Oracle achieves 13% revenue growth, fueled by 817% increase in multi-cloud database consumption and expanding AI capabilities across its infrastructure.

We have alignment across all necessary components to ensure profitable delivery for our customers. The holiday season is peak period for many of our retail and consumer customers. It is our responsibility at OCI to deliver the most secure, highest performance and highest availability infrastructure to support these customers at the scale they need. Uber has now surpassed 3 million cores on OCI, powering their highest traffic ever. This Halloween T Move scaled to nearly 1 million cores for black Friday and Cyber Monday. In addition, we also supported thousands of other customers across our retail and other applications through their largest and most successful holiday period yet. OCI is constantly expanding in features and services. We recently launched Acceleron, delivering enhanced networking to all OCI customers and other services like our AI agent service. However, we cannot deliver everything ourselves and we rely on our rapidly expanding partner community to provide the best experience on OCI. We added new AI models from Google, OpenAI and XAI to ensure our customers have the latest and greatest AI capabilities. Our marketplace consumption has grown 89% year over year powered by partners like Broadcom and Palo Alto. Those same partners drive OCI consumption by building their SaaS businesses on OCI. Palo Alto released their SASE and PRISMA access platform on oci and Cyber Region and Newfold Digital continue to scale their businesses rapidly. These partnerships make our ecosystem richer which helps our customers and that growth translates directly into more OCI growth as our partners build their solutions on our infrastructure. Oracle Database services see increasing demand across all clouds Multi Cloud database consumption has increased 817% year over year. We launched 11 multi cloud regions this quarter bringing us to 45 regions live across AWS, Azure and GCP with 27 more planned over the next month. We see increasing customer demand with billions in identified pipeline. We launched two important programs this quarter for multicloud. The first is Multi Cloud Universal Credits which enables customers to commit once to Oracle database services and use them anywhere in any cloud with the same price and flexibility. The second is our Multi Cloud Channel Reseller program which enables customers to procure Oracle database services through their Preferred channel partners. We also launched nine services across the different clouds such as Oracle Autonomous AI Lakehouse. This combination of the best services, universal availability, consistent and easy pricing and procurement and partner support is accelerating the adoption of Oracle database services across our entire customer base. OCI is the only full cloud available to individual customers. We launched dedicated Region 25 which provides the full capability of OCI in a tiny three rack footprint. OCI is also the only cloud that enables partners to become cloud providers themselves through our Alloy program and our new footprint is available for all Alloy providers, Dedicated Region and alloy consumption grew 69% year over year. We launched one dedicated region for IFCA Group in Oman and both NTT Data and SoftBank launched one alloy region each this quarter. This brings our live dedicated regions to 39 with 25 more planned. In summary, the four segments of our infrastructure business are growing at incredible rates. This will contribute to a continued acceleration in our infrastructure revenue in the coming quarters. Customers are choosing OCI for its performance optimized architecture, unrelenting focus on security, consistently low and predictable pricing, and unmatched depth in database and enterprise integrations. Those priorities have been our strategy from the beginning and are the driving force behind this growth. OCI is in a constant state of reinvention and you can see the value that has for our customers when you combine our commitment to deliver the best in performance, efficiency and security. With the growing customer demand for cloud infrastructure services we are seeing, I couldn't be more excited about what's coming next. And with that over to Larry.

Thank you very much Clay. Over the years, Oracle has developed software in three important areas database, applications, and the Oracle Cloud. We used AI to make our database software and our. Autonomous software eliminates human labor and human error, thus lowering operating costs and making our systems faster, more reliable and more secure. Now, with the development of the Oracle AI database and the Oracle AI Data platform, we're bringing all three layers of our software stacked together to solve another very important problem, enabling the latest and most powerful AI models to do multi step reasoning on all your private enterprise data while keeping that data private and secure. Training AI models on public data is the largest, fastest growing business in history. AI models reasoning on private data will be an even larger and more valuable business. Oracle databases contain most of the world's high value private data. Oracle applications also hold huge amounts of exceptionally valuable private data. The Oracle Cloud includes all the top AI models OpenAI ChatGPT, Xai Groke, Google Gemini and Meta Llama. Oracle's new database and AI data platform plus the latest versions of Oracle Applications enables all of those AI models to do multi step reasoning on your database and application data while keeping that data private and secure. All our database and application customers want to do this because for the first time they get a unified view of all of their data. AI models can respond to a single inquiry by reasoning across all your databases, all of your applications. By treating all of your data holistically. The combination of AI models plus the Oracle AI database and AI data platform breaks down the walls that isolate and fragment your data The Oracle AI Data platform makes all your data, all your data accessible to AI models. Not just Oracle databases and Oracle applications, the data in Oracle databases and Oracle applications, but data from other databases, cloud storage from any cloud. Even data from your own custom applications are accessible to AI models using the Oracle AI data platform. Using our AI data platform, you can unify all your data and reason on all of your data using the very latest AI models. This is the key to finally unlocking all the value and all your data. Very soon, through the lens of AI, you will be able to see everything happening in your business as it happens. Mike, over to you.

Thanks Larry. As Doug shared the total revenue growth up 13% in constant currency I think it's worth noting that that's three consecutive quarters now where total revenue growth has been in double digits. So a solid quarter and we see even better days ahead of us. So let me break down a few of the numbers a bit further and I'll do so all in constant currency. Cloud applications revenue was up 11% and that brings us to about a $16 billion annual. Within that Fusion ERP up 17%. Fusion SCM up 18%. Fusion HCM up 14% Netsuite grew by 13%. Fusion CX is up 12%. In our industry cloud, specifically hospitality, construction, retail banking, restaurants, local governments and communications all combined were up 21% in the quarter. So big growth rates on a big base. In our healthcare business, we now have 274 customers live in production on our clinical AI agent and that number continues to rise daily. Also in healthcare, our brand new AI based ambulatory EHR is generally available and it has received US regulatory approval. And finally in healthcare in Q3 we expect both our bookings and our revenue to accelerate materially. So overall cloud apps were up 11% on a big bigger base. This is very meaningful because we see this business as continuing to accelerate going forward. We achieved this growth while we also undertook a major salesforce reorg in many regions throughout the world. This is something we've been talking about. For many years, that is the synergies between our back office applications and our industry applications. We're seeing more and more deals where our industry apps are pulling Fusion or the Fusion apps are pulling the industry apps. And as a result of seeing more and more deals, we're also seeing larger deals with more components. So recently we combined our industry application sales team and our Fusion sales teams into a single selling organization. This enables our sellers to have more strategic one Oracle conversations with our customers to sell higher and to Sell more. And then when you think about our very large installed base of on premise application customers, these strategic conversations are driving upgrades. And you've heard us say before, just moving a customer to the cloud results in a 3-5x annual revenue lift compared to the support revenue. Now on top of all that, top of the salesforce, the. One Oracle Go. To market motions the industry suites think about combining our AI data platform with this unmatched suite of applications. This creates an incredibly unique opportunity for our customers to gain value very quickly from enterprise grade AI. The combination allows customers to unite the industry leading foundational models with company specific proprietary data. As Larry mentioned, much of which comes from the Oracle applications. And of course the AIA data platform also ties in non Oracle applications, competitive Data sources like MongoDB or Snowflake object stores and even complete bespoke unstructured data. So we think this allows our customers to very easily build enterprise lakehouses, AI agents and applications that leverage built in, not bolted on but built in AI to transform their business. So just to repeat, AI of course is a great OCI play, but it's also a broader software play for Oracle. It's driving growth in our applications and our database businesses as well. Let me highlight a few key wins in communications the communications industry Digital Bridge holdings selected ERP and SCM Etihad Salam Telecom SCM Motorola Solutions ERP SCM NCX Tim Brazil, who is the country of Brazil's 5G leader, just signed a new five year expansion to accelerate AI adoption and to transform customer experience at scale. All built on oci. This actually this five year deal was an expansion, an extension of a partnership that began with Tim Brazil's full data center migration to oci back in 2021. So they're now building AI agents that are powering real customer interactions, including the Conta agent which compares bills for customers across months and explains variations automatically. Already in the pilot, 18% faster issue resolution with the AI agents built on OCI expecting even further improvements as the rollout continues. They've got 24 projects in motion, seven of them are already in production in just a matter of months, six more launching soon, all enabled by a multi cloud architecture with Oracle as the key AI infrastructure partner. Already as a result of this initial rollout, customer Satisfaction is up 16% and call center flows are managing end to end with 90% accuracy, resulting in 30% faster services times for customers and a 15% fewer network failure interventions, all using predictive analytics. And again AI copilots built in oci. So we are the AI engine for Tim Brazil to enable personalization at national scale in financial services. CoreCivic selected ERP, SCM and HCM Prime Life Technologies ERP Jewelers Mutual Insurance ERP in public sector City of Costa Mesa ERP SCM HCM the United States Space Force ERP and HCM the City of Santa Ana ERP, SCM and HCM in the high tech industry SolarEdge Technologies ERP and SCM Zscaler ERP Dropbox ERP and SCM I could go on and on about these wins, but I think it gives you the flavor of of just the sheer amount of multipillar wins and why it's so important that we have so many different options for customers in back office and front office. In terms of go lives, we had 330 cloud apps Customer go lives this quarter. That's multiple go lives per day. Virgin Atlantic Airways went live in September on Fusion ERP and HCM and Payroll Broadridge just recently relaunched their Fusion ERP and epm go live. LifePoint Health just went live on their third wave of fusion, ERP, SCM and HCM. Saudi Telecom is live on Fusion SCM with ERP and HCM to follow soon. DocuSign is now live on Fusion Data Intelligence. Again, I could go on about the go lives with 330 of them in the quarter gives you a flavor of some of the really important go lives that we had recently. The cloud application Deferred revenue is up 14%. That is higher than the cloud apps revenue growth of 11%. Just to reinforce my earlier statements that we expect continued apps growth acceleration, so a solid quarter across the board, we're on the back end of a sales reorg that was focused on unified selling. Across our applications portfolio. We're seeing a clear AI halo effect for our cloud applications, which is driving upgrades. Our AI data platform combined with our applications is an absolute conversation changer and it brings the Oracle database and all of our applications into the center of the modern agentiq enterprise. Looking ahead, we're executing well on a big and growing pipeline and I expect revenue and earnings growth to accelerate off an even larger base. With that, Ken, I'll turn it back to you.

Thanks, Mike.

Tiffany, if you could please poll the. Audience for questions at this time.

If you would like to ask a question, press Star, then the number one on your telephone keypad. To withdraw your question, simply press Star one. Again. We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of Brad Zelnick with Deutsche Bank. Please go ahead. Thank you. Congratulations and a particular shout out to Mahesh and the team for standing up a massive amount of capacity in this quarter. My question is for Claire, maybe Doug. Oracle is clearly the destination of choice for the most sophisticated AI customers, but this is a far more capital intensive proposition, unlike any business Oracle has ever been in before. Very specifically, how much money does Oracle need to raise to fund its AI growth plans ahead? Thank you.

Thanks for the question. Brad, this is Clay. So look, I'll answer that question in two parts. First, let me give you kind of the reason why it's hard to answer that question. Exactly. So. The thing I think that a lot of people don't understand is that we actually have a lot of different options for how we go about delivering this capacity to customers. There's obviously the way that people think about it, which is we buy all the hardware up front. As I talked about at my financial analyst meeting, we don't actually incur any expenses for these large data centers until they're actually operational. So then it goes on to, well, how do you pay and what's the kind of cash flows look like for the stuff that goes into the data center? Well, we have some other interesting models that we've been working on. One of them is that customers can actually bring their own chips. And in those models Oracle obviously doesn't have to incur any capital expenditures up front for that model. Similarly, we have different models that we're working on with different vendors where some vendors are actually very interested in a model where they rent their capacity rather than selling their capacity. And as you can imagine, that comes with different cash flow impacts that are favorable and reduce the overall borrowing needs and capital required for Oracle. So as you can imagine, as we look at all of these kind of commitments, we will use a range and a variety of those such that we minimize the overall cost of capital as well as in certain cases we'll be raising our own funds as part of that. I think it's important that everyone understand that we're committed to maintaining our investment grade debt rating. So now to give you some more specifics, what I would say is we've been reading a lot of analyst reports and we read quite a few that show an expectation of upwards of $100 billion. For Oracle to go out and kind of complete these build outs. And based on what we see right now, we expect we will need less, if not substantially less. Money raised than that amount to go and fund this build out. So hopefully that helps answer your question, Brad.

It does. Thank you. It's very helpful. And thanks for taking the question.

Your next question comes from the line of Ben Rites with Melius Research. Please go ahead. Hey guys, thanks a lot. Appreciate it.

Good to speak with you. In light of the answer to that question, the path for OCI margins seems very important to improving the EBITDA and cash flow. So at the analyst meeting you said margins for AI workloads for OCI would be in the 30 to 40% range over the life of a customer contract. I guess my question is, how long will it take your AI margins across all your OCI data centers to ramp to that level and what needs to happen to get there? Yeah, thanks for the question, Ben. Look, the answer is it really depends. So the good thing is that. As. I mentioned earlier, we don't actually incur any expenses for the data centers until they're actually built and up and running. And then we've highly optimized a process by which we actually put capacity in and then are able to hand that over to customers. Which means that the period of time where we're incurring expenses without that kind of revenue and the gross margin profile that we talked about is really on the order of a couple of months. So in that scenario, that time period is not material. So a couple of months is not a long time. What actually matters much more is the overall mix of the data centers that we have online and how they're growing compared to the total amount we're scaling across the world. I think as we go through this build out phase, right now we're in a phase of very rapid build out. Without the majority of the capacity online, obviously the aggregate mix is going to be lower. But as we actually get the majority of this capacity online, and that's really our focus, the best way to improve margins quickly is to actually go out and deliver capacity faster. That ends up very rapidly ensuring that we get to that 30 to 40% gross margin profile for all of the AI data centers.

Thanks.

Your next question comes from the line of Tyler Radtke with City. Please go ahead. Yes, thank you for taking the question. And this question's for Larry or Clay. So Oracle has clearly established itself as a leading provider for AI infrastructure to AI labs and in some cases enterprise clients. How are you thinking about the opportunity to sell additional platform services such as database middleware, other pieces of the portfolio, similar to how we saw cloud providers add that on at the early days of the public cloud space? And what might be some of the similarities or differences that you See with the emerging AI platform as a service market versus the traditional cloud platform as a service market. Thank you.

Let me start with traditional cloud and traditional Oracle database. I think the biggest change we've made there was to make our database available in everyone's cloud. So you can buy the Oracle database at Google or Amazon. It'S available at Microsoft Azure as well as oci. So that was the most, maybe that was the first move we made. We call it multi cloud and we actually embed OCI data centers within the other clouds so they get the latest, greatest version of the Oracle database. Second thing we did is we actually converted the Oracle database or added capabilities to the Oracle database to allow you to vectorize all of your data. So it's a vector database, some people call that an AI database. So it's designed to make data available to models. You can then once you vectorize your data, you can place AI models on top of that and the AI models can understand what's in the database and reason with the data that's in the database. So we think that combination of making the data available in our database also accessible by AI models dramatically increases the value of the data. We think that's very. So far, none of the other large scale databases have been able to do that. We can do that, we can do that and keep your data secure. That's one of the bigger issues. We have to scale it, keep everything reliable, keep it secure and we actually have to add all of those capabilities and features to the Oracle database. So that was step two. First, multi cloud, second, vectorize all the data and make it accessible by. All. Of the popular AI models. Third step. Well, you know, it's great that we're making the Oracle data, Oracle database data available to these AI models, but companies actually have data that's not stored in an Oracle database, is not stored in an Oracle application. So we built an AI lakehouse we call the AI data platform that actually points to and vectorizes all of your data, whether it's in. An object store in different clouds, whether it's a bespoke application, whether it's in another database. It really will take the universe of your data, catalog that data, vectorize it and allow. An LLM to do multi step reasoning on all of that data. Now the thing that's really remarkable about that is think about asking one query, asking one question and the model looks at all of your data. Normally when you ask a question, you have to direct it to this database or this application. You can't say, look, I'd Just like. To know. Whose next customer I should be selling to. I'm a salesperson in territory. I want to look at all the accounts in my territory, and I want to see who's the best prospect in my territory. Well, that means looking at contractual data, means looking at publicly available data. That means looking at our sales system, at our support system, all of these separate systems. Well, suddenly all of that data is unified. We take all of your data and unify it. So you can ask a single question and the AI models can find the answer to that question, regardless of what data store it's in. That's really a unique proposition. And we think that thing is going to turbocharge the use of our database and the use of our cloud dramatically.

Thank you.

Your next question comes from the line of Brent Thiel with Jefferies and company. Please go ahead. Thanks. Question for Larry and Clay on the fungibility of your infrastructure. What would you have to do to. Convert a data center from one customer to another, such as if one of the larger customers was unable to pay?

Yeah. Thanks, Brent. So I think the first thing to understand is that what we deliver for our AI infrastructure is exactly the same cloud that we deliver for all of our customers. You know, we made specific choices at the beginning of OCI around bare metal virtualization and the way in which we do things like secure wipe of hardware, etc. But the reason I bring that up is that, take as an example, anyone right now with a credit card can show up and sign up for any one of those hundreds of regions that I talked about earlier, and you can spin up a bare metal computer and as quickly as a few minutes, and at the end of that, you can turn it off and I will recycle that, and I can hand it to another customer in less than an hour. And so when you ask the question of, well, how long does it take to transfer capacity from one customer to another? It's on the order of hours. And what actually I think is kind of a corollary to that question is, well, then, how long does it take customers to adopt it? And thankfully, we have a lot of experience getting more than 700 AI customers on our platform, including the vast majority of the large model providers already run on oci. And when we give them capacity, they typically spend that capacity up in the order of two to three days. And so when I think about how long does it take for me to take capacity handed to their customer, it is not a laborious process, it is not a unique process. And something else I would say that I think a lot of people don't realize about our cloud is this is actually happening all the time. So, you know, we have lots of customers that might sign up for a few thousand of one type of gpu and then they'll come back and say, well, actually, you know, I'd like to get even more capacity somewhere else. Will you take this back? And we do that all day, every day, and we're constantly moving customers around and adding aggregate net capacity. So we have the technology, we have a secure base from which to do that, and we also have a customer base of a lot of demand, such that whenever we find ourselves with capacity that's not being used, it very quickly gets allocated and provisioned.

Your next question comes from the line of Mark Merdler with Sanford Bernstein. Please go ahead. Thank you very much for taking my question, and congrats on the quarter. Doug, you gave some color earlier tonight. That I'd like to dig in on. Clay presented a slide at the financial analyst meeting where he showed the revenue and expenses for a single data center. Doug and Clay, can you talk about the cash flow for that same data. Center, starting with the commitment for the data center and then the hardware and. How that flows into becoming cash flow positive and then how that rolls up across multiple data centers? Any color would be really appreciated.

Sure. Happy to answer, Mark. So as we talked about earlier in this call, it starts with the actual data center itself and the power capacity along with it. And the way in which we structure that is that we incur no cash expenses until that's fully delivered and provisioned and fit for purpose. So then it really comes down to what does the cash flow look like for the capacity that's going inside the data center. And as I talked about earlier, that really depends on kind of the business model and the financial model that we've. Used for procuring that in some cases. Customers actually want to bring their own hardware, in which case we don't have any capital expenses. And it's really around. The data center itself, possibly some networking gear, as well as human labor costs. We have other models where vendors want to rent that capacity, in which case those rent payments start when the capacity is provisioned for the customer. And so customer cash flow comes in. We're then taking that cash flow and pushing that out to all of the different suppliers. And then obviously you've got the model where Oracle takes its own cash, pays up front for the hardware, and then puts the capacity in. That's obviously the most cash intensive up front. And Then there's a depreciation schedule over the next several years. So it really depends on the exact business and financial model used for each. Of the data centers. And then you ask, well, how do they layer together? Well, thankfully we don't need calculus for this one. Basic arithmetic is enough because they actually just layer on top of each other. So if you have a time schedule for one data center and a time schedule for a second data center, the cash flows add together. And obviously if the data center comes in sooner, you'll have the expenses as well as the revenue coming in sooner. If the data center moves out, then the expenses and the revenue also move out.

That's very helpful. I appreciate it.

Your final question comes from Don Difucci with Guggenheim Securities. Please go ahead.

Okay. I won't make you kiss my ring. It's actually John de Tucci. Anyway, I'm sorry. Listen, a lot of my questions on infrastructure have already been asked and they're really important questions because that's a big part of your growth. But I have a question on the applications business. Mike, you said applications are going to accelerate this year. Why the confidence in this business when all your large SaaS peers are seeing just the opposite where growth is decelerating? Especially because we thought something similar about Oracle's application business last year. We didn't really start to see it until the fourth quarter. We've heard some things in the field around 1. Oracle your go to market motion where apps and infrastructure are more combined versus separate. And you also talked about combining vertical and horizontal apps teams here. Is that it? Is it mostly go to market? Is there something more about the products or something else that we should be thinking about? Thank you.

Well, yep, thanks for the question first. I think it's a combination of things, but let me just start with what I think is happening in the industry. All of our competitors are largely in the best of breed business because they're not in the applications business in totality. They're not in the back office business, they're not in the industry business and they're not in everything in between. They're not in the front of the house, the back of the house and. The middle of the house. We are the only applications company in the world that's selling complete application suites. Then you add in baked in AI, the AI Halo, baked in AI right into our application. So we're over 400 AI features live in Fusion already. I mentioned 274 customers live on our clinical AI agent. The go lies for these clinical AI agents which are a new breed of SaaS. Applications for us are measured in a matter of weeks and you're looking at an industry like healthcare where it would take months or years to get anything done of that magnitude. Weeks. And by the way John, the customers are implementing these things all by themselves. They don't need us to help them. You just roll them out and they work. So we're in the, we're in, we're in the applications industry suite business. We're building AI into our back office applications, our front office applications and we are building applications that are also AI agents themselves are in fact AI agents. That's why you see the growth rates in our industry applications of 21% in the quarter. Our Fusion ERP is up 17%, SCM up 18%, HCM up 14%, CX up 12% again all on a bigger base. Then I think the next piece of this is you add in the AI data platform. So if you'd like an industry suite of applications then you'd like to create your own AI agents, you'd like to create and unlock your own enterprise data. On top of it all. We are the only. All of those ingredients for a customer. And I think as you, as you look at customers, you know, tiring of spend on best of breed because the integration costs are so high and it's hard to bolt AI onto all that because you're actually not retiring anything in the process. We're in a very unique position and I think we're starting to see it in the numbers too, John. With the deferred revenue for apps growing at 14% now, you know, faster than the in quarter revenue growth of 11%. For all those reasons I'm optimistic on our apps business going forward that it's a continued growth engine for Oracle.

Thank you, Mike. As you were talking I sort of clarified in my mind when I think of one Oracle I used to think of, I thought of it when I started to hear about it as a go to market motion. But it's more than that. It's actually a product thing too. It's everything. So thanks a lot. Thank you. Thank you, John.

A telephonic replay of this conference call. Will be available for 24 hours on our investor relations website. Thank you for joining us today. And with that I'll now turn the call back to Tiffany for closing.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.