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Item 2. Management’s Discussion and Analysis

2025-12-11 compared with 2025-09-10 · 206 added, 145 removed, 331 unchanged (51% of the section changed)

Management’s Discussion and Analysis o f Financial Condition and Results of Operations

We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations with an overview of our businesses and significant trends.

This overview is followed by a summary of our critical accounting estimates that we believe are important to understanding significant assumptions and judgments incorporated in our reported financial results.

We then provide a more detailed analysis of our results of operations and financial condition.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this Quarterly Report) contains statements that are not historical in nature, are predictive in nature, or that depend upon or refer to future events or conditions or otherwise contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended (the Securities Act).

Forward-looking statements may appear throughout this Quarterly Report and include, among other things, statements regarding our future operations, financial condition and prospects, and business strategies;

our expectation that, on a constant currency basis, our total cloud and software revenues generally will continue to increase due to expected growth in our cloud revenues and continued demand for our software offerings;

our expectation that substantially all of our customers will renew their software support contracts upon expiration;

our expectation that current and expected customer demand will require continued growth in our cloud and software expenses and capital expenditures in order to increase our existing data center capacity and establish additional data centers in new geographic locations;

our expectation that the proportion of our cloud revenues relative to our total revenues will continue to increase;

the sufficiency of our sources of funding and uses of such funds for working capital, capital expenditures, contractual obligations, acquisitions, dividends, stock repurchases, debt repayments and other matters;

our belief that we have adequately provided under United States (U.S.) generally accepted accounting principles for outcomes related to our tax audits, that the final outcome of our tax-related examinations, agreements or judicial proceedings will not have a material effect on our results of operations and that our net deferred tax assets will likely be realized in the foreseeable future;

our belief that the outcome of certain legal proceedings and claims to which we are a party will not, individually or in the aggregate, result in losses that are materially in excess of amounts already recognized, if any;

the timing and amount of expenses we expect to incur;

declarations and amounts of future cash dividend payments and the timing and amount of future stock repurchases;

our expectations regarding the impact of recent accounting pronouncements on our consolidated financial statements;

our ability to predict revenues and margins;

and the amounts and percentages of remaining performance obligations that we expect to recognize as revenues over respective future periods.

These and other forward-looking statements may be preceded by, followed by or include the words “anticipates,” “believes,” “commits,” “continues,” “could,” “endeavors,” “estimates,” “expects,” “focus,” “forecasts,” “future,” “goal,” “intends,” “is designed to,” “likely,” “maintains,” “may,” “ongoing,” “plans,” “possible,” “potential,” “projects,” “seeks,” “shall,” “should,” “strives,” “will” and similar expressions.

We have based these forward-looking statements on our current expectations and projections about future events.

We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise.

These forward-looking statements are subject to risks, uncertainties and assumptions about our business that could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements.

Factors that might cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors” included in documents we file from time to time with the U.S.

Securities and Exchange Commission (the SEC), including in Part 1, Item 1A beginning on page 17 of our Annual Report on Form 10-K for the fiscal year ended May 31, 2025 as well as in other sections of such report and our other Quarterly Reports on Form 10-Q filed or to be filed by us in our fiscal year 2026, which runs from June 1, 2025 to May 31, 2026.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations and other portions of this Quarterly Report should be read in conjunction with those filings.

Business Overview

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Our products and services include enterprise applications and infrastructure offerings that are delivered worldwide through a variety of flexible and interoperable IT deployment models.

These models include on-premise, cloud-based and hybrid deployments (an approach that combines both on-premise and cloud-based deployments).

These models include cloud-based, on-premise and hybrid deployments (an approach that combines both cloud-based and on-premise deployments).

Accordingly, we offer choice and flexibility to our customers and facilitate the product, service and deployment combinations that best suit our customers’ needs.

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each of which comprises a single operating segment.

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.

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 9 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 Officers and Chief Technology Officer, view our operating results and allocate resources.

Cloud and Software Business

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• 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:

are billed in advance of the cloud services being delivered;

have durations of one to four years;

Oracle Cloud Applications and Oracle Cloud Infrastructure (collectively Oracle Cloud Services) arrangements are billed in advance or in arrears of the cloud services being delivered and generally:

have durations of one to five years;

are renewed at the customer’s option;

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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.

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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.

Cloud revenues represented 50% and 49% of our total revenues for the three- and six-month periods ended November 30, 2025, respectively, and 42% of our total revenues for each of the three- and six-month periods ended November 30, 2024.

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;

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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;

the pricing of software support

contracts sold in connection with the sales of licenses;

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

our ability to manage Oracle Cloud capacity requirements to meet existing and prospective customer demand;

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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.

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.

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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 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.

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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;

the close association between

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

customer decisions to either maintain or upgrade their existing hardware infrastructure to newly developed technologies that are available;

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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 offerings include consulting services and customer success services (formerly referred to as advanced customer services).

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

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We estimate the financial impact of any potential acquisition with regard to earnings, operating margin, cash flows and return on invested capital targets, among others, before deciding to move forward with an acquisition.

Investment in Ampere Computing Holdings LLC

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 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.

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

Our consolidated financial statements are prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP), which requires us to make certain estimates, judgments and assumptions that can affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

Our consolidated financial statements are prepared in accordance with U.S.

generally accepted accounting principles (GAAP), which requires us to make certain estimates, judgments and assumptions that can affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on our financial condition or results of operations.

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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.

During the first half 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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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.

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.

Our operating segment presentation below reflects revenues, direct costs and sales and marketing expenses that correspond to and are directly attributable to each of our three businesses.

We also utilize these inputs to calculate and present a segment margin for each of our three businesses in the discussion below.

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.

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 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 9 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 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.

For example, if an entity reporting in Euros had revenues of 1.0 million Euros from products sold on November 30, 2025 and 2024, our financial statements would reflect reported revenues of $1.16 million in the first half of fiscal 2026 (using 1.16 as the applicable average exchange rate for the period) and $1.06 million in the first half of fiscal 2025 (using 1.06 as the applicable average exchange rate for the period).

The constant currency presentation, however, would translate the results for each of the first half 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 August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

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

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.

Total revenues increased by $2.0 billion and $3.6 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

These increases were due to a $1.9 billion and a $3.4 billion increase in cloud and software revenues, a $48 million and a $63 million increase in hardware revenues and a $98 million and a $183 million increase in services revenues, in each case during the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year period.

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.

In constant currency, cloud applications contributed 19% and 20% and cloud infrastructure contributed 81% and 80% to the growth in cloud revenues in the second quarter and the first half of fiscal 2026, respectively.

In our hardware business, the increase in revenues in the fiscal 2026 periods presented 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 fiscal 2026 periods presented was attributable to an increase in our consulting services revenues.

The Americas region contributed 82% and 85%, the EMEA region contributed 11% and 9% and the Asia Pacific region contributed 7% and 6% to the constant currency total revenue growth during the second quarter and the first half of fiscal 2026, respectively.

Total GAAP operating expenses increased by $1.5 billion and $2.8 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

The increase in GAAP operating expenses in reported currency was primarily due to a $1.2 billion and a $2.3 billion increase in cloud and software expenses primarily due to higher infrastructure expenses;

a $322 million and a $651 million increase in restructuring expenses;

a $90 million and a $274 million increase in research and development expenses primarily due to an increase in computer equipment and employee-related expenses, including stock-based compensation;

a $43 million and a $60 million increase in hardware expenses;

and a $22 million and a $41 million increase in general and administrative expenses, in each case during the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year period.

These increases in GAAP operating expenses in reported currency were partially offset by a $184 million and a $389 million decrease in expenses for the amortization of intangible assets as certain of our assets were fully amortized;

a $41 million and a $15 million decrease in sales and marketing expenses primarily due to a decrease in employee-related expenses;

and a $10 million and a $9 million decrease in

acquisition related and other expenses, in each case during the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

The increase in GAAP expenses in reported currency for the first half of fiscal 2026 was also partially offset by a $46 million decrease in services expenses, relative to the corresponding prior year period.

Our total operating margin increased in the fiscal 2026 periods presented, relative to the corresponding prior year periods, due to higher revenues as discussed above.

Total margin as a percentage of revenues decreased in the fiscal 2026 periods presented, relative to the corresponding prior year periods, due to higher expenses as discussed above.

Supplemental Disclosure Related to Certain Charges

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Three Months Ended

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

As of November 30, 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 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).

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

Restructuring expenses in the fiscal 2025 periods presented 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 4 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

Six Months Ended

Cloud and software

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Total stock-based compensation

(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.

(5) For all periods presented, the applicable jurisdictional tax rates were 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;

and for the first half of fiscal 2026, after excluding the impact of the U.S.

