What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-23 compared with 2026-04-23 · 137 added, 86 removed, 256 unchanged (47% of the section changed)

21 unchanged sentences

We offer an innovative suite of products, including AI-powered applications, and services designed to automate workflows, integrate systems and empower employees, regardless of existing systems, cloud environments or collaboration tools.

The combination of ServiceNow's Security Operations with Armis' cyber asset intelligence and Veza's identity governance capabilities delivers end-to-end visibility, risk controls, and

automated responses across the enterprise.

Our one platform architecture provides the foundation for organizations to seamlessly integrate AI, data, and workflows and create intelligent processes across their enterprise.

19 unchanged sentences

Current remaining performance obligations (“cRPO”) represents RPO that will be recognized as revenue in the next 12 months.

As of March 31, 2026, our RPO was $27.7 billion, of which 46% represented cRPO.

RPO and cRPO increased by 25% and 23%, respectively, compared to March 31, 2025.

As of June 30, 2026, our RPO was $29.0 billion, of which 46% represented cRPO.

RPO and cRPO both increased by 21% compared to June 30, 2025.

Factors that may cause our RPO to vary from period to period include the following:

11 unchanged sentences

For example, in cases where we are successful in selling additional products or services to an existing customer, a customer may decide to renew its existing contract early to ensure that all its contracts expire on the same date.

cases, prolonged negotiations or other factors may result in a contract not being renewed until after it has expired.

In other cases, prolonged negotiations or other factors may result in a contract not being renewed until after it has expired.

• Contract duration.

6 unchanged sentences

We count the total number of customers with annual contract value (“ACV”) greater than $5 million as of the end of the period.

We had 630 and 516 customers with ACV greater than $5 million as of March 31, 2026 and 2025, respectively.

We had 658 and 533 customers with ACV greater than $5 million as of June 30, 2026 and 2025, respectively.

For purposes of customer count, a customer is defined as an entity that has a unique Dunn & Bradstreet Global Ultimate (“GULT”) Data Universal Numbering System (“DUNS”) number and an active subscription contract as of the measurement date.

14 unchanged sentences

Our calculation of free cash flow is provided below:

Three Months Ended March 31, % Change

Six Months Ended June 30, % Change

(dollars in millions)

9 unchanged sentences

This non-GAAP measure is used by the chief operating decision maker to allocate resources and assess performance.

We define non-GAAP consolidated income from operations as

income from operations excluding certain non-cash or non-recurring items, including stock-based compensation expense, amortization of purchased intangibles, legal settlements, impairment of assets, severance costs, contract termination costs and business combination and other related costs including compensation expense.

We define non-GAAP consolidated income from operations as income from operations excluding certain non-cash or non-recurring items, including stock-based compensation expense, amortization of purchased intangibles, legal settlements, impairment of assets, severance costs, contract termination costs and business combination and other related costs including compensation expense.

We believe these adjustments provide useful supplemental information to investors and facilitate the analysis of our operating results and comparison of those results across reporting periods.

The following table shows the reconciliation of our reported consolidated income from operations to non-GAAP consolidated income from operations.

Three Months Ended March 31, % Change

(dollars in millions)

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2026 2025 2026 2025

(dollars in millions) (dollars in millions)

GAAP income from operations $ 162 $ 358 (55 %) $ 665 $ 809 (18 %)

Stock-based compensation 655 499 31 % 1,213 969 25 %

Amortization of purchased intangibles 77 21 267 %

Business combination and other related costs 43 11 291 %

Amortization of purchased intangibles 219 25 NM 296 46 NM

Business combination and other related costs 75 14 NM 118 25 372 %

Impairment of assets — 30 (100 %) — 30 (100 %)

Severance costs 62 29 114 % 80 29 176 %

Non-GAAP income from operations $ 1,173 $ 955 23 % $ 2,372 $ 1,908 24 %

NM - Not meaningful

Renewal rate .

6 unchanged sentences

However, in instances where the subscription decrease represents the majority of the customer’s ACV, we may deem the renewal as a lost customer.

For our renewal rate calculation, we define a customer as an entity with a separate production instance of our service and an active subscription contract as of the measurement date, instead of an entity with a unique GULT or DUNS number.

For our renewal rate calculation, we define a customer as an entity with a separate

production instance of our service and an active subscription contract as of the measurement date, instead of an entity with a unique GULT or DUNS number.

We adjust our renewal rate for acquisitions, consolidations and other customer events that cause the merging of two or more accounts occurring at the time of renewal.

Our renewal rate was 97% and 98% for the three months ended March 31, 2026 and 2025, respectively.

Our renewal rate was 98% for each of the three and six months ended June 30, 2026 and 2025.

As our renewal rate is impacted by the timing of renewals, which could occur in advance of, or subsequent to the original contract end date, period-to-period comparison of renewal rates may not be meaningful.

16 unchanged sentences

We also generate revenues from certain professional services and from training of customers and partner personnel, through both our direct team and indirect sales channel.

Revenues from our direct sales organization represented 77% of our total revenues for each of the three months ended March 31, 2026 and 2025.

Revenues from our direct sales organization represented 75% and 76% of our total revenues for the three and six months ended June 30, 2026, respectively, and 78% of our total revenues for each of the three and six months ended June 30, 2025.

For purposes of calculating revenues from our direct sales organization, revenues from systems integrators and managed services providers are included as part of the direct sales organization.

17 unchanged sentences

Fees paid by us to third-party partners are primarily recognized as cost of revenues as the professional services are delivered.

Cost of revenues associated with our professional services engagements contracted with third-party partners as a percentage of professional services and other revenues was 37% and 34% for the three months ended March 31, 2026 and 2025, respectively.

Cost of revenues associated with our professional services engagements contracted with third-party partners as a percentage of professional services and other revenues was 42% and 40% for the three and six months ended June 30, 2026, respectively, and 33% and 34% for the three and six months ended June 30, 2025, respectively.

Sales and Marketing

9 unchanged sentences

Provision for income taxes consists of federal, state and foreign income taxes.

Our income tax provision for the three months ended March 31, 2026 is primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates and stock-based compensation shortfalls.

We continue to maintain a valuation allowance against our California deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met the “more likely than not” realization criteria, particularly as we expect research and development tax credit generation to exceed our ability to use the credits in future years.

Comparison of the Three Months Ended March 31, 2026 and 2025

Three Months Ended March 31, % Change

Our income tax provision for the three and six months ended June 30, 2026 is primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates and stock-based compensation shortfalls, offset by the release of a valuation

allowance on certain California deferred tax assets.

We continue to maintain a valuation allowance against a portion of our California deferred tax assets due to the uncertainty regarding realizability of these deferred tax assets as they have not met the “more likely than not” realization criteria, particularly as we expect research and development tax credit generation to exceed our ability to use the credits in future years.

Comparison of the Three and Six Months Ended June 30, 2026 and 2025

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2026 2025 2026 2025

(dollars in millions)

Subscription $ 3,877 $ 3,113 25 % $ 7,548 $ 6,118 23 %

5 unchanged sentences

Total 100% 100% 100 % 100 %

Subscription revenues increased by $666 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily driven by increased purchases by new and existing customers.

Included in subscription revenues is $138 million and $157 million of revenues recognized upfront from the delivery of software associated with self-hosted offerings during the three months ended March 31, 2026 and 2025.

Subscription revenues increased by $764 million and $1,430 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily driven by increased purchases by new and existing customers.

Included in subscription revenues is $149 million and $109 million of revenues recognized upfront from the delivery of software associated with self-hosted offerings during the three months ended June 30, 2026 and 2025, respectively, and $287 million and $266 million during the six months ended June 30, 2026 and 2025, respectively.

We expect subscription revenues for the year ending December 31, 2026 to increase in absolute dollars and remain relatively flat as a percentage of revenue as we continue to add new customers and existing customers increase their usage of our products compared to the year ended December 31, 2025.

Our expectations for revenues, cost of revenues and operating expenses for the remainder of 2026 are based on the 31-day average of foreign exchange rates for March 31, 2026.

Professional services and other revenues increased by $16 million during the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to an increase in services and trainings provided to new and existing customers.

Our expectations for revenues, cost of revenues and operating expenses for the remainder of 2026 are based on the 30-day average of foreign exchange rates for June 30, 2026.

Professional services and other revenues increased by $8 million and $24 million during the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to an increase in services and trainings provided to new and existing customers.

We expect professional services and other revenues for the year ending December 31, 2026 to increase in absolute dollars and remain relatively flat as a percentage of revenue compared to the year ended December 31, 2025.

Cost of Revenues and Gross Profit Percentage

Three Months Ended March 31, % Change

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2026 2025 2026 2025

(dollars in millions)

Cost of revenues:

7 unchanged sentences

Gross profit $ 2,818 $ 2,491 $ 5,648 $ 4,928

Cost of subscription revenues increased by $259 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to increased headcount and increased costs to support the growth of our subscription offerings including costs to support customers in regulated markets.

Personnel-related costs, including stock-based compensation and overhead expenses, increased by $114 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

Depreciation expense related to infrastructure hardware equipment and expenses associated with software, maintenance and other costs, which together support the expansion of data center capacity, increased by $60 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

Expenses associated with our contractual commitments with third-party cloud service providers increased by $41 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

In addition, amortization of intangible assets increased by $41 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 as a result of acquisitions.

We expect our cost of subscription revenues for the year ending December 31, 2026 to increase in absolute dollars as we provide subscription services to more customers and increase usage within our customer instances and increase as a percentage of revenue compared to the year ended December 31, 2025.

Cost of subscription revenues increased by $405 million and $664 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased headcount and increased costs to support the growth of our subscription offerings including costs to support customers in regulated markets.

Personnel-related costs, including stock-based compensation and overhead expenses, increased by $115 million and $229 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025.

Depreciation expense related to infrastructure hardware equipment and expenses associated with software, maintenance and other costs, which together support the expansion of data center capacity, increased by $63 million and $123 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025.

Expenses associated with our contractual commitments with third-party cloud service providers increased by $63 million and $104 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025.

In addition, amortization of intangible assets increased by $153 million and $194 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025 as a result of acquisitions.

We expect our cost of subscription revenues for the year ending December 31, 2026 to increase in absolute dollars and increase as a percentage of revenue compared to the year ended December 31, 2025 as we provide subscription services to more customers, increase usage within our customer instances and continue to recognize amortization of acquired intangible assets.

We will continue to incur incremental costs to attract customers in regulated markets by adopting public cloud offerings as well as increased support for customers impacted by new and evolving data residency requirements.

To the extent future acquisitions are consummated, our cost of subscription revenues may increase due to additional non-cash charges associated with the amortization of intangible assets acquired.

Our subscription gross profit percentage was 78% for the three months ended March 31, 2026 and 81% for the three months ended March 31, 2025.

Our subscription gross profit percentage was 73% and 75% for the three and six months ended June 30, 2026, respectively, and 80% and 81% for the three and six months ended June 30, 2025, respectively.

We expect our subscription gross profit percentage to decrease for the year ending December 31, 2026 compared to the year ended December 31, 2025, primarily due to the ongoing growth of our third-party cloud services usage and incremental amortization of intangible assets acquired.

Cost of professional services and other revenues increased by $30 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily driven by increased personnel-related costs and an increase in partner ecosystem spend to further help accelerate customer value realization.

Our professional services and other gross loss percentage was 21% for the three months ended March 31, 2026 compared to 8% for the three months ended March 31, 2025, and was primarily driven by personnel-related costs and partner ecosystem spend to further help accelerate customer value realization increasing at a faster rate than revenue.

Cost of professional services and other revenues increased by $40 million and $70 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily driven by increased personnel-related costs and an increase in partner ecosystem spend to further help accelerate customer value realization.

Our professional services and other gross loss percentage was 26% for the three months ended June 30, 2026 compared to a gross profit percentage of 3% for the three months ended June 30, 2025.

Our professional services and other gross loss percentage was 24% for the six months ended June 30, 2026 compared to 2% for the six months ended June 30, 2025.

Our professional services and other gross loss percentage was primarily driven by personnel-related costs and partner ecosystem spend to further help accelerate customer value realization increasing at a faster rate than revenue.

We expect our professional services and other gross loss percentage to increase for the year ending December 31, 2026 compared to the year ended December 31, 2025 as we continue to accelerate customer value realization and support our customers in gaining the maximum value of our latest offerings.

Sales and Marketing

Three Months Ended March 31, % Change

(dollars in millions)

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2026 2025 2026 2025

(dollars in millions) (dollars in millions)

Sales and marketing $ 1,372 $ 1,128 22 % $ 2,588 $ 2,182 19 %

Percentage of revenues 34% 35% 33% 35%

Sales and marketing expenses increased by $162 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to increased headcount resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of $73 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

Amortization expenses associated with deferred commissions increased by $23 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to an increase in contracts with new customers, expansion and renewal contracts.

Other sales and marketing program expenses, which include branding, costs associated with purchasing advertising, marketing events and market data, increased by $33

million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

In addition, amortization of intangible assets increased by $15 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 as a result of acquisitions.

Sales and marketing expenses increased by $244 million and $406 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased headcount resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of $138 million and $211 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025.

Amortization expenses associated with deferred commissions increased by $21 million and $44 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to an increase in contracts with new customers, expansion and renewal contracts.

Other sales and marketing program expenses, which include branding, costs associated with purchasing advertising, marketing events and market data, increased by $29 million and $62 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased program costs and travel costs for our annual Knowledge user conference.

In addition, amortization of intangible assets increased by $41 million and $56 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025 as a result of acquisitions.

We expect sales and marketing expenses for the year ending December 31, 2026 to increase in absolute dollars and to decrease slightly as a percentage of revenue compared to the year ended December 31, 2025, as we continue to see leverage from increased sales productivity and marketing efficiencies.

Research and Development

Three Months Ended March 31, % Change

(dollars in millions)

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2026 2025 2026 2025

(dollars in millions) (dollars in millions)

Research and development $ 915 $ 734 25 % $ 1,738 $ 1,437 21 %

Percentage of revenues 23% 23% 22% 23%

Research and development expenses (“R&D”) increased by $120 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based compensation and overhead expenses of $116 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

Research and development expenses (“R&D”) increased by $181 million and $301 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to increased headcount, resulting in an increase in personnel-related costs including stock-based

compensation and overhead expenses of $162 million and $278 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025.

We expect R&D expenses for the year ending December 31, 2026 to increase in absolute dollars but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2025, as we continue to improve the existing functionality of our services, develop new applications to fill market needs and enhance our core platform.

General and Administrative

Three Months Ended March 31, % Change

(dollars in millions)

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2026 2025 2026 2025

(dollars in millions) (dollars in millions)

General and administrative $ 369 $ 271 36 % $ 657 $ 500 31 %

Percentage of revenues 9% 8% 8% 8%

General and administrative expenses (“G&A”) increased by $59 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to an increase in outside services of $35 million, largely related to acquisitions, and an increase in personnel-related costs.

General and administrative expenses (“G&A”) increased by $98 million and $157 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to an increase in outside services of $61 million and $96 million, largely related to recent acquisitions.

Personnel-related costs including stock-based compensation increased $56 million and $66 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025.

These increases were partially offset by an impairment of assets of $30 million that was recorded in the three and six months ended June 30, 2025.

We expect G&A expenses for the year ending December 31, 2026 to increase in absolute dollars but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2025, as we continue to see leverage from continued G&A productivity.

Stock-based Compensation

Three Months Ended March 31, % Change

(dollars in millions)

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2026 2025 2026 2025

(dollars in millions) (dollars in millions)

Cost of revenues:

7 unchanged sentences

Percentage of revenues 16% 16% 16 % 15%

Stock-based compensation increased by $88 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to additional grants to current and new employees and stock-based awards granted in connection with acquisitions.

Stock-based compensation increased by $156 million and $244 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily due to additional grants to current and new employees and stock-based awards granted in connection with acquisitions.

Stock-based compensation is inherently difficult to forecast due to fluctuations in our stock price.

Based upon our stock price as of March 31, 2026, we expect stock-based compensation to continue to increase in absolute dollars for the year ending December 31, 2026 as we continue to issue stock-based awards to our employees but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2025.

Based upon our stock price as of June 30, 2026, we expect stock-based compensation to continue to increase in absolute dollars for the year ending December 31, 2026 as we continue to issue stock-based awards to our employees but remain relatively flat as a percentage of revenue compared to the year ended December 31, 2025.

We expect stock-based compensation as a percentage of revenue to decline over time as we continue to grow.

1 unchanged sentence

Our international operations have provided and will continue to provide a significant portion of our total revenues.

Revenues outside North America represented 37% and 36% for the three months ended March 31, 2026 and 2025, respectively.

Revenues outside North America represented 37% for each of the three and six months ended June 30, 2026 and 38% and 37% for the three and six months ended June 30, 2025, respectively.

Because we primarily transact in certain foreign currencies for sales outside of the United States, the general weakening of the U.S.

Dollar relative to other major foreign currencies had a favorable impact on our revenues for the three months ended March 31, 2026.

Dollar relative to other major foreign currencies had a favorable impact on our revenues for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025.

For entities reporting in currencies other than the U.S.

Dollar, if we had translated our results for the three months ended March 31, 2026 at the exchange rates in effect for the three months ended March 31, 2025 rather than the actual exchange rates in effect during the period, our reported subscription revenues would have been $108 million lower, excluding the impact of our cash flow hedging program.

The impact from foreign currency movements for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was not material for professional services and other revenues.

Dollar, if we had translated our results for the six months ended June 30, 2026 at the exchange rates in effect for the six months ended June 30, 2025 rather than the actual exchange rates in effect during the period, our reported subscription revenues would have been $138 million lower, excluding the impact of our cash flow hedging program.

The impact from foreign currency movements were not material to subscription revenues for the three months ended June 30, 2026, or to professional services and other revenues for the three and six months ended June 30, 2026.

In addition, we primarily transact in several foreign currencies for cost of revenues and operating expenses outside of the United States.

The movement of the U.S.

Dollar had an immaterial impact on our expenses for the three months ended March 31, 2026.

Dollar had an immaterial impact on our expenses for the three and six months ended June 30, 2026.

Interest Income

Three Months Ended March 31, % Change

(dollars in millions)

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2026 2025 2026 2025

(dollars in millions) (dollars in millions)

Interest income $ 70 $ 116 (40 %) $ 158 $ 231 (32 %)

Percentage of revenues 2% 4% 2% 4%

Interest income decreased by $27 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily driven by a decrease in investment income from our managed portfolio resulting from lower average portfolio balances and lower interest rates.

Interest income decreased by $46 million and $73 million for the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily driven by a decrease in investment income from our managed portfolio resulting from lower average portfolio balances and lower interest rates.

Other Income (Expense), net

Three Months Ended March 31, % Change

(dollars in millions)

Interest expense $ (6) $ (6) — %

Other 88 (5) NM

Other income (expense), net $ 82 $ (11) NM

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2026 2025 2026 2025

(dollars in millions) (dollars in millions)

Interest expense $ (66) $ (6) NM $ (72) $ (12) NM

Other 272 3 NM 360 (2) NM

Other income (expense), net $ 206 $ (3) NM $ 288 $ (14) NM

Percentage of revenues 5% —% 4% —%

NM - Not meaningful

Other income (expense), net increased by $93 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily driven by unrealized gains on strategic investments.

Other income (expense), net increased by $209 million and $302 million for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025, primarily driven by unrealized gains on strategic investments, partially offset by higher interest expense resulting from the issuance of senior notes, commercial paper and senior unsecured term loan.

To mitigate our risks associated with fluctuations in foreign currency exchange rates, we enter into foreign currency forward contracts with maturities of 12 months or less to hedge a portion of our net outstanding monetary assets and liabilities.

These hedging contracts may reduce, but cannot entirely eliminate, the impact of adverse currency exchange rate movements.

The gains (losses) recognized for these foreign currency forward contracts in other income (expense), net were immaterial for each of the three months ended March 31, 2026 and 2025.

For each of the three and six months ended June 30, 2026, the gains (losses) recognized for these foreign currency forward contracts in other income (expense), net were immaterial.

For the three and six months ended June 30, 2025, the gains recognized for foreign currency forward contracts from derivatives not designated as hedging instruments in other income (expense), net of $86 million and $120 million, offset the remeasurement losses of the related foreign currency denominated assets and liabilities of $87 million and $125 million, respectively.

Provision for Income Taxes

Three Months Ended March 31, % Change

(dollars in millions)

Three Months Ended June 30, % Change Six Months Ended June 30, % Change

2026 2025 2026 2025

(dollars in millions) (dollars in millions)

Income before income taxes $ 438 $ 471 (7 %) $ 1,111 $ 1,026 8 %

1 unchanged sentence

Effective tax rate 32% 18% 31% 18%

Our income tax provision was $204 million for the three months ended March 31, 2026 and was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates and stock-based compensation shortfalls.

Our income tax provision was $95 million for the three months ended March 31, 2025 and was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates, offset by excess tax benefits of stock-based compensation.

Our income tax provision was $140 million and $344 million for the three and six months ended June 30, 2026, respectively, and was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates and stock-based compensation shortfalls, offset by the release of a valuation allowance on certain California deferred tax assets.

Our income tax provision was $86 million and $181 million for the three and six months ended June 30, 2025, respectively, and was primarily attributable to the mix of earnings and losses in countries with differing statutory tax rates, offset by excess tax benefits of stock-based compensation.

We may continue to see fluctuations in our effective tax rate and tax obligations as we further integrate Armis into our corporate structure and intercompany relationships.

On July 4, 2025, H.R.

1 unchanged sentence

This legislation extends and modifies provisions from the 2017 Tax Cuts and Jobs Act and introduces new tax measures affecting both businesses and individuals.

The enacted legislation had an immaterial impact on the Company’s effective tax rate for the three months ended March 31, 2026.

The Company will continue to monitor any future changes in its business or interpretations of the new tax law that could affect its tax position in subsequent periods.

The enacted legislation had an immaterial impact on the Company’s effective tax rate for the three and six months ended June 30, 2026.

Company will continue to monitor any future changes in its business or interpretations of the new tax law that could affect its tax position in subsequent periods.

Liquidity and Capital Resources

3 unchanged sentences

We have generated positive operating cash flows for more than ten years as we continue to grow our business in pursuit of our business strategy, and we expect to grow our business and generate positive cash flows from operations during 2026.

When assessing sources of liquidity, we also include cash and cash equivalents, marketable securities and long-term marketable securities totaling $7.9 billion as of March 31, 2026.

When assessing sources of liquidity, we also include cash and cash equivalents, marketable securities and long-term marketable securities totaling $6.7 billion as of June 30, 2026.

Our unsecured revolving credit facility and our commercial paper program also serve as sources of liquidity.

Refer to the “Debt” section below for more details.

Our capital requirements are principally comprised of capital expenditures to support data center capacity expansion, non-contract workforce salaries, bonuses, commissions, and benefits and, to a lesser extent, cancellable and non-cancellable licenses, operating leases and services arrangements that are integral to our business operations.

1 unchanged sentence

Operating lease obligations totaling $1.1 billion are principally associated with leased facilities and have varying maturities with $733 million due over the next five years.

Supply Chain Finance Program

Our supply chain finance (“SCF”) program provides suppliers with the opportunity to sell their receivables due from us to a global financial institution.

A supplier’s election to receive early payment at a discounted amount from the financial institution does not change the amount that we must remit to the financial institution on our payment date, which is generally 90 days from the invoice date.

As of March 31, 2026, our outstanding payment obligations to suppliers participating in the SCF program totaled $29 million.

As of June 30, 2026, our outstanding payment obligations to suppliers participating in the SCF program totaled $28 million.

These obligations are included in accounts payable in our condensed consolidated balance sheets, and all activity related to these obligations is presented within operating activities in the condensed consolidated statements of cash flows.

Share Repurchase Program

We may repurchase our shares of common stock through open market purchases, accelerated share repurchase ("ASR") transactions, privately negotiated transactions or by other means, with the objective to return value to our stockholders and manage the dilution from future employee equity grants and employee stock purchase programs.

4 unchanged sentences

Repurchased shares are recognized as treasury stock and held for future issuance.

During the three months ended March 31, 2026, the Company repurchased an additional 1.6 million shares of our common stock for $225 million in open market transactions.

As of March 31, 2026, approximately $4.2 billion of the authorized amount under the Share Repurchase Program remained available for future repurchases.

During the six months ended June 30, 2026, the Company repurchased an additional 1.6 million shares of our common stock for $225 million in open market transactions.

There were no share repurchases during the three months ended June 30, 2026.

As of June 30, 2026, approximately $4.2 billion of the authorized amount under the Share Repurchase Program remained available for future repurchases.

We have also issued long-term debt to finance our business.

In August 2020, we issued 1.40% fixed rate ten-year notes with an aggregate principal amount of $1.5 billion due on September 1, 2030 (the “2030 Notes”).

In May 2026, we issued five series of fixed-rate senior unsecured notes with an aggregate principal amount of $4.0 billion (collectively, the “Notes”) with maturities starting in May 2028 and extending through May 2056.

In August 2020, we issued 1.40% fixed-rate ten-year notes with an aggregate principal amount of $1.5 billion due on September 1, 2030.

In April 2026, we borrowed an aggregate principal amount of $4.0 billion under a secured term loan (the “Term Loan”) to fund a portion of the cash consideration for our acquisition of Armis Security Ltd.

In May 2026, we repaid the outstanding balance on the Term Loan primarily through the issuance of the Notes.

In April 2026, we entered into a credit agreement with certain institutional lenders that provides for a $3.0 billion unsecured revolving credit facility (the "Credit Facility"), with an option to increase the amount of the Credit Facility by up to $2.0 billion, subject to certain conditions, including board approval.

The Credit Facility matures on April 1, 2031.

As of June 30, 2026, no amounts were outstanding under the Credit Facility.

In April 2026, we established a commercial paper program under which we may issue unsecured commercial paper up to a total of $3.0 billion outstanding at any time, with maturities of up to 397 days from the date of issuance.

As of June 30, 2026, we have $2.1 billion of commercial paper outstanding, with a weighted-average interest rate of 3.98% and a weighted-average remaining term of 81 days.

For additional information on our debt transactions, refer to Note 11 “Debt” in the notes to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Our operating cash flows, together with our other sources of liquidity, are available to service our liabilities as well as our cancellable and non-cancellable arrangements.

We anticipate cash flows generated from operations, cash, cash equivalents, marketable securities and long-term marketable securities, together with our available financing facilities, will be sufficient to meet our liquidity needs for at least the next 12 months.

See Note 19 “Subsequent Events” for debt financing associated with the acquisition of Armis Security Ltd.

We anticipate cash flows generated from operations, cash, cash equivalents, marketable securities and long-term marketable securities will be sufficient to meet our liquidity needs for at least the next 12 months.

As we look beyond the next 12 months, we seek to continue to grow cash flows necessary to fund our operations and grow our business.

If we require additional capital resources, we may seek to finance our operations from the current funds available or additional equity or debt financing.

Three Months Ended March 31,

Six Months Ended June 30,

(dollars in millions)

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Net cash used in investing activities $ (7,105) $ (640)

Net cash used in financing activities $ (2,236) $ (398)

Net cash provided by (used in) financing activities $ 3,638 $ (944)

Net (decrease) increase in cash, cash equivalents and restricted cash

1 unchanged sentence

Operating Activities

Net cash provided by operating activities was $1,670 million for the three months ended March 31, 2026, which was relatively flat compared to $1,677 million for the three months ended March 31, 2025.

Net cash provided by operating activities was $2,257 million for the six months ended June 30, 2026 compared to $2,393 million for the six months ended June 30, 2025.

The net decrease in operating cash flows was primarily due to higher business combination and related costs to support business growth.

Investing Activities

Net cash used in investing activities was $451 million for the three months ended March 31, 2026 compared to $217 million for the three months ended March 31, 2025.

The net increase in cash used in investing activities was primarily due to a $1,307 million increase in cash used in business combinations and a $117 million increase in purchases of strategic investments partially offset by a $1,109 million decrease in purchases of marketable securities and a $64 million decrease in purchases of property and equipment.

Net cash used in investing activities was $7,105 million for the six months ended June 30, 2026 compared to $640 million for the six months ended June 30, 2025.

The net increase in cash used in investing activities was primarily due to a $8,700 million increase in cash used in business combinations and a $40 million increase in purchases of strategic investments, partially offset by a $1,896 million decrease in purchases of marketable securities, a $247 million increase in sales and maturities of marketable securities and a $140 million decrease in purchases of property and equipment.

Financing Activities

Net cash used in financing activities was $2,236 million for the three months ended March 31, 2026 compared to $398 million for the three months ended March 31, 2025.

The net increase in cash used in financing activities is due to an increase in repurchases of common stock of $1,927 million, offset by a decrease in taxes paid related to net share settlement of equity awards of $89 million.

Net cash provided by financing activities was $3,638 million for the six months ended June 30, 2026 compared to net cash used of $944 million for the six months ended June 30, 2025.

The net increase in cash provided by financing activities is primarily due to proceeds of $3,944 million from the issuance of the Notes, net of discount and issuance costs, net proceeds from commercial paper of $3,534 million and a decrease in taxes paid related to net share settlement of equity awards of $157 million, partially offset by an increase in repurchases of common stock of $1,566 million and $1,472 million of repayments of commercial paper.

Critical Accounting Policies and Significant Judgments and Estimates

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Qualitative and Quantitative Disclosures About Market Risk

There have been no material changes in our market risk compared to the disclosures in Part II, Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on January 29, 2026.

Except for the fixed-rate senior notes and unsecured revolving credit facility entered into during the three months ended June 30, 2026, there have been no other changes in our market risk compared to the disclosures in Part II, Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on January 29, 2026.

In May 2026, we issued five series of fixed-rate senior unsecured notes for an aggregate principal amount of $4.0 billion (collectively, the “Notes”).

The proceeds from the issuance were $3.9 billion, net of debt discount and issuance costs of $57 million.

Interest is payable semi-annually in arrears on May 15 and November 15 of each year, except for our notes due in August 2031, for which interest is payable semi-annually in arrears on February 15 and August 15 of each year.

In August 2020, we issued 1.40% fixed-rate ten-year notes with an aggregate principal amount of $1.5 billion due on September 1, 2030 (the “2030 Notes,” and together with the Notes, the “Senior Notes”).

The 2030 Notes were issued at 99.63% of principal and we incurred approximately $13 million of debt issuance costs.

Interest is payable on the 2030 Notes semi-annually in arrears on March 1 and September 1

of each year.

As the Senior Notes bear interest at fixed rates, we have no financial statement risk associated with changes in interest rates.

However, the fair value of the Senior Notes will fluctuate with movement in market interest rates.

In April 2026, we entered into a credit agreement with certain institutional lenders that provides for a $3.0 billion unsecured revolving credit facility (the "Credit Facility").

Any borrowings under our Credit Facility bear interest, at our option, either at a base rate, or at an adjusted benchmark rate plus a spread of 0.60% to 1.00% with such spread being determined based on our credit rating.

Because the interest rates applicable to borrowings under the Credit Facility are variable, we are exposed to market risk from changes in the underlying index rates, which affect our cost of borrowing.

As of June 30, 2026, no amounts were outstanding under the Credit Facility.

Refer to Note 11 “Debt” in the notes to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.

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