Palo Alto Networks Inc.
06/03/2026 | Press release | Distributed by Public on 06/03/2026 04:02
Quarterly Report for Quarter Ending April 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including, without limitation, the following discussion and analysis, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally can be identified by words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potentially," "projects," "will," "will be," "will continue," "will likely result," "would" and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements include, but are not limited to, statements concerning the following: expectations regarding the cybersecurity landscape; expectations regarding our platformization strategy and related progress and opportunities; expectations regarding annual recurring revenue, remaining performance obligations, and product development strategy; expectations regarding artificial intelligence; expectations regarding our strategic partnerships; expectations regarding drivers of and factors affecting growth in our business; statements regarding expected profitability, trends in annual recurring revenue, trends in remaining performance obligations, our mix of product and subscription and support revenue, cost of revenue, gross margin, cash flows, operating expenses, including future share-based compensation expense, income taxes, investment plans, and liquidity; expected recurring revenues resulting from growth in our end-customers and increased adoption of our products and cloud-delivered security solutions; the performance advantages of our products and subscription and support offerings and the potential benefits to our customers; expectations regarding future investments in research and development and product development, customer support, in our employees and in our sales force, including expectations regarding growth in our sales headcount; expectations that we will continue to expand our global presence; expectations regarding our revenues, including the seasonality and cyclicality from quarter to quarter; expectations relating to our customer financing activities; 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; expectations regarding the benefits and synergies from our acquisition and integration of companies, assets and technology, including with respect to our acquisition of CyberArk Software Ltd.; expectations regarding contingent consideration obligations; expectations regarding the change in the fair value of our convertible senior notes and capped call transactions and its impact on us and our financial results; statements regarding our competition, including the expanded scope of our competitors as a result of entering into new product and service categories; the timing and amount of capital expenditures and share repurchases; the effects of worldwide economic and geopolitical conditions, including but not limited to hostilities in Israel, Iran, and the surrounding regions, inflation, interest rate levels, public or administration policies, trade regulations, trade policy, growth rates and other conditions, on our operating and financial results and performance; the manufacture, delivery and cost of certain of our products; the effects of litigation or regulatory developments involving us or affecting our industry; our or our subsidiaries' debt repayment obligations; and other statements regarding our future operations, financial condition and prospects, and business strategies. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those anticipated or implied by any forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and, in particular, the risks discussed under the caption "Risk Factors" in Part II, Item 1A of this report and those discussed in other documents we file with the Securities and Exchange Commission ("SEC") from time to time. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is organized as follows:
•Overview. A discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.
•Key Financial Metrics. A summary of our U.S. GAAP and non-GAAP key financial metrics, which management monitors to evaluate our performance.
•Results of Operations. A discussion of the nature and trends in our financial results and an analysis of our financial results comparing the three and nine months ended April 30, 2026 to the three and nine months ended April 30, 2025.
•Liquidity and Capital Resources. An analysis of changes on our balance sheets and cash flows, and a discussion of our financial condition and our ability to meet cash needs.
•Critical Accounting Estimates. A discussion of our accounting policies that require critical estimates, assumptions, and judgments.
•Recent Accounting Pronouncements. A discussion of expected impacts of impending accounting changes on financial information to be reported in the future.
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Overview
Our mission is to be the cybersecurity partner of choice for enterprises, organizations, service providers, and government entities to protect our digital way of life. Our cybersecurity platforms and services help secure enterprise users, networks, clouds, endpoints, and identities by delivering comprehensive cybersecurity backed by artificial intelligence ("AI") and automation. A key element of our strategy is to help our customers simplify their security architectures through consolidating disparate point products. We execute on this strategy by developing our capabilities and packaging our offerings into platforms which are able to cover many of our customers' needs in the markets in which we operate. Our platformization strategy combines various products and services into a tightly integrated architecture for more secure, faster and cost-effective outcomes.
Network Security
Our network security platform is designed to deliver complete zero trust solutions to our customers. The platform includes:
•Secure Access Service Edge ("SASE"). Prisma® Access, when combined with Prisma SD-WAN, provides a comprehensive SASE offering that secures users working from anywhere and on any device, and pioneers the modernization of branch offices. Prisma Browser further extends zero-trust security and data protection to the browser, where the majority of work is done today, providing users with the freedom to work securely using our secure browser from any device.
•Next-Generation Firewalls. Our hardware ML-Powered Next-Generation Firewalls ("NGFWs") secure on-premises environments including campus locations and data centers. Our software NGFWs secure cloud networks.
•Cloud-Delivered Security Services ("CDSS"). Our network security platform integrates a suite of CDSS that complements our SASE and Firewall solutions. These include Advanced Threat Prevention, Advanced WildFire®, Advanced URL Filtering, Advanced DNS Security, Device Security, GlobalProtect®, Prisma Access Agent, Enterprise Data Loss Prevention ("Enterprise DLP"), AI for IT Operations ("AIOps"), Software as a Service ("SaaS") Security, and AI Access Security. Through these add-on services, our customers are able to secure their content, applications, users, and devices across their entire organization.
•Prisma AIRS. Prisma AIRS™ is a comprehensive AI security platform designed to protect customers' entire AI ecosystem by providing AI Model Security, AI Posture Management, AI Red Teaming, AI Runtime Security, and AI Agent Security.
•Strata Cloud Manager ("SCM"). SCM, our network security management solution, centrally manages network security across all remote workers, branches, headquarters, campuses, and cloud. This comprehensive solution includes Strata Copilot, which offers a natural language interface for enhanced insights and guided remediation, and integrates Autonomous Digital Experience Monitoring ("ADEM") to proactively maintain infrastructure health, facilitate AI-driven one-click troubleshooting, and ensure seamless end-user performance across the enterprise.
Security Operations
Our AI-powered Cortex platform transforms end-to-end security operations with unified data, AI, and automation for more secure, faster, and cost effective outcomes. We have consolidated our industry-leading Security Operations and Cloud Security capabilities on a single comprehensive platform to provide centralized visibility, proactive protection, real-time prevention, AI-driven insights, and automated remediation across enterprise and cloud.
•Security Operations. We deliver the next generation of security operations capabilities that unifies standalone Security Information and Event Management ("SIEM") tools, endpoint security, security automation, cloud detection and response ("CDR"), as well as attack surface management ("ASM") capabilities on our Cortex® platform. These include Cortex XSIAM®, for AI-powered security operations replacing traditional SIEM tools; Cortex XDR®, for the prevention, detection, and response to complex cybersecurity attacks; Cortex XSOAR®, for security orchestration, automation, and response ("SOAR"); Cortex Xpanse®, for ASM; and our recent acquisition of Koi Security Ltd. ("Koi") for agentic endpoint security. 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. We deliver comprehensive security across the cloud application development lifecycle through Cortex Cloud, delivered as a scalable SaaS offering. As a comprehensive Cloud Native Application Protection Platform ("CNAPP") combined with CDR, Cortex Cloud secures multi- and hybrid-cloud environments for applications, data, generative AI ("GenAI") ecosystem, and the cloud native technology stack across the full development lifecycle, from code to cloud to security operations. As part of the Cortex Cloud platform, customers can expand from Cortex Cloud to our security operations offerings available on a single user experience and unified agent. We also offer our VM-Series and CN-Series virtual firewalls for inline network security on multi- and hybrid-cloud environments.
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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.
Identity Security
Idira™, our next-generation identity security platform, is designed to secure human, agentic and machine identities across the enterprise with intelligent privilege controls and continuous threat prevention. By unifying identity access management, privilege access management and identity governance and administration, organizations can continuously discover and protect against identity risk throughout the end-to-end identity lifecycle. The platform includes:
•Workforce Identity Security. Our solutions apply identity assurance and modern access controls for the entire workforce, including through adaptive multi-factor authentication, single sign-on, secure browsing, web session protection, workforce password management, and automated identity lifecycle management. Our approach enforces least privilege by elevating access only when required.
•Information Technology ("IT") and Developer Identity Security (Modern Privilege Access Management). Our solutions secure high-risk access for IT administrators, third-party vendors, developers, and cloud operations teams across hybrid and multi-cloud environments, delivering just-in-time privileged access, session isolation, credential protection, and zero standing privileges while providing native, secure access to cloud services, workloads, and development and operations pipelines. Organizations can eliminate excessive permissions, automate access to dynamic cloud resources, and maintain developer velocity while strengthening identity controls across infrastructure and application environments.
•Machine Identity Security. Our solutions secure the growing volume of non-human identities-such as workloads, applications, containers, service accounts, certificates, and keys, including through centralized discovery and management of secrets, certificate lifecycle automation, workload identity issuance, public key infrastructure-as-a-service, Kubernetes certificate management, and secure code signing.
•Identity Governance and Administration ("IGA"). IGA enables visibility into entitlements, automated joiner-mover-leaver processes, access certification, and ongoing identity compliance. AI-supported policy automation helps organizations govern access at scale and enforce a zero-trust model across all identities.
•AI Agents Security. Our solution discovers AI agents, assigns identity attributes, and restricts their access to task-specific resources. It helps monitor and record agent activity for audit purposes, allows organizations to suspend or revoke access if behavior deviates from expected norms, and governs the lifecycle of the agent and the actions taken to support compliance.
Threat Intelligence and Advisory Services
•Unit 42 brings together world-renowned expertise across threat research, incident response, and security consulting to deliver intelligence-driven, response-ready outcomes that help customers reduce cyber risk. Our elite consultants serve as trusted advisors to our customers by assessing and testing their security controls against sophisticated threats, transforming their security strategy with a threat-informed approach, and responding to security incidents on behalf of our clients. Additionally, Unit 42 offers managed detection and response ("MDR") and managed threat hunting services. In April 2026, we launched a new suite of Unit 42 Frontier AI Defense services to help customers proactively discover and neutralize threats introduced by next-generation AI models.
For the third quarter of fiscal 2026 and 2025, total revenue was $3.0 billion and $2.3 billion, respectively, representing year-over-year growth of 31%. Our growth reflects the increased adoption of our portfolio, which consists of product, subscriptions, and support, and our recent acquisitions. 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 April 30, 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. We maintain a field sales force that works closely with our channel partners in developing sales opportunities. 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.
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Our product revenue grew to $594 million, or 19.8% of total revenue, for the third quarter of fiscal 2026, representing year-over-year growth of 31%. 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®. In connection with the acquisition of CyberArk Software Ltd. ("CyberArk") in February 2026, our product revenue also includes on-premise software licenses of certain identity security offerings. Our ML-Powered Next-Generation Firewall incorporates our PAN-OS operating system, which provides a consistent set of capabilities across our entire network security product line. Our hardware products and software licenses include a broad set of built-in networking and security features and functionalities. Our products are designed for different performance requirements throughout an organization, ranging from our PA-400, which is designed for small organizations and remote or branch offices, to our top-of-the-line PA-7500, which is designed for large-scale data centers and service provider use. 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 $2.4 billion, or 80.2% of total revenue, for the third quarter of fiscal 2026, representing year-over-year growth of 31%. 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. With the acquisition of CyberArk, our subscriptions include a next-generation identity security platform designed to secure human, AI, and machine identity across the enterprise with intelligent privilege controls and continuous threat prevention. Additionally, we offer MDR for Cortex subscriptions, powered by Unit 42's elite expertise. When customers purchase our physical, virtual, or container firewalls, or certain cloud offerings, they typically purchase support in order to receive ongoing security updates, upgrades, bug fixes, and repairs. In addition to the subscriptions purchased with these firewalls, customers may also purchase other subscriptions on a per-user, per-endpoint, or capacity-based basis. We also offer professional services, including incident response, risk management, digital forensic services, and technical account management.
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, we launched Next-Generation Trust Security that unifies certificate lifecycle management and Prisma AIRS 3.0 that discovers, assesses, and protects agentic AI. On February 11, 2026, we completed the acquisition of CyberArk, forming our next-generation identity security platform. Additionally, on April 14, 2026, we completed the acquisition of Koi, to add agentic endpoint security capabilities to our security operations platform and enhance Prisma AIRS. On May 29, 2026, we completed the acquisition of Portkey, Inc., a privately-held AI Gateway company, to enhance our Prisma AIRS capabilities.
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. To manage any future growth effectively, we must continue to improve and expand our information technology and financial infrastructure, our operating and administrative systems and controls, and our ability to manage headcount, capital, and processes in an efficient manner. While these areas present significant opportunities for us, they also pose challenges and risks that we must successfully address in order to sustain the growth of our business and improve our operating results. For additional information regarding the challenges and risks we face, see the "Risk Factors" section in Part II, Item 1A of this Quarterly Report on Form 10-Q.
IMPACT OF MACROECONOMIC DEVELOPMENTS AND OTHER FACTORS ON OUR BUSINESS
Our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on customer behavior. Changes in legislation or regulations and actions by regulators, including changes in enforcement and administration policies, may have an impact on our results of operations and financial condition. Significant changes in U.S. or global trade policy, including further expansion of U.S. 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, including increased memory, storage or other component shortages, 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, Iran and the surrounding region have continued to result in economic and political uncertainty. While we have business operations in Israel, and intend to continue growing our presence in Israel, we currently do not expect significant business disruption. We are actively monitoring, evaluating, and responding to the situation.
We are also monitoring the impact of inflationary pressures and the tensions between China and Taiwan, and between the U.S. and China, which could have an adverse impact on our business or results of operations in future periods.
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Key Financial Metrics
We monitor the key financial metrics set forth in the tables below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. We discuss revenue, gross margin, and the components of operating income (loss) and margin below under "Results of Operations."
| April 30, 2026 | July 31, 2025 | ||||||||||
|
(in billions)
|
|||||||||||
| Next-Generation Security Annualized Recurring Revenue | $ | 8.1 | $ | 5.6 | |||||||
| Remaining performance obligations | $ | 18.4 | $ | 15.8 | |||||||
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||
| Total revenue | $ | 3,002 | $ | 2,289 | $ | 8,070 | $ | 6,685 | |||||||||||||||
| Total revenue year-over-year percentage increase | 31 | % | 15 | % | 21 | % | 15 | % | |||||||||||||||
| Gross margin | 67.6 | % | 72.9 | % | 71.5 | % | 73.5 | % | |||||||||||||||
| Operating income (loss) | $ | (183) | $ | 219 | $ | 523 | $ | 746 | |||||||||||||||
| Operating margin | (6.1) | % | 9.6 | % | 6.5 | % | 11.2 | % | |||||||||||||||
| Cash flow provided by operating activities | $ | 3,196 | $ | 2,695 | |||||||||||||||||||
| Free cash flow (non-GAAP) | $ | 2,859 | $ | 2,535 | |||||||||||||||||||
•Next-Generation Security Annualized Recurring Revenue ("NGS ARR"). Our NGS ARR represents the annualized allocated revenue of all active contracts as of the final day of the reporting period related to all product, subscription and support offerings, excluding revenue from hardware products, and legacy attached subscriptions, support offerings and professional services. NGS ARR is an operating metric that we use to assess the strength and trajectory of our business. NGS ARR should be viewed independently of revenue, deferred revenue and remaining performance obligations and does not represent our revenue under U.S. GAAP on an annualized basis, as it is an operating metric that can be impacted by contract start and end dates and renewal rates. NGS ARR is not intended to be a replacement for forecasts of revenue. The scope of products, subscriptions, and support offerings that contribute to NGS ARR will generally increase over time as we introduce or acquire new next-generation products, subscriptions, and support offerings.
•Cash Flow Provided by Operating Activities. We monitor cash flow provided by operating activities as a measure of our overall business performance. Our cash flow provided by operating activities is driven in large part by sales of our products and from up-front payments for subscription and support offerings. Monitoring cash flow provided by operating activities enables us to analyze our financial performance without the non-cash effects of certain items such as share-based compensation costs, depreciation, and amortization, thereby allowing us to better understand and manage the cash needs of our business.
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•Free Cash Flow (non-GAAP). 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 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. In addition, it is important to note that other companies, including companies in our industry, may not use free cash flow, may calculate free cash flow in a different manner than we do, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a comparative measure. A reconciliation of free cash flow to cash flow provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, is provided below:
| Nine Months Ended April 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in millions) | |||||||||||
| Free cash flow (non-GAAP): | |||||||||||
| Net cash provided by operating activities | $ | 3,196 | $ | 2,695 | |||||||
| Less: purchases of property, equipment, and other assets | 337 | 160 | |||||||||
| Free cash flow (non-GAAP) | $ | 2,859 | $ | 2,535 | |||||||
| Net cash used in investing activities | $ | (2,098) | $ | (1,442) | |||||||
| Net cash used in financing activities | $ | (1,005) | $ | (405) | |||||||
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Results of Operations
The following table summarizes our results of operations for the periods presented and as a percentage of our total revenue for those periods based on our condensed consolidated statements of operations data. The period-to-period comparison of results is not necessarily indicative of results for future periods.
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | Amount | % of Revenue | Amount | % of Revenue | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Product | $ | 594 | 19.8 | % | $ | 453 | 19.8 | % | $ | 1,542 | 19.1 | % | $ | 1,228 | 18.4 | % | |||||||||||||||||||||||||||||||
| Subscription and support | 2,408 | 80.2 | % | 1,836 | 80.2 | % | 6,528 | 80.9 | % | 5,457 | 81.6 | % | |||||||||||||||||||||||||||||||||||
| Total revenue | 3,002 | 100.0 | % | 2,289 | 100.0 | % | 8,070 | 100.0 | % | 6,685 | 100.0 | % | |||||||||||||||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Product | 167 | 5.6 | % | 101 | 4.4 | % | 371 | 4.6 | % | 277 | 4.1 | % | |||||||||||||||||||||||||||||||||||
| Subscription and support | 807 | 26.8 | % | 518 | 22.7 | % | 1,926 | 23.9 | % | 1,495 | 22.4 | % | |||||||||||||||||||||||||||||||||||
|
Total cost of revenue(1)
|
974 | 32.4 | % | 619 | 27.1 | % | 2,297 | 28.5 | % | 1,772 | 26.5 | % | |||||||||||||||||||||||||||||||||||
| Total gross profit | 2,028 | 67.6 | % | 1,670 | 72.9 | % | 5,773 | 71.5 | % | 4,913 | 73.5 | % | |||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | 734 | 24.5 | % | 494 | 21.6 | % | 1,773 | 22.0 | % | 1,480 | 22.1 | % | |||||||||||||||||||||||||||||||||||
| Sales and marketing | 1,161 | 38.7 | % | 793 | 34.5 | % | 2,804 | 34.7 | % | 2,271 | 34.0 | % | |||||||||||||||||||||||||||||||||||
| General and administrative | 316 | 10.5 | % | 164 | 7.2 | % | 673 | 8.3 | % | 416 | 6.2 | % | |||||||||||||||||||||||||||||||||||
|
Total operating expenses(1)
|
2,211 | 73.7 | % | 1,451 | 63.3 | % | 5,250 | 65.0 | % | 4,167 | 62.3 | % | |||||||||||||||||||||||||||||||||||
| Operating income (loss) | (183) | (6.1) | % | 219 | 9.6 | % | 523 | 6.5 | % | 746 | 11.2 | % | |||||||||||||||||||||||||||||||||||
| Interest expense | - | - | % | (1) | - | % | - | - | % | (3) | - | % | |||||||||||||||||||||||||||||||||||
| Other income, net | 27 | 0.9 | % | 93 | 4.0 | % | 282 | 3.5 | % | 261 | 3.8 | % | |||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | (156) | (5.2) | % | 311 | 13.6 | % | 805 | 10.0 | % | 1,004 | 15.0 | % | |||||||||||||||||||||||||||||||||||
| Provision for income taxes | 21 | 0.7 | % | 49 | 2.1 | % | 216 | 2.7 | % | 124 | 1.8 | % | |||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | (177) | (5.9) | % | $ | 262 | 11.5 | % | $ | 589 | 7.3 | % | $ | 880 | 13.2 | % | |||||||||||||||||||||||||||||||
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Cost of product revenue | $ | 2 | $ | 1 | $ | 4 | $ | 4 | |||||||||||||||
| Cost of subscription and support revenue | 50 | 32 | 114 | 95 | |||||||||||||||||||
| Research and development | 206 | 134 | 477 | 411 | |||||||||||||||||||
| Sales and marketing | 188 | 92 | 388 | 258 | |||||||||||||||||||
| General and administrative | 238 | 67 | 372 | 173 | |||||||||||||||||||
| Total share-based compensation | $ | 684 | $ | 326 | $ | 1,355 | $ | 941 | |||||||||||||||
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IMPACT OF ACQUISITIONS
On February 11, 2026, we completed our acquisition of CyberArk for a total purchase consideration of $21.1 billion. In connection with completing the acquisition, we paid approximately $2.3 billion in cash and issued 112 million shares of our common stock with a fair value of $18.5 billion. In addition, we issued $945 million of replacement equity awards, of which $265 million attributable to services performed prior to the acquisition date was allocated to purchase consideration.
The comparability of our operating results for the three and nine months ended April 30, 2026 compared to the same periods in 2025 was impacted by our recent acquisitions, including CyberArk. In discussions of our results of operations, we may qualitatively or quantitatively disclose the impact of our acquisitions on revenue, costs, and expenses for the one year period subsequent to the acquisition date where such discussions would be meaningful.
REVENUE
Our revenue consists of product revenue and subscription and support revenue. Revenue is recognized upon transfer of control of the corresponding promised products and subscriptions and support to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those products and subscriptions and support. We expect our revenue to vary from quarter to quarter based on seasonal and cyclical factors and business acquisitions.
PRODUCT REVENUE
Product revenue is derived from sales of hardware products, primarily our ML-Powered Next-Generation Firewall, and software licenses, including SD-WAN, VM-Series, Panorama, and certain identity security offerings. Our hardware products and software licenses include a broad set of built-in networking and security features and functionalities. We recognize product revenue at the time of hardware shipment or delivery of software license. 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 April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Product | $ | 594 | $ | 453 | $ | 141 | 31 | % | $ | 1,542 | $ | 1,228 | $ | 314 | 26 | % | |||||||||||||||||||||||||||||||
Product revenue increased for the three and nine months ended April 30, 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. The increase in product revenue for the three and nine months ended April 30, 2026 was also driven by increased software licenses revenue from our CyberArk acquisition closed in February 2026.
SUBSCRIPTION AND SUPPORT REVENUE
Subscription and support revenue is derived primarily from sales of our subscription and support offerings. Our subscription and support contracts are typically one to five years. We recognize revenue from subscriptions and support over time as the services are performed. 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 April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Subscription | $ | 1,632 | $ | 1,234 | $ | 398 | 32 | % | $ | 4,400 | $ | 3,659 | $ | 741 | 20 | % | |||||||||||||||||||||||||||||||
| Support | 776 | 602 | 174 | 29 | % | 2,128 | 1,798 | 330 | 18 | % | |||||||||||||||||||||||||||||||||||||
| Total subscription and support | $ | 2,408 | $ | 1,836 | $ | 572 | 31 | % | $ | 6,528 | $ | 5,457 | $ | 1,071 | 20 | % | |||||||||||||||||||||||||||||||
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Subscription and support revenue increased for the three and nine months ended April 30, 2026 compared to the same periods in 2025 due to increased demand for our subscription and support offerings from our end-customers and our recent acquisitions. 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 April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Americas | $ | 2,018 | $ | 1,530 | $ | 488 | 32 | % | $ | 5,371 | $ | 4,474 | $ | 897 | 20 | % | |||||||||||||||||||||||||||||||
| Europe, the Middle East, and Africa ("EMEA") | 633 | 480 | 153 | 32 | % | 1,714 | 1,402 | 312 | 22 | % | |||||||||||||||||||||||||||||||||||||
| Asia Pacific and Japan ("APAC") | 351 | 279 | 72 | 26 | % | 985 | 809 | 176 | 22 | % | |||||||||||||||||||||||||||||||||||||
| Total revenue | $ | 3,002 | $ | 2,289 | $ | 713 | 31 | % | $ | 8,070 | $ | 6,685 | $ | 1,385 | 21 | % | |||||||||||||||||||||||||||||||
Revenue from the Americas, EMEA, and APAC increased for the three and nine months ended April 30, 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
Our cost of revenue consists of cost of product revenue and cost of subscription and support revenue.
COST OF PRODUCT REVENUE
Cost of product revenue primarily includes costs paid to our manufacturing partners for procuring components and manufacturing our products. Our cost of product revenue also includes personnel costs, which consist of salaries, benefits, bonuses, share-based compensation, and travel associated with our operations organization, inventory excess and obsolete charges, shipping and tariff costs, amortization of intangible assets, product testing costs, and shared costs. Shared costs consist of certain facilities, depreciation, benefits, recruiting, and information technology costs that we allocate based on headcount. We expect our cost of product revenue to fluctuate with our revenue from hardware products.
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of product revenue | $ | 167 | $ | 101 | $ | 66 | 65 | % | $ | 371 | $ | 277 | $ | 94 | 34 | % | |||||||||||||||||||||||||||||||
Cost of product revenue increased for the three and nine months ended April 30, 2026 compared to the same periods in 2025 primarily due to higher amortization of intangible assets as a result of our CyberArk acquisition, increased demand for our hardware products and higher tariff costs, partially offset by a decrease in inventory excess and obsolete charges.
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COST OF SUBSCRIPTION AND SUPPORT REVENUE
Cost of subscription and support revenue includes personnel costs for our global customer support and technical operations organizations, data center and cloud hosting service costs, third-party professional services costs, amortization of intangible assets and capitalized software development costs, customer support and repair costs, and shared costs. 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 April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of subscription and support revenue | $ | 807 | $ | 518 | $ | 289 | 56 | % | $ | 1,926 | $ | 1,495 | $ | 431 | 29 | % | |||||||||||||||||||||||||||||||
Cost of subscription and support revenue increased for the three and nine months ended April 30, 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 $75 million and $171 million for the three and nine months ended April 30, 2026, respectively, compared to the same periods in 2025. Amortization of intangible assets increased $117 million and $109 million for the three and nine months ended April 30, 2026, respectively, compared to the same periods in 2025 as a result of our recent acquisitions. Personnel costs grew $71 million and $97 million for the three and nine months ended April 30, 2026, respectively, compared to the same periods in 2025, primarily due to headcount growth, including headcount from our recent acquisitions.
GROSS MARGIN
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. Our higher-end firewall products generally have higher gross margins than our lower-end firewall products within each product series. We expect our gross margins to vary over time depending on the factors described above.
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | Gross Margin | Amount | Gross Margin | Amount | Gross Margin | Amount | Gross Margin | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Product | $ | 427 | 71.9 | % | $ | 352 | 77.8 | % | $ | 1,171 | 75.9 | % | $ | 951 | 77.4 | % | |||||||||||||||||||||||||||||||
| Subscription and support | 1,601 | 66.5 | % | 1,318 | 71.8 | % | 4,602 | 70.5 | % | 3,962 | 72.6 | % | |||||||||||||||||||||||||||||||||||
| Total gross profit | $ | 2,028 | 67.6 | % | $ | 1,670 | 72.9 | % | $ | 5,773 | 71.5 | % | $ | 4,913 | 73.5 | % | |||||||||||||||||||||||||||||||
Product gross margin decreased for the three and nine months ended April 30, 2026 compared to the same periods in 2025 primarily due to a decrease in gross margin on our hardware products and higher amortization of intangible assets, partially offset by increased software licenses revenue from our CyberArk acquisition. The decrease in product gross margin for the nine months ended April 30, 2026 was further offset by continued shift in our product revenue mix toward software and a decrease in inventory excess and obsolete charges.
Subscription and support gross margin decreased for the three and nine months ended April 30, 2026 compared to the same periods in 2025 primarily due to higher amortization of intangible assets as a result of our recent acquisitions.
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OPERATING EXPENSES
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, share-based compensation, travel and entertainment, and with regard to sales and marketing expense, sales commissions. Our operating expenses also include shared costs, which consist of certain facilities, depreciation, benefits, recruiting, and information technology costs that we allocate based on headcount to each department. 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 April 30, 2026, we expect to recognize approximately $3.6 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.
RESEARCH AND DEVELOPMENT
Research and development expense consists primarily of personnel costs. Research and development expense also includes prototype-related expenses and shared costs. 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 April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | $ | 734 | $ | 494 | $ | 240 | 49 | % | $ | 1,773 | $ | 1,480 | $ | 293 | 20 | % | |||||||||||||||||||||||||||||||
Research and development expense increased for the three and nine months ended April 30, 2026 compared to the same periods in 2025 primarily due to increased personnel costs, which grew $192 million and $233 million for the three and nine months ended April 30, 2026 compared to the same periods in 2025, largely due to headcount growth, including headcount from our recent acquisitions.
SALES AND MARKETING
Sales and marketing expense consists primarily of personnel costs, including commission expense. Sales and marketing expense also includes costs for market development programs, promotional and other marketing costs, professional services, amortization of intangible assets, and shared costs. We continue to strategically invest in headcount and have grown our sales presence. 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 April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Sales and marketing | $ | 1,161 | $ | 793 | $ | 368 | 46 | % | $ | 2,804 | $ | 2,271 | $ | 533 | 23 | % | |||||||||||||||||||||||||||||||
Sales and marketing expense increased for the three and nine months ended April 30, 2026 compared to the same periods in 2025 primarily due to increased personnel costs, which grew $254 million and $408 million for the three and nine months ended April 30, 2026, respectively, compared to the same periods in 2025, largely due to headcount growth, including headcount from our recent acquisitions. The increase in sales and marketing expense in both periods were further driven by higher amortization of intangible assets as a result of our recent acquisitions.
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GENERAL AND ADMINISTRATIVE
General and administrative expense consists primarily of personnel costs and shared costs for our executive, finance, human resources, information technology, and legal organizations, and professional services costs, which consist primarily of legal, auditing, accounting, and other consulting costs. General and administrative expense also includes change in fair value of contingent consideration liability. Excluding the near-term impact of our recent acquisitions, 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 April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | $ | 316 | $ | 164 | $ | 152 | 93 | % | $ | 673 | $ | 416 | $ | 257 | 62 | % | |||||||||||||||||||||||||||||||
General and administrative expense increased for the three and nine months ended April 30, 2026 compared to the same periods in 2025 primarily due to increased personnel costs, which grew $195 million and $237 million for the three and nine months ended April 30, 2026, respectively. The increase in personnel costs in both periods was primarily due to the accelerated vesting of certain equity awards in connection with our recent acquisitions, employee severance charges in connection with our CyberArk acquisition, and headcount growth, including headcount from our recent acquisitions. The increase in general and administrative expense in both periods were further driven by an increase in acquisition-related costs, partially offset by a gain of $110 million for the change in fair value of contingent consideration liability during the three months ended April 30, 2026. The increase in general and administrative expense for the nine months ended April 30, 2026 was also driven by a partial release of litigation-related accrual of $40 million during the nine months ended April 30, 2025.
INTEREST EXPENSE
Interest expense consists of interest expense related to our 0.375% Convertible Senior Notes due 2025 (the "2025 Notes").
|
|
Three Months Ended April 30, | Nine Months Ended April 30, | |||||||||||||||||||||||||||||||||||||||||||||
|
|
2026 | 2025 | Change | 2026 | 2025 | Change | |||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | $ | - | $ | 1 | $ | (1) | (100) | % | $ | - | $ | 3 | $ | (3) | (100) | % | |||||||||||||||||||||||||||||||
Interest expense decreased for the three and nine months ended April 30, 2026 compared to the same periods in 2025 due to the maturity of our 2025 Notes in June 2025. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Notes.
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OTHER INCOME, NET
Other income, net includes interest income earned on our cash, cash equivalents, and investments, gains and losses from foreign currency remeasurement and foreign currency transactions, and change in fair value of convertible senior notes and capped calls.
| Three Months Ended April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other income, net | $ | 27 | $ | 93 | $ | (66) | (71) | % | $ | 282 | $ | 261 | $ | 21 | 8 | % | |||||||||||||||||||||||||||||||
Other income, net decreased for the three months ended April 30, 2026 compared to the same period in 2025 primarily due to a loss from change in fair value of our convertible senior notes and lower interest income as a result of lower average cash, cash equivalent and investment balances for the three months ended April 30, 2026 compared to the same period in 2025. Other income, net increased for the nine months ended April 30, 2026 compared to the same period in 2025 primarily due to increased gains on sales of our investments to fund acquisitions and higher interest income as a result of higher average cash, cash equivalent and investment balances for the nine months ended April 30, 2026 compared to the same period in 2025, partially offset by a loss from change in fair value of our convertible senior notes.
PROVISION FOR INCOME TAXES
Provision for income taxes consists primarily of U.S. and foreign income taxes. Our effective tax rate during the three and nine months ended April 30, 2026 differed from our statutory tax rate primarily due to our CyberArk acquisition and excess tax benefits from share-based compensation. We may continue to see fluctuations in our effective tax rate as we further integrate CyberArk into our corporate structure and intercompany relationships. 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 April 30, | Nine Months Ended April 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Change | 2026 | 2025 | Change | ||||||||||||||||||||||||||||||||||||||||||
| Amount | Amount | Amount | % | Amount | Amount | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | $ | 21 | $ | 49 | $ | (28) | (57) | % | $ | 216 | $ | 124 | $ | 92 | 74 | % | |||||||||||||||||||||||||||||||
| Effective tax rate | (13.5) | % | 15.6 | % | 26.8 | % | 12.3 | % | |||||||||||||||||||||||||||||||||||||||
Our effective tax rate varied for the three and nine months ended April 30, 2026 compared to the same periods in 2025 primarily due to our CyberArk acquisition and decreased excess tax benefits from share-based compensation. Refer to Note 14. Income Taxes in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.
In March 2026, the Knesset Finance Committee approved the Law for the Encouragement and Incentivization of Research and Development (the "R&D Law") that provides incentives for qualifying research and development expenditures incurred after January 1, 2026. The R&D Law introduces a tax credit, at varying rates based on specified thresholds, for qualifying research and development expenditures incurred in Israel, subject to meeting defined eligibility criteria. It provides that all or a portion of the unutilized R&D tax credit will be paid in cash upon the lapse of a period stipulated by the R&D Law. The Israeli Knesset has indicated plans to issue additional regulations regarding the implementation of the R&D Law. For the three and nine months ended April 30, 2026, the impact of the R&D Law was not material to our condensed consolidated financial statements.
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Liquidity and Capital Resources
| April 30, 2026 | July 31, 2025 | ||||||||||
| (in millions) | |||||||||||
|
Working capital (deficit)
|
$ | (1,293) | $ | (465) | |||||||
| Cash, cash equivalents, and investments: | |||||||||||
| Cash and cash equivalents | $ | 2,364 | $ | 2,269 | |||||||
| Investments | 4,628 | 6,190 | |||||||||
| Total cash, cash equivalents, and investments | $ | 6,992 | $ | 8,459 | |||||||
As of April 30, 2026, our total cash, cash equivalents, and investments of $7.0 billion were held for general corporate purposes. As part of the acquisition of CyberArk, we executed an intercompany transaction to repatriate $3.5 billion of foreign earnings, resulting in immaterial income tax expense related to state and other taxes. Our remaining unremitted earnings are indefinitely reinvested.
DEBT
In February 2026, in connection with the acquisition of CyberArk, we entered into a supplemental indenture (the "Supplemental Indenture") to the Indenture, dated as of June 10, 2025 (together with the Supplemental Indenture, the "Indenture"), between CyberArk, as issuer, and U.S. Bank Trust Company, National Association, as trustee, governing CyberArk's $1.25 billion aggregate principal amount of 0.0% Convertible Senior Notes due 2030 (the "2030 Notes"). As a result of our acquisition of CyberArk and pursuant to the Supplemental Indenture, the 2030 Notes are now exchangeable into shares of our common stock and cash. The 2030 Notes mature on June 15, 2030; however, under certain circumstances, holders may surrender their 2030 Notes for conversion prior to the maturity date. Upon conversion of the 2030 Notes, we will pay cash equal to the aggregate principal amount of the 2030 Notes to be converted, and, at our election, we will pay or deliver cash and/or a combination of cash and shares of our common stock for the amount of our conversion obligation in excess of the aggregate principal amount of the 2030 Notes converted. During the three and nine months ended April 30, 2026, holders surrendered $153 million in aggregate principal amount of the 2030 Notes for conversion, which were settled for $160 million in cash on May 7, 2026. After giving effect to these conversions, the remaining outstanding principal balance of the 2030 Notes was $1.1 billion.
The sale price condition for the 2030 Notes was not met during the calendar quarter ended March 31, 2026, and as a result, our 2030 Notes are not convertible pursuant to that condition during the calendar quarter ending June 30, 2026. If the sale price condition for the 2030 Notes is met during the calendar quarter ending June 30, 2026 and all of the holders elect to convert their 2030 Notes during the calendar quarter ending September 30, 2026, we would be obligated to settle the $1.1 billion principal amount of the 2030 Notes and a portion of our conversion obligation in excess of the aggregate principal amount of the 2030 Notes, if any, in cash. We believe that our cash provided by operating activities, our existing cash, cash equivalents, and investments, and existing sources of and access to financing, including any proceeds that may be received from the settlement or termination of the outstanding capped call transactions we assumed in connection with our acquisition of CyberArk, will be sufficient to meet our anticipated cash needs should the holders choose to convert their 2030 Notes during the fiscal quarter ending July 31, 2026 or hold the 2030 Notes until maturity on June 15, 2030. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the 2030 Notes.
In April 2023, we entered into a credit agreement (the "Credit Agreement") that provides for a $400 million unsecured revolving credit facility (the "Credit Facility"), with an option to increase the amount of the Credit Facility by up to an additional $350 million, subject to certain conditions. 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 April 30, 2026, there were no amounts outstanding, and we were in compliance with all covenants under the Credit Agreement. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Credit Agreement.
CAPITAL RETURN
In February 2019, our board of directors authorized a $1.0 billion share repurchase program. Our board of directors subsequently authorized additional increases to this share repurchase program, bringing the total authorization to $5.1 billion. Repurchases will be funded from available working capital and may be made at management's discretion from time to time. As of April 30, 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. Refer to Note 12. Stockholders' Equity in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on this repurchase program.
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CONTRACTUAL OBLIGATIONS AND OTHER MATERIAL CASH REQUIREMENTS
We have entered into various non-cancelable operating leases, primarily for our offices and data centers, with lease terms expiring through fiscal 2040, with the most significant leases relating to our corporate headquarters in Santa Clara, California. As of April 30, 2026, we have total operating lease obligations of $778 million recorded on our condensed consolidated balance sheet.
As of April 30, 2026, our commitments to purchase products, components, cloud hosting and other services totaled $8.6 billion. Refer to Note 11. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on these commitments.
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 April 30, 2026, we have total contingent consideration obligation of $240 million recorded on our condensed consolidated balance sheet. Refer to Note 3. Fair Value Measurements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on our contingent consideration obligation.
CASH FLOWS
The following table summarizes our cash flows for the nine months ended April 30, 2026 and 2025:
| Nine Months Ended April 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| (in millions) | |||||||||||
| Net cash provided by operating activities | $ | 3,196 | $ | 2,695 | |||||||
| Net cash used in investing activities | (2,098) | (1,442) | |||||||||
| Net cash used in financing activities | (1,005) | (405) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 2 | - | |||||||||
| Net increase in cash, cash equivalents, and restricted cash | $ | 95 | $ | 848 | |||||||
Cash from operations could be affected by various risks and uncertainties detailed in Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q. We believe that our cash flow from operations with existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months and thereafter for the foreseeable future. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and subscription and support offerings, the costs to acquire or invest in complementary businesses and technologies, the costs to ensure access to adequate manufacturing capacity, the investments in our infrastructure to support the adoption of our cloud-based subscription offerings, the continuing market acceptance of our products and subscription and support offerings and macroeconomic events. In addition, from time to time, we may incur additional tax liability in connection with certain corporate structuring decisions.
We may also choose to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition may be adversely affected.
OPERATING ACTIVITIES
Our operating activities have consisted of net income adjusted for certain non-cash items and changes in assets and liabilities. Our largest source of cash provided by our operations is receipts from our customers. 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 nine months ended April 30, 2026 was $3.2 billion, an increase of $501 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 nine months ended April 30, 2026, partially offset by higher cash expenditure to support our business growth.
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INVESTING ACTIVITIES
Our investing activities have consisted of capital expenditures, net investment purchases, sales, and maturities, and business acquisitions. We expect to continue such activities as our business grows.
Cash used in investing activities during the nine months ended April 30, 2026 was $2.1 billion, an increase of $656 million compared to the same period in 2025. The increase was primarily due to an increase in net cash payments for business acquisitions during the nine months ended April 30, 2026, partially offset by higher proceeds from sales and maturities of investments and lower purchases of investments.
FINANCING ACTIVITIES
Our financing activities have consisted of repayments of our convertible senior notes, cash used to repurchase shares of our common stock, 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 used in financing activities during the nine months ended April 30, 2026 was $1.0 billion, an increase of $600 million compared to the same period in 2025. The increase was primarily due to repurchase of our common stock and payments of our contingent consideration liability during the nine months ended April 30, 2026, partially offset by a decrease in cash used for repayments of our 2025 Notes which did not recur during the nine months ended April 30, 2026 as a result of its maturity.
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results could differ materially from those estimates due to risks and uncertainties, including uncertainty in the current economic environment. To the extent that there are material differences between these estimates and our actual results, our future consolidated financial statements will be affected.
We believe the critical accounting estimates discussed under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025 reflect our more significant estimates, assumptions, and judgments that have the most significant impact on our condensed consolidated financial statements. There have been no significant changes to our critical accounting estimates as filed in such report.
Recent Accounting Pronouncements
Refer to "Recently Issued Accounting Pronouncements" in Note 1. Description of Business and Summary of Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.
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