ORACLE CORP 10-Q

Item 2. Management’s Discussion and Analysis o f Financial Condition and Results of Operations 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 Oracle provides products and services that address enterprise information technology (IT) needs. 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 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. Through our worldwide sales force and Oracle Partner Network, we sell to customers all over the world including businesses of many sizes, government agencies, educational institutions and resellers. We have three businesses: cloud and software (formerly referred to as cloud and license); hardware; and services; 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 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. 20 Table of Contents 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 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; 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; and • 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; and 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; renewed at the customer’s option; and recognized as revenues ratably over the contractual period that the support services are provided, which is generally one year. 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 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 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; governmental budgetary constraints; the strategy for and competitive position of our offerings; customer satisfaction with our offerings; 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 21 Table of Contents 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; and foreign currency rate fluctuations. 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; and • 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 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. The majority of our hardware products are sold through indirect channels, including independent distributors and value-added resellers. Our hardware support offerings provide customers with unspecified software updates for software components that are essential to the functionality of our hardware products and associated software products. Our hardware support offerings can also include product repairs, maintenance services and technical support services. 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. 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 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, including the effects of inflation, tariffs and trade policy, geopolitical conditions and other macroeconomic factors on customer demand; governmental budgetary constraints; whether customers decide to purchase hardware support contracts at or in close proximity to the time of hardware product sale; 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 22 Table of Contents 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; and foreign currency rate fluctuations. Services Business 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 customer success services (formerly referred to as advanced customer services). 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 software and hardware offerings and the related services that we may market and sell in connection with these offerings; general economic conditions; governmental budgetary constraints; personnel reductions in our customers’ IT departments; tighter controls over customer discretionary spending; and foreign currency rate fluctuations. Acquisitions Our selective and active acquisition program is another important element of our corporate strategy. Historically, we have invested billions of dollars to acquire a number of complementary companies, products, services and technologies. As compelling opportunities become available, we may acquire companies, products, services and technologies in furtherance of our corporate strategy. We believe that we can fund our future acquisitions with our internally available cash, cash equivalents and marketable securities balances, cash generated from operations, additional borrowings or from the issuance of additional securities. 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. Critical Accounting Estimates 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. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. 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 income taxes and non-marketable investments. 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. Results of Operations Presentation of Operating Segment Results and Other Financial Information In our results of operations discussion below, we provide an overview of our total consolidated revenues, total consolidated operating expenses and total consolidated operating margin, all of which are presented on a GAAP basis. 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 software, hardware and services—which are our operating segments as defined pursuant to ASC 280, Segment Reporting . The financial 23 Table of Contents 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. 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. Constant Currency Presentation Our international operations have provided, and are expected to continue to provide, a significant portion of each of our businesses’ revenues and expenses. As a result, each of our businesses’ revenues and expenses and our total revenues and expenses will continue to be affected by changes in the U.S. Dollar against major international currencies. In order to provide a framework for assessing how our underlying businesses performed, excluding the effects of foreign currency rate fluctuations, we compare the percent change in the results from one period to another period in this Quarterly Report using constant currency. To present this information, current and comparative prior period results for entities reporting in currencies other than U.S. Dollars are converted into U.S. 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 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. 24 Table of Contents Total Revenues and Operating Expenses Three Months Ended November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Total Revenues by Geography : Americas $ 10,467 17% 17% $ 8,933 $ 20,129 16% 16% $ 17,305 EMEA (1) 3,760 11% 6% 3,381 7,240 10% 4% 6,609 Asia Pacific 1,831 5% 7% 1,745 3,614 5% 5% 3,452 Total revenues 16,058 14% 13% 14,059 30,983 13% 12% 27,366 Total Operating Expenses 11,327 15% 14% 9,839 21,975 15% 14% 19,155 Total Operating Margin $ 4,731 12% 9% $ 4,220 $ 9,008 10% 7% $ 8,211 Total Operating Margin % 29% 30% 29% 30% % Revenues by Geography : Americas 65% 64% 65% 63% EMEA 24% 24% 23% 24% Asia Pacific 11% 12% 12% 13% Total Revenues by Business : Cloud and software $ 13,854 15% 14% $ 12,001 $ 26,760 14% 13% $ 23,389 Hardware 776 7% 5% 728 1,446 5% 3% 1,383 Services 1,428 7% 6% 1,330 2,777 7% 6% 2,594 Total revenues $ 16,058 14% 13% $ 14,059 $ 30,983 13% 12% $ 27,366 % Revenues by Business : Cloud and software 86% 86% 86% 86% Hardware 5% 5% 5% 5% Services 9% 9% 9% 9% (1) Comprised of Europe, the Middle East and Africa 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 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 25 Table of Contents 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 To supplement our condensed consolidated financial information, we believe that the following information is helpful to an overall understanding of our past financial performance and prospects for the future. Our operating results reported pursuant to GAAP included the following business combination accounting adjustments and expenses related to acquisitions and certain other expenses, including stock-based compensation, that affected our GAAP net income: Three Months Ended November 30, Six Months Ended November 30, (in millions) 2025 2024 2025 2024 Amortization of intangible assets (1) $ 407 $ 591 $ 826 $ 1,215 Acquisition related and other (2) 21 31 35 44 Restructuring (3) 406 84 808 157 Stock-based compensation, operating segments (4) 394 414 783 765 Stock-based compensation, R&D and G&A (4) 762 756 1,497 1,411 Income tax effects (5) (1,527 ) (820 ) (2,131 ) (1,500 ) $ 463 $ 1,056 $ 1,818 $ 2,092 (1) Represents the amortization of intangible assets, all of which were acquired in connection with our acquisitions. As of November 30, 2025, estimated future amortization related to intangible assets was as follows (in millions): Remainder of fiscal 2026 $ 812 Fiscal 2027 672 Fiscal 2028 635 Fiscal 2029 561 Fiscal 2030 522 Fiscal 2031 332 Thereafter 226 Total intangible assets, net $ 3,760 (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 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. 26 Table of Contents (4) Stock-based compensation was included in the following operating expense line items of our condensed consolidated statements of operations (in millions): Three Months Ended November 30, Six Months Ended November 30, 2025 2024 2025 2024 Cloud and software $ 151 $ 158 $ 307 $ 299 Hardware 7 8 14 14 Services 51 53 100 96 Sales and marketing 185 195 362 356 Stock-based compensation, operating segments 394 414 783 765 Research and development 668 657 1,314 1,226 General and administrative 94 99 183 185 Total stock-based compensation $ 1,156 $ 1,170 $ 2,280 $ 2,176 (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 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 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. 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; and are generally recognized as revenues ratably over the contractual term, which is generally one year. We continue to place significant emphasis, both domestically and internationally, on direct sales through our own sales force. 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 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. 27 Table of Contents Three Months Ended November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Cloud and Software Revenues : Americas $ 9,164 18% 18% $ 7,773 $ 17,666 17% 17% $ 15,089 EMEA 3,170 13% 7% 2,815 6,112 11% 6% 5,502 Asia Pacific 1,520 8% 10% 1,413 2,982 7% 7% 2,798 Total revenues 13,854 15% 14% 12,001 26,760 14% 13% 23,389 Expenses : Cloud and software (1) 3,807 49% 48% 2,555 7,225 45% 45% 4,977 Sales and marketing (1) 1,870 -1% -2% 1,888 3,668 0% -1% 3,659 Total expenses (1) 5,677 28% 27% 4,443 10,893 26% 25% 8,636 Total Margin $ 8,177 8% 7% $ 7,558 $ 15,867 8% 6% $ 14,753 Total Margin % 59% 63% 59% 63% % Revenues by Geography : Americas 66% 65% 66% 64% EMEA 23% 23% 23% 24% Asia Pacific 11% 12% 11% 12% Revenues by Offerings : Cloud applications $ 3,898 11% 11% $ 3,503 $ 7,736 11% 10% $ 6,971 Cloud infrastructure 4,079 68% 66% 2,434 7,426 62% 61% 4,588 Software license 939 -21% -23% 1,195 1,705 -17% -19% 2,065 Software support 4,938 1% 0% 4,869 9,893 1% 0% 9,765 Total revenues $ 13,854 15% 14% $ 12,001 $ 26,760 14% 13% $ 23,389 (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 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. 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. 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. 28 Table of Contents Hardware Business Our hardware business’ revenues are generated from the sales of our Oracle Engineered Systems, server, storage and industry-specific hardware offerings. The hardware product and 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 is delivered to the customer and ownership is transferred to the customer. Our hardware business also earns revenues from the sale of hardware support contracts purchased by our customers at their option and that are generally recognized as revenues ratably as the hardware support services are delivered over the contractual term, which is generally one year. The majority of our hardware products are sold through indirect channels such as independent distributors and value-added resellers and we also market and sell our hardware products through our direct sales force. Operating expenses associated with our hardware business include the cost of hardware products, which consists of expenses for materials and labor used to produce these products by our internal manufacturing operations or by third-party manufacturers, warranty and related expenses and the impact of periodic changes in inventory valuation, including the impact of inventory determined to be excess and obsolete; the cost of materials used to repair customer products with eligible support contracts; the cost of labor and infrastructure to provide support services; 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 November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Hardware Revenues : Americas $ 410 17% 16% $ 350 $ 725 13% 13% $ 639 EMEA 225 2% -3% 222 426 -2% -6% 435 Asia Pacific 141 -9% -8% 156 295 -5% -5% 309 Total revenues 776 7% 5% 728 1,446 5% 3% 1,383 Expenses : Hardware products and support (1) 205 27% 25% 161 374 19% 17% 313 Sales and marketing (1) 59 -15% -16% 69 113 -16% -17% 135 Total expenses (1) 264 15% 13% 230 487 9% 7% 448 Total Margin $ 512 3% 2% $ 498 $ 959 3% 1% $ 935 Total Margin % 66% 68% 66% 68% % Revenues by Geography : Americas 53% 48% 50% 46% EMEA 29% 31% 30% 32% Asia Pacific 18% 21% 20% 22% (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. 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. 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 fiscal 2026 periods presented. 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 29 Table of Contents 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 customer success 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 November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Services Revenues : Americas $ 893 10% 10% $ 810 $ 1,738 10% 10% $ 1,577 EMEA 365 6% 0% 344 702 4% -1% 672 Asia Pacific 170 -3% -2% 176 337 -2% -1% 345 Total revenues 1,428 7% 6% 1,330 2,777 7% 6% 2,594 Total Expenses (1) 1,084 0% -1% 1,080 2,101 -2% -3% 2,145 Total Margin $ 344 38% 35% $ 250 $ 676 51% 48% $ 449 Total Margin % 24% 19% 24% 17% % Revenues by Geography : Americas 62% 61% 63% 61% EMEA 26% 26% 25% 26% Asia Pacific 12% 13% 12% 13% (1) Excludes stock-based compensation and certain 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. 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. 30 Table of Contents 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 : Research and development expenses consist primarily of personnel-related expenditures. 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 November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Research and development (1) $ 1,893 4% 4% $ 1,814 $ 3,737 5% 5% $ 3,551 Stock-based compensation 668 2% 2% 657 1,314 7% 7% 1,226 Total expenses $ 2,561 4% 4% $ 2,471 $ 5,051 6% 6% $ 4,777 % of Total Revenues 16% 18% 16% 18% (1) Excluding stock-based compensation 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 November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 General and administrative (1) $ 315 9% 8% $ 288 $ 603 8% 7% $ 560 Stock-based compensation 94 -5% -5% 99 183 -1% -1% 185 Total expenses $ 409 6% 5% $ 387 $ 786 5% 5% $ 745 % of Total Revenues 3% 3% 3% 3% (1) Excluding stock-based compensation 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 : 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. We also periodically review these intangible assets for potential impairment based upon relevant facts and circumstances. 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. 31 Table of Contents Three Months Ended November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Cloud and software agreements and related relationships $ 137 -56% -56% $ 308 $ 285 -55% -55% $ 634 Developed technology 153 -6% -6% 163 307 -7% -7% 328 Other 117 -3% -3% 120 234 -7% -7% 253 Total amortization of intangible assets $ 407 -31% -31% $ 591 $ 826 -32% -32% $ 1,215 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 November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Transitional and other employee-related costs $ 1 -56% -58% $ 1 $ 1 -72% -73% $ 3 Business combination adjustments, net — 100% 100% (1 ) 5 * * (5 ) Other, net 20 -34% -36% 31 29 -38% -40% 46 Total acquisition related and other expenses $ 21 -33% -35% $ 31 $ 35 -21% -24% $ 44 * Not meaningful 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 : Restructuring expenses resulted from the execution of management-approved restructuring plans that were generally developed to improve our cost structure and/or operations, often in conjunction with our acquisition integration strategies and/or other strategic initiatives. Restructuring expenses consist of employee severance costs, contract termination costs and certain other exit costs to improve our cost structure prospectively. 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 November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Restructuring expenses $ 406 387% 378% $ 84 $ 808 415% 406% $ 157 32 Table of Contents 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. 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. The majority of the initiatives undertaken by the 2026 Restructuring Plan were effected to implement our continued emphasis in developing, marketing, selling and delivering our cloud-based offerings. Certain of the cost savings realized pursuant to the 2026 Restructuring Plan initiatives were offset by investments in resources and geographies that we believe better address the development, marketing, sale and delivery of our cloud-based offerings, including investments in the development and delivery of our second-generation cloud infrastructure. Interest Expense : Three Months Ended November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Interest expense $ 1,057 22% 22% $ 866 $ 1,980 16% 16% $ 1,708 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 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 Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Interest income $ 192 29% 29% $ 149 $ 295 5% 4% $ 283 Foreign currency losses, net (28 ) 214% 213% (9 ) (59 ) 0% -6% (59 ) Noncontrolling interests in income (46 ) -2% -2% (47 ) (93 ) 3% 3% (90 ) Gains (losses) from marketable and non-marketable investments, net 2,493 * * (108 ) 2,441 * * (177 ) Other income, net 57 13% 14% 51 157 57% 57% 100 Total non-operating income, net $ 2,668 * * $ 36 $ 2,741 * * $ 57 * 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. 33 Table of Contents Provision for Income Taxes : Our effective income tax rates for each of the periods presented were the result of the mix of income earned and losses incurred in various tax jurisdictions that apply a broad range of income tax rates. Refer to Note 8 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for a discussion regarding the differences between the effective income tax rates as presented for the periods below and the U.S. federal statutory income tax rates that were in effect during these periods. 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 November 30, Six Months Ended November 30, Percent Change Percent Change (Dollars in millions) 2025 Actual Constant 2024 2025 Actual Constant 2024 Provision for income taxes $ 207 -14% -16% $ 239 $ 707 47% 43% $ 480 Effective tax rate 3.3% 7.1% 7.2% 7.3% 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 (Dollars in millions) November 30, 2025 Change May 31, 2025 Working capital $ (3,429 ) -57% $ (8,064 ) Cash, cash equivalents and marketable securities $ 19,766 76% $ 11,203 Working capital : 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; 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. Cash, cash equivalents and marketable securities : Cash and cash equivalents primarily consist of deposits held at major banks, money market funds and other securities with original maturities of 90 days or less. 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 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 34 Table of Contents 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; $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. Six Months Ended November 30, (Dollars in millions) 2025 Change 2024 Net cash provided by operating activities $ 10,206 17% $ 8,731 Net cash used for investing activities $ (16,432 ) 151% $ (6,553 ) Net cash provided by (used for) financing activities $ 14,697 * $ (1,647 ) * Not meaningful 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 and software support agreements. 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, including costs related to data center leases and power for our cloud business. 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 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 $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; 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 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 : 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. The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as an 35 Table of Contents 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 November 30, (Dollars in millions) 2025 Change 2024 Net cash provided by operating activities $ 22,296 10% $ 20,287 Capital expenditures (35,477 ) 230% (10,745 ) Free cash flow $ (13,181 ) * $ 9,542 Net income $ 15,425 $ 11,624 Net cash provided by operating activities as a percent of net income 145% 175% Free cash flow as percent of net income -85% 82% * 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; and • $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 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. 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. 36 Table of Contents Remaining Performance Obligations from Contracts with Customers 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. Stock-Based Awards Our stock-based compensation program is a key component of the compensation package we provide to attract and retain certain of our talented employees and align their interests with the interests of existing stockholders. We recognize that stock-based awards dilute existing stockholders and have sought to control the number of stock-based awards granted while providing competitive compensation packages. Consistent with these dual goals, our cumulative potential dilution since June 1, 2022 has been an annualized rate of 1.5% per year. The potential dilution percentage is calculated as the average annualized new stock-based awards granted and assumed, net of stock-based awards forfeited by employees leaving the company, divided by the weighted-average outstanding shares during the calculation period. 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 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 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 For information with respect to recent accounting pronouncements, and the impact of these pronouncements on our consolidated financial statements, see Note 1 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. 37 Table of Contents Item 3. 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 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.