Oracle Corp. (NYSE: ORCL) posted record revenue Thursday, but the more revealing numbers came from how the company is paying for its AI buildout. CFO Hilary Maxson told analysts that remaining performance obligations, or RPO, increased $26 billion from Q4. She was quick to explain the mechanics behind that growth: The vast majority of the new contracts were via prepay or bring-your-own hardware, so will not require incremental capital from Oracle.
She added that the new RPO will not impact capex or revenues until fiscal 2028 or beyond.
Co-CEO Clay Magouyrk reinforced the point on the infrastructure side, noting: "We closed more than $30 billion of additional AI contracts in Q1 without requiring additional capital from Oracle."
Asked in the Q&A how the arrangements actually work, Magouyrk didn't detail the structure, pointing back to his earlier framing: "We said it doesn't require additional cash from Oracle."
He described the broader strategy as ongoing rather than new, telling Deutsche Bank's Brad Zelnick that Oracle is constantly finding interesting ways to fund the business and that new capacity does not have to be Oracle capex.
Maxson went furthest in describing where this leads. Asked about free cash flow timing, she said completed projects are delivering a free cash flow conversion ratio of "something like 100% to post-tax EBITDA" shortly after ramping up, adding that the business, by nature, is somewhat "self-funding" at some point.
The numbers behind those characterizations are important. Maxson disclosed that Oracle's capex for the quarter was $28 billion, resulting in negative free cash flow of $5 billion, while full-year guidance holds at $90 billion-$95 billion in capex, with no more than $70 billion in net cash capex.
Management still expects around half of Oracle's RPO to convert into sales over the next 36 months - a long runway resting on prepay commitments and bring-your-own-hardware deals that shift financing risk onto customers, suppliers and lessors rather than eliminating it.
ORCL Stock Price Activity: Oracle stock was up 0.55% at $153.78 at the time of publication Friday, according to data from Benzinga Pro.