Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
We begin Management's Discussion and Analysis of Financial Condition and Results of Operations with an overview of our businesses and significant trends. This overview is followed by a summary of our critical accounting estimates that we believe are important to understanding significant assumptions and judgments incorporated in our reported financial results. We then provide a more detailed analysis of our results of operations and financial condition for fiscal 2024 compared to fiscal 2023. A discussion regarding our financial condition and results of operations for fiscal 2023 compared to fiscal 2022 can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended May 31, 2023, as filed with the SEC on June 20, 2023, which is available free of charge on the SEC's website at www.sec.gov and on our Investor Relations website at www.oracle.com/investor.
Business Overview
Oracle provides products and services that address enterprise 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 on-premise, cloud-based and hybrid deployments (an approach that combines both on-premise and cloud-based 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 license; hardware; and services; each of which comprises a single operating segment. The descriptions set forth below as a part of this Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations and the information contained within Item 1 Business and Note 14 of Notes to Consolidated Financial Statements included elsewhere in this Annual 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 Officer and Chief Technology Officer, view our operating results and allocate resources.
Cloud and License Business
Our cloud and license business, which represented 84% and 83% of our total revenues in fiscal 2024 and 2023, respectively, markets, sells and delivers a broad spectrum of enterprise applications and infrastructure technologies through our cloud and license offerings. Revenue streams included in our cloud and license business are:
•Cloud services and license support revenues, which include:
ocloud services 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 Services arrangements generally: are billed in advance of the cloud services being delivered; have durations of one to four 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
olicense support revenues, which are earned by providing Oracle license 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 license 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 license support customers are entitled to receive. License support contracts are generally priced as a percentage of the net fees paid by the customer to purchase a cloud license and/or on-premise license; are generally billed in advance of the support services being performed; are generally renewed at the customer's option; and are generally recognized as revenues ratably over the contractual period that the support services are provided, which is generally one year.
Index to Financial Statements
•Cloud license and on-premise license revenues, which include revenues from 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 cloud license and on-premise 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 cloud licenses and on-premise licenses are recognized at the point in time when the software end user usage occurs. The timing of a few large license transactions can substantially affect our quarterly license revenues due to the point-in-time nature of revenue recognition for license transactions, which is different than the typical revenue recognition pattern for our cloud services and license support revenues in which revenues are recognized over time. Cloud license and on-premise license customers have the option to purchase and renew license support contracts, as further described above.
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 license 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 services revenues relative to our total revenues has increased and we expect this trend to continue. Cloud services revenues represented 37%, 32% and 25% of our total revenues during fiscal 2024, 2023 and 2022, respectively.
Our cloud and license business' revenue growth is affected by many factors, including the strength of general economic and business conditions; governmental budgetary constraints; the strategy for and competitive position of our offerings; customer satisfaction with our offerings; the continued renewal of our cloud services and license support customer contracts by the customer contract base; substantially all customers continuing to purchase license support contracts in connection with their license purchases; the pricing of license support contracts sold in connection with the sales of licenses; the pricing, amounts and volumes of licenses and cloud services 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 license revenues generally will continue to increase due to:
•expected growth in our cloud services offerings; and
•continued demand for our cloud license and on-premise license and license support offerings.
We believe these factors should contribute to future growth in our cloud and license 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 license products and services.
Our cloud and license 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 license 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 license business' revenues over the course of the four quarters within a particular fiscal year is primarily due to the addition of new cloud services and license support contracts to the customer contract base that we generally recognize as revenues ratably or based upon customer usage over the respective contractual terms and the renewal of existing customers' cloud services and license support contracts over the course of each fiscal year that we generally recognize as revenues in a similar manner; and the historical upward trend of our cloud license and on-premise license revenues, which we generally recognize at a point in time upon delivery; in each case over those four fiscal quarterly periods.
Index to Financial Statements
Hardware Business
Our hardware business, which represented 6% of our total revenues in each of fiscal 2024 and 2023, 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.
We generally expect our hardware business to have lower operating margins as a percentage of revenues than our cloud and license business due to the incremental costs we incur to produce and distribute these products and to provide support services, including direct materials and labor costs.
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 manufacture or deliver a few large hardware transactions; our strategy for and the 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; 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; and the close association between 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 10% and 11% of our total revenues in fiscal 2024 and 2023, respectively, 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 advanced customer services. Our services business has lower margins than our cloud and license 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 license 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. We acquired certain companies and technologies during fiscal 2024 and 2023, including Cerner in fiscal 2023. Refer to Note 2 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information related to our acquisition of Cerner and our other recent acquisitions. As compelling
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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.
Investment in Ampere Computing Holdings LLC
From time to time since 2017, we have made investments in Ampere, a related party entity, in the form of equity and convertible debt instruments. The total carrying value of our investments in Ampere, after accounting for losses under the equity method of accounting, was $1.5 billion and $1.2 billion as of May 31, 2024 and 2023, respectively. We currently expect Ampere to continue to generate net losses in future periods but we remain confident in the long-term potential of Ampere's server chips.
Our equity investments in Ampere represent an ownership interest of approximately 29% as of May 31, 2024 and 2023. We also own convertible debt investments in Ampere which, under the terms of an agreement with Ampere and other co-investors, will mature in June 2026 and are convertible into equity securities at the holder's option under certain circumstances. During the fiscal year ended May 31, 2024, we invested an aggregate of $600 million in convertible debt instruments issued by Ampere. In accordance with the terms of an agreement with other co-investors, we are also a counterparty to certain put (exercisable by a co-investor) and call (exercisable by Oracle) options at prices of approximately $400 million to $1.5 billion, respectively, to acquire additional equity interests in Ampere from our co-investors through January 2027. If either of such options is exercised by us or our co-investors, we would obtain control of Ampere and consolidate its results with our results of operations.
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 disclosure. 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 business combinations, income taxes and non-marketable investments. Refer to Note 1 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for more discussion of our significant accounting policies.
Business Combinations
In accordance with the provisions of Accounting Standards Codification (ASC) 805, Business Combinations, we use our best estimates and assumptions, which are inherently uncertain and subject to refinement, to recognize and measure assets acquired and liabilities assumed, including intangible assets and pre-acquisition contingencies, at the acquisition date as well as any contingent consideration, where applicable. Although we believe that the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the business acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of a business acquisition's measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
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For a given business acquisition, we may identify certain pre-acquisition contingencies as of the acquisition date and may extend our review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether we include these contingencies as a part of the fair value estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts.
If we cannot reasonably determine the fair value of a non-income tax related pre-acquisition contingency by the end of the measurement period, which is generally the case given the nature of such matters, we will recognize an asset or a liability for such pre-acquisition contingency if: (1) it is probable that an asset existed or a liability had been incurred at the acquisition date and (2) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement period or final determination of the net asset values for the business combination, whichever comes first, changes in our estimates of such contingencies will affect earnings and could have a material effect on our results of operations and financial position.
In addition, uncertain tax positions and tax related valuation allowances assumed in a business combination are initially estimated as of the acquisition date. We reevaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date with any adjustments to our preliminary estimates being recorded to goodwill if identified within the measurement period. Subsequent to the measurement period or our final determination of the tax allowance's or contingency's estimated value, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in our consolidated statement of operations and could have a material impact on our results of operations and financial position.
Income Taxes
Judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities, the process of identifying items of revenues and expenses that qualify for preferential tax treatment, and the segregation of foreign and domestic earnings and expenses to avoid double taxation. Although we believe that our estimates are reasonable, the final tax outcome of these matters could be different from that which is reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision and net income in the period in which such determination is made.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient taxable income in those jurisdictions where the deferred tax assets are located. We consider future growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which we operate, historical earnings, taxable income in prior years, if carryback is permitted under the law, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets valuation allowance would be charged to earnings in the period in which we make such a determination, or goodwill would be adjusted at our final determination of the valuation allowance related to an acquisition within the measurement period. If we later determine that it is more likely than not that the net deferred tax assets would be realized, we would reverse the applicable portion of the previously provided valuation allowance as an adjustment to our provision for income taxes at such time.
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are generally recorded in the period when the global tax implications are known, which can materially impact our effective tax rate.
The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Our estimate of the potential outcome for any uncertain tax issue may require certain judgments. A description of our accounting policies associated with tax related contingencies assumed as a part of a business combination is provided under "Business Combinations" above.
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For those tax related contingencies that are not a part of a business combination, we account for these uncertain tax issues pursuant to ASC 740, Income Taxes, which contains a two-step approach to recognizing and measuring uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Although we believe that we have adequately reserved for our uncertain tax positions, no assurance can be given with respect to the final outcome of these matters. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, judicial rulings, and refinement of estimates or realization of earnings or deductions that differ from our estimates. To the extent that the final outcome of these matters is different than the amounts recorded, such differences generally will impact our provision for income taxes in the period in which such a determination is made. Our provisions for income taxes include the impact of reserve provisions and changes to reserves that are considered appropriate and also include the related interest and penalties.
Non-Marketable Investments
We assess our non-marketable debt and equity investments for credit losses and impairment on a quarterly basis and as facts and circumstances change. Our analysis includes an assessment of various qualitative and quantitative factors, including the investee's historical financial results, current financial projections, rate of cash usage and assumptions regarding product acceptance and opportunity within the market. This analysis requires significant judgment in evaluating underlying factors. In some instances, investee specific information available to us to make this assessment may be limited or may be available on a delayed basis. If the investment is determined to be impaired, we adjust the carrying amount of such investment to its estimated fair value by recognizing a charge, which is included in non-operating expenses, net in our consolidated statements of operations. Estimating the fair value of an investment upon impairment involves a significant level of estimation, uncertainty and judgment. We may incur future losses due to impairments, which could have a material impact on our results of operations and financial position.
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 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 license, hardware and services-which are our operating segments as defined pursuant to ASC 280, Segment Reporting. The financial 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 expenses, 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 14 of Notes to Consolidated Financial Statements included elsewhere in this Annual 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 consolidated statements of operations for fiscal 2024 and 2023.
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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 Annual 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, 2023, 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 May 31, 2024 and 2023, our financial statements would reflect reported revenues of $1.09 million in fiscal 2024 (using 1.09 as the applicable average exchange rate for the period) and $1.08 million in fiscal 2023 (using 1.08 as the applicable average exchange rate for the period). The constant currency presentation, however, would translate the fiscal 2024 results using the fiscal 2023 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.
Total Revenues and Operating Expenses
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Total Revenues by Geography:
Americas
$
33,122
6%
6%
$
31,226
EMEA(1)
13,030
8%
5%
12,109
Asia Pacific
6,809
3%
6%
6,619
Total revenues
52,961
6%
6%
49,954
Total Operating Expenses
37,608
2%
2%
36,861
Total Operating Margin
$
15,353
17%
16%
$
13,093
Total Operating Margin %
29%
26%
% Revenues by Geography:
Americas
62%
63%
EMEA
25%
24%
Asia Pacific
13%
13%
Total Revenues by Business:
Cloud and license
$
44,464
8%
8%
$
41,086
Hardware
3,066
-6%
-7%
3,274
Services
5,431
-3%
-3%
5,594
Total revenues
$
52,961
6%
6%
$
49,954
% Revenues by Business:
Cloud and license
84%
83%
Hardware
6%
6%
Services
10%
11%
(1)Comprised of Europe, the Middle East and Africa
Excluding the effects of foreign currency rate fluctuations, our total revenues increased in fiscal 2024 relative to fiscal 2023 due to growth in our cloud and license business' revenues, which were partially offset by a decline in our hardware business' and services business' revenues. The constant currency revenues increase in our cloud and license business in fiscal 2024 relative to fiscal 2023 was attributable to growth in our cloud services and license support revenues as customers purchased our applications and infrastructure technologies via cloud and license deployment models and also renewed their related cloud contracts and license support contracts to continue to gain access to the latest versions of our technologies and to receive support services, partially offset by a decrease in our cloud license and on-premise license revenues. In our hardware business, the constant currency decrease in revenues in fiscal 2024 was due to the emphasis we placed on the marketing and sale of our growing cloud-based infrastructure technologies and strategic hardware offerings and the de-emphasis of our sales and marketing efforts
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for non-strategic hardware products and related support services. In our services business, the constant currency decrease in revenues in fiscal 2024 was attributable to a decrease in revenues from each of our primary services offerings. In constant currency, the Americas, the EMEA and the Asia Pacific regions contributed 64%, 22% and 14%, respectively, of the constant currency total revenue growth during fiscal 2024.
Excluding the effects of foreign currency rate fluctuations, our total operating expenses increased in fiscal 2024 relative to fiscal 2023 due to higher cloud services and license support expenses, which were primarily due to higher infrastructure investments that were made to support the increase in our cloud services and license support revenues; higher research and development expenses, which were primarily due to higher employee related expenses; and higher acquisition related and other expenses, which were primarily due to certain asset impairment charges and certain litigation related charges. These constant currency increases in operating expenses were partially offset by lower sales and marketing expenses, which were primarily due to lower employee related expenses; lower hardware expenses; lower expenses for amortization of intangible assets as certain of our assets were fully amortized; lower general and administrative expenses; and lower restructuring expenses.
In constant currency, our total operating margin and total operating margin as a percentage of revenues increased in fiscal 2024 relative to fiscal 2023 due to higher revenues.
Supplemental Disclosure Related to Certain Charges
To supplement our 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:
Year Ended May 31,
(in millions)
2024
2023
Amortization of intangible assets(1)
$
3,010
$
3,582
Acquisition related and other(2)
314
190
Restructuring(3)
404
490
Stock-based compensation, operating segments(4)
1,382
1,201
Stock-based compensation, R&D and G&A(4)
2,592
2,346
Income tax effects(5)
(2,459
)
(2,136
)
$
5,243
$
5,673
(1)Represents the amortization of intangible assets, substantially all of which were acquired in connection with our acquisitions. As of May 31, 2024, estimated future amortization related to intangible assets was as follows (in millions):
Fiscal 2025
$
2,303
Fiscal 2026
1,639
Fiscal 2027
672
Fiscal 2028
635
Fiscal 2029
561
Thereafter
1,080
Total intangible assets, net
$
6,890
(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 fiscal 2024 primarily related to employee severance in connection with the Fiscal 2024 Oracle Restructuring Plan (2024 Restructuring Plan). Restructuring expenses in fiscal 2023 primarily related to employee severance in connection with the Fiscal 2022 Oracle Restructuring Plan (2022 Restructuring Plan). Additional information regarding certain of our restructuring plans is provided in management's discussion below under "Restructuring Expenses," and in Note 8 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
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(4)Stock-based compensation was included in the following operating expense line items of our consolidated statements of operations (in millions):
Year Ended May 31,
2024
2023
Cloud services and license support
$
525
$
435
Hardware
23
18
Services
167
137
Sales and marketing
667
611
Stock-based compensation, operating segments
1,382
1,201
Research and development
2,225
1,983
General and administrative
367
363
Total stock-based compensation
$
3,974
$
3,547
(5)For fiscal 2024 and 2023, the applicable jurisdictional tax rates 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. These adjustments resulted in an effective tax rate of 19.2%, instead of 10.9%, for fiscal 2024 and 16.3%, instead of 6.8%, for fiscal 2023, which in each case represented our effective tax rates as derived per our consolidated statements of operations.
Cloud and License Business
Our cloud and license business engages in the sale and marketing of our applications and infrastructure technologies that are delivered through various deployment models and include: Oracle Cloud Services offerings; Oracle cloud license and on-premise license offerings; and Oracle license support offerings. Our cloud services 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 services are generally recognized ratably over the contractual term, which is generally one to four years, or in the case of usage model contracts, as the cloud services are consumed. Cloud license and on-premise 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. License support revenues are typically generated through the sale of applications and infrastructure software license support contracts related to cloud licenses and on-premise 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 license business are included in cloud services and license support expenses and sales and marketing expenses. These costs are largely personnel and infrastructure related including the cost of providing our cloud services and license support offerings, salaries and commissions earned by our sales force for the sale of our cloud and license offerings and marketing program costs.
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Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Cloud and License Revenues:
Americas
$
28,196
9%
9%
$
25,821
EMEA
10,771
8%
6%
9,930
Asia Pacific
5,497
3%
6%
5,335
Total revenues
44,464
8%
8%
41,086
Expenses:
Cloud services and license support(1)
8,783
22%
21%
7,222
Sales and marketing(1)
7,167
-7%
-8%
7,738
Total expenses(1)
15,950
7%
6%
14,960
Total Margin
$
28,514
9%
9%
$
26,126
Total Margin %
64%
64%
% Revenues by Geography:
Americas
64%
63%
EMEA
24%
24%
Asia Pacific
12%
13%
Revenues by Offerings:
Cloud services
$
19,774
25%
24%
$
15,881
License support
19,609
1%
0%
19,426
Cloud license and on-premise license
5,081
-12%
-12%
5,779
Total revenues
$
44,464
8%
8%
$
41,086
Cloud Services and License Support Revenues by Ecosystem:
Applications cloud services and license support
$
18,172
9%
9%
$
16,651
Infrastructure cloud services and license support
21,211
14%
13%
18,656
Total cloud services and license support revenues
$
39,383
12%
11%
$
35,307
(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.
Excluding the effects of foreign currency rate fluctuations, our cloud and license business' total revenues increased in fiscal 2024 relative to fiscal 2023 due to growth in our cloud services and license support revenues as customers purchased our applications and infrastructure technologies via cloud and license deployment models and renewed their related cloud contracts and license support contracts to continue to gain access to the latest versions of our technologies and to receive support services for which we delivered such cloud and support services during the period presented. The growth in our cloud services and license support revenues was partially offset by a decrease in our cloud license and on-premise license revenues. In constant currency, the Americas, the EMEA and the Asia Pacific regions contributed 71%, 18% and 11%, respectively, of the constant currency revenue growth for this business during fiscal 2024.
In constant currency, our total cloud and license business' expenses increased in fiscal 2024 relative to fiscal 2023 primarily due to higher technology infrastructure expenses to support the increase in our cloud and license business' revenues. These constant currency expense increases were partially offset by lower sales and marketing expenses, which decreased primarily due to lower employee related expenses due to lower headcount. Our cloud services and license support expenses have grown in recent periods, and we expect this trend to continue during fiscal 2025 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 license business' total margin increased in fiscal 2024 relative to fiscal 2023 due to increases in total revenues for this business. In constant currency, total margin as a percentage of revenues remained flat in fiscal 2024 relative to fiscal 2023.
48
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.
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Hardware Revenues:
Americas
$
1,494
-12%
-13%
$
1,702
EMEA
921
-1%
-4%
933
Asia Pacific
651
2%
4%
639
Total revenues
3,066
-6%
-7%
3,274
Expenses:
Hardware products and support(1)
855
-15%
-16%
1,011
Sales and marketing(1)
296
-11%
-11%
331
Total expenses(1)
1,151
-14%
-15%
1,342
Total Margin
$
1,915
-1%
-1%
$
1,932
Total Margin %
62%
59%
% Revenues by Geography:
Americas
49%
52%
EMEA
30%
28%
Asia Pacific
21%
20%
(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 constant currency hardware revenues decreased in fiscal 2024 relative to fiscal 2023 primarily due to our continued emphasis on the marketing and sale of our cloud-based infrastructure technologies and strategic hardware offerings and the de-emphasis of our sales and marketing efforts for non-strategic hardware products, which resulted in reduced sales volumes of certain of our hardware product lines and also impacted the volume of hardware support contracts sold in recent periods. Geographically, we experienced constant currency revenue declines in the Americas and the EMEA regions, partially offset by a constant currency revenue increase in the Asia Pacific region, in fiscal 2024.
Excluding the effects of currency rate fluctuations, total hardware expenses decreased in fiscal 2024 relative to fiscal 2023 primarily due to lower hardware product costs and lower sales and marketing expenses, all of which aligned with lower hardware revenues.
49
In constant currency, our hardware business' total margin decreased in fiscal 2024 relative to fiscal 2023 due to lower total revenues for this business. In constant currency, total margin as a percentage of revenues increased in fiscal 2024 relative to fiscal 2023 due to lower total expenses for this business.
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 advanced customer 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.
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Services Revenues:
Americas
$
3,432
-7%
-8%
$
3,703
EMEA
1,338
7%
5%
1,246
Asia Pacific
661
2%
6%
645
Total revenues
5,431
-3%
-3%
5,594
Total Expenses(1)
4,515
1%
0%
4,490
Total Margin
$
916
-17%
-17%
$
1,104
Total Margin %
17%
20%
% Revenues by Geography:
Americas
63%
66%
EMEA
25%
22%
Asia Pacific
12%
12%
(1)Excludes stock-based compensation and certain allocations. Also excludes 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.
Excluding the effects of currency rate fluctuations, our total services revenues decreased in fiscal 2024 relative to fiscal 2023 due to a decrease in revenues in each of our primary services offerings. The constant currency decrease in services revenues in the Americas region was partially offset by constant currency increases in services revenues in the EMEA and the Asia Pacific regions in fiscal 2024.
In constant currency, total services expenses remained flat in fiscal 2024 relative to fiscal 2023.
In constant currency, our services business' total margin and total margin as a percentage of revenues decreased in fiscal 2024 relative to fiscal 2023 due to lower total revenues 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.
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Research and development(1)
$
6,690
1%
1%
$
6,640
Stock-based compensation
2,225
12%
12%
1,983
Total expenses
$
8,915
3%
3%
$
8,623
% of Total Revenues
17%
17%
(1)Excluding stock-based compensation
50
On a constant currency basis, total research and development expenses increased in fiscal 2024 relative to fiscal 2023 primarily due to higher employee related expenses, including higher stock-based compensation expenses.
General and Administrative Expenses: General and administrative expenses primarily consist of personnel related expenditures for IT, finance, legal and human resources support functions.
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
General and administrative(1)
$
1,181
-3%
-3%
$
1,216
Stock-based compensation
367
1%
1%
363
Total expenses
$
1,548
-2%
-2%
$
1,579
% of Total Revenues
3%
3%
(1)Excluding stock-based compensation
Excluding the effects of currency rate fluctuations, our total general and administrative expenses decreased in fiscal 2024 relative to fiscal 2023 primarily due to lower professional fees, partially offset by higher stock-based compensation expenses.
Amortization of Intangible Assets: Substantially all of 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 6 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional information regarding our intangible assets and related amortization.
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Developed technology
$
676
-15%
-15%
$
792
Cloud services and license support agreements and related relationships
1,026
-32%
-32%
1,507
Cloud license and on-premise license agreements and related relationships
467
2%
2%
459
Other
841
2%
2%
824
Total amortization of intangible assets
$
3,010
-16%
-16%
$
3,582
Amortization of intangible assets decreased in fiscal 2024 relative to fiscal 2023 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.
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Transitional and other employee related costs
$
19
-76%
-76%
$
77
Business combination adjustments, net
(12
)
10
Other, net
307
198%
196%
103
Total acquisition related and other expenses
$
314
65%
64%
$
190
Not meaningful
On a constant currency basis, acquisition related and other expenses increased in fiscal 2024 relative to fiscal 2023 due to higher other expenses primarily related to certain asset impairment charges and certain litigation related charges, partially offset by lower transitional and other employee related costs and lower expenses for business combination adjustments.
51
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 8 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Restructuring expenses
$
404
-18%
-18%
$
490
Restructuring expenses in fiscal 2024 primarily related to the 2024 Restructuring Plan. Restructuring expenses in fiscal 2023 primarily related to the 2022 Restructuring Plan, which is substantially complete. Our management approved, committed to and initiated the 2024 Restructuring Plan and the 2022 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 2024 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 2024 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:
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Interest expense
$
3,514
0%
0%
$
3,505
Interest expense remained flat in fiscal 2024 relative to fiscal 2023.
Non-Operating Expenses, net: Non-operating expenses, 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 losses related to equity investments, including losses attributable to equity method investments (primarily Ampere) and net other income and expenses, including net unrealized gains and losses from our investment portfolio related to our deferred compensation plan and non-service net periodic pension income and losses.
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Interest income
$
451
58%
59%
$
285
Foreign currency losses, net
(228
)
-8%
-11%
(249
)
Noncontrolling interests in income
(186
)
13%
13%
(165
)
Losses from equity investments, net
(303
)
-7%
-8%
(327
)
Other income (expenses), net
168
(6
)
Total non-operating expenses, net
$
(98
)
-79%
-80%
$
(462
)
Not meaningful
52
Our non-operating expenses, net decreased in fiscal 2024 relative to fiscal 2023 primarily due to higher interest income; lower net losses associated with equity investments; lower foreign currency losses; and higher other income, net, which was primarily attributable to unrealized investment gains associated with certain marketable equity securities that we held for employee benefit plans, and for which an equal and offsetting amount was recorded to our operating expenses during the same period. These decreases in non-operating expenses, net were partially offset by higher expenses for noncontrolling interests in income.
Provision for Income Taxes: Our effective income tax rates for each of the periods presented were the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. Refer to Note 13 of Notes to Consolidated Financial Statements included elsewhere in this Annual 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.
Year Ended May 31,
Percent Change
(Dollars in millions)
2024
Actual
Constant
2023
Provision for income taxes
$
1,274
105%
103%
$
623
Effective tax rate
10.9%
6.8%
Provision for income taxes increased in fiscal 2024 relative to fiscal 2023 primarily due to the absence of unrecognized tax benefits due to settlements with tax authorities, an unfavorable jurisdictional mix of earnings, and higher income before provision for income taxes, partially offset by a combination of an increase in tax benefits related to stock-based compensation, the realization of a one-time tax attribute and the revaluation of net deferred tax assets due to a change in tax rate.
Liquidity and Capital Resources
As of May 31,
(Dollars in millions)
2024
Change
2023
Working capital
$
(8,990
)
331%
$
(2,086
)
Cash, cash equivalents and marketable securities
$
10,661
5%
$
10,187
Working capital: The decrease in working capital as of May 31, 2024 in comparison to May 31, 2023 was primarily due to $10.0 billion of long-term senior notes that were reclassified to current liabilities, cash used to pay dividends to our stockholders, cash used for capital expenditures, cash used for purchases of non-marketable investments, net cash used for our employee stock programs and cash used for repurchases of our common stock during fiscal 2024. These unfavorable impacts were partially offset by favorable impacts to our net current assets resulting from net income during fiscal 2024. 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: The increase in cash, cash equivalents and marketable securities as of May 31, 2024 in comparison to May 31, 2023 was primarily due to cash inflows from our operations during fiscal 2024. This increase was partially offset by cash used for capital expenditures, $3.5 billion of repayment of senior notes during fiscal 2024, payments of cash dividends to our stockholders, purchases of non-marketable investments, net cash used for our employee stock programs and repurchases of our common stock. 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.
53
Year Ended May 31,
(Dollars in millions)
2024
Change
2023
Net cash provided by operating activities
$
18,673
9%
$
17,165
Net cash used for investing activities
$
(7,360
)
-80%
$
(36,484
)
Net cash (used for) provided by financing activities
$
(10,554
)
$
7,910
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 license support and cloud services agreements. Customers for these license support and cloud services agreements are generally billed in advance of services being provided. Over the course of a fiscal year, we also generate cash from the sales of new 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.
Net cash provided by operating activities increased in fiscal 2024 relative to fiscal 2023 primarily due to higher net income, partially offset by certain cash unfavorable working capital changes, net.
Cash flows from investing activities: The changes in cash flows from investing activities primarily relate to our acquisitions, purchases, maturities and sales of our investments in marketable securities and other instruments and investments in capital assets primarily to support the growth in our cloud and license business.
Net cash used for investing activities decreased in fiscal 2024 relative to fiscal 2023 primarily due to the decrease in cash used for acquisitions, net of cash acquired and lower capital expenditures.
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 used for financing activities was $10.6 billion during fiscal 2024 compared to the net cash provided by financing activities of $7.9 billion in fiscal 2023. The increase in net cash used for financing activities was primarily due to the absence of the cash proceeds from borrowings pursuant to the issuance of senior notes and Term Loan Credit Agreement, higher repayments of commercial paper notes, net of issuances, higher net cash used for our employee stock programs and higher dividend payments, partially offset by lower maturities of senior notes and lower stock repurchases, in each case in fiscal 2024 relative to fiscal 2023. During fiscal 2023 we borrowed $15.7 billion pursuant to the Bridge Credit Agreement, which was fully repaid within fiscal 2023.
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 4-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 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:
Year Ended May 31,
(Dollars in millions)
2024
Change
2023
Net cash provided by operating activities
$
18,673
9%
$
17,165
Capital expenditures
(6,866
)
-21%
(8,695
)
Free cash flow
$
11,807
39%
$
8,470
Net income
$
10,467
$
8,503
Net cash provided by operating activities as a percent of net income
178%
202%
Free cash flow as percent of net income
113%
100%
54
Recent Financing Activities:
Term Loan Credit Agreements: On June 10, 2024, we terminated our existing term loan credit agreement that we entered into in fiscal 2023 and repaid the principal amount outstanding together with interest accrued up to the date of repayment. Simultaneously, we borrowed up to the maximum commitment amount of $5.6 billion pursuant to a term loan credit agreement (Term Loan Credit Agreement) executed on the same date. Any remaining unpaid principal balance under the Term Loan Credit Agreement will become fully due and payable on August 16, 2027, unless the termination date of Term Loan Credit Agreement is extended. Refer to Note 7 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report for additional details about our borrowings.
Cash Dividends: In fiscal 2024, we declared and paid cash dividends of $1.60 per share that totaled $4.4 billion. In June 2024, our Board of Directors declared a quarterly cash dividend of $0.40 per share of our outstanding common stock payable on July 25, 2024 to stockholders of record as of the close of business on July 11, 2024. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors.
Common Stock Repurchase Program: Our Board of Directors has approved a program for us to repurchase shares of our common stock. As of May 31, 2024, approximately $7.0 billion remained available for stock repurchases pursuant to our stock repurchase program. We repurchased 10.6 million shares for $1.2 billion, 17.0 million shares for $1.3 billion, and 185.8 million shares for $16.2 billion in fiscal 2024, 2023 and 2022, respectively. Our stock repurchase authorization does not have an expiration date and the pace of our repurchase activity will depend on factors such as our working capital needs, our cash requirements for acquisitions and dividend payments, our debt repayment obligations or repurchases of our debt, our stock price and economic and market conditions. Our stock repurchases may be effected from time to time through open market purchases or pursuant to a Rule 10b5-1 trading plan. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time.
Contractual Obligations: Our largest contractual obligations as of May 31, 2024 consisted of:
•principal payments related to our senior notes and other borrowings that were included in our consolidated balance sheet and the related periodic interest payments;
•routine tax payments including those that are payable pursuant to the transition tax under the U.S. Tax Cuts and Jobs Act of 2017 that were included in our consolidated balance sheet;
•operating lease liabilities that were included in our consolidated balance sheet;
•operating lease commitments that have not yet commenced and were not included in our consolidated balance sheet; and
•other contractual commitments associated with agreements that are enforceable and legally binding.
In addition, as of May 31, 2024, we had $11.0 billion of gross unrecognized income tax benefits, including related interest and penalties, recorded on our consolidated balance sheet, the nature of which is uncertain with respect to settlement or release with the relevant tax authorities, although we believe it is reasonably possible that certain of these liabilities could be settled or released during fiscal 2025. We are involved in claims and legal proceedings, which are inherently uncertain with respect to outcomes, estimates and assumptions that we make as of each reporting period, are inherently unpredictable, and many aspects are out of our control. Notes 7, 10, 13 and 16 of Notes to Consolidated Financial Statements included elsewhere in this Annual Report include additional information regarding our most material contractual obligations and contingencies.
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.
55
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, 2021 has been an annualized rate of 2.1% 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 May 31, 2024, which generally have a ten-year exercise period, all have exercise prices lower than the market price of our common stock on such date. In recent years, our stock repurchase program has substantially 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 acquisitions, to pay dividends, to repay or repurchase indebtedness or for other purposes. As of May 31, 2024, the maximum potential dilution from all outstanding stock-based awards, regardless of when granted and regardless of whether vested or unvested, was 6.9%.
During fiscal 2024, the Compensation Committee reviewed and approved the annual organization-wide stock-based award grants to selected employees; all stock-based award grants to senior officers; and any individual grant of RSUs with a value of $5 million or greater. Each member of a separate executive officer committee, referred to as the Plan Committee, was allocated a fiscal 2024 equity budget that could be used throughout the fiscal year to grant equity subject to certain limitations established by the Compensation Committee.
Stock-based awards activity from June 1, 2021 through May 31, 2024 is summarized as follows (shares in millions):
Stock-based awards outstanding as of May 31, 2021
217
Stock-based awards granted and assumed
195
Stock-based awards vested and issued and, if applicable, exercised
(195
)
Forfeitures, cancellations and other, net
(28
)
Stock-based awards outstanding as of May 31, 2024
189
Annualized stock-based awards granted and assumed, net of forfeitures and cancellations
56
Annualized stock repurchases
(71
)
Shares outstanding as of May 31, 2024
2,755
Basic weighted-average shares outstanding from June 1, 2021 through May 31, 2024
2,713
Stock-based awards outstanding as a percent of shares outstanding as of May 31, 2024
6.9%
Total in the money stock-based awards outstanding (based on the closing price of our common stock on the last trading day of fiscal 2024) as a percent of shares outstanding as of May 31, 2024
6.9%
Annualized stock-based awards granted and assumed, net of forfeitures and cancellations and before stock repurchases, as a percent of weighted-average shares outstanding from June 1, 2021 through May 31, 2024
2.1%
Annualized stock-based awards granted and assumed, net of forfeitures and cancellations and after stock repurchases, as a percent of weighted-average shares outstanding from June 1, 2021 through May 31, 2024
-0.6%
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 Consolidated Financial Statements included elsewhere in this Annual Report.