One, Big, Beautiful Bill Act related to the remeasurement of a deferred tax liability.

These adjustments resulted in effective tax rates of 20.8% and 20.7%, instead of 3.3% and 7.2%, for the second quarter and the first half of fiscal 2026, respectively, and 20.1% and 19.5%, instead of 7.1% and 7.3%, for the second quarter and the first half of fiscal 2025, respectively, which in each case represented our effective tax rates as derived per our condensed consolidated statements of operations.

Cloud and Software Business

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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.

Revenues for our cloud offerings are generally recognized ratably over the contractual term, which is generally one to five 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.

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

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.

Three Months Ended August 31,

Costs associated with our cloud and software business are included in cloud and software expenses and sales and marketing expenses.

These costs are largely infrastructure- and personnel-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.

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

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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 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.

Our cloud and software business’ total revenues increased by $1.9 billion and $3.4 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods, primarily due to an increase in cloud revenues as customers purchased our applications and infrastructure technologies and renewed their related cloud contracts.

The Americas region contributed 80% and 82%, the EMEA region contributed 12% and 11% and the Asia Pacific region contributed 8% and 7% to the constant currency revenue growth for this business during the second quarter and the first half of fiscal 2026, respectively.

Our cloud and software business’ total expenses increased by $1.2 billion and $2.3 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

Excluding the unfavorable effects of currency rate fluctuations of 1% in each of the second quarter and the first half of fiscal 2026, the constant currency increase in expenses was primarily due to a $1.2 billion and a $2.1 billion increase in infrastructure expenses in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

Our cloud and software expenses have grown in recent periods, and we expect this trend to continue during fiscal 2026 and in the next few fiscal years 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 fiscal 2026 periods presented, relative to the corresponding prior year periods, due to increases in total revenues for this business as discussed above.

Total margin as a percentage of revenues in constant currency decreased in the fiscal 2026 periods presented, relative to the corresponding prior year periods, due to an increase in total expenses for this business as discussed above.

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.

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

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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.

Total hardware revenues increased by $48 million and $63 million in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

Excluding the favorable impact of currency rate fluctuations of 2% in each of the second quarter and the first half of fiscal 2026, the constant currency increase in hardware revenues was primarily due to growth in revenues from our Oracle Exadata and certain other strategic hardware product offerings for the fiscal 2026 periods presented, relative to the corresponding prior year periods.

Total hardware expenses increased by $34 million and $39 million in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

Excluding the unfavorable currency rate fluctuations effect of 2% in each of the second quarter and the first half of fiscal 2026, the constant

currency increase in hardware expenses was due to a $40 million and a $55 million increase in hardware product and support costs, partially offset by a $11 million and a $24 million decrease in sales and marketing expenses, during the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

In constant currency, our hardware business’ total margin increased in the fiscal 2026 periods presented, relative to the corresponding prior year periods, due to higher total revenues for this business as described above.

Total margin as a percentage of revenues in constant currency for our hardware business decreased in the fiscal 2026 periods presented, relative to the corresponding prior year periods, due to higher total expenses for this business as described above.

Services Business

Our services offerings are designed to help maximize the performance of customer investments in Oracle applications and infrastructure technologies and include our consulting services and advanced customer services offerings.

Services revenues are generally recognized over time as the services are performed.

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

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

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

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 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.

Total services revenues increased by $98 million and $183 million in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

Excluding the favorable impact of currency rate fluctuations of 1% in each of the second quarter and the first half of fiscal 2026, the increase in services revenues was primarily due to increases in our consulting services revenues in the fiscal 2026 periods presented, relative to the corresponding prior year periods.

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

In the first half of fiscal 2026, 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.

Total services expenses increased by $4 million and decreased by $44 million in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

Excluding the unfavorable effects of currency rate fluctuations of 1% in each of the second quarter and the first half of fiscal 2026, the constant currency decrease in services expenses was primarily due to a $10 million decrease in employee-related expenses for the second quarter of fiscal 2026 and a $45 million decrease in bad debt expenses for the first half of fiscal 2026, in each case relative to the corresponding prior year period.

In constant currency, our services business’ total margin and total margin as a percentage of revenues increased in the fiscal 2026 periods presented, relative to the corresponding prior year periods, due to higher total revenues and lower total expenses for this business.

Research and Development Expenses :

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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.

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

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(1) Excluding stock-based compensation

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.

Total research and development expenses increased by $90 million and $274 million in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

Excluding the favorable effects of currency rate fluctuations of less than 1% in each of the second quarter and the first half of fiscal 2026, the constant currency increase in research and development expenses was primarily due to a $49 million and an $87 million increase in computer equipment expenses and a $43 million and a $180 million increase in employee-related expenses, including stock-based compensation, in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

General and Administrative Expenses :

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

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

4 unchanged sentences

(1) Excluding stock-based compensation

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.

Total general and administrative expenses increased by $22 million and $41 million in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

Excluding the unfavorable effects of currency rate fluctuations of 1% in the second quarter of fiscal 2026 and less than 1% in the first half of fiscal 2026, the increase in general and administrative expenses was primarily due to an increase in professional fees in the fiscal 2026 periods presented, relative to the corresponding prior year periods.

Amortization of Intangible Assets :

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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.

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

2 unchanged sentences

Total amortization of intangible assets

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.

Amortization of intangible assets decreased by $184 million and $389 million in reported currency in the second quarter and the first half of fiscal 2026, 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.

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.

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

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Not meaningful

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.

Acquisition related and other expenses decreased by $10 million and $9 million in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods, due to an $11 million and a $17 million decrease in other expenses related to certain asset impairment charges in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods.

In the first half of fiscal 2026, the decrease stated above was partially offset by an increase of $10 million in business combination adjustments, net.

Restructuring Expenses :

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For additional information regarding our restructuring plans, see Note 4 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.

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

Restructuring expenses

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.

Restructuring expenses in the fiscal 2026 periods presented primarily related to the 2026 Restructuring Plan.

Restructuring expenses in the fiscal 2025 periods presented 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.

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Interest Expense :

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

Interest expense

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.

Interest expense increased in the fiscal 2026 periods presented, relative to the corresponding prior year periods, primarily due to higher average borrowings from the issuances of $18.0 billion of senior notes in September 2025 and an aggregate of $14.0 billion of senior notes in the second and third quarters of fiscal 2025, partially offset by lower interest expense due to scheduled repayments of debt made during the first half of fiscal 2026 and full year of fiscal 2025.

Refer to Note 3 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information on the issuance of senior notes in September 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.

Three Months Ended August 31,

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 gains and losses related to marketable and non-marketable investments, including net gains and losses attributable to equity method investments (primarily Ampere Computing Holdings LLC (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.

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

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Noncontrolling interests in income

Losses from marketable and non-marketable investments, net

Gains (losses) from marketable and non-marketable investments, net

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.

Not meaningful

Our non-operating income, net increased by $2.6 billion and $2.7 billion in reported currency in the second quarter and the first half of fiscal 2026, respectively, relative to the corresponding prior year periods, primarily due to a $2.7 billion gain from the sale of our investments in Ampere.

Refer to Note 1 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information on the Ampere transaction.

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.

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Percent Change

(Dollars in millions)

1 unchanged sentence

Effective tax rate

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.

Fiscal Second Quarter 2026 Compared to Fiscal Second Quarter 2025 :

Provision for income taxes decreased in the second quarter of fiscal 2026, relative to the second quarter of fiscal 2025, primarily related to an increase in tax benefits related to stock-based compensation of $738 million, substantially offset by an unfavorable jurisdictional mix of earnings of $413 million, higher income before provision for income taxes of $237 million and changes in unrecognized tax benefits associated with settlements with taxing authorities and other events of $55 million.

First Half of Fiscal 2026 Compared to First Half of Fiscal 2025 :

Provision for income taxes increased in the first half of fiscal 2026, relative to the first half 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, an unfavorable jurisdictional mix of earnings of $436 million, higher income before provision for income taxes of $254 million and the absence of unrecognized tax benefits associated with settlements with tax authorities and other events of $157 million, partially offset by an increase in tax benefits related to stock-based compensation of $1.6 billion.

