TL;DR — Oracle’s remaining performance obligations rose to $664 billion in the quarter ended August 31, up $26 billion from May. Lease commitments not yet on its balance sheet rose $28 billion to $288 billion. Customer prepayments of $11.4 billion kept free cash flow at negative $5 billion instead of roughly negative $17 billion.
Oracle’s first-quarter fiscal 2027 report, released September 10, showed a record $23.1 billion of operating cash flow and a backlog of $664 billion. Shares rose about 4% in late trading, SiliconANGLE reported. The 10-Q filed afterward shows how the long-cycle structure of the business is shifting. Customers are now funding part of the buildout, while the commitments Oracle is taking on run for up to 19 years.
Half of Oracle’s Operating Cash Flow Came From $11.4 Billion of Customer Prepayments
The cash flow statement has a new line. $11.4 billion came from customer prepayments with a significant financing component, against zero a year earlier. These are customers paying before the capacity is delivered. Without that line, operating cash flow would have been about $11.7 billion.
Capital expenditures were $28.5 billion, up from $8.5 billion a year earlier, and Oracle reported free cash flow of negative $5 billion. Excluding the prepayments, the figure would have been roughly negative $16.8 billion. Management’s net cash capex, which subtracts prepayments, was $18 billion for the quarter.
On the earnings call, CFO Hilary Maxson said the vast majority of new contracts used prepayment or bring-your-own-hardware structures and would not require incremental capital from Oracle. Co-CEO Clay Magouyrk described customers who pay for the hardware but use Oracle to run it. Guidance for fiscal 2027 is $90 billion to $95 billion of capex, with net cash capex of no more than $70 billion.
- Backlog (RPO): $664 billion, up from $638 billion in May and $455 billion a year earlier
- Customer prepayments: $11.4 billion, against none in the year-ago quarter
- Capex: $28.5 billion, against $8.5 billion
- Off-balance-sheet lease commitments: $288 billion, up from $260 billion at May 31
- New equity: 141 million shares sold through the at-the-market program for $19.9 billion net
Only 13% of the $664 Billion Backlog Becomes Revenue in the Next 12 Months
The 10-Q gives the conversion schedule. About 13% of the backlog, roughly $86 billion, is expected to be recognized over the next twelve months. Another 37% falls in months 13 to 36 and 34% in months 37 to 60. The remaining 16% arrives after five years.
That lines up with Maxson’s comment that around half of the backlog should convert to sales within 36 months. The bulk of the $664 billion is revenue for 2028 through 2031, not for this fiscal year, for which Oracle guides total revenue of at least $90 billion. We looked at how the backlog was built, and what it cost in cash, in our earlier piece on Oracle’s $638 billion backlog.
The equity side moved too. Oracle completed its $20 billion at-the-market stock program during the quarter, and diluted weighted shares rose to 3.000 billion from 2.909 billion a year earlier. The company said the structure of its new contracts adds nothing to its capital-raising plans. Existing shareholders already absorbed about 3% more shares.
Oracle’s Lease Commitments Run 15 to 19 Years and Grew Faster Than Its Backlog
In Note 6, Oracle discloses $288 billion of additional lease commitments, substantially all for data centers, that are not on its balance sheet. They are expected to commence between the second quarter of fiscal 2027 and fiscal 2029, with terms of 15 to 19 years. The figure was $260 billion at May 31.
So the backlog rose $26 billion in the quarter while the unrecorded lease commitments rose $28 billion. Leases already on the balance sheet add $34.6 billion of operating and $9.2 billion of finance lease liabilities. Notes payable and other borrowings total $125.3 billion, and unconditional purchase obligations, mostly components and power, add $34.2 billion.
The costs are already moving through the income statement. Depreciation rose to $3.2 billion from $1.4 billion a year earlier, operating lease expense to $1.1 billion from $575 million, and interest expense to $1.4 billion from $923 million. GAAP operating income still grew 57% to $6.7 billion. As the $288 billion of leases commences, that lease line will grow with it.
Oracle’s customers have signed contracts that mostly convert to revenue within five years. Oracle has signed data center leases that run for up to nineteen.
That duration gap is the long-cycle risk in the model. About 84% of the backlog converts within five years, while the leases run into the 2040s. Oracle is betting the capacity will still be rented once today’s contracts end. Meta took a different route to the same problem, as we described in how Meta kept a $30 billion data center loan off its balance sheet.
Prepayments narrow the funding gap without closing it. A prepaid contract converts customer cash into deferred revenue, which Oracle must later deliver as service on capacity it leases or builds. It lowers the near-term need for debt and equity. It does not shorten the leases.
What to watch next: Oracle’s next quarterly report will show whether prepayments recur or were concentrated in one quarter, and how much of the $288 billion commences and moves onto the balance sheet. Track net cash capex against the $70 billion ceiling and the share of backlog due in the next twelve months. A rising 12-month share would mean the long-dated portion is starting to convert.
Sources: Oracle’s Form 10-Q for the quarter ended August 31, 2026, its September 10, 2026 earnings release and its fiscal 2026 Form 10-K on SEC EDGAR; the release on Oracle’s investor relations site; the earnings call transcript; market reaction from SiliconANGLE. Disclosure: the author holds no position in Oracle. This is not investment advice. The full disclosure policy is on the About page.
