What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-02-18 compared with 2025-11-20 · 115 added, 100 removed, 340 unchanged (39% of the section changed)

18 unchanged sentences

the sufficiency of our cash flow from operations with existing cash, cash equivalents, and investments to meet our cash needs for the foreseeable future;

our ability to successfully acquire and integrate companies and assets and expectations and intentions with respect to the assets, products and technologies that we acquire, including with respect to our proposed acquisition of CyberArk Software Ltd.

and our expectations regarding the benefits and synergies of the proposed acquisition;

and our expectations regarding the benefits and synergies of the acquisition;

expectations regarding contingent consideration obligations;

statements regarding our competition, including the expanded scope of our competitors as a result of acquisitions;

the timing and amount of capital expenditures and share repurchases;

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• Results of Operations.

A discussion of the nature and trends in our financial results and an analysis of our financial results comparing the three months ended October 31, 2025 to the three months ended October 31, 2024.

A discussion of the nature and trends in our financial results and an analysis of our financial results comparing the three and six months ended January 31, 2026 to the three and six months ended January 31, 2025.

• Liquidity and Capital Resources.

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and Cortex Xpanse ® , for ASM.

Additionally, Cortex XSIAM integrates with the Chronosphere Telemetry Pipeline to ingest and optimize massive data volumes, promoting cost-effective scaling of autonomous operations.

• Cloud Security.

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We also offer our VM-Series and CN-Series virtual firewalls for inline network security on multi- and hybrid-cloud environments.

Observability

Chronosphere, our next-generation observability platform, delivers real-time visibility and monitoring across cloud-native infrastructure, applications, and AI workloads.

Purpose-built to handle the massive data volumes of the AI era, Chronosphere enables organizations to maintain system resilience and uptime with high cost-efficiency and reliability.

• Chronosphere Platform.

Our observability platform provides comprehensive visibility into complex digital environments and automated troubleshooting of issues.

It allows customers to transition from passive monitoring to proactive management of their entire digital estate.

• Chronosphere Telemetry Pipeline.

Our telemetry pipeline acts as an intelligent control layer that filters, transforms, and routes data.

This helps reduce data volumes, enabling customers to cost-effectively scale their security and observability posture.

Threat Intelligence and Advisory Services

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Additionally, Unit 42 offers managed detection and response (“MDR”) and managed threat hunting services.

For the first quarter of fiscal 2026 and 2025, total revenue was $2.5 billion and $2.1 billion, respectively, representing year-over-year growth of 16%.

For the second quarter of fiscal 2026 and 2025, total revenue was $2.6 billion and $2.3 billion, respectively, representing year-over-year growth of 15%.

Our growth reflects the increased adoption of our portfolio, which consists of product, subscriptions, and support.

We believe our portfolio will enable us to benefit from recurring revenues and new revenues as we continue to grow our end-customer base.

As of October 31, 2025, we had end-customers in over 180 countries.

As of January 31, 2026, we had end-customers in over 180 countries.

Our end-customers represent a broad range of industries, including education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications, and include almost all of the Fortune 100 companies and a majority of the Global 2000 companies.

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We primarily use a two-tiered, indirect fulfillment model whereby we sell our products, subscriptions, and support to our distributors, which, in turn, sell to our resellers, which then sell to our end-customers.

Our product revenue grew to $434 million, or 17.5% of total revenue, for the first quarter of fiscal 2026, representing year-over-year growth of 23%.

Our product revenue grew to $514 million, or 19.8% of total revenue, for the second quarter of fiscal 2026, representing year-over-year growth of 22%.

Product revenue is derived from sales of hardware products, primarily our ML-Powered Next-Generation Firewall and software licenses, including SD-WAN, VM-Series, and Panorama ® .

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The same firewall functionality that is delivered in our hardware products is also available in our VM-Series virtual firewalls, which secure virtualized and cloud-based computing environments, and in our CN-Series container firewalls, which secure container environments and traffic.

Our subscription and support revenue grew to $2.0 billion, or 82.5% of total revenue, for the first quarter of fiscal 2026, representing year-over-year growth of 14%.

Our subscriptions provide our end-customers with near real-time access to the latest intrusion prevention, web security, modern malware prevention, data loss prevention, CASB and AI security capabilities across the network, endpoints, and the cloud.

Our subscription and support revenue grew to $2.1 billion, or 80.2% of total revenue, for the second quarter of fiscal 2026, representing year-over-year growth of 13%.

Our subscriptions provide our end-customers with near real-time access to the latest intrusion prevention, web security, modern malware prevention, data loss prevention, cloud security access broker and AI security capabilities across the network, endpoints, and the cloud.

Our subscriptions also include security operations, which enable customers to leverage the AI-powered Cortex platform for advanced capabilities such as security information and event management, next-generation antivirus, endpoint detection and response, extended detection and response, identity threat detection and response, cloud detection and response, SOAR, ASM, and CNAPP for comprehensive cloud security.

In connection with our acquisition of Chronosphere, Inc.

(“Chronosphere”) in January 2026, our subscriptions also include a next-generation observability platform for cloud-native infrastructure and applications as well as telemetry pipeline management that is designed to handle vast cloud data volumes with cost-efficiency and reliability.

Additionally, we offer MDR for Cortex subscriptions, powered by Unit 42’s elite expertise.

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We continue to invest in innovation as we evolve and further extend the capabilities of our portfolio, as we believe that innovation and timely development of and investment in new features and products are essential to meeting the needs of our end-customers and improving our competitive position.

For example, in August 2025, we introduced innovations through a software upgrade to PAN-OS 12.1 Orion to provide enterprise wide quantum security readiness for our customers.

In October 2025, we launched Prisma AIRS 2.0, a major platform upgrade that completes the native integration of the recently acquired Protect AI, Inc.

to provide customers with end-to-end protection across AI application lifecycle.

Additionally, in July 2025, we entered into a definitive agreement to acquire CyberArk Software Ltd.

(“CyberArk”), an identity security company, which acquisition is expected to close during the third quarter of our fiscal 2026, subject to the satisfaction of customary closing conditions.

On February 11, 2026, we completed the acquisition of CyberArk Software Ltd.

(“CyberArk”), forming our next-generation identity security platform.

Additionally, on January 29, 2026, we completed the acquisition of Chronosphere, forming our next-generation observability platform.

We believe that the growth of our business and our short-term and long-term success are dependent upon many factors, including our ability to extend our technology leadership, grow our base of end-customers, expand deployment of our portfolio and support offerings within existing end-customers, focus on end-customer satisfaction, and address any product vulnerabilities.

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export/imports controls and tariffs, as well as retaliatory actions by other countries, may materially and adversely affect our business.

Further, economic conditions, including inflation, high interest rates, slow growth, fluctuations in foreign exchange rates, supply chain disruptions, impacts of trade regulations or international trade disputes, and other conditions, may adversely affect our results of operations and financial performance.

Further, economic conditions, including inflation, high interest rates, slow growth, fluctuations in foreign exchange rates, supply chain disruptions, such as a memory or other component shortage, impacts of trade regulations or international trade disputes, and other conditions, may adversely affect our results of operations and financial performance.

The hostilities in Israel and the surrounding region have continued to result in economic and political uncertainty.

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We discuss revenue, gross margin, and the components of operating income and margin below under “Results of Operations.”

October 31, 2025 July 31, 2025

January 31, 2026 July 31, 2025

(in billions)

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$ 16.0 $ 15.8

Three Months Ended October 31,

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 2026 2025

(dollars in millions)

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We define free cash flow, a non-GAAP financial measure, as cash provided by operating activities less purchases of property, equipment, and other assets.

We consider free cash flow to be a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures.

We consider free cash flow to be an operating metric as well as a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures.

A limitation of the utility of free cash flow as a measure of our financial performance and liquidity is that it does not represent the total increase or decrease in our cash balance for the period.

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GAAP, is provided below:

Three Months Ended October 31,

Six Months Ended January 31,

(in millions)

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Net cash used in investing activities $ (332) $ (925)

Net cash provided by (used in) financing activities $ 8 $ (220)

Net cash used in financing activities $ (106) $ (452)

Results of Operations

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The period-to-period comparison of results is not necessarily indicative of results for future periods.

Three Months Ended October 31,

Amount % of Revenue Amount % of Revenue

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 2026 2025

Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue

(dollars in millions)

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(1) Includes share-based compensation as follows:

Three Months Ended October 31,

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 2026 2025

(in millions)

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As a percentage of product revenue, we expect our revenue from software licenses to vary from quarter to quarter and increase over the long term as we improve features and capabilities of our on-premise software, renew our software license contracts, and expand our installed end-customer base.

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Product $ 514 $ 421 $ 93 22 % $ 948 $ 775 $ 173 22 %

Product revenue increased for the three months ended October 31, 2025 compared to the same period in 2024 driven by an increased product demand and an increase in price of and allocation to on-premise software licenses due to enhanced features and capabilities beginning in the second quarter of fiscal 2025.

Product revenue increased for the three and six months ended January 31, 2026 compared to the same periods in 2025, driven by increased revenue from software licenses and increased demand for our new generation of hardware products.

SUBSCRIPTION AND SUPPORT REVENUE

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As a percentage of total revenue, we expect our subscription and support revenue to vary from quarter to quarter and increase over the long term as we introduce new subscriptions, renew existing subscription and support contracts, and expand our installed end-customer base.

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

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Total subscription and support $ 2,080 $ 1,836 $ 244 13 % $ 4,120 $ 3,621 $ 499 14 %

Subscription and support revenue increased for the three months ended October 31, 2025 compared to the same period in 2024 due to increased demand for our subscription and support offerings from our end-customers.

Subscription and support revenue increased for the three and six months ended January 31, 2026 compared to the same periods in 2025 due to increased demand for our subscription and support offerings from our end-customers.

The mix between subscription revenue and support revenue will fluctuate over time, depending on the introduction of new subscription offerings, renewals of support services, and our ability to increase sales to new and existing end-customers.

REVENUE BY GEOGRAPHIC THEATER

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

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Total revenue $ 2,594 $ 2,257 $ 337 15 % $ 5,068 $ 4,396 $ 672 15 %

Revenue from the Americas, EMEA, and APAC increased for the three months ended October 31, 2025 compared to the same period in 2024 as we continued to increase investment in our global sales force in order to support our growth and innovation, with the Americas contributing the highest increase in revenue due to its larger scale.

Revenue from the Americas, EMEA, and APAC increased for the three and six months ended January 31, 2026 compared to the same periods in 2025 as we continued to increase investment in our global sales force in order to support our growth and innovation, with the Americas contributing the highest increase in revenue due to its larger scale.

COST OF REVENUE

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We expect our cost of product revenue to fluctuate with our revenue from hardware products.

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Cost of product revenue $ 115 $ 101 $ 14 14 % $ 204 $ 176 $ 28 16 %

Cost of product revenue increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to increased product volume and other product costs.

The remaining increase was primarily driven by higher tariff costs.

Cost of product revenue increased for the three and six months ended January 31, 2026 compared to the same periods in 2025 primarily due to increased demand for our hardware products and higher tariff costs, partially offset by a decrease in inventory excess and obsolete charges.

COST OF SUBSCRIPTION AND SUPPORT REVENUE

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We expect our cost of subscription and support revenue to increase as our installed end-customer base grows and adoption of our cloud-based subscription offerings increases.

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Cost of subscription and support revenue $ 570 $ 498 $ 72 14 % $ 1,119 $ 977 $ 142 15 %

Cost of subscription and support revenue increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to increased costs to support the growth of our subscription and support offerings.

Cloud hosting service costs, which support our cloud-based subscription offerings, increased $48 million for the three months ended October 31, 2025 compared to the same period in 2024.

Personnel costs grew $14 million for the three months ended October 31, 2025 compared to the same period in 2024, primarily due to headcount growth.

Cost of subscription and support revenue increased for the three and six months ended January 31, 2026 compared to the same periods in 2025 primarily due to increased costs to support the growth of our subscription and support offerings.

Cloud hosting service costs, which support our cloud-based subscription offerings, increased $48 million and $97 million for the three and six months ended January 31, 2026, respectively, compared to the same periods in 2025.

Personnel costs grew $11 million and $25 million for the three and six months ended January 31, 2026, respectively, compared to the same periods in 2025, primarily due to headcount growth.

Gross margin has been and will continue to be affected by a variety of factors, including the introduction of new products, manufacturing costs, the average sales price of our products, cloud hosting service costs, personnel costs, the mix of products sold, and the mix of revenue between product and subscription and support offerings.

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We expect our gross margins to vary over time depending on the factors described above.

Three Months Ended October 31,

Amount Gross Margin Amount Gross Margin

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 2026 2025

Amount Gross Margin Amount Gross Margin Amount Gross Margin Amount Gross Margin

(dollars in millions)

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Total gross profit $ 1,909 73.6 % $ 1,658 73.5 % $ 3,745 73.9 % $ 3,243 73.8 %

Product gross margin increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to continued shift in our product revenue mix toward software, partially offset by a decrease in gross margin on our hardware products.

Subscription and support gross margin was flat for the three months ended October 31, 2025 compared to the same period in 2024.

Product gross margin increased for the three and six months ended January 31, 2026 compared to the same periods in 2025 primarily due to continued shift in our product revenue mix toward software, and a decrease in inventory excess and obsolete charges, partially offset by a decrease in gross margin on our hardware products.

Subscription and support gross margin were flat for the three and six months ended January 31, 2026 compared to the same periods in 2025.

OPERATING EXPENSES

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We expect operating expenses generally to increase in absolute dollars and to decrease over the long term as a percentage of revenue as we continue to scale our business.

As of October 31, 2025, we expect to recognize approximately $2.2 billion of share-based compensation expense over a weighted-average period of approximately 2.4 years, excluding additional share-based compensation expense related to any future grants of share-based awards.

As of January 31, 2026, we expect to recognize approximately $2.9 billion of share-based compensation expense over a weighted-average period of approximately 2.6 years, excluding additional share-based compensation expense related to any future grants of share-based awards.

Share-based compensation expense is generally recognized on a straight-line basis over the requisite service periods of the awards.

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We expect research and development expense to increase in absolute dollars as we continue to invest in our future products and services, although our research and development expense may fluctuate as a percentage of total revenue.

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Research and development $ 511 $ 505 $ 6 1 % $ 1,039 $ 986 $ 53 5 %

Research and development expense increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to increased personnel costs, which grew $45 million for the three months ended October 31, 2025 compared to the same period in 2024, largely due to headcount growth.

Research and development expense was relatively flat for the three months ended January 31, 2026 compared to the same period in 2025.

Research and development expense increased for the six months ended January 31, 2026 compared to the same period in 2025 primarily due to increased personnel costs, which grew $41 million for the six months ended January 31, 2026 compared to the same period in 2025, largely due to headcount growth.

SALES AND MARKETING

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We expect sales and marketing expense to continue to increase in absolute dollars as we increase the size of our sales and marketing organizations to grow our customer base, increase touch points with end-customers, and expand our global presence, although our sales and marketing expense may fluctuate as a percentage of total revenue.

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Sales and marketing $ 823 $ 758 $ 65 9 % $ 1,643 $ 1,478 $ 165 11 %

Sales and marketing expense increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to increased personnel costs, which grew $86 million for the three months ended October 31, 2025 compared to the same period in 2024, largely due to headcount growth.

Sales and marketing expense increased for the three and six months ended January 31, 2026 compared to the same periods in 2025 primarily due to increased personnel costs, which grew $69 million and $154 million for the three and six months ended January 31, 2026, respectively, compared to the same periods in 2025, largely due to headcount growth.

GENERAL AND ADMINISTRATIVE

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We expect general and administrative expense to increase in absolute dollars over time as we increase the size of our general and administrative organizations and incur additional costs to support our business growth, although our general and administrative expense may fluctuate as a percentage of total revenue.

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

General and administrative $ 178 $ 154 $ 24 16 % $ 357 $ 252 $ 105 42 %

General and administrative expense increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to a partial release of litigation-related accrual of $43 million during the three months ended October 31, 2024.

The increase in general and administrative expense was further driven by increased personnel costs, which grew $37 million, largely due to increased share-based compensation and headcount growth.

General and administrative expense increased for the three months ended January 31, 2026 compared to the same period in 2025 primarily due to an increase in acquisition-related costs.

General and administrative expense increased for the six months ended January 31, 2026 compared to the same period in 2025 primarily due to the partial release of litigation-related accrual of $42 million during the six months ended January 31, 2025.

The increase in general and administrative expense for the six months ended January 31, 2026 was further driven by increased personnel costs, which grew $43 million, largely due to increased share-based compensation and headcount growth.

INTEREST EXPENSE

Interest expense consists of interest expense related to our 0.375% Convertible Senior Notes due 2025 (the “2025 Notes”).

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Interest expense $ — $ 1 $ (1) (100) % $ — $ 2 $ (2) (100) %

Interest expense decreased for the three months ended October 31, 2025 compared to the same period in 2024 due to the maturity of our 2025 Notes in June 2025.

Interest expense decreased for the three and six months ended January 31, 2026 compared to the same periods in 2025 due to the maturity of our 2025 Notes in June 2025.

Refer to Note 9.

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Other income, net includes interest income earned on our cash, cash equivalents, and investments, and gains and losses from foreign currency remeasurement and foreign currency transactions.

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

Other income, net $ 152 $ 85 $ 67 79 % $ 255 $ 168 $ 87 52 %

Other income, net increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to higher interest income as a result of higher average cash, cash equivalents, and investment balance, partially offset by lower interest rates for the three months ended October 31, 2025 compared to the same period in 2024.

Other income, net increased for the three and six months ended January 31, 2026 compared to the same periods in 2025 primarily due to higher interest income as a result of higher average cash, cash equivalents, and investment balances for the three and six months ended January 31, 2026 compared to the same periods in 2025.

The increase was further driven by increased gains on sales of our investments to fund recent acquisitions.

PROVISION FOR INCOME TAXES

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and foreign income taxes.

Our effective tax rate during the three months ended October 31, 2025 was lower than our statutory tax rate primarily due to excess tax benefits from share-based compensation.

Our effective tax rate during the three and six months ended January 31, 2026 was lower than our statutory tax rate primarily due to excess tax benefits from share-based compensation.

We continue to maintain a valuation allowance for 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 criterion.

We expect future research and development tax credit generation in California to exceed our ability to use the existing tax credits.

Three Months Ended October 31,

2025 2024 Change

Amount Amount Amount %

Three Months Ended January 31, Six Months Ended January 31,

2026 2025 Change 2026 2025 Change

Amount Amount Amount % Amount Amount Amount %

(dollars in millions)

1 unchanged sentence

Effective tax rate 21.3 % 17.7 % 20.3 % 10.9 %

Our provision for income taxes for the three months ended October 31, 2025 was primarily due to U.S.

Our provision for income taxes for the three and six months ended January 31, 2026 was primarily due to U.S.

and foreign income taxes.

Our effective tax rate increased for the three months ended October 31, 2025 compared to the same period in 2024 primarily due to increased earnings before income taxes and decreased excess tax benefits from share-based compensation.

Our effective tax rate increased for the three and six months ended January 31, 2026 compared to the same periods in 2025 primarily due to decreased excess tax benefits from share-based compensation relative to our increased business profits.

Refer to Note 13.

1 unchanged sentence

Liquidity and Capital Resources

October 31, 2025 July 31, 2025

January 31, 2026 July 31, 2025

(in millions)

5 unchanged sentences

Total cash, cash equivalents, and investments $ 7,898 $ 8,459

As of October 31, 2025, our total cash, cash equivalents, and investments of $10.2 billion were held for general corporate purposes.

As of October 31, 2025, we had no unremitted earnings when evaluating our outside basis difference relating to our U.S.

As of January 31, 2026, our total cash, cash equivalents, and investments of $7.9 billion were held for general corporate purposes.

As of January 31, 2026, we had no unremitted earnings when evaluating our outside basis difference relating to our U.S.

investment in foreign subsidiaries.

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The interest rates and commitment fees are also subject to upward and downward adjustments based on our progress towards the achievement of certain sustainability goals.

As of October 31, 2025, there were no amounts outstanding, and we were in compliance with all covenants under the Credit Agreement.

As of January 31, 2026, there were no amounts outstanding, and we were in compliance with all covenants under the Credit Agreement.

Refer to Note 9.

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Repurchases will be funded from available working capital and may be made at management’s discretion from time to time.

As of October 31, 2025, $1.0 billion remained available for future share repurchases under this repurchase program.

As of January 31, 2026, $1.0 billion remained available for future share repurchases under this repurchase program.

The repurchase authorization will expire on December 31, 2026, and may be suspended or discontinued at any time without prior notice.

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We have entered into various non-cancelable operating leases, primarily for our offices and data centers, with lease terms expiring through fiscal 2036.

As of October 31, 2025, we have total operating lease obligations of $429 million recorded on our condensed consolidated balance sheet.

As of October 31, 2025, our commitments to purchase products, components, cloud hosting and other services totaled $6.8 billion.

As of January 31, 2026, we have total operating lease obligations of $459 million recorded on our condensed consolidated balance sheet.

As of January 31, 2026, our commitments to purchase products, components, cloud hosting and other services totaled $6.9 billion.

Refer to Note 10.

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Our acquisition of certain QRadar assets from International Business Machines Corporation (“IBM”) on August 31, 2024 included contingent consideration that requires potential future payments through the fiscal quarter ending October 2028.

As of October 31, 2025, we have total contingent consideration obligation of $380 million recorded on our condensed consolidated balance sheet.

As of January 31, 2026, we have total contingent consideration obligation of $369 million recorded on our condensed consolidated balance sheet.

Refer to Note 3.

Fair Value Measurements and Note 7.

Acquisition in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our contingent consideration obligation.

Fair Value Measurements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our contingent consideration obligation.

On July 30, 2025, we entered into a definitive agreement to acquire CyberArk.

The acquisition is expected to close during the third quarter of our fiscal 2026, subject to the satisfaction of customary closing conditions.

Under the terms of the definitive agreement, CyberArk shareholders will receive $45.00 in cash and 2.2005 shares of our common stock for each CyberArk share.

This represents an equity value for CyberArk of approximately $25 billion based on the unaffected 10-day average daily volume-weighted average trading prices of our common stock as of July 25, 2025.

We expect to fund the cash portion of the consideration with our cash on hand.

Under the terms of the definitive agreement, CyberArk shareholders were entitled to receive $45.00 in cash and 2.2005 shares of our common stock for each CyberArk share.

On February 11, 2026, we completed the acquisition of CyberArk for $2.3 billion in cash and 112 million shares of our common stock.

The cash portion of the consideration was funded with our cash on hand.

Refer to Part II, Item 1A “Risk Factors” and Note 7.

Acquisitions in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the acquisition.

The following table summarizes our cash flows for the three months ended October 31, 2025 and 2024:

Three Months Ended October 31,

The following table summarizes our cash flows for the six months ended January 31, 2026 and 2025:

Six Months Ended January 31,

(in millions)

1 unchanged sentence

Net cash used in investing activities (332) (925)

Net cash provided by (used in) financing activities 8 (220)

Net cash used in financing activities (106) (452)

Net increase in cash, cash equivalents, and restricted cash $ 1,887 $ 690

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Net cash provided by operating activities can be impacted by factors such as timing of payments and collections, vendor payment terms, and timing and amount of tax payments.

Cash provided by operating activities during the three months ended October 31, 2025 was $1.8 billion, an increase of $261 million compared to the same period in 2024.

The increase was primarily due to growth of our business as reflected by increases in collections during the three months ended October 31, 2025, partially offset by higher cash expenditure to support our business growth.

Cash provided by operating activities during the six months ended January 31, 2026 was $2.3 billion, an increase of $258 million compared to the same period in 2025.

The increase was primarily due to growth of our business as reflected by increases in collections during the six months ended January 31, 2026, partially offset by higher cash expenditure to support our business growth.

INVESTING ACTIVITIES

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We expect to continue such activities as our business grows.

Cash used in investing activities during the three months ended October 31, 2025 was $1.0 billion, an increase of $439 million compared to the same period in 2024.

The increase was primarily due to higher purchases of investments and lower proceeds from sales and maturities of investments, partially offset by a decrease in net cash payments for business acquisitions during the three months ended October 31, 2025.

Cash used in investing activities during the six months ended January 31, 2026 was $332 million, a decrease of $593 million compared to the same period in 2025.

The decrease was primarily due to higher proceeds from sales and maturities of investments, partially offset by an increase in net cash payments for business acquisitions during the six months ended January 31, 2026.

FINANCING ACTIVITIES

Our financing activities have consisted of repayments of our convertible senior notes, proceeds from sales of shares through employee equity incentive plans, payments for tax withholding obligations of certain employees related to the net share settlement of equity awards, and payments of contingent consideration liability.

Cash provided by financing activities during the three months ended October 31, 2025 was $8 million, a change of $228 million compared to cash used in financing activities of $220 million during the same period in 2024.

The change was primarily due to a decrease in cash used for repayments of our 2025 Notes which did not recur during the three months ended October 31, 2025 as a result of its maturity, partially offset by payments of our contingent consideration liability during the three months ended October 31, 2025.

Cash used in financing activities during the six months ended January 31, 2026 was $106 million, a decrease of $346 million compared to the same period in 2025.

The decrease was primarily due to a decrease in cash used for repayments of our 2025 Notes which did not recur during the six months ended January 31, 2026 as a result of its maturity, partially offset by payments of our contingent consideration liability during the six months ended January 31, 2026.

Critical Accounting Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis