Annual Report for Fiscal Year Ending September 30, 2025 (Form 20-F)

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview of Business and Trend Information

Amdocs is a leading provider of software and services for communications and media industry service providers in both developed countries and emerging markets. We believe the demand for our solutions is driven by our customers' continued migration to the cloud, deployment of 5G standalone, FWA, B2B acceleration, and fiber networks and their transformation into digital service providers to provide connectivity services, content and applications (apps) on any device through digital and non-digital channels. Regardless of whether service providers are bringing their first offerings to market, scaling for growth, consolidating systems or transforming the way they do business, we believe that they seek to differentiate their offerings by delivering a customer experience that is simple, personal, contextual and valuable at every point of engagement and across all channels.

We believe service providers will maintain a strong focus on growing new revenue streams, cost reduction and driving more efficient operations, and that the trends of ongoing digital transformation with a focus on customer experience, migration to the cloud, agentic AI, next-generation networks, and consolidation within the industry will continue. Service providers are increasingly focusing on their core capabilities and investing in 5G and fiber rollouts to meet the demand for increased bandwidth, faster pace of innovation for new digital services and introducing GenAI, as well as to improve their business and operational agility and optimize and monetize their investments in such services. At the same time, many service providers are partnering with leading suppliers to offer their

customers a rich portfolio of offerings including media, entertainment, enterprise enablement, IoT, and digital lifestyle services, all of which is driving growth in the demand for multi-modal customer engagement capabilities, data, and GenAI.

We develop, implement and manage software and services designed to meet our customers' business needs and empower them to transform their boldest ideas into reality. Our technology, design-led thinking approach and expertise help service providers to migrate to the cloud, manage and monetize their next-generation networks, further transform into digital service providers, accelerate their GenAI journeys, enhance their entertainment offerings, and serve their customers across all channels. With our portfolio's open and modular structure, organized by capability and matched to industry standards, our customers have the flexibility to choose business offerings that address their specific needs and improve their time to market and value.

In part, we have sought, through acquisitions, to expand our products and services offerings and customer base and to enhance our ability to provide managed services to our customers. In recent years, we have completed numerous acquisitions: this includes our fiscal year 2023 acquisitions of the service assurance business of TEOCO, and of ProCom Consulting, and our fiscal year 2024 acquisitions of Astadia, and the network engineering businesses of Pramira. In fiscal year 2025, we acquired Profinit, a data science, engineering and intelligence company, and have also made three other immaterial acquisitions. Among other things, we believe these acquisitions will enable us to expand our 5G, fiber, digital and cloud-native capabilities, service assurance and cloud migration expertise. As part of our strategy, we may continue to pursue acquisitions and other initiatives in order to offer new products or services, enter into new vertical markets or otherwise enhance our market position or strategic strengths.

In evaluating Amdocs' portfolio of products, services and business activities in relation to our strategic investment priorities for fiscal year 2025, we decided to phase out several low-margin, non-core business activities that we believe are becoming commoditized and hold little potential for long-term value addition or profitability enhancement in the future. These activities, which generated revenue of approximately $600 million in fiscal year 2024, included, among others, certain low-margin software and hardware partner activities, Vubiquity's transactional video on demand business and other non-core subscription services. These activities were substantially already ceased in the first quarter of fiscal 2025.

The Amdocs Offerings

Our portfolio consists of software and services that address service providers' business and operational needs. Our offerings, grouped by technology capabilities such as monetization, commerce and care, service and network automation, are designed to meet the challenges facing our customers as they roll out 5G networks, migrate to the cloud, FWA and fiber networks, introduce GenAI solutions, and transform into digital service providers within the framework of a hybrid IT environment, which requires them to rapidly introduce new cloud-native applications while still operating legacy systems. Our software is designed to enable modular expansion as a service provider evolves, and its microservices-based architecture enables the rapid deployment of complex applications as suites of independently deployable services that can be frequently upgraded via DevSecOps.

Our comprehensive line of services is designed to address every stage of a service provider's lifecycle. They include consulting, experience design, data, cloud, network services, to delivery, quality engineering, operations, systems integration, and content services. Our managed services provide multi-year, flexible and tailored support, managing IT business processes and applications services. They include application development, modernization and maintenance, IT and infrastructure services, testing and professional services that are designed to assist customers in the selection, implementation, operation, management and maintenance of their IT systems. In fiscal year 2025, we announced the launch of Amdocs Studios, a holistic high-end digital services offering combining deep expertise across four key technology disciplines: Quality Engineering, Data & GenAI, Cloud, and Experience & Digital Engineering.

We believe that our business model of developing mission-critical software, deploying it at our customers and then operating it and supporting it on an ongoing basis, provides Amdocs with a high level of recurring revenue. This, together with our scalable global resource allocation model and our continuous operational excellence, automation and efficiency improvements, enables us to deliver consistent operating margin performance over time.

We conduct our business globally, and as a result we are subject to the effects of global economic conditions and, in particular, market conditions in the communications and media industry. In fiscal year 2025, customers in North America accounted for 65.8% of our revenue, while customers in Europe and the rest of the world accounted for 15.6% and 18.6%, respectively. We maintain strategic development centers in Israel, Cyprus and India, and we also have regional development centers in Brazil, Canada, Mexico, the Philippines, the United Kingdom and the United States.

Historically, AT&T has been our largest customer, accounting for 25.9% and 24.5% of our revenue in fiscal years 2025 and 2024, respectively. In fiscal years 2025 and 2024, our next largest customer, T-Mobile, accounted for 19.9% and 22.6% of our revenue, respectively. Excluding the phase out in fiscal year 2025 of several low margin, non-core business activities(1), the percentage of revenue of AT&T and T-Mobile for fiscal year 2025 remained roughly stable as compared to fiscal year 2024. Aggregate revenue derived from the multiple business arrangements we have with our ten largest customers accounted for approximately 70% of our revenue in fiscal years 2025 and 2024.

We believe that demand for our solutions is primarily driven by the following key factors:

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(1) For more details, please refer to "Note 22 - Segment Information and Revenue from Significant Customers" in the Notes to the Consolidated Financial Statements.

Revenue from managed services arrangements is a significant part of our business, generating substantial, long-term recurring revenue streams and cash flow. Revenue from managed services arrangements accounted for approximately $3.00 billion and $2.90 billion of revenue in fiscal years 2025 and 2024, respectively. In managed services contracts, revenue from the operation of a customer's system is recognized as services are performed based on time elapsed, output produced or volume of data processed. In the initial period of our managed services projects, we often invest in modernization and consolidation of the customer's systems and may see also additional modernization cycles in our more mature managed services engagements. Managed services engagements can be less profitable in their early stages; however, margins tend to improve over time, and this improvement is seen more rapidly in the initial period of an engagement, as we derive benefit from insertion of automation tools, AI, operational efficiencies, changes in the geographical mix of our resources, and from leveraging our developments within the GenAI domain and the introduction of agentic solutions to manage our services.

Research and Development, Patents and Licenses

Our research and development activities involve the development of new software architecture, modules and product offerings in response to an identified market demand. We also expend additional amounts on applied research and software development activities to keep abreast of new technologies in the communications and media industry and to provide new and enhanced functionality to our existing product offerings. We leverage leading-edge development technologies and associated technologies, for example, GenAI, DevSecOps, CI/CD (continuous integration/continuous delivery), and Agile methodology, to ensure we are able to develop and deliver our solutions efficiently and cost-effectively.

Substantially all of our research and development expenditures are directed at our solutions. In recent years, we have also invested our research and development efforts in network control, optimization and orchestration and network functions virtualization technologies; applications to enable service providers to deploy and monetize technologies such as fiber, LTE, 5G, small cells and Wi-Fi; big data analytics and intelligence capabilities leveraging AI, GenAI and NLP toward consumer and business satisfaction, marketing effectiveness and network operations and experience; increased focus for the business segment, digital, commerce and entertainment domains; platforms for processing, distributing and monetizing content globally and on foundational technologies including microservices and all major cloud providers. We believe that our research and development efforts are a key element of our strategy and are essential to our success. However, an increase or a decrease in our total revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could affect our operating margin.

Our products are largely comprised of software and systems that we have developed or acquired and that we regard as proprietary. In recent years, we have invested in adopting open source components in an effort to reduce total cost of ownership for our customers, but our software and software systems remain the results of long, robust and intensive development processes. Although our technology is not significantly dependent on patents or licenses from third parties, certain aspects of our products continue to make use of software components licensed from third parties. As a developer of complex software systems, third parties may claim that portions of our systems infringe their intellectual property rights. The ability to develop and use our software and software systems requires knowledge and professional experience that we believe would be very difficult for others to independently obtain. However, our competitors may independently develop technologies that are substantially equivalent or superior to ours. We have taken, and intend to continue to take, several measures to establish and protect our proprietary rights in our products and technologies from third-party infringement. We rely upon a combination of trademarks, patents, contractual rights, trade secret law, copyrights and non-disclosure agreements. We enter into non-disclosure and confidentiality agreements with our customers, employees and marketing representatives and with certain contractors with access to sensitive information; and we also limit customer access to the source code of our software and software systems.

Operating Results

The following table sets forth for the fiscal years ended September 30, 2025, 2024 and 2023, certain items in our consolidated statements of income reflected as a percentage of revenue (figures may not sum because of rounding):

Fiscal Years Ended September 30, 2025 and 2024

The following is a tabular presentation of our results of operations for the fiscal year ended September 30, 2025, compared to the fiscal year ended September 30, 2024. Following the table is a discussion and analysis of our business and results of operations for these fiscal years.

(*) Geographic Information:

Revenue. Revenue decreased by $472.1 million, or (9.4)%, to $4,532.9 million in fiscal year 2025, from $5,005.0 million in fiscal year 2024. In fiscal year 2025, we phased out several low margin, non-core business activities, the results of which were included in fiscal year 2024. Excluding the effects of phasing out those low-margin, non-core business activities(a) and the immaterial impact of negative foreign currency fluctuations, revenue for fiscal year 2025 increased by 3.1%. Revenue from our top ten customers excluding the effect of the phase out activity(a)mentioned above and the immaterial impact of negative foreign currency fluctuations increased in aggregate by 3.6 % in fiscal year 2025 compared to fiscal year 2024.

In fiscal year 2025, revenue from customers in North America, Europe and the rest of the world accounted for 65.8%, 15.6% and 18.6%, respectively, of total revenue, compared to 66.5%, 14.5% and 19.0%, respectively, in fiscal year 2024.

Revenue from customers in North America decreased in absolute amounts in fiscal year 2025, primarily as a result of the phase out of several low-margin, non-core business activities(a). Excluding the effects of the phase out activities, revenue from customers in North America increased driven by higher revenue from managed services activities.

Revenue from customers in Europe decreased in absolute amounts in fiscal year 2025, primarily as a result of the phase out of several low-margin, non-core business activities(a). Revenue from customers in Europe increased as a percentage of total revenue to 15.6% in fiscal year 2025 from 14.5% in fiscal year 2024, benefiting from the ramp-up of new deal activities and a contribution from the acquisition of Profinit.

Revenue from customers in rest of the world decreased in absolute amounts in fiscal year 2025, primarily as a result of the phase out of several low-margin, non-core business activities(a). Excluding the effects of the phase out activities, revenue from customers in Asia-Pacific increased as we expand our presence in this region.

Cost of Revenue. Cost of revenue consists primarily of costs associated with providing services to customers, including compensation expense and costs of third-party products and services, as well as fee and royalty payments to software suppliers. Cost of revenue decreased by $438.3 million, or 13.5%, to $2,811.3 million in fiscal year 2025, from $3,249.6 million in fiscal year 2024. The cost of revenue as a percentage of total revenue decreased, from 64.9% in fiscal year 2024 to 62.0% in fiscal year 2025, the majority of which is a result of the phasing out of non-core, low-margin business activities(a) and the continued focus on operational excellence and the efficiency improvements. Our cost of revenue was also positively affected by foreign exchange impacts.

Research and Development. Research and development expense is primarily comprised of compensation expense. Research and development expense decreased in absolute amount by $20.0 million, or 5.5%, to $340.8 million in fiscal year 2025, from $360.8 million in fiscal year 2024. Research and development expense increased as a percentage of total revenue from 7.2% in fiscal year 2024, to 7.5% in fiscal year 2025, as total revenue decreased at a higher rate than research and development expense as a result of the phasing out of non-core, low-margin business activities(a), as we invested in AI and GenAI capabilities, and continued to invest in our cloud offerings, network related innovation, and further developing our digital offerings. Our research and development efforts are a key element of our strategy and are essential to our success, and we intend to maintain our commitment to research and development. However, increase or decrease in our revenue would not necessarily result in a proportional increase or decrease in the levels of our research and development expenditures, which could affect our operating margin. Please see "Research and Development, Patents and Licenses."

Selling, General and Administrative. Selling, general and administrative expense, which is primarily comprised of compensation expense, decreased by $66.7 million, or 11.7%, to $506.1 million in fiscal year 2025, from $572.8 million in fiscal year 2024. Selling, general and administrative expense decreased as a percentage of total revenue from 11.4% in fiscal year 2024, to 11.2% in fiscal year 2025. The decrease was primarily attributable to operational excellence and efficiency improvements, changes of certain acquisition-related liabilities measured at fair value, and a decrease in account receivable allowances. Selling, general and administrative expense may fluctuate from time to time, depending upon such factors as changes in our workforce and sales efforts and the results of any operational efficiency programs that we may undertake.

Amortization of Purchased Intangible Assets and Other. Amortization of purchased intangible assets and other slightly increased by $0.4 million, or 0.6%, to $62.4 million in fiscal year 2025, from $62.1 million in fiscal year 2024. The slight increase in amortization of purchased intangible assets and other was primarily attributable to recent completed acquisitions, partially offset by a completion of amortization of previously purchased intangible assets.

Restructuring Charges. Restructuring charges in fiscal year 2025 were $80.5 million, decreased by $50.5, from $131.1 in fiscal year 2024. Following our restructuring activities in fiscal years 2023 and 2024, we have undertaken certain restructuring actions to focus on operational excellence, automation and the internal deployment of generative AI based tools across our business. We continue to

evaluate further operational efficiencies. For the restructuring charges for the comparable period and for more details, please see Note 10 to our consolidated financial statements.

Operating Income. Operating income increased by $103.1 million, or 16.4%, to $731.7 million in fiscal year 2025, from $628.6 million in fiscal year 2024. Operating income increased as a percentage of total revenue, from 12.6% in fiscal year 2024 to 16.1% in fiscal year 2025. The increase in operating income was primarily attributable to the phasing out of non-core, low-margin business activities(a), the continued focus on operational excellence, the ongoing adoption of automation, AI, and other sophisticated tools within our operations, to drive additional cost savings and efficiency improvements, and a lower level of restructuring charges recorded in fiscal year 2025 compared to fiscal year 2024. Our operating income as a percentage of total revenue included an immaterial positive effect of foreign exchange impacts.

Interest and Other Expense, Net. Interest and other expense, net, slightly increased from a net expense of $37.5 million in fiscal year 2024 to a net expense of $38.4 million in fiscal year 2025. The slight increase was primarily attributable to increase in interest expenses net of interest income, as a result of lower level of cash balances, partially offset by (i) a decrease in foreign exchange fluctuation charges and (ii) an increase in net realized gain from equity investments, which partially offset by fair value changes of certain other equity investments resulting in a net increase of $8.7 million compared to fiscal year 2024.

Income Taxes. Income taxes for fiscal year 2025 were $125.5 million on pre-tax income of $693.2 million, resulting in an effective tax rate of 18.1% in fiscal year 2025, compared to 16.0% in fiscal year 2024. Our effective tax rate may fluctuate between periods as a result of discrete items that may affect a particular period, please see Note 11 to our consolidated financial statements.

Net Income Attributable to Amdocs Limited. Net income increased by $71.5 million, or 14.5%, to $564.7 million in fiscal year 2025, from $493.2 million in fiscal year 2024. The increase in net income is primarily attributable to an increase in operating income, partially offset by an increase in income taxes.

Diluted Earnings Per Share. Diluted earnings per share increased by $0.80, or 18.8%, to $5.05 in fiscal year 2025, from $4.25 in fiscal year 2024. The increase in diluted earnings per share was attributable to an increase in net income and a decrease in the diluted weighted average number of shares outstanding, which resulted from share repurchases. The restructuring charges of $80.5 million and $131.1 million in fiscal years 2025 and 2024, decreased the diluted earnings per share by $0.65 and $0.98, respectively. Please see also Note 21 to our consolidated financial statements.

(a) During the three months ended December 31, 2024, we phased out several low-margin, non-core business activities, which were included in fiscal year 2024. These business activities resulted in an aggregate of approximately $600 million of revenue in fiscal year 2024, or approximately $150 million per fiscal quarter. The geographic proportional impact of revenue attributable to such business activities is consistent with that of the overall company in fiscal year 2024. These activities had substantially ceased in the three months ended December 31, 2024.

Results of Operations for Fiscal year 2024 Compared to Fiscal year 2023

For a comparative discussion and analysis related to the results of operations and changes in financial condition for fiscal year 2024 compared to 2023, refer to Item 5. "Operating and Financial Review and Prospects" in our Annual Report on Form 20-F for the fiscal year ended September 30, 2024, filed on December 17, 2024, with the SEC and available at www.sec.gov.

Liquidity and Capital Resources

Cash, Cash Equivalents and Short-Term Interest-Bearing Investments.Cash, cash equivalents and short-term interest-bearing investments, totaled $325.0 million as of September 30, 2025, compared to $514.3 million as of September 30, 2024. The decrease was mainly attributable to $551.3 million used to repurchase our ordinary shares, $224.4 million of cash dividend payments, $104.0 million for capital expenditures, net, $86.3 million of payments for business and intangible assets acquisitions, partially offset by $749.1 million in positive cash flow from operations, reflecting healthy cash collections and $21.3 million of proceeds from stock option exercises $18.2 million net proceeds from equity investments and other. Net cash provided by operating activities amounted to $749.1 million and $724.4 million in fiscal years 2025 and 2024, respectively.

Our free cash flow for fiscal year 2025 was $645.1 million and is calculated as net cash provided by operating activities of $749.1 million for the period less $104.0 million for capital expenditures, net, and after restructuring payments of approximately $90 million.

Free cash flow is a non-GAAP financial measure and is not prepared in accordance with, and is not an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures with similar names used by other companies. Non-GAAP measures such as free cash flow should only be reviewed in conjunction with the corresponding GAAP measures. We

believe that free cash flow, when used in conjunction with the corresponding GAAP measure, provides useful information to investors and management relating to the amount of cash generated by the Company's business operations.

We believe that our current cash balances, cash generated from operations, our current lines of credit, loans, Senior Notes and our ability to access capital markets will provide sufficient resources to meet our operational needs, loan and debt repayment needs, fund share repurchases and the payment of cash dividends for at least the next fiscal year.

We have short-term interest-bearing investments comprised of marketable securities and bank deposits. We classify all of our marketable securities, if applicable, as available-for-sale securities. Such marketable securities consist primarily of money market funds, corporate bonds, U.S. government treasuries and supranational and sovereign debt, which are stated at market value. We believe we have conservative investment policy guidelines. Our interest-bearing investments are stated at fair value with the unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss), net of tax, unless a security is impaired due to a credit loss, in which case the loss is recorded in the consolidated statements of income. Our interest-bearing investments are priced by pricing vendors and are classified as Level 1 or Level 2 investments, since these vendors either provide a quoted market price in an active market or use other observable inputs to price these securities. During fiscal years 2025 and 2024 we did not recognize credit losses. Please see Notes 5 and 6 to our consolidated financial statements.

Revolving Credit Facility, Senior Notes, Letters of Credit, Guarantees and Contractual Obligations. In December 2011, we entered into the unsecured $500.0 million Revolving Credit Facility. In December 2014, December 2017, March 2021 and July 2024, the Revolving Credit Facility was amended and restated to, among other things, extend the maturity date of the facility to December 2019, December 2022, March 2026 and July 2029, respectively. As of September 30, 2025, we were in compliance with the financial covenants and had no outstanding borrowings under the Revolving Credit Facility.

In June 2020, we issued an aggregate principal amount of $650.0 million in Senior Notes that will mature in June 2030 and bear interest at a fixed rate of 2.538 percent per annum (the "Senior Notes"). The interest is payable semi-annually in June and December of each year, commencing in December 2020. We incurred issuance costs of $6.1 million in relation to the Senior Notes, which are being amortized to interest expenses over the term of the Senior Notes using the effective interest rate. The Senior Notes are our senior unsecured obligations and rank equally in right of payment with all of our existing and future senior indebtedness, including any indebtedness we may incur from time to time under the Revolving Credit Facility. As of September 30, 2025, the noncurrent outstanding principal portion was $650.0 million. Please see Note 13 to our consolidated financial statements.

As of September 30, 2025, we had additional uncommitted lines of credit available for general corporate and other specific purposes. We had outstanding letters of credit and bank guarantees from various banks totaling $90.8 million as of September 30, 2025, which were supported by a combination of the uncommitted lines of credit that we maintain with various banks.

Acquisitions. During fiscal year 2025, we completed four business acquisitions for an aggregate net consideration of approximately $84.0 million in cash, and a potential for additional consideration which may be paid later based on the achievement of certain performance metrics. The majority of the consideration is attributable to the acquisitions of Profinit, a data science and
engineering company, and the telco network engineering business of MOBIA. During fiscal year 2024, we completed two business acquisitions for an aggregate net consideration of approximately $84.0 million in cash, and a potential for additional consideration which may be paid later based on achievement of certain performance metrics. The vast majority of this amount was paid for the acquisition of Astadia, which specializes in mainframe-to-cloud migration and modernization.

Capital Expenditures.Generally, the majority of our capital expenditures consist of purchases of computer, related equipment and software, and the remainder is attributable mainly to building and leasehold improvements. Our capital expenditures were approximately $104.0 million in fiscal year 2025, net. Our fiscal year 2025 capital expenditures were mainly attributable to investments in our operating facilities and our development centers around the world.

Share Repurchases. From time to time, our Board of Directors can adopt share repurchase plans authorizing the repurchase of our outstanding ordinary shares. On August 2, 2023, our Board of Directors adopted a share repurchase plan for the repurchase of up to an additional $1.1 billion of our outstanding ordinary shares with no expiration date. The August 2023 plan permitted us to purchase our ordinary shares in the open market or through privately negotiated transactions at times and prices that we consider appropriate. On May 7, 2025, our Board of Directors adopted a share repurchase plan for the repurchase of up to an additional $1.0 billion of our outstanding ordinary shares with no expiration date. The May 2025 plan permits us to purchase our ordinary shares in the open market or through privately negotiated transactions at times and prices that we consider appropriate. In the year ended September 30, 2025, we completed the repurchase of the remaining authorized amount of ordinary shares under the August 2023 plan and initiated repurchases of our outstanding ordinary shares pursuant to the May 2025 plan. In the year ended September 30, 2025, we repurchased 6.3 million ordinary shares at an average price of $87.38 per share (excluding broker and transaction fees). As of

September 30, 2025, we had remaining authority to repurchase up to an aggregate of $986.4 million of our outstanding ordinary shares under the May 2025 plan.

Cash Dividends.Our Board of Directors declared the following dividends during fiscal years 2025, 2024 and 2023:

On November 11, 2025, our Board of Directors approved a quarterly dividend payment of $0.527 per share and set December 31, 2025 as the record date for determining the shareholders entitled to receive the dividend, which is payable on January 30, 2026. On November 11, 2025, our Board of Directors also approved, subject to shareholder approval at the January 30, 2026 annual general meeting of shareholders, an increase in the quarterly cash dividend to $0.569 per share, anticipated to be paid in April 2026.

Our Board of Directors considers on a quarterly basis whether to declare and pay, if any, a dividend in accordance with the terms of the dividend program, subject to applicable Guernsey law and based on several factors including our financial performance, outlook and liquidity. Guernsey law requires that our Board of Directors consider a dividend's effects on our solvency before it may be declared or paid. While the Board of Directors will have the authority to reduce the quarterly dividend or discontinue the dividend program should it determine that doing so is in the best interests of our shareholders or is necessary pursuant to Guernsey law, any increase to the per share amount or frequency of the dividend would require shareholder approval.

Contractual Obligations

The following table summarizes our contractual obligations as of September 30, 2025, and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in millions):

(*) For information about long-term debt and operating lease, please see Note 13 and Note 16 to our Consolidated Financial Statements.

The total amount of unrecognized tax benefits for uncertain tax positions was $170.5 million as of September 30, 2025. Payment of these obligations if any would result from settlements with taxing authorities or final undisputed tax assessments. Due to the difficulty in determining the timing and exact outcome of resolution of audits in progress, these obligations are not included in the above table.

Critical Accounting Policies

Our discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent liabilities. On a regular basis, we evaluate and may revise our estimates. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent. Actual results could differ materially from the estimates under different assumptions or conditions.

We believe that, of our significant accounting policies described in the estimates, assumptions and judgments involved in the accounting policies described in Note 2 "Summary of Significant Accounting Policies" , the below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. These policies require that we make estimates and judgments in the preparation of our financial statements as of a given date. Our critical accounting policies are as follows:

Revenue Recognition and Contract Accounting

We follow very specific and detailed guidelines, which are discussed in Note 2 to our consolidated financial statements, in measuring revenue; however, certain judgments affect the application of our revenue recognition policy:

Tax Accounting

As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax expense in each of the jurisdictions in which we operate. In the ordinary course of a global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and reimbursement arrangements among related entities, the process of identifying items of revenue and expenses that qualify for preferential tax treatment and segregation of foreign and domestic income and expense to avoid double taxation.

We apply an estimated annual effective tax rate to our quarterly operating results to determine the interim provision for income tax expense. A change in judgment that impacts the measurement of a tax position taken in a prior year is recognized as a discrete item

in the interim period in which the change occurs. In the event there is a significant unusual or infrequent item recognized in our quarterly operating results, the tax attributable to that item is recorded in the interim period in which it occurs.

A valuation allowance is provided for the respective part of the deferred tax assets for which it is more likely than not that we will not be able to realize its benefit. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and adjust the valuation allowances accordingly. Factors considered in making this determination include the period of expiration of the tax asset, planned use of the tax asset, tax planning strategies and historical and projected taxable income as well as tax liabilities for the tax jurisdiction in which the tax asset is located. Valuation allowances will be subject to change in each future reporting period as a result of changes in one or more of these factors.

Although we believe that our estimates are reasonable in estimating our tax outcome and in assessing the need for the valuation allowance, there is no assurance that the final tax outcome and the valuation allowance will not be different than those that are reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision, net income and cash balances in the period in which such determination is made.

Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, lapse of statute of limitations, or changes in tax law. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material effect on our income tax provision, net income and cash balances in that period. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate.

We have filed or are in the process of filing tax returns that are subject to audit by the respective tax authorities. Although the ultimate outcome is unknown, we believe that any adjustments that would result from tax return audits are not likely to have a material adverse effect on our consolidated results of operations, financial condition or cash flows.

Business Combinations

Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities. In accordance with business combinations accounting, assets acquired and liabilities assumed, as well as any contingent consideration that may be part of the acquisition agreement, are recorded at their respective fair values at the date of acquisition. Such fair value valuations require management to make significant estimates and assumptions, especially with respect to intangible assets, as a result, we obtain the assistance of independent valuation firms. We complete these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.

For acquisitions that include contingent consideration, the fair value is estimated on the acquisition date as the present value of the expected contingent payments, determined using weighted probabilities of possible payments. We remeasure the fair value of the contingent consideration at each reporting period until the contingency is resolved. Except for measurement period adjustments, the changes in fair value are recognized in the consolidated statements of income. We consider several factors when determining that contingent consideration liabilities are part of the purchase price, such as the following: the valuation of the acquisitions is not supported solely by the initial consideration paid, and the contingent consideration payments are not affected by employment termination.

Although we believe the assumptions and estimates of fair value we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and subject to refinement. Critical estimates in valuing certain assets acquired and liabilities assumed include but are not limited to: future expected cash flows from license and service sales, maintenance, customer contracts and acquired developed technologies, expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed and the acquired company's brand awareness and discount rate. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments, based on events that occurred subsequent to the acquisition date, are recorded in our consolidated statements of income.

As discussed above under "Tax Accounting," we may establish a valuation allowance for certain deferred tax assets and estimate the value of uncertain tax positions of a newly acquired entity. This process requires significant judgment and analysis.

Goodwill, Intangible Assets and Long-Lived Assets - Impairment Assessment

Our annual evaluation of impairment consists of either using a qualitative approach to determine whether it is more likely than not that the fair value of the assets is less than their respective carrying values or a quantitative impairment test, if necessary. Quantitative impairment tests are performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The process of evaluating the potential impairment of goodwill requires judgment during the analysis. In performing a qualitative evaluation, we consider many factors in evaluating whether the carrying value of goodwill may not be recoverable, including changes in our stock price and market capitalization in relation to our book value and macroeconomic conditions affecting our business. Please see Note 2 to our consolidated financial statements. We perform an annual goodwill impairment test during the fourth quarter of each fiscal year, or more frequently if impairment indicators are present. We operate in one operating segment, and this segment comprises our only reporting unit. Where a quantitative impairment test is necessary, in calculating the fair value of the reporting unit, we used our market capitalization and a discounted cash flow methodology. There was no impairment of goodwill in fiscal years 2025, 2024 or 2023.

We test long-lived assets, including definite life intangible assets, for impairment in the event an indication of impairment exists. Impairment indicators include any significant changes in the manner of our use of the assets or the strategy of our overall business, significant negative industry or economic trends and significant decline in our share price for a sustained period. If the sum of undiscounted future cash flows resulting from the use of the cash generating unit and its eventual disposition is less than the carrying amount of such assets, an impairment would be recognized, and the assets would be written down to their estimated fair values, based on expected future discounted cash flows. There was an immaterial impairment of long-lived assets in fiscal years 2025, 2024 and 2023.

Derivative and Hedge Accounting

During fiscal years 2025, 2024 and 2023, approximately 70% to 80% of our revenue and 50% to 60% of our operating expenses were denominated in U.S. dollars or linked to the U.S. dollar. We enter into foreign exchange forward contracts and options to hedge a significant portion of our foreign currency net exposure resulting from revenue and expense in major foreign currencies in which we operate, in order to reduce the impact of foreign currency on our results. We also enter into foreign exchange forward contracts and options to reduce the impact of foreign currency on the consolidated balance sheets items. We estimate the fair value of such derivative contracts by reference to forward and spot rates quoted in active markets.

Establishing and accounting for foreign exchange contracts involves judgments, such as determining the fair value of the contracts, determining the nature of the exposure, assessing its amount and timing, and evaluating the effectiveness of the hedging arrangement.

Although we believe that our estimates are accurate and meet the requirement of hedge accounting, if actual results differ from these estimates, such difference could cause fluctuation of our recorded revenue and expenses.

Recent Accounting Standards

Please see Note 2 to our consolidated financial statements.