Liquidity and Capital Resources

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Working capital :

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;

The increase in working capital as of November 30, 2025 in comparison to May 31, 2025 was primarily due to favorable impacts from net income;

proceeds from the issuance of senior notes in September 2025, net of issuance costs, of $17.9 billion (refer to Note 3 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information);

$4.3 billion of cash proceeds from the sale of our investments in Ampere;

and $1.2 billion of net cash proceeds from our employee stock programs, partially offset by $20.5 billion of cash used for capital expenditures;

$3.2 billion of long-term borrowings that were reclassified to current liabilities;

$2.8 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.

and $95 million of cash used for repurchases of our common stock, in each case during the first half 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 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;

The increase in cash, cash equivalents and marketable securities as of November 30, 2025 in comparison to May 31, 2025 was primarily due to proceeds from the issuance of senior notes in September 2025, net of issuance costs, of $17.9 billion;

$10.2 billion of cash inflows from our operations;

$4.3 billion of cash inflows from the sale of our

investments in Ampere;

$1.2 billion of net cash provided by our employee stock programs;

$886 million of cash inflows from commercial paper and other short-term financing, net, partially offset by $20.5 billion of cash used for capital expenditures;

$2.8 billion of cash used to pay dividends to our stockholders;

$2.1 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.

$203 million of cash outflows for other financing activities, net;

and $95 million of cash used for repurchases of our common stock, in each case during the first half 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.

Three Months Ended August 31,

Six Months Ended November 30,

(Dollars in millions)

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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 $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.

Net cash provided by operating activities increased by $1.5 billion in the first half of fiscal 2026, relative to the first half 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 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.

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 purchases, maturities and sales of our investments in marketable securities and other instruments.

Net cash used for investing activities increased by $9.9 billion in the first half of fiscal 2026, relative to the first half of fiscal 2025, primarily due to a $14.3 billion increase in capital expenditures, partially offset by $4.3 billion of cash proceeds from the sale of our investments in Ampere.

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 $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;

Net cash provided by financing activities was $14.7 billion in the first half of fiscal 2026 relative to the net cash used for financing activities of $1.6 billion in the first half of fiscal 2025.

The increase in net cash provided by financing activities was primarily due to higher proceeds from the issuance of senior notes, net of issuance costs, of $11.7 billion;

lower scheduled repayments of debt of $1.9 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.

higher net proceeds from commercial paper and other short-term financing of $1.3 billion;

lower stock repurchases of $205 million;

and lower net cash used for other financing activities of $73 million.

These increases were partially offset by higher dividend payments of $627 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.

Further, during the first half 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 :

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

The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as an alternative to net income as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity.

The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as an

alternative to net income as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity.

We calculate free cash flow as follows:

Trailing Four-Quarters Ended August 31,

Trailing Four-Quarters Ended November 30,

(Dollars in millions)

5 unchanged sentences

Not meaningful

Recent Financing Activities :

Senior Notes :

In September 2025, we issued $18.0 billion par value of fixed-rate senior notes comprising the following:

• $3.0 billion of 4.45% senior notes due September 2030;

• $3.0 billion of 4.80% senior notes due September 2032;

• $4.0 billion of 5.20% senior notes due September 2035;

• $2.5 billion of 5.875% senior notes due September 2045;

• $3.5 billion of 5.95% senior notes due September 2055;

• $2.0 billion of 6.10% senior notes due September 2065.

We issued the senior notes for general corporate purposes, which may include capital expenditures, repayment of indebtedness, future investments or acquisitions and payment of cash dividends on or repurchases of our common stock.

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

Contractual Obligations :

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.

During the first half of fiscal 2026, we entered into certain significant leases for data centers and other contractual commitments and issued $18.0 billion of senior notes in September 2025 with various maturity dates.

Refer to Notes 3 and 6 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report and 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 for more information about our contractual obligations.

Capital Expenditures :

Cash used for capital expenditures increased from $6.3 billion in the first half of fiscal 2025 to $20.5 billion in the first half of fiscal 2026 primarily due to the expansion of our data centers.

We expect this upward trend to continue throughout the remainder of fiscal 2026 and in the next few fiscal years 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.

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.

1 unchanged sentence

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.

Remaining performance obligations were $523.3 billion and $97.3 billion as of November 30, 2025 and 2024, respectively.

The increase in remaining performance obligations as of November 30, 2025 in comparison to November 30, 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.

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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 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.

Of the outstanding stock options as of November 30, 2025, which generally have a ten-year exercise period, the majority have exercise prices higher 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 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%.

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 capital expenditures, acquisitions, to pay dividends, to repay or repurchase indebtedness or for other purposes.

As of November 30, 2025, the maximum potential dilution from all outstanding stock-based awards, regardless of when granted and regardless of whether vested or unvested, was 3.8%.

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 quarter of fiscal 2026.

There were no significant changes to our quantitative and qualitative disclosures about market risk during the first half 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis