What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-05 compared with 2026-05-06 · 60 added, 52 removed, 181 unchanged (38% of the section changed)

36 unchanged sentences

• provide consistent real-time telemetry and intelligent automation to decrease the manual workload on the operator.

Our strategic differentiation enables us to deliver a comprehensive suite of products and services to a global scale.

Our strategic differentiation enables us to deliver a comprehensive suite of products and services on a global scale.

Through our network-as-a-service approach, we empower customers to seamlessly leverage their data across our entire platform.

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We believe an increased focus on the deployment of AI-enabled solutions by our large customers has accelerated the need for advanced technology offerings, including some offerings from potential new market entrants.

This prioritization and acceleration of AI related infrastructure investment has, at times, come in conjunction with a reduction or changes in the mix of previously planned purchases and various cost reduction measures by these customers, including optimization and increased efficiency in non-AI related capital expenditures.

This prioritization of AI related infrastructure investment has, at times, come in conjunction with a reduction or changes in the mix of previously planned purchases and various cost reduction measures by these customers, including optimization and increased efficiency in non-AI related capital expenditures.

In addition, although the focus on deployment of AI-enabled solutions has driven increased demand for networking, the long-term trajectory is unknown.

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Given the timing and prioritization of customer orders and shipment patterns, as well as the timing and outcome of customer trials and contracts with acceptance periods, near term revenue trends may not be reflective of current demand levels and may benefit from demand/deployment plans that have been previously committed.

In addition, we expect inventory and purchase commitments to remain elevated and subject to volatility as a result of new product introductions, shifts in customer demand, and fluctuations in supplier lead times.

In addition, we expect inventory and purchase commitments to remain elevated and subject to volatility as a result of new product introductions, shifts in customer demand, tightening supply conditions and fluctuations in supplier lead times.

This volatility creates a heightened risk of excess or obsolete inventory and supplier liability charges.

Simultaneously, supply chain inflation and material scarcity, such as the tightening of supply conditions in the memory and silicon markets, have continued to put pressure on our gross margin.

If tariff or non-tariff measures escalate, and/or if supply conditions worsen and we are unable to pass on

these costs to customers, our gross margins could be further impacted.

If tariff or non-tariff measures escalate, and/or if supply conditions worsen and we are unable

to pass on these costs to customers, our gross margins could be further impacted.

Additionally, broader macroeconomic instability could negatively affect demand.

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Results of Operations

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

Three and Six Months Ended June 30, 2026 Compared to Three and Six Months Ended June 30, 2025

Revenue, Cost of Revenue and Gross Margin (in millions, except percentages)

Three Months Ended March 31,

2026 2025 Change in

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 Change in 2026 2025 Change in

$ $ $ % $ $ $ %

Product $ 2,605.2 $ 1,877.0 $ 728.2 38.8 % $ 4,916.5 $ 3,569.5 $ 1,347.0 37.7 %

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Revenue by Geography (in millions, except percentages)

Three Months Ended March 31,

2026 % of Total 2025 % of Total

Three Months Ended June 30, Six Months Ended June 30,

2026 % of Total 2025 % of Total 2026 % of Total 2025 % of Total

Americas $ 2,337.9 77.0 % $ 1,724.1 78.2 % $ 4,628.0 80.6 % $ 3,322.6 79.0 %

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Our revenue may vary from period to period based on, among other things, customer demand, industry and customer cyclicality, the timing, size, and complexity of orders, especially with respect to our large customers, and the time it takes for customers to evaluate, test, qualify and accept our products and services.

Product revenue increased by $618.8 million, or 36.6% for the three months ended March 31, 2026, compared to the same period in 2025.

Product revenue increased by $728.2 million, or 38.8%, and $1,347.0 million, or 37.7% for the three and six months ended June 30, 2026, compared to the same periods in 2025.

This increase reflects healthy customer demand and higher shipments of our switching and routing platforms across our customer base.

In addition, service revenue increased by $85.4 million, or 27.3% for the three months ended March 31, 2026, compared to the same period in 2025, as a result of continued growth in initial and renewal support contracts as our customer installed base has continued to expand.

Non-Americas revenue represented 15.5% of total revenue for the three months ended March 31, 2026, decreasing from 20.3% for the same period in the prior year, which was primarily influenced by changes in the geographic mix of sales to our large global customers.

In addition, service revenue increased by $102.7 million, or 31.3%, and $188.1 million, or 29.4% for the three and six months ended June 30, 2026, compared to the same periods in 2025, as a result of continued growth in initial and renewal support contracts as our customer installed base has continued to expand.

Non-Americas revenue represented 23.0% and 19.4% of total revenue for the three and six months ended June 30, 2026, compared to 21.8% and 21.0% for the same periods in the prior year.

These fluctuations are primarily driven by changes in the geographic mix of sales to our large global customers across our Non-Americas regions.

Cost of Revenue and Gross Margin

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Cost of service revenue primarily consists of personnel and other costs associated with our global customer support and services organizations.

Cost of revenue increased by $303.5 million, or 41.6% for the three months ended March 31, 2026, compared to the same period in 2025.

These increases were primarily driven by a corresponding increase in product and service revenues.

generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with our manufacturing operations personnel, inflationary pressure and scarcity of materials in our supply chain, merchant silicon costs, and excess/obsolete inventory and supplier liability charges.

Cost of revenue increased by $359.2 million, or 46.9%, and $662.7 million, or 44.3% for the three and six months ended June 30, 2026, compared to the same periods in 2025.

These increases were primarily driven by a corresponding increase

in product and service revenues.

Gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by a variety of factors, including pricing pressure on our products and services due to competition, the mix of sales to large customers who generally receive lower pricing, the mix of products sold, manufacturing-related costs, including costs associated with our manufacturing operations personnel, inflationary pressure and scarcity of materials in our supply chain, merchant silicon costs, and excess/obsolete inventory and supplier liability charges.

We expect our gross margin to fluctuate over time, depending on the factors described above.

Gross margin decreased from 63.7% to 61.9% for the three months ended March 31, 2026, compared to the same period in 2025.

Gross margin decreased to 62.9% and 62.4% for the three and six months ended June 30, 2026, compared to 65.2% and 64.5% for the same periods in 2025.

The decrease was primarily driven by an increased proportion of our sales to large end customers who generally receive higher discounts.

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New product introduction costs are primarily comprised of third-party engineering and prototype expenses.

Three Months Ended March 31,

2026 2025 Change in

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 Change in 2026 2025 Change in

$ $ $ % $ $ $ %

Operating expenses:

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We expect our research and development expenses to increase in absolute dollars as we continue to invest in research and development in order to expand the capabilities of our cloud networking platform, introduce new products and features, and continue to invest in our technology.

Research and development expenses increased by $77.3 million, or 29.0% for the three months ended March 31, 2026, compared to the same period in 2025.

The increase for the three months periods was primarily d riven by a $10.9 million increase in personnel costs due to headcount growth, a nd a $52.1 million in crease in new product introduction costs.

Research and development expenses increased by $51.7 million, or 17.4%, and $129.0 million, or 22.9% for the three and six months ended June 30, 2026, compared to the same periods in 2025.

The increase for the three and six months periods was primarily d riven by increased personnel costs of $33.3 million and $59.4 million, as well as an in crease in new product introduction costs of $8.3 million and $58.8 million.

Sales and marketing

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We expect our sales and marketing expenses to increase in absolute dollars as we continue to expand our sales and marketing efforts worldwide.

Sales and marketing expenses increased by $25.0 million, or 21.4% for the three months ended March 31, 2026, compared to the same period in 2025, which was primarily driven by increased personnel costs due to headcount growth.

Sales and marketing expenses increased by $23.8 million, or 18.8%, and $48.8 million, or 20.1 for the three and six months ended June 30, 2026, compared to the same periods in 2025, which was primarily driven by increased personnel costs due to headcount growth.

General and administrative

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Our professional services costs are primarily related to external legal, accounting and tax services.

General and administrative expenses decreased slightly by $0.6 million, or 1.7% for the three months ended March 31, 2026, compared to the same period in 2025.

General and administrative expenses increased slightly by $4.4 million, or 15.0%, and $3.8 million, or 6.0% for the three and six months ended June 30, 2026, compared to the same periods in 2025.

Other Income (Expense), Net (in millions, except percentages)

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We expect other income (expense), net may fluctuate in the future as a result of changes in interest rates and changes in our cash, cash equivalents and marketable securities balances.

Three Months Ended March 31,

2026 2025 Change in

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 Change in 2026 2025 Change in

$ $ $ % $ $ $ %

Other income (expense), net:

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Total other income (expense), net $ 126.3 $ 94.0 $ 32.3 34.4 % $ 239.9 $ 190.2 $ 49.7 26.1 %

The favorable movement in other income (expense), net, during the three months ended March 31, 2026, compared to the same period in 2025 was primarily driven by increased interest income of $19.0 million due to an increase in our cash and marketable securities balances.

The favorable movement in other income (expense), net, during the three and six months ended June 30, 2026, compared to the same periods in 2025 was primarily driven by increased interest income of $32.0 million and $50.9 million due to an increase in our cash and marketable securities balances.

Provision for Income Taxes (in millions, except percentages)

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Our tax expense to date consists of federal, state and foreign current and deferred income taxes.

Three Months Ended March 31,

2026 2025 Change in

Three Months Ended June 30, Six Months Ended June 30,

2026 2025 Change in 2026 2025 Change in

$ $ $ % $ $ $ %

Income before income taxes $ 1,504.3 $ 1,080.2 $ 424.1 39.3 % $ 2,775.7 $ 2,035.2 $ 740.5 36.4 %

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Effective tax rate 19.4 % 17.7 % 19.5 % 16.3 %

The increase in the effective tax rate in the three months ended March 31, 2026, as compared to the same period in 2025, was primarily due to a decrease in tax benefits attributable to equity-based compensation.

The increase in the effective tax rate in the three and six months ended June 30, 2026, as compared to the same periods in 2025, was primarily due to a decrease in tax benefits attributable to equity-based compensation.

Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents, marketable securities, and cash generated from operations.

As of March 31, 2026, our total balance of cash, cash equivalents and marketable securities was approximately $12.4 billion, of which approximately $377.0 million was held outside the U.S.

As of June 30, 2026, our total balance of cash, cash equivalents and marketable securities was approximately $13.3 billion, of which approximately $0.5 billion was held outside the U.S.

in our foreign subsidiaries.

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Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the introduction of new and enhanced product and service offerings, our costs associated with supply chain activities, including access to outsourced manufacturing, our costs related to investing in or acquiring complementary or strategic businesses and technologies, the continued market acceptance of our products, stock repurchases, and capital expenditures, including the ongoing construction of a building for office, lab and data center space.

In addition, we expect that our inventory and purchase commitments to remain elevated and subject to volatility as we ramp new product introductions.

In particular, we have increased our purchase commitments to respond to the rapid deployment of AI networks, and to navigate the tightening supply within the memory and silicon markets and reduce overall lead times, which will increase our working capital requirements in the future.

Additionally, our working capital and operating cash flows may experience timing differences as a result of certain large customer arrangements that include extended payment terms.

Furthermore, we expect our inventory and purchase commitments to remain elevated and subject to volatility as we ramp new product introductions.

In particular, we have increased our purchase commitments to respond to the rapid deployment of AI networks, and to navigate the tightening supply within the memory and silicon markets

and reduce overall lead times, which will increase our working capital requirements in the future.

We regularly review our liquidity and funding sources to support our long-term growth and capital needs.

Cash Flows (in millions)

Three Months Ended March 31,

Six Months Ended June 30,

Cash provided by operating activities $ 2,776.5 $ 1,841.8

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Cash Flows from Operating Activities

During the three months ended March 31, 2026, cash provided by operating activities was $1.7 billion, consisting of net income of $1.0 billion, a net decrease of $634.7 million in working capital requirements, and non-cash adjustments to net income of $35.9 million.

The decrease in working capital requirements primarily consisted of an increase in deferred revenue of $826.2 million primarily resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms, and a $352.9 million increase in income tax payables related to timing of payments.

These cash inflows were partially offset by a $298.7 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals, and a $133.0 million increase in inventory.

During the six months ended June 30, 2026, cash provided by operating activities was $2.8 billion, consisting of net income of $2.2 billion, a net decrease of $476.4 million in working capital requirements, and favorable non-cash adjustments to net income of $64.3 million.

The reduction in working capital requirements primarily consisted of an increase in deferred revenue of $1.5 billion primarily resulting from an increase in product deferred revenue related to customer contracts with acceptance terms and an increase in customer PCS contracts, and a $198.4 million increase in income tax payables related to timing of payments.

These cash inflows were partially offset by a $619.7 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals, an increase in accounts receivable of $379.3 million due to increased product and service billings, and a $288.2 million increase in inventory.

The non-cash adjustments to net income were driven by stock-based compensation of $241.3 million, and offset by a $213.1 million increase in deferred taxes primarily due to the increase in deferred revenue.

During the three months ended March 31, 2025, cash provided by operating activities was $641.7 million, consisting of net income of $813.8 million, offset by a net increase of $159.7 million in working capital requirements.

The increase in working capital requirements primarily consisted of an increase in accounts receivable of $295.4 million due to increased product and service billings, a $173.3 million decrease in other liabilities primarily due to timing of inventory-related receipts and payments, a $122.7 million increase in inventory and $113.7 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals.

These cash outflows were partly offset by a $241.3 million increase in income tax payables related to timing of payments, and an increase in deferred revenue of $297.4 million primarily resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms.

During the six months ended June 30, 2025, cash provided by operating activities was $1.8 billion, consisting of net income of $1.7 billion along with a net decrease of $293.3 million in working capital requirements, offset by non-cash adjustments to net income of $154.1 million.

The decrease in working capital requirements primarily consisted of an increase in deferred revenue of $1.1 billion primarily resulting from an increase in customer PCS contracts and an increase in product deferred revenue related to customer contracts with acceptance terms, a $152.4 million increase in income tax payables related to timing of payments, and a $110.3 million increase in accounts payable and other liabilities primarily due to timing of inventory-related receipts and payments.

These cash inflows were partially offset by an increase in accounts receivable of $483.1 million due to increased product and service billings, a $224.5 million increase in inventory and a $403.2 million increase in other assets driven by increased deferred cost of sales associated with higher product revenue deferrals.

The non-cash adjustments to net income were driven by a $337.9 million increase in deferred taxes primarily due to the increase in deferred revenue and the capitalization of research and development costs under Section 174 of the Internal Revenue Code ("IRC"), largely offset by stock-based compensation of $178.2 million.

Cash Flows from Investing Activities

During the three months ended March 31, 2026, cash used in investing activities was $0.9 billion, consisting of purchases of marketable securities of $1.9 billion.

During the six months ended June 30, 2026, cash used in investing activities was $2.4 billion, consisting of purchases of marketable securities of $4.3 billion.

These amounts were partially offset by proceeds from maturities and sales of marketable securities of $2.0 billion.

During the three months ended March 31, 2025, cash used in investing activities was $765.9 million, consisting of purchases of marketable securities of $1,545.5 million.

These amounts were partially offset by proceeds from maturities and sales of marketable securities of $808.0 million.

During the six months ended June 30, 2025, cash used in investing activities was $1.4 billion, consisting of purchases of marketable securities of $2.7 billion and $300.0 million for the acquisition of VeloCloud.

These amounts were partially offset by proceeds from maturities and sales of marketable securities of $1.7 billion.

Cash Flows from Financing Activities

During the three months ended March 31, 2026, net cash used in financing activities was negligible as proceeds from the issuance of stock under equity incentive plans was wholly offset by taxes paid under equity incentive and stock repurchase plans.

During the three months ended March 31, 2025, cash used in financing activities was $793.8 million, consisting of payments for repurchases of our common stock from the open market of $787.1 million.

During the six months ended June 30, 2026, cash used in financing activities was $1.5 million, consisting of proceeds from the issuance of stock under equity incentive plans, and offset by taxes paid under equity incentive and stock repurchase plans.

During the six months ended June 30, 2025, cash used in financing activities was $991.0 million, consisting of payments for repurchases of our common stock from the open market of $983.0 million.

Stock Repurchase Programs

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In May 2025, our board of directors authorized a $1.5 billion stock repurchase program (the "Repurchase Program").

The Repurchase Program does not obligate us to acquire any of our common stock and may be suspended or discontinued by the Company at any time without prior notice.

We did not repurchase any shares during the three months ended March 31, 2026.

As of March 31, 2026, the remaining authorized amount for repurchases under the Repurchase Program was $817.9 million.

The Repurchase Program does not obligate us to acquire any of our common stock and may be suspended or

discontinued by the Company at any time without prior notice.

We did not repurchase any shares during the six months ended June 30, 2026.

As of June 30, 2026, the remaining authorized amount for repurchases under the Repurchase Program was $817.9 million.

Refer to Note 6.

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A significant portion of our purchase orders for finished goods and strategic components, including integrated circuits consigned to contract manufacturers, consists of non-cancellable commitments.

Our purchase obligations also encompass software and technology licenses, property and equipment, and other corporate goods and services.

As of March 31, 2026, we had $8.9 billion of such purchase obligations, of which $7.6 billion are expected to be received within one year, and $1.3 billion are expected to be received after one year.

As of June 30, 2026, we had $9.7 billion of such purchase obligations, of which $9.4 billion are expected to be received within one year, and $0.3 billion are expected to be received after one year.

These open purchase orders are considered enforceable and legally binding, and while we may have some limited ability to reschedule and adjust our requirements based on our business needs prior to the delivery of goods or performance of services, this can only occur with the agreement of the related supplier.

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In 2021, we purchased land and the improvements thereon in Santa Clara, California to construct a building for office, lab and data center space.

As of March 31, 2026, the estimated remaining capital expenditures related to this project are expected to be approximately $130.0 million to $150.0 million through the end of fiscal 2026 when we expect construction to be completed.

As of June 30, 2026, the estimated remaining capital expenditures related to this project are expected to be approximately $110.0 million to $135.0 million through the end of fiscal 2026 when we expect construction to be completed.

Off-balance Sheet Arrangements

As of March 31, 2026, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of June 30, 2026, we did not have any relationships with any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis