Oracle Corporation (ORCL) - 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Oracle Corporation for the quarterly period ended February 28, 2026 (Fiscal Q3 2026) and the nine months ended February 28, 2026. Oracle operates three primary business segments: Cloud and Software, Hardware, and Services. The company is a large accelerated filer incorporated in Delaware.
Key Financial Metrics
| Metric | Q3 2026 (3 Months) | Q3 2025 (3 Months) | 9 Months 2026 | 9 Months 2025 |
|---|---|---|---|---|
| Total Revenues | $17.19 billion | $14.13 billion | $48.17 billion | $41.50 billion |
| Net Income | $3.72 billion | $2.94 billion | $12.78 billion | $9.02 billion |
| Diluted EPS | $1.27 | $1.02 | $4.38 | $3.15 |
| Operating Income | $5.46 billion | $4.36 billion | $14.47 billion | $12.57 billion |
| Operating Margin | 32% | 31% | 30% | 30% |
| Free Cash Flow (Trailing 4Q) | ($24.74 billion) | $5.81 billion | N/A | N/A |
| Cash & Equivalents | $38.46 billion | $10.79 billion (May 2025) | N/A | N/A |
| Total Debt (Current + Non-Current) | $134.61 billion | $92.57 billion (May 2025) | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 22% year-over-year (YoY) in Q3 and 16% for the nine-month period. Cloud revenues were the primary driver, growing 44% in Q3 and 36% for the nine months.
- Cloud Infrastructure Surge: Cloud infrastructure revenues grew 84% in Q3 and 70% for the nine months, significantly outpacing Cloud Applications growth (13% and 12% respectively).
- Capital Expenditures: Capital expenditures surged to $39.2 billion for the nine months ended Feb 2026, compared to $12.1 billion in the prior year period, driven by data center expansion. This resulted in negative free cash flow for the trailing four quarters.
- Debt Issuance: The company issued $43.0 billion in senior notes during the first nine months of fiscal 2026 to fund capital expenditures and general corporate purposes.
- Restructuring Costs: Restructuring expenses increased significantly to $153 million in Q3 and $961 million for the nine months, primarily related to the "2026 Restructuring Plan" aimed at improving operational efficiencies.
- Non-Operating Income: Non-operating income for the nine months included a $2.7 billion realized gain from the sale of Oracle's investment in Ampere Computing Holdings LLC.
Guidance, Outlook, and Risks
- Outlook: Management expects total cloud and software revenues to continue increasing on a constant currency basis due to growth in cloud offerings and continued demand for software. They anticipate the proportion of cloud revenues relative to total revenues will continue to rise.
- Capital Needs: Management expects continued growth in cloud and software expenses and capital expenditures to increase data center capacity and establish new geographic locations.
- Legal Proceedings:
- Netherlands Privacy Class Action: A class action regarding the Data Management Platform product is proceeding. The Supreme Court judgment is scheduled for June 28, 2026. Oracle believes it has meritorious defenses.
- Securities Class Action: A putative class action filed in February 2026 alleges false statements regarding Oracle Cloud Infrastructure. Oracle intends to vigorously defend.
- Tax Contingencies: Oracle is under audit by various domestic and foreign tax authorities. A net tax expense of $958 million was recorded in Q1 2026 related to the remeasurement of a deferred tax liability due to the "U.S. One, Big, Beautiful Bill Act."
- Dilution Risk: The issuance of 6.50% Series D Mandatory Convertible Preferred Stock ($5.0 billion proceeds) and the "at-the-market" (ATM) equity program may dilute common stock ownership.
Investor Verification Checklist
- Capital Expenditure Sustainability: Verify the long-term ROI of the $39.2 billion in capital expenditures and the timeline for positive free cash flow recovery.
- Debt Servicing Capacity: Assess the impact of the increased debt load ($134.6 billion total) and rising interest rates on future interest expense and liquidity.
- Cloud Infrastructure Margins: Monitor whether the rapid growth in Cloud Infrastructure revenues can sustain margins given the heavy infrastructure investment costs.
- Restructuring Execution: Track the realization of cost savings from the $2.1 billion 2026 Restructuring Plan against the incurred expenses.
- Legal Outcomes: Monitor the June 2026 Supreme Court ruling in the Netherlands privacy case and the status of the new securities class action.
- Preferred Stock Conversion: Review the terms of the Series D Mandatory Convertible Preferred Stock, specifically the conversion rate and potential dilution upon the mandatory conversion date in January 2029.