.11 million in the first quarter of fiscal 2025 (using 1.11 as the applicable average exchange rate for the period).

The constant currency presentation, however, would translate the results for each of the first quarters of fiscal 2026 and 2025 using the May 31, 2025 exchange rate and indicate, in this example, no change in revenues between the periods compared.

In each of the tables below, we present the percent change based on actual, unrounded results in reported currency and in constant currency.

Total Revenues and Operating Expenses

Three Months Ended

Nine Months Ended

Percent Change

Three Months Ended August 31,

Percent Change

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Total Revenues by Business :

Cloud and license

Cloud and software

Total revenues

% Revenues by Business :

Cloud and license

Cloud and software

(1) Comprised of Europe, the Middle East and Africa

Total revenues increased by $850 million and $2.8 billion in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods, due to a $917 million and a $3.1 billion increase in cloud and license revenues, partially offset by a $51 million and a $138 million decrease in hardware revenues and a $16 million and a $173 million decrease in services revenues, in each case during the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

Excluding the unfavorable effects of foreign currency rate fluctuations of 2% in the third quarter of fiscal 2025 and 1% in the first nine months of fiscal 2025, the increase in our cloud and license business revenues was primarily due to growth in our cloud services revenues as customers purchased our applications and infrastructure technologies and also renewed their related cloud contracts to continue to gain access to the latest versions of our technologies.

In constant currency, applications cloud services and license support contributed 23% and 26% and infrastructure cloud services and license support contributed 77% and 74% of the growth in cloud services and license support revenues, in each case in the third quarter and the first nine months of fiscal 2025, respectively.

In our hardware business, the constant currency decrease in revenues in the fiscal 2025 periods presented was due to the emphasis we placed on the marketing and sale of our growing cloud-based infrastructure technologies.

In our services business, the constant currency increase in revenues in the third quarter of fiscal 2025 was attributable to an increase in our consulting services revenues, partially offset by a decrease in our advanced customer services revenues, while the constant currency decrease in services business revenues in the first nine months of fiscal 2025 was attributable to a decrease in revenues from each of our primary services offerings.

The Americas region contributed 75% and 74% and the Asia Pacific region contributed 7% and 8% to the constant currency total revenue growth during the third quarter and the first nine months of fiscal 2025, respectively, and the EMEA region contributed 18% to the constant currency total revenue growth during each of the fiscal 2025 periods presented.

Total GAAP operating expenses increased by $242 million and $920 million in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

The increase in GAAP operating expenses in reported currency was primarily due to a $430 million and a $1.3 billion increase in cloud services and license support expenses primarily due to higher infrastructure expenses and higher employee related expenses, including higher expenses relating to stock-based compensation, that were incurred to support the growth in our cloud services revenues;

a $181 million and a $517 million increase in research and development expenses primarily due to higher employee related expenses, including higher stock-based compensation expenses;

and a $77 million and a $184 million increase in sales and marketing expenses, in each case during the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

These increases in GAAP operating expenses in reported currency were partially offset by a $201 million and a $504 million decrease in expenses for the amortization of intangible assets as certain of our assets were fully amortized;

a $127 million and a $142 million decrease in acquisition related and other expenses primarily due to lower impairment charges on certain assets;

an $84 million and a $235 million decrease in services expenses primarily due to decreases in external contractor and employee related expenses;

a $20 million and a $119 million decrease in hardware expenses due to lower hardware product and support costs;

and a $27 million and a $91 million decrease in restructuring expenses, in each case during the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

In constant currency, our total operating margin and total operating margin as a percentage of revenues increased in the fiscal 2025 periods presented, relative to the corresponding prior year periods, due to higher revenues.

Total revenues increased by $1.6 billion in reported currency in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, due to a $1.5 billion increase in cloud and software revenues, an $86 million increase in

services revenues and a $15 million increase in hardware revenues, in each case during the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025.

The increase in our cloud and software business revenues was primarily due to growth in our cloud revenues as customers purchased our applications and infrastructure technologies and also renewed their related cloud contracts.

In constant currency, cloud applications and cloud infrastructure contributed 23% and 77%, respectively, of the growth in cloud revenues in the first quarter of fiscal 2026.

In our hardware business, the increase in revenues in the first quarter of fiscal 2026 was primarily due to growth in revenues from our Oracle Exadata and certain other strategic hardware product offerings.

In our services business, the increase in revenues in the first quarter of fiscal 2026 was attributable to an increase in revenues in each of our primary services offerings.

The Americas, the EMEA and the Asia Pacific regions contributed 89%, 6% and 5%, respectively, to the constant currency total revenue growth during the first quarter of fiscal 2026.

Total GAAP operating expenses increased by $1.3 billion in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025.

The increase in GAAP operating expenses in reported currency during the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, was primarily due to a $1.0 billion increase in cloud and software expenses primarily due to higher infrastructure expenses and higher employee-related expenses, including higher expenses relating to stock-based compensation, that were incurred to support the growth in our cloud revenues;

a $329 million increase in restructuring expenses;

a $185 million increase in research and development expenses, primarily due to higher employee-related expenses, including higher stock-based compensation expenses;

a $27 million increase in sales and marketing expenses;

an $18 million increase in general and administrative expenses;

and a $16 million increase in hardware expenses.

These increases in GAAP operating expenses in reported currency during the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, were partially offset by a $204 million decrease in expenses for the amortization of intangible assets as certain of our assets were fully amortized;

and a $48 million decrease in services expenses primarily due to a decrease in bad debt expenses.

Our total operating margin increased in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, due to higher revenues.

Total margin as a percentage of revenues decreased in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, due to higher expenses.

Supplemental Disclosure Related to Certain Charges

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Three Months Ended

Nine Months Ended

(in millions)

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(1) Represents the amortization of intangible assets, all of which were acquired in connection with our acquisitions.

As of February 28, 2025, estimated future amortization related to intangible assets was as follows (in millions):

As of August 31, 2025, estimated future amortization related to intangible assets was as follows (in millions):

Remainder of fiscal 2026

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(2) Acquisition related and other expenses consist of personnel-related costs for transitional and certain other employees, certain business combination adjustments including certain adjustments after the measurement period has ended and certain other operating items, net.

(3) Restructuring expenses in each of the fiscal 2025 and 2024 periods presented primarily related to employee severance in connection with the Fiscal 2024 Oracle Restructuring Plan (2024 Restructuring Plan).

(3) Restructuring expenses in the first quarter of fiscal 2026 primarily related to employee severance in connection with the Fiscal 2026 Oracle Restructuring Plan (2026 Restructuring Plan).

Restructuring expenses in the first quarter of fiscal 2025 primarily related to employee severance in connection with the Fiscal 2024 Oracle Restructuring Plan (2024 Restructuring Plan).

Additional information regarding certain of our restructuring plans is provided in management’s discussion below under “Restructuring Expenses,” in Note 3 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report and in Note 7 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2025.

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Three Months Ended

Nine Months Ended

Cloud services and license support

Cloud and software

Sales and marketing

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Total stock-based compensation

(5) For all periods presented, the applicable jurisdictional tax rates applied to our income before income taxes after excluding the tax effects of items within the table above such as for stock-based compensation, amortization of intangible assets, restructuring, and certain acquisition related and other items, and after excluding the net deferred tax effects associated with a previously recorded income tax benefit that resulted from a partial realignment of our legal entity structure.

These adjustments resulted in effective tax rates of 19.9% and 19.7%, instead of 14.9% and 9.9%, respectively, for the third quarter and the first nine months of fiscal 2025 and 18.9% and 18.8%, instead of 16.2% and 8.0%, respectively, for the third quarter and the first nine months of fiscal 2024, which in each case represented our effective tax rates as derived per our condensed consolidated statements of operations.

Cloud and License Business

Our cloud and license business engages in the sale and marketing of our applications and infrastructure technologies that are delivered through various deployment models and include:

Oracle Cloud Services offerings;

Oracle cloud license and on-premise license offerings;

and Oracle license support offerings.

Our cloud services deliver applications and infrastructure technologies on a subscription basis via cloud-based deployment models that we develop, provide unspecified updates and enhancements for, deploy, host, manage and support.

Revenues for our cloud services are generally recognized ratably over the contractual term, which is generally one to four years, or in the case of usage model contracts, as the cloud services are consumed.

Cloud license and on-premise license revenues represent fees earned from granting customers licenses, generally on a perpetual basis, to use our database and middleware and our applications software products within cloud and on-premise IT environments and are generally recognized up front at the point in time when the software is made available to the customer to download and use.

License support revenues are typically generated through the sale of applications and infrastructure software license support contracts related to cloud licenses and on-premise licenses;

(5) For the first quarter of fiscal 2026, the applicable jurisdictional tax rate applied to our income before income taxes (after excluding the tax effects of items within the table above such as for stock-based compensation, amortization of intangible assets, restructuring and certain acquisition related and other items, and after excluding the impact of the U.S.

One, Big, Beautiful Bill Act related to the remeasurement of a deferred tax liability and the net deferred tax effects associated with a previously recorded income tax benefit that resulted from a partial realignment of our legal entity structure), resulted in an effective tax rate of 20.5%, instead of 14.6%.

This represented our effective tax rate as derived per our condensed consolidated statements of operations.

For the first quarter of fiscal 2025, the applicable jurisdictional tax rate applied to our income before income taxes (after excluding the tax effects of items within the table above such as for stock-based compensation, amortization of intangible assets, restructuring and certain acquisition related and other items, and after excluding the net deferred tax effects associated with a previously recorded income tax benefit that resulted from a partial realignment of our legal entity structure), resulted in an effective tax rate of 18.9%, instead of 7.6%, which represented our effective tax rate as derived per our condensed consolidated statements of operations.

Cloud and Software Business

Our cloud and software business engages in the sale and marketing of our applications and infrastructure technologies that are delivered through various deployment models and include:

Oracle Cloud offerings;

and software offerings, which include Oracle software license offerings and Oracle software support offerings.

Our cloud offerings deliver applications and infrastructure technologies on a subscription basis via cloud-based deployment models that we develop, provide unspecified updates and enhancements for, deploy, host, manage and support.

Revenues for our cloud offerings are generally recognized ratably over the contractual term, which is generally one to four years, or in the case of usage model contracts, as the cloud offerings are consumed.

Software license revenues represent fees earned from granting customers licenses, generally on a perpetual basis, to use our database and middleware and our applications software products within cloud and on-premise IT environments and are generally recognized up front at the point in time when the software is made available to the customer to download and use.

Software support revenues are typically generated through the sale of applications and infrastructure software support contracts related to software licenses;

are purchased by our customers at their option;

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We also continue to market certain of our offerings through indirect channels.

Costs associated with our cloud and license business are included in cloud services and license support expenses and sales and marketing expenses.

These costs are largely personnel and infrastructure related and include the cost of providing our cloud services and license support offerings, salaries and commissions earned by our sales force for the sale of our cloud and license offerings and marketing program costs.

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Costs associated with our cloud

and software business are included in cloud and software expenses and sales and marketing expenses.

These costs are largely personnel- and infrastructure-related and include the cost of providing our cloud and software support offerings, salaries and commissions earned by our sales force for the sale of our cloud and software offerings and marketing program costs.

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Cloud and License Revenues :

Cloud and Software Revenues :

Total revenues

Cloud services and license support (1)

Cloud and software (1)

Sales and marketing (1)

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Revenues by Offerings :

Cloud services

License support

Cloud license and on-premise license

Cloud applications

Cloud infrastructure

Software license

Software support

Total revenues

Cloud Services and License Support Revenues by Ecosystem :

Applications cloud services and license support

Infrastructure cloud services and license support

Total cloud services and license support revenues

(1) Excludes stock-based compensation and certain expense allocations.

Also excludes amortization of intangible assets and certain other GAAP-based expenses, which were not allocated to our operating segment results for purposes of reporting to and review by our CODMs, as further described under “Presentation of Operating Segment Results and Other Financial Information” above.

Our cloud and license business’ total revenues increased by $917 million and $3.1 billion in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods, primarily due to a $1.2 billion and a $3.3 billion increase in cloud services revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts to continue to gain access to the latest versions of our technologies for which we delivered such cloud services during the periods presented.

The increase in cloud services revenues in the third quarter and the first nine months of fiscal 2025 was partially offset by a $239 million and a $172 million total decrease, respectively, in cloud license and on-premise license and license support revenues, relative to the corresponding prior year periods.

In constant currency, applications cloud services and license support contributed 23% and 26% and infrastructure cloud services and license support contributed 77% and 74% of the growth in cloud services and license support revenues in the third quarter and the first nine months of fiscal 2025, respectively.

The Americas region contributed 74% and 76%, the EMEA region contributed 20% and 17% and the Asia Pacific region contributed 6% and 7% to the constant currency revenue growth for this business during the third quarter and the first nine months of fiscal 2025, respectively.

Total cloud and license business’ expenses increased by $461 million and $1.4 billion in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

Excluding the favorable effects of currency rate fluctuations of 2% in the third quarter of fiscal 2025 and less than 1% in the first nine months of fiscal 2025, the constant currency increase in expenses was primarily due to a $399 million and a $961 million increase in infrastructure expenses, an $81 million and a $265 million increase in employee related expenses for employees engaged in cloud services delivery and a $96 million and a $187 million increase in sales and marketing expenses, in each case in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods, to support the increase in our cloud services revenues.

Our cloud services and license support expenses have grown in recent periods, and we expect this trend to continue during fiscal 2025 as we increase our existing data center capacity and establish data centers in new geographic locations in order to meet current and expected customer demand.

Excluding the effects of currency rate fluctuations, our cloud and license business’ total margin increased in the fiscal 2025 periods presented, relative to the corresponding prior year periods, due to increases in total revenues for this business.

Total margin as a percentage of revenues in constant currency decreased in the fiscal 2025 periods presented, relative to the corresponding prior year periods, due to an increase in total expenses for this business.

Our cloud and software business’ total revenues increased by $1.5 billion in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025 primarily due to an increase in cloud revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts.

In constant currency, cloud applications and cloud infrastructure contributed 23% and 77%, respectively, of the growth in cloud revenues in the first quarter of fiscal 2026.

The Americas, the EMEA and the Asia Pacific regions contributed 86%, 9% and 5%, respectively, to the constant currency revenue growth for this business during the first quarter of fiscal 2026.

Our cloud and software business’ total expenses increased by $1.0 billion in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025.

Excluding the unfavorable effects of currency rate fluctuations of less than 1% in the first quarter of fiscal 2026, the constant currency increase in expenses in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025 was primarily due to a $929 million increase in infrastructure expenses and a $41 million increase in employee-related expenses.

Our cloud and software expenses have grown in recent periods, and we expect this trend to continue during fiscal 2026 as we increase our existing data center capacity and establish data centers in new geographic locations in order to meet current and expected customer demand.

Excluding the effects of currency rate fluctuations, our cloud and software business’ total margin increased in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, due to increases in total revenues for this business.

Total margin as a percentage of revenues in constant currency decreased in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, due to an increase in total expenses for this business.

Hardware Business

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and sales and marketing expenses, which are largely personnel-related and include variable compensation earned by our sales force for the sales of our hardware offerings.

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Total hardware revenues decreased by $51 million and $138 million in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

Excluding the unfavorable impact of currency rate fluctuations of 2% in the third quarter of fiscal 2025 and 1% in the first nine months of fiscal 2025, the decrease in hardware revenues was primarily due to our continued emphasis on the marketing and sale of our cloud-based infrastructure technologies, which resulted in reduced sales volumes of certain of our hardware product lines and also impacted the volume of hardware support contracts sold in recent periods.

Geographically, we experienced constant currency hardware revenue declines in all regions in the fiscal 2025 periods presented.

Total hardware expenses decreased by $27 million and $143 million in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

The decrease in hardware expenses aligned with lower hardware revenues.

Excluding the favorable currency rate fluctuations effect of 2% in the third quarter of fiscal 2025 and 1% in the first nine months of fiscal 2025, the constant currency decrease in hardware expenses was due to a $17 million and a $116 million decrease in hardware product and support costs and a $4 million and a $17 million decrease in sales and marketing expenses, in each case during the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

In constant currency, our hardware business’ total margin decreased in the third quarter of fiscal 2025 due to lower total revenues for this business, while our hardware business’ total margin in the first nine months of fiscal 2025 increased due to lower total expenses for this business, in each case relative to the corresponding prior year period.

In constant currency, our hardware business’ total margin as a percentage of revenues increased in the fiscal 2025 periods presented, relative to the corresponding prior year periods, due to lower total expenses for this business.

Total hardware revenues increased by $15 million in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025.

Excluding the favorable impact of currency rate fluctuations of 1% in the first quarter of fiscal 2026, the increase in hardware revenues was primarily due to growth in revenues from our Oracle Exadata and certain other strategic hardware product offerings.

The constant currency increase in hardware revenues in the Americas region was partially offset by a constant currency decrease in hardware revenues in the EMEA and the Asia Pacific regions in the first quarter of fiscal 2026.

Total hardware expenses increased by $6 million in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025.

Excluding the unfavorable currency rate fluctuations effect of 2% in the first quarter of fiscal 2026, the constant currency increase in hardware expenses in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025 was due to a $14 million increase in hardware product and support costs, partially offset by a $12 million decrease in sales and marketing expenses.

In constant currency, our hardware business’ total margin increased in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, due to higher total revenues for this business.

In constant currency, total margin as a percentage of revenues remained flat in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025.

Services Business

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The cost of providing our services consists primarily of personnel-related expenses, technology infrastructure expenditures, facilities expenses and external contractor expenses.

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Also excludes certain other GAAP-based expenses, which were not allocated to our operating segment results for purposes of reporting to and review by our CODMs, as further described under “Presentation of Operating Segment Results and Other Financial Information” above.

Total services revenues decreased by $16 million and $173 million in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

Excluding the effects of unfavorable currency rate fluctuation of 2% in the third quarter of fiscal 2025, the increase in total services revenues was due to growth in our consulting services revenues, partially offset by a decrease in our advanced customer services revenues, relative to the corresponding prior year period.

Excluding the effects of unfavorable currency rate fluctuation of 1% in the first nine months of fiscal 2025, the decrease in total services revenues was due to a decrease in revenues in each of our primary services offerings, relative to the corresponding prior year period.

The constant currency increase in services revenues in the EMEA and the Asia Pacific regions was partially offset by a constant currency decrease in services revenues in the Americas region in the third quarter of fiscal 2025, while a constant currency decrease in services revenues in the Americas region was partially offset by a constant currency increase in services revenues in the EMEA and the Asia Pacific regions in the first nine months of fiscal 2025.

Total services expenses decreased by $91 million and $257 million in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

Excluding the favorable effects of currency rate fluctuations of 2% in the third quarter of fiscal 2025 and less than 1% in the first nine months of fiscal 2025, the constant currency decrease in services expenses was due to a decrease in external contractor expenses of $25 million and $130 million and a decrease in employee related expenses of $32 million and $73 million, in each case in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods.

In constant currency, our services business’ total margin and total margin as a percentage of revenues increased in the fiscal 2025 periods presented, relative to the corresponding prior year periods, due to lower total expenses for this business.

Total services revenues increased by $86 million in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025 due to an increase in revenues in each of our primary services offerings.

The constant currency increase in services revenues in the Americas region was partially offset by a constant currency decrease in services revenues in the EMEA and the Asia Pacific regions in the first quarter of fiscal 2026.

Total services expenses decreased by $49 million in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025.

Excluding the unfavorable effects of currency rate fluctuations of less than 1% in the first quarter of fiscal 2026, the constant currency decrease in services expenses in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025 was primarily due to a $55 million decrease in bad debt expenses.

In constant currency, our services business’ total margin and total margin as a percentage of revenues increased in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, due to higher total revenues and lower total expenses for this business.

Research and Development Expenses :

1 unchanged sentence

We intend to continue to invest significantly in our research and development efforts because, in our judgment, they are essential to maintaining our competitive position.

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(1) Excluding stock-based compensation

Total research and development expenses increased by $181 million and $517 million in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods, primarily due to higher employee related expenses, including higher stock-based compensation expenses.

Total research and development expenses increased by $185 million in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025.

Excluding the favorable effects of currency rate fluctuations of less than 1% in the first quarter of fiscal 2026, the increase in research and development expenses was primarily due to a $137 million increase in employee-related expenses, including higher stock-based compensation expenses, and a $38 million increase in computer equipment expenses.

General and Administrative Expenses :

General and administrative expenses primarily consist of personnel-related expenditures for IT, finance, legal and human resources support functions.

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(1) Excluding stock-based compensation

Fiscal Third Quarter 2025 Compared to Fiscal Third Quarter 2024 :

Total general and administrative expenses increased by $13 million in reported currency in the third quarter of fiscal 2025, relative to the corresponding prior year period.

Excluding the favorable effects of currency rate fluctuations of 2% in the third quarter of fiscal 2025, the increase in general and administrative expenses was primarily due to a $13 million increase in professional fees and a $10 million increase in employee related expenses, including higher stock-based compensation expenses.

First Nine Months Fiscal 2025 Compared to First Nine Months Fiscal 2024 :

Total general and administrative expenses decreased by $11 million in reported currency in the first nine months of fiscal 2025, relative to the corresponding prior year period.

Excluding the favorable effects of currency rate fluctuations of 1% in the first nine months of fiscal 2025, the decrease in general and administrative expenses was primarily due to a $35 million decrease in facilities and related expenses, partially offset by a $15 million increase in stock-based compensation expenses.

Total general and administrative expenses increased by $18 million in reported currency in the first quarter of fiscal 2026 relative to the first quarter of fiscal 2025.

Excluding the unfavorable effects of currency rate fluctuations of 1% in the first quarter of fiscal 2026, the increase in general and administrative expenses was primarily due to an increase in event sponsorship expenses.

Amortization of Intangible Assets :

Substantially all of our intangible assets were acquired through our business combinations.

Substantially all our intangible assets were acquired through our business combinations.

We amortize our intangible assets over, and monitor the appropriateness of, the estimated useful lives of these assets.

1 unchanged sentence

Refer to Note 5 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2025 for additional information regarding our intangible assets and related amortization.

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(Dollars in millions)

Cloud and software agreements and related relationships

Developed technology

Cloud services and license support agreements and related relationships

Cloud license and on-premise license agreements and related relationships

Total amortization of intangible assets

Amortization of intangible assets decreased by $201 million and $504 million in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods, due to a reduction in expenses associated with certain of our intangible assets that became fully amortized.

Amortization of intangible assets decreased by $204 million in reported currency in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, due to a reduction in expenses associated with certain of our intangible assets that became fully amortized.

Acquisition Related and Other Expenses :

Acquisition related and other expenses consist of personnel-related costs for transitional and certain other employees, certain business combination adjustments, including adjustments after the measurement period has ended, and certain other operating items, net.

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4 unchanged sentences

Not meaningful

Acquisition related and other expenses decreased by $127 million and $142 million in reported currency in the third quarter and the first nine months of fiscal 2025, respectively, relative to the corresponding prior year periods, primarily due to a $119 million and a $107 million decrease, respectively, in other expenses primarily related to asset impairment charges.

The decrease in the first nine months of fiscal 2025 was also due to a $21 million decrease in business combination adjustments, net, relative to the corresponding prior year period.

Acquisition related and other expenses remained flat in reported currency in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025.

Restructuring Expenses :

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For additional information regarding our restructuring plans, see Note 3 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report and Note 7 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2025.

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1 unchanged sentence

Restructuring expenses

Restructuring expenses in each of the fiscal 2025 and 2024 periods presented primarily related to the 2024 Restructuring Plan.

Our management approved, committed to and initiated the 2024 Restructuring Plan in order to restructure and further improve efficiencies in our operations.

Restructuring expenses in the first quarter of fiscal 2026 primarily related to the 2026 Restructuring Plan.

Restructuring expenses in the first quarter of fiscal 2025 primarily related to the 2024 Restructuring Plan, which is substantially complete.

Our management approved, committed to and initiated the 2026 Restructuring Plan and the 2024 Restructuring Plan in order to restructure and further improve efficiencies in our operations.

We may incur additional restructuring expenses in future periods due to the initiation of new restructuring plans or from changes in estimated costs associated with existing restructuring plans.

2 unchanged sentences

Interest Expense :

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1 unchanged sentence

Interest expense

Fiscal Third Quarter 2025 Compared to Fiscal Third Quarter 2024 :

Interest expense increased in the third quarter of fiscal 2025, relative to the corresponding prior year period, primarily due to the issuance of $14.0 billion of senior notes in the first nine months of fiscal 2025, partially offset by lower interest expense due to scheduled repayments of borrowings made during the first nine months of fiscal 2025 and full year of fiscal 2024.

First Nine Months Fiscal 2025 Compared to First Nine Months Fiscal 2024 :

Interest expense decreased in the first nine months of fiscal 2025, relative to the corresponding prior year period, primarily due to scheduled repayments of borrowings made during the first nine months of fiscal 2025 and full year of fiscal 2024, respectively, partially offset by higher interest expense that resulted from the issuance of senior notes mentioned above.

Refer to Note 3 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information on the senior notes issued in the first nine months of fiscal 2025.

Non-Operating (Expenses) Income, net :

Non-operating (expenses) income, net consists primarily of interest income, net foreign currency exchange losses, the noncontrolling interests in the net profits of our majority-owned subsidiaries (primarily Oracle Financial Services Software Limited and Oracle Corporation Japan), net losses related to marketable and non-marketable investments, including losses attributable to equity method investments (primarily Ampere) and net other income and expenses, including net unrealized gains and losses from our investment portfolio related to our deferred compensation plan and non-service net periodic pension income and losses.

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Interest expense increased in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, primarily due to higher average borrowings resulting from our issuance of $14.0 billion of senior notes in fiscal 2025, partially offset by lower interest expense due to scheduled repayments of debt made during the first quarter of fiscal 2026 and full year of fiscal 2025.

Non-Operating Income, net :

Non-operating income, net consists primarily of interest income, net foreign currency exchange losses, the noncontrolling interests in the net profits of our majority-owned subsidiaries (primarily Oracle Financial Services Software Limited and Oracle Corporation Japan), net losses related to marketable and non-marketable investments, including losses attributable to equity method investments (primarily Ampere) and net other income and expenses, including net gains and losses from our investment portfolio related to our deferred compensation plan, for which an equal and offsetting amount was recorded to our operating expenses during the same period, and non-service net periodic pension income and losses.

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Losses from marketable and non-marketable investments, net

Other (expenses) income, net

Total non-operating (expenses) income, net

Not meaningful

Fiscal Third Quarter 2025 Compared to Fiscal Third Quarter 2024 :

Our non-operating expenses, net increased by $9 million in reported currency in the third quarter of fiscal 2025, relative to the corresponding prior year period, primarily due to an increase in other expenses, net.

The increase in other expenses was primarily attributable to

losses in the third quarter of fiscal 2025, compared to gains in the third quarter of fiscal 2024, associated with an investment portfolio that we held for our employee deferred compensation plan, and for which an equal and offsetting amount was recorded to our operating expenses during the same period.

This increase was partially offset by a $35 million decrease in losses from marketable and non-marketable investments, a $24 million increase in interest income and a $22 million decrease in foreign currency losses.

First Nine Months Fiscal 2025 Compared to First Nine Months Fiscal 2024 :

Our non-operating income, net increased by $111 million in reported currency in the first nine months of fiscal 2025, relative to the corresponding prior year period, primarily due to a $76 million decrease in foreign currency losses, a $54 million decrease in losses from marketable and non-marketable investments and a $38 million increase in interest income.

These increases were partially offset by a $49 million decrease in other income, net, which was primarily attributable to lower gains associated with an investment portfolio that we held for our employee deferred compensation plan as discussed above.

Other income, net

Total non-operating income, net

Our non-operating income, net increased by $53 million in reported currency in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, primarily due to a $43 million increase in gains from our investment portfolio related to our deferred compensation plan included in other income, net, a $19 million decrease in foreign currency losses and a $17 million decrease in losses from marketable and non-marketable investments, partially offset by a $30 million decrease in interest income.

Provision for Income Taxes :

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Future effective tax rates could be adversely affected by an unfavorable shift of earnings weighted to jurisdictions with higher tax rates, by unfavorable changes in tax laws and regulations, by adverse rulings in tax-related litigation, or by shortfalls in stock-based compensation realized by employees relative to stock-based compensation that was recorded for book purposes, among others.

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2 unchanged sentences

Effective tax rate

Fiscal Third Quarter 2025 Compared to Fiscal Third Quarter 2024 :

Provision for income taxes increased during the third quarter of fiscal 2025, relative to the corresponding prior year period, primarily due to the absence of the realization of a one-time tax attribute of $197 million, higher income before provision for income taxes of $95 million and an unfavorable jurisdictional mix of $51 million, partially offset by the absence of changes in unrecognized tax benefits of $154 million and an increase in tax benefits related to stock-based compensation of $143 million.

First Nine Months Fiscal 2025 Compared to First Nine Months Fiscal 2024 :

Provision for income taxes increased during the first nine months of fiscal 2025, relative to the corresponding prior year period, primarily due to an unfavorable jurisdictional mix of earnings of $365 million, the absence of the realization of a one-time tax attribute of $247 million, higher income before provision for income taxes of $133 million and the absence of the revaluation benefit of net deferred tax assets due to a change in tax rate of $105 million, partially offset by an increase in tax benefits related to stock-based compensation of $311 million and the absence of changes in unrecognized tax benefits of $207 million.

Provision for income taxes increased in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, primarily related to an unfavorable impact from the enactment of the U.S.

One, Big, Beautiful Bill Act, which was signed into law on July 4, 2025, that required a remeasurement of a deferred tax liability previously recorded during fiscal 2021 as part of the partial realignment of our legal entity structure of $958 million and the absence of unrecognized tax benefits due to settlements with tax authorities and other events of $99 million, partially offset by an increase in tax benefits related to stock-based compensation of $853 million.

Liquidity and Capital Resources

2 unchanged sentences

Cash, cash equivalents and marketable securities

Not meaningful

Working capital :

The increase in working capital as of February 28, 2025 in comparison to May 31, 2024 was primarily due to favorable impacts to our net current assets resulting from net income and proceeds from the issuance of senior notes, net of issuance costs, of $13.9 billion (refer to Note 3 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information) during the first nine months of fiscal 2025, partially offset by $12.1 billion of cash used for capital expenditures, $3.3 billion of cash used to pay dividends to our stockholders, €750 million and $1.0 billion of long-term senior notes that were reclassified to current liabilities, $450 million of cash used for repurchases of our common stock, $380 million of net cash used for our employee stock programs and $178 million of cash used for purchases, net of sales and maturities of non-current investments during the first nine months of fiscal 2025.

The decrease in working capital as of August 31, 2025 in comparison to May 31, 2025 was primarily due to $8.5 billion of cash used for capital expenditures;

$3.1 billion of long-term borrowings that were reclassified to current liabilities;

$1.4 billion of cash used to pay dividends to our stockholders;

$97 million of cash used for purchases of non-current investments;

and $95 million of cash used for repurchases of our common stock, partially offset by favorable impacts from net income;

and $1.2 billion of net cash proceeds from our employee stock programs, in each case during the first quarter of fiscal 2026.

Our working capital may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable.

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Marketable securities consist primarily of time deposits with original maturities at the time of purchase greater than 90 days.

The increase in cash, cash equivalents and marketable securities as of February 28, 2025 in comparison to May 31, 2024 was primarily due to cash inflows from our operations and proceeds from the issuance of senior notes, net of issuance costs, of $13.9 billion during the first nine months of fiscal 2025.

This increase was partially offset by $12.1 billion of cash used for capital expenditures, $4.5 billion of cash used for scheduled repayments of borrowings and commercial paper notes, $3.3 billion of cash used to pay dividends to our stockholders, $450 million of cash used for repurchases of our common stock, $380 million of net cash used for our employee stock programs and $169 million of cash used for purchases, net of sales and maturities of non-marketable investments during the first nine months of fiscal 2025.

The decrease in cash, cash equivalents and marketable securities as of August 31, 2025 in comparison to May 31, 2025 was primarily due to $8.5 billion of cash used for capital expenditures;

$1.4 billion of cash used to pay dividends to our stockholders;

$1.1 billion of cash used for scheduled repayments of debt;

$238 million of cash used for repayment of commercial paper notes, net of issuances;

$97 million of cash used for purchases of investments;

and $95 million of cash used for repurchases of our common stock, partially offset by $8.1 billion of cash inflows from our operations;

$1.9 billion of cash inflows from other financing activities, net;

and $1.2 billion of net cash provided by our employee stock programs, in each case during the first quarter of fiscal 2026.

Our cash and cash equivalents may be impacted by some or all of the aforementioned factors in future periods, the amounts and timing of which are variable.

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Cash flows from operating activities :

Our largest source of operating cash flows is cash collections from our customers following the purchase and renewal of their cloud services and license support agreements.

Customers for these cloud services and license support agreements are generally billed in advance of services being provided.

Over the course of a fiscal year, we also generate cash from the sales of new licenses, hardware offerings and other services.

Our largest source of operating cash flows is cash collections from our customers following the purchase and renewal of their cloud and software support agreements.

Customers for these agreements are generally billed in advance of services being provided.

Over the course of a fiscal year, we also generate cash from the sales of software licenses, hardware offerings and other services.

Our primary uses of cash from operating activities are typically for employee-related expenditures, material and manufacturing costs related to the production of our hardware products, taxes, interest payments and leased facilities.

Net cash provided by operating activities increased by $2.1 billion in the first nine months of fiscal 2025, relative to the first nine months of fiscal 2024, primarily due to higher net income adjusted for certain non-cash charges, partially offset by certain cash unfavorable working capital changes, net.

Net cash provided by operating activities increased by $713 million in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, primarily due to higher net income adjusted for certain non-cash charges, partially offset by lower cash favorable working capital changes, net.

Cash flows from investing activities :

The changes in cash flows from investing activities primarily relate to our investments in capital assets primarily to support the growth in our cloud and license business and acquisitions, purchases, maturities and sales of our investments in marketable securities and other instruments.

Net cash used for investing activities increased by $7.9 billion in the first nine months of fiscal 2025, relative to the first nine months of fiscal 2024, primarily due to the increase in capital expenditures.

The changes in cash flows from investing activities primarily relate to our investments in capital assets primarily to support the growth in our cloud and software business and acquisitions, purchases, maturities and sales of our investments in marketable securities and other instruments.

Net cash used for investing activities increased by $6.0 billion in the first quarter of fiscal 2026, relative to the first quarter of fiscal 2025, primarily due to the increase in capital expenditures.

Cash flows from financing activities :

The changes in cash flows from financing activities primarily relate to borrowings and repayments related to our debt instruments, stock repurchases, dividend payments and net proceeds related to employee stock programs.

Net cash provided by financing activities was $4.9 billion in the first nine months of fiscal 2025 compared to the net cash used for financing activities of $8.3 billion in the first nine months of fiscal 2024.

The increase in net cash provided by financing activities was primarily due to proceeds from the issuance of senior notes, net of issuance

costs, of $13.9 billion, lower net cash used for our employee stock programs of $1.0 billion and lower net cash used for repurchases of common stock of $600 million, partially offset by higher repayments of commercial paper notes of $1.3 billion, net of issuances, higher scheduled repayments of borrowings of $641 million and higher net cash used for other activities of $384 million, in each case in the first nine months of fiscal 2025 relative to the first nine months of fiscal 2024.

Further, during the first nine months of fiscal 2025, we refinanced our Term Loan Credit Agreement (defined below), which resulted in no net impact on financing cash flows for the periods reported.

Net cash provided by financing activities was $210 million in the first quarter of fiscal 2026 relative to the net cash used for financing activities of $4.6 billion in the first quarter of fiscal 2025.

The increase in net cash provided by financing activities was primarily due to higher net cash provided by other financing activities of $2.1 billion;

higher net cash proceeds from our employee stock programs of $1.8 billion;

lower scheduled repayments of debt of $948 million;

and lower repayments of commercial paper, net of issuances, of $158 million.

These increases were partially offset by higher dividend payments of $310 million.

Further, during the first quarter of fiscal 2025, we refinanced our term loan credit agreement that we entered into in fiscal 2023, which resulted in no net impact on financing cash flows for the period reported.

Free cash flow :

To supplement our statements of cash flows presented on a GAAP basis, we use non-GAAP measures of cash flows on a trailing 4-quarter basis to analyze cash flows generated from our operations.

To supplement our statements of cash flows presented on a GAAP basis, we use non-GAAP measures of cash flows on a trailing four-quarter basis to analyze cash flows generated from our operations.

We believe that free cash flow is also useful as one of the bases for comparing our performance with that of our competitors.

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We calculate free cash flow as follows:

Trailing 4-Quarters Ended

Trailing Four-Quarters Ended August 31,

(Dollars in millions)

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Free cash flow as percent of net income

Recent Financing Activities :

Cash Dividends :

In March 2025, our Board of Directors declared a quarterly cash dividend of $0.50 per share of our outstanding common stock, an increase of $0.10 per share over the dividend declared in December 2024.

The dividend is payable on April 23, 2025 to stockholders of record as of the close of business on April 10, 2025.

Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors.

Term Loan Credit Agreements :

On June 10, 2024, we terminated our term loan credit agreement that we entered into in fiscal 2023 and repaid the principal amount outstanding together with interest accrued up to the date of repayment.

Simultaneously, we borrowed up to the maximum commitment amount of $5.6 billion pursuant to a term loan credit agreement (Term Loan Credit Agreement) executed on the same date.

Any remaining unpaid principal balance under the Term Loan Credit Agreement will become fully due and payable on August 16, 2027, unless the termination date of Term Loan Credit Agreement is extended.

Refer to Note 7 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2024 for additional details about our borrowings.

Senior Notes :

During the first nine months of fiscal 2025, we issued $14.0 billion of senior notes comprised of the following:

• $500 million of floating rate notes due August 2028;

• $1.5 billion of 4.80% senior notes due August 2028;

• $1.5 billion of 4.20% senior notes due September 2029;

• $1.25 billion of 5.25% senior notes due February 2032;

• $1.75 billion of 4.70% senior notes due September 2034;

• $1.75 billion of 5.50% senior notes due August 2035;

• $1.75 billion of 5.375% senior notes due September 2054;

• $1.75 billion of 6.00% senior notes due August 2055;

• $1.25 billion of 5.50% senior notes due September 2064;

• $1.0 billion of 6.125% senior notes due August 2065.

We issued the senior notes to repay all or a portion of senior notes due between November 2024 and July 2026, and to pay accrued interest and any related premiums, fees and expenses in connection therewith;

to make scheduled payments of principal and interest on borrowings under our Term Loan Credit Agreement;

to repay all or a portion of commercial paper notes outstanding;

and to use any remaining net proceeds from the borrowing for general corporate purposes, which may include stock repurchases, payment of cash dividends on our common stock, repayment of other indebtedness and future acquisitions.

Refer to Note 3 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information.

Not meaningful

Contractual Obligations :

During the first nine months of fiscal 2025, there were no significant changes to our estimates of future payments under our fixed contractual obligations and commitments as presented in Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2024, other than an increase in our lease commitments as of February 28, 2025.

During the first quarter of fiscal 2026, there were no significant changes to our estimates of future payments under our fixed contractual obligations and commitments as presented in Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2025, other than an increase in our lease commitments as of August 31, 2025, substantially all for data centers.

Additionally, subsequent to August 31, 2025, we entered into lease commitments for data centers.

Refer to Note 5 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report and Note 9 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2025 for more information about our lease commitments.

Additionally, as discussed above, we issued a total of $14.0 billion of senior notes in the first nine months of fiscal 2025 with various maturity dates.

We believe that our current cash, cash equivalents and marketable securities balances, cash generated from operations and our borrowing arrangements will be sufficient to meet our working capital, capital expenditures and contractual obligations requirements.

In addition, we believe that we could fund our future acquisitions, dividend payments and repurchases of common stock or debt with our internally available cash, cash equivalents and marketable securities, cash generated from operations, additional borrowings or from the issuance of additional securities.

Remaining Performance Obligations from Contracts with Customers

Remaining performance obligations were $455.3 billion and $99.1 billion as of August 31, 2025 and 2024, respectively.

The increase in remaining performance obligations as of August 31, 2025 in comparison to August 31, 2024 was primarily attributable to certain significant cloud contracts that were entered into during the period.

For more information about our remaining performance obligations, see Note 1 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

Stock-Based Awards

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This maximum potential dilution will only result if all stock-based awards vest and, if applicable, are exercised.

Of the outstanding stock options as of February 28, 2025, which generally have a ten-year exercise period, all have exercise prices lower than the market price of our common stock on such date.

In recent years, our stock repurchase program has substantially offset the dilutive effect of our stock-based compensation program.

Of the outstanding stock options as of August 31, 2025, which generally have a ten-year exercise period, substantially all have exercise prices lower than the market price of our common stock on such date.

In recent years, our stock repurchase program has partially offset the dilutive effect of our stock-based compensation program.

However, we may modify the levels of our stock repurchases in the future depending on a number of factors, including the amount of cash we have available for acquisitions, to pay dividends, to repay or repurchase indebtedness or for other purposes.

As of February 28, 2025, the maximum potential dilution from all outstanding stock-based awards, regardless of when granted and regardless of whether vested or unvested, was 5.8%.

As of August 31, 2025, the maximum potential dilution from all outstanding stock-based awards, regardless of when granted and regardless of whether vested or unvested, was 4.0%.

Recent Accounting Pronouncements

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Quantitative and Qualitat ive Disclosures About Market Risk

There were no significant changes to our quantitative and qualitative disclosures about market risk during the first nine months of fiscal 2025.

There were no significant changes to our quantitative and qualitative disclosures about market risk during the first quarter of fiscal 2026.

Please refer to Part II, Item 7A Quantitative and Qualitative Disclosures about Market Risk included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2025 for a more complete discussion of the market risks we encounter.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis