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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________
FORM 10-Q
_____________________________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2026
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _to_
Commission File Number: 001-38413
_____________________________________
ZSCALER, INC.
(Exact Name of Registrant as Specified in its Charter)
_____________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
26-1173892
(I.R.S. Employer
Identification Number)

120 Holger Way
San Jose , California 95134

(Address of principal executive offices)

Registrant’s telephone number, including area code: ( 408 ) 533-0288
___________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, $0.001 Par Value ZS The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ý No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
As of February 19, 2026, the number of shares of regi strant’s common stock outstanding was 160,790,703 .

ZSCALER, INC.
Table of Contents
Page No.
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
3

Condensed Consolidated Balance Sheets as of January 31, 202 6 and July 31, 2025
3

Condensed Consolidated Statement of Operations for the Three and Six Months Ended January 31, 202 6 and 202 5
4

Condensed Consolidated Statement of Comprehensive Loss for the Three and Six Months Ended January 31, 202 6 and 202 5
5

Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended J anuary 31, 202 6 and 202 5
6

Condensed Consolidated Statements of Cash Flows for the Six Months Ended January 31, 202 6 and 202 5
8

Notes to Unaudited Condensed Consolidated Financial Statements
9

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
34

Item 3.
Quantitative and Qualitative Disclosures about Market Risk
55

Item 4.
Controls and Procedures
57

PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
58

Item 1A.
Risk Factors
58

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
98

Item 5.
Other Information
98

Item 6.
Exhibits
98

Signatures
99

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding our financial outlook and market positioning. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," "expect," and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements.
These forward-looking statements include, but are not limited to, statements concerning the following:
• the impact of macroeconomic and geopolitical events, developments and conditions on our business;
• our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (including changes in sales and marketing, research and development and general and administrative expenses) and our ability to achieve, and maintain, future profitability;
• market acceptance of our cloud platform;
• the effects of increased competition in our markets and our ability to compete effectively;
• our ability to maintain the security and availability of our cloud platform;
• our ability to maintain and expand our customer base, including by attracting new customers;
• our ability to develop new solutions or enhancements to our existing solutions, including artificial intelligence and machine learning capabilities, and bring them to market in a timely manner;
• market acceptance of any new solutions or enhancements to our existing solutions;
• anticipated trends, growth rates and challenges in our business and in the markets in which we operate, particularly as a result of artificial intelligence;
• our business plan and our ability to effectively manage our growth and associated investments;
• beliefs about and objectives for future operations;
• beliefs about and objectives for future acquisitions, strategic investments, partnerships and alliances and our ability to successfully integrate completed acquisitions;
• our relationships with third parties, including channel partners;
• our ability to maintain, protect and enhance our intellectual property rights;
• our ability to successfully defend litigation brought against us;
• our ability to successfully expand in our existing markets and into new markets;
• sufficiency of cash to meet cash needs for at least the next 12 months and service our outstanding debt;
1

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• our need and ability to raise additional capital in future debt or equity financings;
• our expectations regarding any settlement upon conversion of the 2028 Notes (as defined in Note 10, Convertible Senior Notes, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q);
• our ability to comply with laws and regulations, including tariffs and trade regulations, that currently apply or become applicable to our business both in the United States ("U.S.") and internationally;
• beliefs about the impacts of legal developments upon our business;
• the attraction and retention of qualified employees and key personnel; and
• the future trading prices of our common stock.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in "Risk Factors" elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements and you should not place undue reliance on our forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
You should read this Quarterly Report on Form 10-Q in conjunction with the audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025 filed with the Securities and Exchange Commission, or the SEC, on September 11, 2025.
2

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PART I. FINANCIAL INFORMATION
Item. 1 Financial Statements
ZSCALER, INC.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
(unaudited)

January 31, 2026 July 31, 2025
Assets
Current assets:
Cash and cash equivalents $ 1,202,751   $ 2,389,023  
Short-term investments 2,310,000   1,183,386  
Accounts receivable, net 551,820   992,181  
Deferred contract acquisition costs 188,696   180,819  
Prepaid expenses and other current assets 197,496   148,881  
Total current assets 4,450,763   4,894,290  
Property and equipment, net 544,623   543,377  
Operating lease right-of-use assets 138,333   89,772  
Deferred contract acquisition costs, noncurrent 330,608   328,722  
Acquired intangible assets, net 193,376   47,323  
Goodwill 1,001,401   417,730  
Other noncurrent assets 94,724   98,674  
Total assets $ 6,753,828   $ 6,419,888  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 29,031   $ 46,906  
Accrued expenses and other current liabilities 100,264   93,984  
Accrued compensation 160,515   181,807  
Deferred revenue 1,983,569   2,054,417  

Operating lease liabilities 67,587   52,497  
Total current liabilities 2,340,966   2,429,611  
Convertible senior notes 1,702,718   1,700,727  
Deferred revenue, noncurrent 371,786   413,609  
Operating lease liabilities, noncurrent 94,083   43,352  
Other noncurrent liabilities 48,327   33,316  
Total liabilities 4,557,880   4,620,615  
Commitments and contingencies (Note 12)
Stockholders’ Equity
Preferred stock; $ 0.001 par value; 200,000 shares authorized as of January 31, 2026 and July 31, 2025; no shares issued and outstanding as of January 31, 2026 and July 31, 2025
—   —  
Common stock; $ 0.001 par value; 1,000,000 shares authorized as of January 31, 2026 and July 31, 2025; 160,570 and 158,301 shares issued and outstanding as of January 31, 2026 and July 31, 2025, respectively
161   159  
Additional paid-in capital 3,416,085   2,980,591  

Accumulated other comprehensive income 15,187   8,081  
Accumulated deficit ( 1,235,485 ) ( 1,189,558 )
Total stockholders’ equity 2,195,948   1,799,273  
Total liabilities and stockholders’ equity $ 6,753,828   $ 6,419,888  

The accompanying notes are an integral part of these condensed consolidated financial statements.
3

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ZSCALER, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025
Revenue $ 815,751   $ 647,900   $ 1,603,863   $ 1,275,855  
Cost of revenue 191,260   148,498   376,013   289,960  
Gross profit 624,491   499,402   1,227,850   985,895  
Operating expenses:
Sales and marketing 368,946   307,872   742,508   613,959  
Research and development 229,137   170,860   429,635   325,114  
General and administrative 78,181   60,810   143,842   117,629  
Total operating expenses 676,264   539,542   1,315,985   1,056,702  
Loss from operations ( 51,773 ) ( 40,140 ) ( 88,135 ) ( 70,807 )
Interest income 33,893   30,878   67,047   60,926  
Interest expense ( 4,221 ) ( 2,339 ) ( 6,348 ) ( 5,482 )
Other income (expense), net 803   ( 4,936 ) ( 2,236 ) ( 5,588 )
Loss before income taxes ( 21,298 ) ( 16,537 ) ( 29,672 ) ( 20,951 )
Provision for (benefit from) income taxes 13,014   ( 8,813 ) 16,255   ( 1,176 )
Net loss $ ( 34,312 ) $ ( 7,724 ) $ ( 45,927 ) $ ( 19,775 )

Net loss per share, basic and diluted $ ( 0.21 ) $ ( 0.05 ) $ ( 0.29 ) $ ( 0.13 )

Weighted-average shares used in computing net loss per share, basic and diluted 159,683   153,672   159,139   153,114  

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

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ZSCALER, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025
Net loss $ ( 34,312 ) $ ( 7,724 ) $ ( 45,927 ) $ ( 19,775 )
Available-for-sale securities:
Change in net unrealized gains on available-for-sale securities 1,348   3   4,686   1,044  

Cash flow hedging instruments:
Change in net unrealized gains (losses) 8,250   ( 20,974 ) 6,789   ( 20,505 )
Net realized (gains) losses reclassified into net loss ( 2,300 ) 3,154   ( 4,369 ) 1,946  
        Net change on cash flow hedges 5,950   ( 17,820 ) 2,420   ( 18,559 )
Other comprehensive income (loss) 7,298   ( 17,817 ) 7,106   ( 17,515 )
Comprehensive loss $ ( 27,014 ) $ ( 25,541 ) $ ( 38,821 ) $ ( 37,290 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

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ZSCALER, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)

Stockholders' equity activity for the three months ended January 31, 2026:

Common Stock Additional
Paid-In
Capital Accumulated Other Comprehensive Income Accumulated Deficit Total
Stockholders’ Equity
Shares Amount
Balance as of October 31, 2025 159,468   $ 159   $ 3,175,453   $ 7,889   $ ( 1,201,173 ) $ 1,982,328  

Issuance of common stock under the employee stock purchase plan 123   —  21,506   —  —  21,506  
Vesting of restricted stock units and performance stock awards 979   2   ( 2 ) —  —  —  

Stock-based compensation —  —  219,128   —  —  219,128  
Other comprehensive income —  —  —  7,298   —  7,298  
Net loss —  —  —  —  ( 34,312 ) ( 34,312 )
Balance as of January 31, 2026 160,570   $ 161   $ 3,416,085   $ 15,187   $ ( 1,235,485 ) $ 2,195,948  

Stockholders' equity activity for the three months ended January 31, 2025:

Common Stock Additional
Paid-In
Capital Accumulated
Other Comprehensive Loss Accumulated Deficit Total
Stockholders’ Equity
Shares  Amount
Balance as of October 31, 2024 153,415   $ 153   $ 2,593,010   $ ( 4,487 ) $ ( 1,160,131 ) $ 1,428,545  

Issuance of common stock upon exercise of stock options 235   —  2,566   —  —  2,566  
Issuance of common stock under the employee stock purchase plan 186   —  22,344   —  —  22,344  
Vesting of restricted stock units and performance stock awards 889   2   ( 2 ) —  —  —  

Stock-based compensation —  —  179,432   —  —  179,432  
Other comprehensive loss —  —  —  ( 17,817 ) —  ( 17,817 )
Net loss —  —  —  —  ( 7,724 ) ( 7,724 )
Balance as of January 31, 2025 154,725   $ 155   $ 2,797,350   $ ( 22,304 ) $ ( 1,167,855 ) $ 1,607,346  

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

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ZSCALER, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)

Stockholders' equity activity for the six months ended January 31, 2026:

Common Stock Additional
Paid-In
Capital Accumulated Other Comprehensive Income Accumulated Deficit Total
Stockholders’ Equity
Shares Amount
Balance as of July 31, 2025 158,301   $ 159   $ 2,980,591   $ 8,081   $ ( 1,189,558 ) $ 1,799,273  

Issuance of common stock upon exercise of stock options 26   —  3,984   —  —  3,984  
Issuance of common stock under the employee stock purchase plan 123   —  21,506   —  —  21,506  
Vesting of restricted stock units and performance stock awards 1,998   2   ( 2 ) —  —  —  

Issuance of common stock in connection with business acquisitions subject to future vesting 122   —  —  —  —  — 
Stock-based compensation —  —  410,006   —  —  410,006  
Other comprehensive income —  —  —  7,106   —  7,106  
Net loss —  —  —  —  ( 45,927 ) ( 45,927 )
Balance as of January 31, 2026 160,570   $ 161   $ 3,416,085   $ 15,187   $ ( 1,235,485 ) $ 2,195,948  

Stockholders' equity activity for the six months ended January 31, 2025:

Common Stock Additional
Paid-In
Capital Accumulated
Other Comprehensive Loss Accumulated Deficit Total
Stockholders’ Equity
Shares  Amount
Balance as of July 31, 2024 152,490   $ 152   $ 2,426,819   $ ( 4,789 ) $ ( 1,148,080 ) $ 1,274,102  

Issuance of common stock upon exercise of stock options 322   —  3,456   —  —  3,456  
Issuance of common stock under the employee stock purchase plan 186   —  22,344   —  —  22,344  
Vesting of restricted stock units and performance stock awards 1,727   3   ( 3 ) —  —  —  

Stock-based compensation —  —  344,734   —  —  344,734  
Other comprehensive loss —  —  —  ( 17,515 ) —  ( 17,515 )
Net loss —  —  —  —  ( 19,775 ) ( 19,775 )
Balance as of January 31, 2025 154,725   $ 155   $ 2,797,350   $ ( 22,304 ) $ ( 1,167,855 ) $ 1,607,346  

The accompanying notes are an integral part of these condensed consolidated financial statements.
7

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ZSCALER, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended January 31,
2026 2025
Cash Flows From Operating Activities
Net loss $ ( 45,927 ) $ ( 19,775 )
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization expense 67,595   45,911  
Amortization expense of acquired intangible assets 19,747   8,485  
Amortization of deferred contract acquisition costs 97,633   79,191  
Amortization of debt issuance costs 4,078   1,963  
Non-cash operating lease costs 38,756   31,565  
Stock-based compensation expense 405,146   329,295  
Accretion of investments purchased at a discount ( 3,635 ) ( 10,110 )
Unrealized (gains) losses on hedging transactions ( 1,061 ) 3,036  
Deferred income taxes ( 1,553 ) ( 17,359 )

Other 2,438   1,303  
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable 461,531   222,043  
Deferred contract acquisition costs ( 107,396 ) ( 74,158 )
Prepaid expenses, other current and noncurrent assets ( 30,222 ) ( 12,144 )
Accounts payable ( 22,117 ) 98  
Accrued expenses, other current and noncurrent liabilities 6,252   ( 11,481 )
Accrued compensation ( 29,535 ) ( 20,380 )
Deferred revenue ( 187,081 ) ( 16,469 )
Operating lease liabilities ( 22,296 ) ( 30,246 )
Net cash provided by operating activities 652,353   510,768  
Cash Flows From Investing Activities
Purchases of property, equipment and other assets ( 35,066 ) ( 32,043 )
Capitalized internal-use software ( 34,862 ) ( 43,416 )
Payments for business acquisitions, net of cash acquired ( 672,780 ) ( 834 )
Purchase of strategic investments ( 2,008 ) ( 786 )
Purchases of short-term investments ( 1,401,469 ) ( 729,066 )
Proceeds from maturities of short-term investments 242,803   605,003  
Proceeds from sale of short-term investments 40,258   —  
Net cash used in investing activities ( 1,863,124 ) ( 201,142 )
Cash Flows From Financing Activities

Proceeds from issuance of common stock upon exercise of stock options 3,984   3,456  

Proceeds from issuance of common stock under the employee stock purchase plan 21,506   22,344  
Payment of holdback amounts related to a business acquisition ( 110 ) —  

Payments for issuance costs related to the 2028 Notes ( 684 ) —  
Purchases of capped calls related to the 2028 Notes ( 197 ) —  

Net cash provided by financing activities 24,499   25,800  
Net increase (decrease) in cash and cash equivalents ( 1,186,272 ) 335,426  
Cash and cash equivalents at beginning of period
2,389,023   1,423,080  
Cash and cash equivalents at end of period
$ 1,202,751   $ 1,758,506  
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes, net of tax refunds $ 24,659   $ 16,901  
Cash paid for interest expense $ —   $ 718  
Non-Cash Activities
Operating lease right-of-use assets obtained in exchange for operating lease obligations, net of terminations $ 84,165   $ 23,086  

Net change in purchased equipment included in accounts payable and accrued expenses $ ( 6,685 ) $ 1,017  

The accompanying notes are an integral part of these condensed consolidated financial statements.
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ZSCALER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Business and Summary of Significant Accounting Policies
Description of the Business
Zscaler, Inc. ("Zscaler," the "Company," "we," "us," or "our") is a cloud security company that developed a platform incorporating core security functionalities needed to enable fast and secure access to cloud resources based on identity, context and an organization’s policies. Our solution is a purpose-built, multi-tenant, distributed cloud platform that implements Zero Trust principles to securely connect users, devices, applications and workloads (including AI agents) without relying on traditional network-based security. We deliver our solutions using a software-as-a-service ("SaaS") business model and sell subscriptions to customers to access our cloud platform, together with related support services. Our ever-evolving platform provides our customers with a flexible and scalable approach to better secure their operations, optimize user experience, eliminate complexity, reduce costs and respond to the challenges and opportunities of AI and future new technologies. We were incorporated in Delaware in September 2007 and conduct business worldwide, with presence in North America, South America, Europe and Asia. Our headquarters are in San Jose, California.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("GAAP") and applicable regulations of the SEC regarding interim financial reporting and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the applicable required disclosures and regulations of the SEC. Therefore, these unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company's audited consolidated financial statements and related notes in its Annual Report on Form 10-K for the fiscal year ended July 31, 2025 (the "Fiscal 2025 Form 10-K"), as filed with the SEC on September 11, 2025.
Interim Unaudited Condensed Consolidated Financial Statements
The accompanying condensed consolidated balance sheet as of July 31, 2025 was derived from the audited consolidated financial statements as of that date. The accompanying interim unaudited condensed consolidated financial statements, including the condensed consolidated balance sheet as of January 31, 2026, the condensed consolidated statements of operations for the three and six months ended January 31, 2026 and 2025, the condensed consolidated statements of comprehensive loss for the three and six months ended January 31, 2026 and 2025, the condensed consolidated statements of stockholders’ equity for the three and six months ended January 31, 2026 and 2025 and the condensed consolidated statements of cash flows for the six months ended January 31, 2026 and 2025 are unaudited. The related financial data and the other financial information disclosed in the accompanying notes to these interim unaudited condensed consolidated financial statements are also unaudited. These interim unaudited condensed consolidated financial statements have been prepared on a basis consistent with our annual consolidated financial statements and, in our opinion, include all normal recurring adjustments necessary to state fairly our quarterly results. The results of operations for the three and six months ended January 31, 2026 are not necessarily indicative of the results to be expected for our fiscal year ending July 31, 2026 or for any other future fiscal year or interim period.
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Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Such estimates include, but are not limited to, the determination of revenue recognition, deferred revenue, deferred contract acquisition costs, capitalized internal-use software, valuation of acquired intangible assets, period of benefit generated from our deferred contract acquisition costs, allowance for doubtful accounts, valuation of common stock options and stock-based awards, useful lives of property and equipment, useful lives of acquired intangible assets, recoverability of goodwill, valuation of deferred tax assets and liabilities, loss contingencies related to litigation, fair value of convertible senior notes and the discount rate used for operating leases. Management determines these estimates and assumptions based on historical experience and on various other assumptions that are believed to be reasonable. Actual results could differ significantly from these estimates, and such differences may be material to the condensed consolidated financial statements.
Due to uncertainty in the macroeconomic and geopolitical environment, there is ongoing disruption in the global economy and financial markets. We are not aware of any specific event or circumstances that would require an update to our estimates, judgments or assumptions or a revision to the carrying value of our assets or liabilities as of the date of issuance of these condensed consolidated financial statements. These estimates, judgments and assumptions may change in the future, as new events occur or additional information is obtained.
Fiscal Year
Our fiscal year ends on July 31. References to fiscal 2026, for example, refer to our fiscal year ending July 31, 2026.
Significant Accounting Polici es
Our significant accounting policies are described in the Fiscal 2025 Form 10-K. There have been no significant changes to these policies that have had a material impact on the condensed consolidated financial statements and related notes for the three and six months ended January 31, 2026.
Recently Issued Accounting Pronouncements
In September 2025, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) : Targeted Improvements to the Accounting for Internal-Use Software. This standard is intended to make targeted improvements to the accounting and application of guidance related to costs incurred to develop software for internal use. This standard is effective for us in the annual and interim periods beginning in the first quarter of fiscal 2029. We are currently evaluating the potential impact of this standard on our consolidated financial statement disclosures.
In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets . This standard amends guidance on measuring expected credit losses for current accounts receivable and contract assets arising from revenue contracts. The amended guidance requires estimation of credit losses for these short-term assets based on the economic conditions that exist as of the balance sheet date, without forecasting future economic conditions. This standard is effective for us in the annual and interim periods beginning in the first quarter of fiscal 2027. We are currently evaluating the potential impact of this standard on our consolidated financial statement disclosures.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), Disaggregation of Income Statement Expenses . This standard requires disclosures of additional information about specific expense categories in the notes to the financial statements for
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interim and annual reporting periods . This standard is effective for us in the annual periods beginning in fiscal 2028 and interim periods beginning in the first quarter of fiscal 2029. We are currently evaluating the potential impact of this standard on our consolidated financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. This guidance requires disclosures of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold. In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state and foreign taxes. It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5% of total income taxes paid (net of refunds received). This standard is effective for us in the annual periods beginning in fiscal 2026. We are currently evaluating the potential impact of this standard on our consolidated financial statement disclosures.

Note 2. Revenue Recognition
Disaggregation of Revenue
Subscription and support revenue is recognized over time and accounted for approximately 98 % of our revenue for the three and six months ended January 31, 2026, respectively, and 98 % and 97 % of our revenue for the three and six months ended January 31, 2025, respectively.
The following table summarizes the revenue by region based on the shipping address of customers who have contracted to use our cloud platform:

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025
Amount % Revenue Amount % Revenue Amount % Revenue Amount % Revenue

(in thousands, except for percentage data)
United States $ 432,158   53   % $ 328,389   51   % $ 859,289   54   % $ 647,700   51   %
Europe, Middle East and Africa 228,337   28   % 192,912   30   % 440,670   27   % 378,981   30   %
Asia Pacific 126,207   15   % 102,817   16   % 246,659   15   % 202,199   16   %
Other 29,049   4   % 23,782   3   % 57,245   4   % 46,975   3   %
Total $ 815,751   100   % $ 647,900   100   % $ 1,603,863   100   % $ 1,275,855   100   %

The following table summarizes the revenue from contracts by type of customer:

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025
Amount % Revenue Amount % Revenue Amount % Revenue Amount % Revenue

(in thousands, except for percentage data)
Channel partners $ 688,456   84   % $ 572,988   88   % $ 1,354,468   84   % $ 1,131,347   89   %
Direct customers 127,295   16   % 74,912   12   % 249,395   16   % 144,508   11   %
Total $ 815,751   100   % $ 647,900   100   % $ 1,603,863   100   % $ 1,275,855   100   %

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Significant Customers
No single customer accounted for 10% or more of the total revenue during the periods presented. The following table summarizes the concentration of 10% or more of the total balance of accounts receivable, net:

January 31, 2026 July 31, 2025
Channel partner A * 12 %

(*)  Represents less than 10%.
Contract Balances
Contract liabilities consist of deferred revenue and include payments received in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period. Deferred revenue, including current and noncurrent balances as of January 31, 2026 and July 31, 2025 was $ 2,355.4 million and $ 2,468.0 million, respectively. In the six months ended January 31, 2026 and 2025, we recognized revenue of $ 1,327.0 million and $ 1,080.2 million, respectively, that was included in the corresponding contract liability balance at the beginning of these periods.
Remaining Performance Obligations
The typical subscription and support term is one to three years . Most of our subscription and support contracts are non-cancelable over the contractual term. However, customers typically have the right to terminate their contracts for cause, if we fail to perform. As of January 31, 2026, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 6,050.8  million. We expect to recognize 47 % of the transaction price over the next 12 months and 91 % of the transaction price over the next three years , with the remainder recognized thereafter.
Costs to Obtain and Fulfill a Contract
We capitalize sales commission and associated payroll taxes paid to sales personnel that are incremental to the acquisition of customer contracts. These costs are recorded as deferred contract acquisition costs in the condensed consolidated balance sheets.
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The activity of the deferred contract acquisition costs consisted of the following:

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025

(in thousands)
Beginning balance
$ 505,119   $ 439,131   $ 509,541   $ 445,398  
Capitalization of contract acquisition costs 63,736   41,357   107,396   74,158  
Amortization of deferred contract acquisition costs ( 49,551 ) ( 40,123 ) ( 97,633 ) ( 79,191 )

Ending balance
$ 519,304   $ 440,365   $ 519,304   $ 440,365  

The outstanding balance of the deferred contract acquisition costs consisted of the following:

January 31, 2026 July 31, 2025

(in thousands)
Deferred contract acquisition costs, current $ 188,696   $ 180,819  
Deferred contract acquisition costs, noncurrent 330,608   328,722  
Total deferred contract acquisition costs $ 519,304   $ 509,541  

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Note 3. Cash Equivalents and Short-Term Investments
Cash equivalents and short-term investments consisted of the following as of January 31, 2026:

Amortized
Cost Unrealized
Gains Unrealized
Losses
Fair Value

Cash equivalents: (in thousands)
Money market funds $ 928,783   $ —   $ —   $ 928,783  

Certificates of deposit 123,089   —   —   123,089  

Total cash equivalents $ 1,051,872   $ —   $ —   $ 1,051,872  

Short-term investments:
U.S. treasury securities $ 347,934   $ 482   $ ( 43 ) $ 348,373  
U.S. government agency securities 67,396   36   ( 57 ) 67,375  
Corporate debt securities 1,703,458   5,323   ( 502 ) 1,708,279  

Asset-backed securities 185,785   228   ( 40 ) 185,973  
Total short-term investments $ 2,304,573   $ 6,069   $ ( 642 ) $ 2,310,000  

Total cash equivalents and short-term investments $ 3,356,445   $ 6,069   $ ( 642 ) $ 3,361,872  

Cash equivalents and short-term investments consisted of the following as of July 31, 2025:

Amortized
Cost Unrealized
Gains Unrealized
Losses
Fair Value

Cash equivalents: (in thousands)
Money market funds $ 1,403,678   $ —   $ —   $ 1,403,678  
Corporate debt securities 8,468   —   —   8,468  

Certificates of deposit 131,463   —   —   131,463  
Total cash equivalents $ 1,543,609   $ —   $ —   $ 1,543,609  

Short-term investments:
U.S. treasury securities $ 231,193   $ 56   $ ( 250 ) $ 230,999  
U.S. government agency securities 75,006   26   ( 40 ) 74,992  
Corporate debt securities 876,330   1,812   ( 747 ) 877,395  
Total short-term investments $ 1,182,529   $ 1,894   $ ( 1,037 ) $ 1,183,386  

Total cash equivalents and short-term investments $ 2,726,138   $ 1,894   $ ( 1,037 ) $ 2,726,995  

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The amortized cost and fair value of our short-term investments based on their stated maturities consisted of the following as of January 31, 2026:

Amortized
Cost Fair Value

(in thousands)
Due within one year $ 469,524   $ 470,742  
Due between one to three years 1,649,264   1,653,285  
Asset-backed securities 185,785   185,973  
Total $ 2,304,573   $ 2,310,000  

Short-term investments that were in continuous unrealized loss position as of January 31, 2026 consisted of the following:

Less than 12 Months Greater than 12 Months Total
Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses

(in thousands)
U.S. treasury securities $ 120,128   $ ( 43 ) $ —   $ —   $ 120,128   $ ( 43 )
U.S. government agency securities 24,930   ( 57 ) —   —   24,930   ( 57 )
Corporate debt securities 347,130   ( 502 ) —   —   347,130   ( 502 )
Asset-backed securities 14,521   ( 40 ) —   —   14,521   ( 40 )
Total $ 506,709   $ ( 642 ) $ —   $ —   $ 506,709   $ ( 642 )

Short-term investments that were in continuous unrealized loss position as of July 31, 2025 consisted of the following:

Less than 12 Months Greater than 12 Months Total
Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses

(in thousands)
U.S. treasury securities $ 156,395   $ ( 250 ) $ —   $ —   $ 156,395   $ ( 250 )
U.S. government agency securities 36,098   ( 40 ) —   —   36,098   ( 40 )
Corporate debt securities 360,840   ( 747 ) —   —   360,840   ( 747 )
Total $ 553,333   $ ( 1,037 ) $ —   $ —   $ 553,333   $ ( 1,037 )

We review the individual securities that have unrealized losses in our short-term investment portfolio on a regular basis. We evaluate, among other criteria, whether we have the intention to sell any of these investments and whether it is more likely than not that we will be required to sell any of them before recovery of the amortized cost basis. Neither of these criteria were met in any period presented. We additionally evaluate whether the decline in fair value of the corporate debt securities below their amortized cost basis is related to credit losses or other factors. Based on this evaluation, we determined that unrealized losses of the above securities were primarily attributable to changes in interest rates and non-credit related factors. Accordingly, we determined that an allowance for credit losses was unnecessary for our short-term investments as of January 31, 2026 and July 31, 2025.
As of January 31, 2026 and July 31, 2025, we recorded $ 23.7 million and $ 17.9 million, respectively, of accrued interest receivable within prepaid expenses and other current assets in the condensed consolidated balance sheets.
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Strategic Investments
Our strategic investments consist primarily of non-marketable equity securities of privately held companies, which do not have a readily determinable fair value. As of January 31, 2026 and July 31, 2025, the carrying amount of our strategic investments was $ 12.6 million and $ 10.6 million, respectively, and is included within other noncurrent assets in the condensed consolidated balance sheets. There were no material events or circumstances impacting their carrying amounts during the periods presented.     

Note 4. Fair Value Measurements
We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy, which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Our money market funds are classified within Level I due to the highly liquid nature of these assets and have quoted prices in active markets. Our investments in U.S. treasury securities, U.S. government agency securities, certificates of deposit, corporate debt securities, asset-backed securities, as well as assets and liabilities arising from our foreign currency forward contracts and interest rate swap contracts, are classified within Level II. The fair value of our Level II financial assets and liabilities is determined by using inputs based on non-binding market consensus prices that are primarily corroborated by observable market data or quoted market prices for similar instruments, for substantially the full term of the financial assets and liabilities.
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Assets and liabilities that are measured at fair value on a recurring basis consisted of the following as of January 31, 2026:

Level I Level II Level III
Fair Value Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs

Cash equivalents: (in thousands)
Money market funds $ 928,783   $ 928,783   $ —   $ —  

Certificates of deposit 123,089   —   123,089   —  

Total cash equivalents $ 1,051,872   $ 928,783   $ 123,089   $ —  

Short-term investments:
U.S. treasury securities $ 348,373   $ —   $ 348,373   $ —  
U.S. government agency securities 67,375   —   67,375   —  
Corporate debt securities 1,708,279   —   1,708,279   —  

Asset-backed securities 185,973   —   185,973   —  
Total short-term investments $ 2,310,000   $ —   $ 2,310,000   $ —  

Total cash equivalents and short-term investments $ 3,361,872   $ 928,783   $ 2,433,089   $ —  

Designated derivative instruments:
Foreign currency contracts assets-current (1)
$ 17,998   $ —   $ 17,998   $ —  
Foreign currency contracts assets-noncurrent (2)
$ 3,106   $ —   $ 3,106   $ —  
Foreign currency contracts liabilities-current (3)
$ 8,141   $ —   $ 8,141   $ —  
Foreign currency contracts liabilities-noncurrent (4)
$ 2,397   $ —   $ 2,397   $ —  

Interest rate contracts liabilities-current (3)
$ 1,629   $ —   $ 1,629   $ —  
Interest rate contracts liabilities-noncurrent (4)
$ 420   $ —   $ 420   $ —  

Non-designated derivative instruments:
Foreign currency contracts assets-current (1)
$ 5,302   $ —   $ 5,302   $ —  
Foreign currency contracts liabilities-current (3)
$ 3,688   $ —   $ 3,688   $ —  

(1) Included within prepaid expenses and other current assets in the condensed consolidated balance sheets.
(2) Included within other noncurrent assets in the condensed consolidated balance sheets.
(3) Included within accrued expenses and other current liabilities in the condensed consolidated balance sheets.
(4) Included within other noncurrent liabilities in the condensed consolidated balance sheets.

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Assets that are measured at fair value on a recurring basis consisted of the following as of July 31, 2025:

Level I Level II Level III
Fair Value Quoted Prices
in Active
Markets for
Identical Assets
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs

Cash equivalents: (in thousands)
Money market funds $ 1,403,678   $ 1,403,678   $ —   $ —  

Corporate debt securities 8,468   —   8,468   —  
Certificates of deposit 131,463   —   131,463   —  
Total cash equivalents $ 1,543,609   $ 1,403,678   $ 139,931   $ —  

Short-term investments:
U.S. treasury securities $ 230,999   $ —   $ 230,999   $ —  
U.S. government agency securities 74,992   —   74,992   —  
Corporate debt securities 877,395   —   877,395   —  
Total short-term investments $ 1,183,386   $ —   $ 1,183,386   $ —  

Total cash equivalents and short-term investments $ 2,726,995   $ 1,403,678   $ 1,323,317   $ —  

Designated derivative instruments:
Foreign currency contracts assets-current (1)
$ 10,713   $ —   $ 10,713   $ —  
Foreign currency contract assets-noncurrent (2)
$ 3,705   $ —   $ 3,705   $ —  
Foreign currency contracts liabilities-current (3)
$ 4,006   $ —   $ 4,006   $ —  
Foreign currency contracts liabilities-noncurrent (4)
$ 1,319   $ —   $ 1,319   $ —  

Non-designated derivative instruments:
Foreign currency contracts assets-current (1)
$ 5,115   $ —   $ 5,115   $ —  
Foreign currency contracts liabilities-current (3)
$ 3,956   $ —   $ 3,956   $ —  

(1) Included within prepaid expenses and other current assets in the consolidated balance sheets.
(2) Included within other noncurrent assets in the consolidated balance sheets.
(3) Included within accrued expenses and other current liabilities in the consolidated balance sheets.
(4) Included within other noncurrent liabilities in the consolidated balance sheets.
We did not have transfers between levels of the fair value hierarchy of assets measured at fair value during the periods presented.
Refer to Note 10, Convertible Senior Notes, for the carrying amount and estimated fair value of our convertible senior notes as of January 31, 2026 and July 31, 2025.
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Note 5. Balance Sheet Components
Property and Equipment
Property and equipment consisted of the following:

January 31, 2026 July 31, 2025

(in thousands)
Hosting equipment (1)
$ 594,404   $ 571,312  
Capitalized internal-use software 376,579   322,265  
Computers and equipment 10,366   9,138  
Purchased software 1,102   1,102  
Furniture and fixtures 1,484   1,195  
Leasehold improvements 11,750   10,141  
Total property and equipment, gross 995,685   915,153  
Less: Accumulated depreciation and amortization ( 451,062 ) ( 371,776 )
Total property and equipment, net $ 544,623   $ 543,377  

(1) Includes purchased equipment that had not been placed in service, totaling $ 101.9 million and $ 163.5 million as of January 31, 2026 and July 31, 2025, respectively.
We recognized depreciation and amortization expense on property and equipment of $ 34.3 million and $ 24.2 million for the three months ended January 31, 2026 and 2025, respectively, and $ 66.4 million and $ 45.2 million for the six months ended January 31, 2026 and 2025, respectively. Additionally, we recognized stock-based compensation expense on the amortization of capitalized stock-based compensation associated with capitalized internal-use software of $ 7.5 million and $ 5.0 million for the three months ended January 31, 2026 and 2025, respectively, and $ 14.4 million and $ 9.2 million for the six months ended January 31, 2026 and 2025, respectively.
Purchased Intangible Assets
Purchased intangible assets are amortized on a straight-line basis over an estimated useful life of 10 years. These assets are included within other noncurrent assets in the condensed consolidated balance sheets.
Purchased intangible assets consisted of the following:

January 31, 2026 July 31, 2025

(in thousands)

Internet protocol addresses and source codes
$ 21,247   $ 20,264  
Accumulated amortization
( 5,754 ) ( 4,641 )
Total purchased intangible assets, net $ 15,493   $ 15,623  

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We recognized amortization expense on purchased intangible assets of $ 0.6 million and $ 0.4 million for the three months ended January 31, 2026 and 2025, respectively, and $ 1.1 million and $ 0.8 million for the six months ended January 31, 2026 and 2025, respectively.
Accrued Compensation
Accrued compensation consisted of the following:

January 31, 2026 July 31, 2025

(in thousands)

Accrued commissions
$ 34,588   $ 59,429  
Accrued bonuses
61,797   51,598  
Accrued payroll and related expenses
50,547   61,370  
Employee stock purchase plan
13,583   9,410  

Total accrued compensation
$ 160,515   $ 181,807  

Note 6. Business Combinations
SPLXAI Inc.
On October 31, 2025, we acquired all the equity of SPLXAI Inc. ("SPLX"), an early-stage technology company incorporated in the United States. We plan to integrate SPLX's technology with our AI Security offerings.
We acquired SPLX for a total cash purchase price consideration of $ 40.6  million. In accordance with the purchase agreement, certain SPLX e mployees who became our employees are entitled to receive restricted shares of our common stock contingent upon their continued employment. The total grant-date fair value of these awards was $ 16.6  million. Since these awards are conditioned on future service, they are recognized as stock-based compensation expense over the post-combination requisite service period.
During the three months ended January 31, 2026 and within the measurement period, we adjusted the preliminary valuation of the acquired intangible assets from $ 14.1  million to $ 3.3  million, which was allocated to the acquired developed technology. This change resulted from transitioning from a benchmarking valuation approach to a replacement cost approach, which we believe provides a more appropriate fair value measurement. As a result of these adjustments and related tax impact, goodwill increased from $ 32.2  million to $ 39.2  million. The estimated useful life of the acquired developed technology is four years .
Goodwill represents the excess purchase price over the fair value of the net assets acquired and is primarily attributable to the assembled workforce and anticipated operational synergies. The acquisition qualified as a stock transaction for tax purposes. As such, the goodwill arising from this transaction is not expected to be deductible for income tax purposes.
Transaction-related expenses associated with this acquisition were not material and were recorded within general and administrative expenses in our condensed consolidated statement of operations for the three months ended October 31, 2025.
During the measurement period, which may be up to one year from the date of acquisition, we may record adjustments to the preliminary fair value of the acquired intangible assets, tax assets and liabilities and goodwill.

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Red Canary Inc.
On August 1, 2025, we acquired all the equity of Red Canary Inc. ("Red Canary" ), a managed detection and response technology c ompany incorporated in the United States. With this acquisition, we plan to accelerate innovations in Agentic AI-driven security operations.
We acquired Red Canary for a total cash purchase price consideration of $ 651.4  million. In accordance with the purchase agreement, certain Red Canary employees who became our employees are entitled to receive restricted shares of our common stock contingent upon their continued employment. The total grant-date fair value of these awards was $ 20.2  million. Since these awards are conditioned on future services, they are recognized as stock-based compensation expense over the post-combination requisite service period.
As of August 1, 2025 , we estimated fair value of the acquired intangible assets using the income approach. Based on this valuation approach, the estimated the fair value of acquired customer relationships, developed technology and trademarks was $ 90.8  million, $ 61.1  million and $ 10.6  million, respectively.
This transaction resulted in goodwill of $ 544.5  million . Goodwill represents the excess purchase price over the fair value of the net assets acquired and is primarily attributable to the assembled workforce and anticipated operational synergies. Transaction-related expenses associated with this acquisition were not material and were recorded within general and administrative expenses in our condensed consolidated statement of operations for the three months ended October 31, 2025.
The acquisition qualified as a stock transaction for tax purposes. As such, the goodwill arising from this transaction is not expected to be deductible for income tax purposes.
During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the preliminary fair value of the acquired intangible assets, tax assets and liabilities and goodwill.
The preliminary allocation of the purchase price consideration consisted of the following:

Amount Estimated Useful Life

(in thousands)

Assets acquired:
Cash, cash equivalents and other assets $ 41,584  
Acquired intangible assets:

Customer relationships 90,800   7 years
 Developed technology
61,100   5 years
 Trademarks 10,600   5 years
Goodwill
544,512  
Total
$ 748,596  
Liabilities assumed:
Accounts payable, accrued expenses and other liabilities $ 22,754  
Deferred revenue 72,714  
Deferred tax liability 1,682  
Total $ 97,150  

Total purchase price consideration
$ 651,446  

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Pro Forma Financial Information
The pro forma financial information from the above business acquisitions, assuming the acquisition had occurred as of the beginning of the fiscal year prior to the fiscal year of the acquisition, as well as revenue and earnings generated during the period after the acquisition date, were not material for disclosure purposes.

Note 7. Goodwill and Acquired Intangible Assets
Goodwill

Changes in the carrying amount of goodwill for the six months ended January 31, 2026 consisted of the following:

Amount
(in thousands)
Balance as of July 31, 2025 $ 417,730  
Goodwill acquired 583,671  
Balance as of January 31, 2026 $ 1,001,401  

Acquired Intangible Assets
Acquired intangible assets consist of developed technology, customer relationships and trademarks acquired through our business acquisitions. Acquired intangible assets are amortized using the straight-line method over their estimated useful lives.
During three and six months ended January 31, 2026 , in connection with the acquisition of SPLX and Red Canary, we acquired certain intangible assets, as further described in Note 6, Business Combinations.
Changes in acquired intangible assets for the six months ended January 31, 2026 consisted of the following:

Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Remaining Useful life
July 31, 2025 Additions January 31, 2026 July 31, 2025 Amortization Expense January 31, 2026 July 31, 2025 January 31, 2026 January 31, 2026
(in thousands) (years)
Developed technology $ 99,964   $ 64,400   $ 164,364   $ ( 57,772 ) $ ( 12,609 ) $ ( 70,381 ) $ 42,192   $ 93,983   3.9
Customer relationships 9,960   90,800   100,760   ( 4,829 ) ( 6,255 ) ( 11,084 ) 5,131   89,676   6.4
Trademarks —   10,600   10,600   —   ( 883 ) ( 883 ) —   9,717   4.6
Total $ 109,924   $ 165,800   $ 275,724   $ ( 62,601 ) $ ( 19,747 ) $ ( 82,348 ) $ 47,323   $ 193,376   5.1

Amortization expense of acquired intangible assets for the three and six months ended January 31, 2026 was $ 11.1 million and $ 19.7 million, respectively, and for the three and six months ended January 31, 2025 was $ 4.2 million and $ 8.5 million , respectively. Amortization expense of developed technology is included primarily within cost of revenue and amortization expense of customer relationships and trademarks is included primarily within sales and marketing expenses, in the condensed consolidated statements of operations.
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Future amortization expense of acquired intangible assets as of January 31, 2026 consisted of the following:

Amount

Fiscal Year ending July 31, (in thousands)
2026 (remaining six months) $ 21,741  
2027 41,146  
2028 39,313  
2029 35,415  
2030 27,543  
Thereafter 28,218  
Total $ 193,376  

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Note 8. Derivative Instruments
Foreign Currency Forward Contracts
We use foreign currency forward contracts to manage risks related to fluctuations in exchange rates. We designate certain of these instruments as cash flow hedges to mitigate the impact of currency fluctuations on forecasted operating expenses, typically with maturities of up to 21 months.
We also utilize non-designated forward contracts to manage exposure from the remeasurement of monetary assets and liabilities, typically with maturities of one to four months . Changes in the fair value of these non-designated derivatives are recorded in other income (expense), net, and were not material for the periods presented.
As of January 31, 2026 and July 31, 2025, the total notional amount of our outstanding designated foreign currency forward contracts was $ 791.1 million and $ 693.1 million, respectively, and for our outstanding non-designated foreign currency forward contracts was $ 501.3 million and $ 549.5 million, respectively. As of January 31, 2026, an estimated $ 9.1 million of the unrealized gain related to our cash flow hedges are expected to be released into earnings over the next 12 months. Refer to Note 4, Fair Value Measurements, for the fair value of our derivative instruments as reported on the condensed consolidated balance sheet as of January 31, 2026 and July 31, 2025.
The changes in accumulated other comprehensive income (losses) ("AOCI(L)") related to our cash flow hedges consisted of the following:

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

2026 2025 2026 2025
(in thousands)

Balance of AOCI(L) as of the beginning of the period $ 3,808   $ ( 4,963 ) $ 7,338   $ ( 4,224 )
Net unrealized gains (losses) recognized in accumulated other comprehensive income 8,250   ( 20,974 ) 6,789   ( 20,505 )
(Gains) losses reclassified from AOCI(L) into the condensed consolidated statement of operations (1)
( 2,300 ) 3,154   ( 4,369 ) 1,946  
Balance of AOCI(L) as of the end of the period $ 9,758   $ ( 22,783 ) $ 9,758   $ ( 22,783 )

(1) (Gains) losses related to our cash flow hedges reclassified from AOCI(L) into the condensed consolidated statement of operations consisted of the following :

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

2026 2025 2026 2025
(in thousands)

Cost of revenue $ ( 244 ) $ 513   $ ( 501 ) $ 236  
Sales and marketing
( 1,256 ) 2,229   ( 2,721 ) 1,557  
Research and development
( 741 ) 347   ( 1,017 ) 186  
General and administrative
( 59 ) 65   ( 130 ) ( 33 )
Total
$ ( 2,300 ) $ 3,154   $ ( 4,369 ) $ 1,946  

Our derivative contracts expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the underlying contracts. We mitigate this credit risk by transacting with major financial institutions with high credit ratings and standards. We periodically assess the creditworthiness of our counterparties to ensure they continue to meet our credit quality requirements. We also enter into master netting arrangements, which permit net settlement of transactions with the
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same counterparty. The potential impact of these rights of set-off associated with our derivative instruments was not material as of January 31, 2026 and July 31, 2025. We are not required to pledge, and are not entitled to receive, cash collateral related to these derivative instruments. We do not enter into derivative contracts for trading or speculative purposes.
Interest Rate Swap Contracts
During the three months ended October 31, 2025, we entered into interest rate swap contracts covering the interest rate applicable to a portion of the outstanding 2028 Notes, maturing on July 15, 2028, and designated as fair value hedges. The interest rate swap contracts are intended to hedge a portion of our fair value risk exposure related to changing interest rates by effectively converting the fixed interest rate of a portion of our 2028 Notes to a floating interest rate. The interest rate swap contracts related to the 2025 Notes (as defined below) matured on July 1, 2025. As of January 31, 2026, the carrying amount of the hedged 2028 Notes (as defined below) was $ 749.1 million and the total notional amount of outstanding interest rate swaps was $ 750.0 million.
The gains and losses related to changes in the fair value of the interest rate swap contracts are included within interest expense in the condensed consolidated statement of operations. As of January 31, 2026, the cumulative amount of fair value hedge accounting adjustments included in the carrying amount of the convertible senior notes was $ 2.1 million.    
The gains and losses effect of derivative instruments designated as fair value hedges included within interest expense in the condensed statement of operations consisted of the following:

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025
(in thousands)
Gains (losses) on interest rate swaps:
Hedge accounting fair value adjustments $ ( 807 ) $ ( 732 ) $ 2,087   $ ( 3,275 )
Derivatives designated as hedging instruments
( 105 ) 674   ( 2,049 ) 3,075  
Total
$ ( 912 ) $ ( 58 ) $ 38   $ ( 200 )

Note 9. Restructuring and Other Charges
During the three months ended October 31, 2025, we carried out and completed a restructuring plan as a part of our planned efforts to streamline operations and to align people, roles and projects to our strategic priorities. As a result, we recognized $ 4.7 million of restructuring charges consisting of employee severance and benefit payments.
The components of restructuring charges recognized in the condensed consolidated statement of operations for the six months ended January 31, 2026 consisted of the following:

Amount

(in thousands)
Cost of revenue
$ 750  
Sales and marketing
2,809  
Research and development
1,182  

Total
$ 4,741  

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Note 10. Convertible Senior Notes
2028 Convertible Senior Notes
On July 3, 2025, we issued $ 1,725.0 million in aggregate principal amount of 0.0 % convertible senior notes due 2028 (the "2028 Notes"), including the exercise in full by the initial purchasers of their option to purchase an additional $ 225.0 million principal amount of the 2028 Notes. The 2028 Notes are unsecured obligations and do not bear regular cash interest and the principal amount of the 2028 Notes will not accrete. The 2028 Notes mature on July 15, 2028, unless earlier converted or repurchased. The total net proceeds from the offering, after deducting initial purchase discounts and other debt issuance costs, was $ 1,700.0 million . Refer to Note 10, Convertible Senior Notes, to the audited consolidated financial statements included in our Fiscal 2025 Form 10-K for further information on the 2028 Notes.
During the three months ended January 31, 2026 , the conditions allowing holders of the 2028 Notes to convert were not met. Since we have the election of repaying the 2028 Notes in cash, shares of our common stock, or a combination of both, we have classified the 2028 Notes as a noncurrent liability in the condensed consolidated balance sheet as of January 31, 2026 .
During the three months ended October 31, 2025, we entered into interest rate swap contracts designated as fair value hedges covering a portion of the outstanding 2028 Notes. For further information refer to Note 8, Derivative Instruments.
The net carrying amount of the 2028 Notes consisted of the following:

January 31, July 31,
2026 2025

(in thousands)
Principal amount $ 1,725,000   $ 1,725,000  
Less:
Unamortized debt issuance costs
20,195   24,273  
Hedge accounting fair value adjustments 2,087   —  
Total $ 1,702,718   $ 1,700,727  

The total fair value of the 2028 Notes was $ 1,606.1 million and $ 1,686.5 million as of January 31, 2026 and July 31, 2025 . The fair value was determined based on the closing trading price per $1,000 of the 2028 Notes as of the last day of trading for the reporting period. We considered the fair value of the 2028 Notes as of January 31, 2026 to be a Level II measurement as they are not actively traded.
The interest expense of the 2028 Notes for the three and six months ended January 31, 2026 was $ 2.0 million and $ 4.1 million, which consisted of the amortization of debt issuance costs.

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2028 Capped Call Transactions
In connection with the pricing of the 2028 Notes, we entered into capped call transactions (the "2028 Capped Calls") with certain financial institutions (the "Option Counterparties"). The 2028 Capped Calls have an initial strike price of $ 439.52 per share of our common stock, subject to certain adjustments, which corresponds to the initial conversion price of the 2028 Notes. The 2028 Capped Calls have an initial cap price of $ 784.85 per share of our common stock, subject to certain adjustments. The 2028 Capped Calls cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2028 Notes, the number of shares of our common stock underlying the 2028 Notes. The 2028 Capped Calls are generally expected to reduce potential dilution to our common stock upon any conversion of the 2028 Notes and/or offset any cash payments we are required to make in excess of the principal amount of the converted 2028 Notes, as the case may be, with such reduction and/or offset subject to a cap. As of January 31, 2026 , the terms of the 2028 Capped Calls have not been adjusted. Refer to Note 10, Convertible Senior Notes, to the audited consolidated financial statements included in our Fiscal 2025 Form 10-K for further information on the 2028 Capped Calls.
2025 Convertible Senior Notes and 2025 Capped Call Transactions
On June 25, 2020, we issued $ 1,150.0 million in aggregate principal amount of 0.125 % convertible senior notes due 2025 (the "2025 Notes"). The 2025 Notes were unsecured obligations and bore a contractual interest rate of 0.125 % per year with interest payable semiannually in arrears on January 1 and July 1 of each year. The 2025 Notes matured on July 1, 2025. We repaid the 2025 Notes in full by paying the principal amount of $ 1,150.0 million in cash and settling the premium amount by issuing 3.8 million new shares of our common stock. Additionally, we received 2.4 million shares of our common stock from the capped call transactions related to the 2025 Notes (the "2025 Capped Calls").
The interest expense of the 2025 Notes consisted of the following:

Three Months Ended January 31, Six Months Ended January 31,
2025
(in thousands)

Contractual interest expense $ 359   $ 718  
Amortization of debt issuance costs
982   1,963  
Total $ 1,341   $ 2,681  

Note 11. Leases
During the three months ended January 31, 2026 , we took possession of our new headquarters located in Santa Clara, California. This lease, which was executed in fiscal 2025, consists of approximately 301,000 square feet of rentable space with a rent commencement date of August 15, 2026 and an expiration date of April 30, 2032. In accordance with ASU No. 842, Leases, we recognized in the condensed consolidated balance sheet a right-of-use asset of $ 14.8  million and a corresponding operating lease liability of $ 29.4  million upon possession.

Note 12. Commitments and Contingencies
Non-cancelable Purchase Obligations
In the normal course of business, we enter into non-cancelable purchase commitments with various third parties to purchase products and services such as cloud infrastructure capacity, subscription-based cloud service arrangements, technology equipment, corporate and marketing events and consulting services. As of January 31, 2026, there have been no material changes outside the ordinary course of our business to our non-cancelable purchase obligations from those disclosed in the Fiscal 2025 Form 10-K.
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Legal Matters
We are a party to various litigation matters from time to time and subject to claims that arise in the ordinary course of business, including patent, commercial, product liability, employment, class action, whistleblower and other litigation and claims, as well as governmental and other regulatory investigations and proceedings. In addition, third parties may from time to time assert claims against us in the form of letters and other communications. There is no pending or threatened legal proceeding to which we are a party that, in our opinion, is likely to have a material adverse effect on our future financial results or operations; however, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. The expense of litigation and the timing of this expense from period to period are difficult to estimate, subject to change and could adversely affect our results of operations.

Note 13. Stock-Based Compensation
Equity Incentive Plan
Equity incentive awards which may be granted to eligible participants under our Amended and Restated FY 2018 Equity Incentive Plan include restricted stock units, restricted stock, stock options, nonstatutory stock options, stock appreciation rights, performance units and performance shares.
Stock Options
The activity of stock options for the six months ended January 31, 2026 consisted of the following:

Outstanding
Stock
Options Weighted-Average
Exercise
Price Weighted-Average
Remaining
Contractual Term
(in years) Aggregate
Intrinsic
Value

(in thousands, except per share amounts and years)
Balance as of July 31, 2025 177   $ 220.95   7.8 $ 11,854  
Granted —   $ —  
Exercised ( 26 ) $ 152.99   $ 3,679  
Canceled, forfeited or expired —   $ —  
Balance as of January 31, 2026 151   $ 232.74   8.7 $ 118  
Exercisable and expected to vest as of July 31, 2025 47   $ 172.65   3.8 $ 5,304  
Exercisable and expected to vest as of January 31, 2026 44   $ 200.47   8.2 $ 73  

The total intrinsic value of options exercised for the six months ended January 31, 2026 and 2025 was $ 3.7 million and $ 57.3 million, respectively. The weighted-average grant date fair value per share of stock options granted in the six months ended January 31, 2025 was $ 118.8 million.

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We estimate the fair value of stock options using the Black-Scholes option pricing model with the following assumptions:

Six Months Ended January 31,
2025

Expected term (in years) 6.0
Expected stock price volatility 57.7 %
Risk-free interest rate 4.1 %
Dividend yield — %

There were no stock options granted during six months ended January 31, 2026.

Restricted Stock Units and Performance Stock Awards
The activity of restricted stock units ("RSUs") and performance stock awards ("PSAs") consisted of the following for the six months ended January 31, 2026:

Underlying Shares Weighted-Average Grant Date Fair Value Aggregate
Intrinsic Value

(in thousands, except per share data)
Balance as of July 31, 2025 9,444   $ 175.55   $ 2,697,026  
Granted 3,149   $ 283.59  
Vested ( 1,998 ) $ 182.26   $ 516,651  
Canceled or forfeited ( 892 ) $ 165.27  
Balance as of January 31, 2026 9,703   $ 210.16   $ 1,940,823  

Employee Stock Purchase Plan
In fiscal 2018, we adopted the FY 2018 Employee Stock Purchase Plan (the "ESPP"). During the three months ended January 31, 2026, employees purchased 0.1 million shares of our common stock under the ESPP at average purchase price of $ 175.05 per share, resulting in cash proceeds of $ 21.5 million. ESPP employee payroll contributions accrued as of January 31, 2026 and July 31, 2025, were $ 13.6 million and $ 9.4 million, respectively, and are included within accrued compensation in the condensed consolidated balance sheets. Payroll contributions accrued as of January 31, 2026 will be used to purchase shares at the end of the current ESPP purchase period ending on June 15, 2026. Payroll contributions ultimately used to purchase shares are reclassified to stockholders’ equity on the purchase date.
The fair value of the purchase right for the ESPP was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions:

Six Months Ended January 31,
2026 2025

Expected term (in years) 0.5 - 2.0
0.5 - 2.0

Expected stock price volatility 36.4 % - 42.7 %
43.6 % - 47.6 %

Risk-free interest rate 3.5 % - 3.6 %
4.2 % - 4.3 %

Dividend yield — %
— %

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Stock-based Compensation Expense
The components of stock-based compensation expense recognized in the condensed consolidated statements of operations consisted of the following:

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025

(in thousands)
Cost of revenue $ 22,743   $ 17,194   $ 42,675   $ 32,420  
Sales and marketing 79,556   67,955   148,204   131,134  
Research and development 83,573   64,499   157,132   122,570  
General and administrative 30,681   22,469   57,135   43,171  
Total $ 216,553   $ 172,117   $ 405,146   $ 329,295  

During the three months ended January 31, 2026 and 2025, we capitalized stock-based compensation primarily associated with the development of software for internal-use of $ 10.1 million and $ 12.3 million, respectively. During the six months ended January 31, 2026 and 2025, the amount capitalized was $ 19.4 million and $ 24.7 million, respectively.

Note 14. Income Taxes
Our tax provision for (benefit from) interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, we update our estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period.
Our quarterly tax provision for (benefit from), and estimate of our annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in our business operations and changes in tax laws. Our estimated annual effective tax rate for the year differs from the U.S. statutory rate of 21% as a result of our U.S. losses for which no tax benefit will be realized, as well as our foreign operations which are subject to tax rates that differ from those in the United States.
For the three months ended January 31, 2026 and 2025, we recorded provision for (benefit from) income taxes of $ 13.0 million a nd $( 8.8 ) million, respectively. We recorded provision for (benefit from) income taxes of $ 16.3 million and $( 1.2 ) million for the six months ended January 31, 2026 and 2025 , respectively. Our provision for income taxes is primarily attributable to the mix of earnings in countries with different statutory tax rates, partially offset by excess tax benefits related to stock-based compensation. The change in the income tax provision for the three and six months ended January 31, 2026, as compared to the same periods in the prior year, was primarily driven by a non-recurring release of the valuation allowance on our United Kingdom deferred tax assets in the prior year. We are subject to income tax in the U.S. as well as other tax jurisdictions in which we conduct business. Earnings from our non-U.S. operations are subject to income taxes in the countries in which we operate.
The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. We assess our ability to realize the deferred tax assets on a quarterly basis and we establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. We weigh all available positive and negative evidence, including our earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. Due to the weight of objectively verifiable negative evidence, including our history of losses in certain jurisdictions, we believe that it is more likely than not that our U.S. federal, state and certain foreign jurisdictions deferred tax assets will not be realized. Accordingly, we have maintained a valuation allowance on our U.S. federal, state and certain foreign jurisdiction deferred tax assets.
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On July 4, 2025, the United States enacted tax reform legislation through the One Big Beautiful Bill Act. Included in this legislation are provisions that allow for the immediate expensing of domestic research and development expenses, immediate expensing of certain capital expenditures, and other changes to the U.S. taxation of profits derived from foreign operations. We began accounting for the provisions in the legislation in fiscal 2026, which resulted in an immaterial favorable effect on the income tax provision, mainly due to the Company's valuation allowance.
The OECD's January 2026, guidance introduced a "Side-by-Side Safe Harbor" that may exempt our U.S. operations from certain global minimum tax rules effective for fiscal years beginning on or after January 1, 2026. However, this relief does not extend to foreign jurisdictions where local minimum tax requirements remain applicable. We continue to monitor these developments and are assessing the potential impact on the income tax provision beginning in fiscal 2027.

Note 15. Net Loss Per Share
The computation of basic and diluted net loss per share consisted of the following:

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025

(in thousands, except per share data)
Net loss $ ( 34,312 ) $ ( 7,724 ) $ ( 45,927 ) $ ( 19,775 )

Weighted-average shares used in computing net loss per share, basic and diluted 159,683   153,672 159,139   153,114

Net loss per share, basic and diluted $ ( 0.21 ) $ ( 0.05 ) $ ( 0.29 ) $ ( 0.13 )

Since we have reported net losses for all periods presented, we have excluded all potentially dilutive securities from the calculation of the diluted net loss per share as their effect is antidilutive and accordingly, the basic and diluted net loss per share is the same for all periods presented.
We calculate the potential dilutive effect of the convertible senior notes under the if-converted method. Under this method, diluted earnings per share are determined by assuming that outstanding convertible senior notes were converted into shares of our common stock at the beginning of the reporting period. In connection with the issuance of the convertible senior notes, we entered into the capped call transactions, which were not included for purposes of calculating the number of diluted
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shares outstanding, as their effect would have been anti-dilutive. The capped call transactions are expected to partially offset the potential dilution to our common stock upon any conversion of the convertible senior notes.
The following table summarizes the outstanding potentially dilutive securities that were excluded from the computation of diluted net loss per share as their effect would be antidilutive:

January 31,
2026 2025

(in thousands)

Unvested RSUs and shares of common stock 9,103   10,489  
Unvested PSAs (1)
955   1,081  
Share purchase rights under the ESPP
250   767  
Stock options 151   181  

2028 Notes (2)
3,925   —  
2025 Notes (2)
—   7,626  
Total 14,384   20,144  

(1) The number of unvested PSAs is estimated at 100 % of the target number of shares granted and excludes unvested PSAs for which performance conditions have not been established as of January 31, 2026 and 2025, as they are not considered outstanding for accounting purposes. For further information refer to Note 13, Stock-Based Compensation.
(2) Based on the initial conversion price, the entire outstanding principal amount of the 2028 Notes as of January 31, 2026 and the 2025 Notes as of January 31, 2025 would have been convertible into approximately 3.9 million shares and 7.6  million shares of our common stock, respectively, which are reflected in the table above.

Note 16. Segment Information
We operate globally as a single operating and reportable segment with one primary business activity. Using a SaaS business model, we primarily generate revenue from sales of subscriptions to grant customers access to our cloud platform along with related support services. Our chief operating decision maker ("CODM") is our chief executive officer. Consolidated financial information, including revenue and significant adjusted segment expenses, is regularly provided to the CODM for purposes of allocating resources and evaluating financial performance. This information is also used in our annual budgeting and forecasting processes to establish goals and compare actual results against both budgeted targets and historical
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performance. Our CODM uses consolidated net loss as the measure of our segment profit or loss. The measure of our segment assets is reported as total assets on the consolidated balance sheets.
The following table sets forth our segment revenue, significant adjusted segment expenses and other segment items to reconcile to condensed consolidated net loss:

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025

(in thousands)
Revenue $ 815,751   $ 647,900   $ 1,603,863   $ 1,275,855  
Less:
Adjusted cost of revenue (1)
161,463   127,064   319,792   249,058  
Adjusted sales and marketing expenses (1)
283,102   237,468   579,346   478,264  
Adjusted research and development expenses (1)
144,448   104,959   268,528   200,208  
Adjusted general and administrative expenses (2)
45,772   37,948   83,375   73,717  
Stock-based compensation expense and related payroll taxes 220,413   176,356   414,174   336,930  
Amortization expense of acquired intangible assets 11,114   4,245   19,747   8,485  
Restructuring and other charges —   —   4,741   —  
Acquisition-related expenses
1,212   —   2,295   —  
Add: Other segment items, net (3)
17,461   32,416   42,208   51,032  
Net loss $ ( 34,312 ) $ ( 7,724 ) $ ( 45,927 ) $ ( 19,775 )

(1) Cost of revenue, sales and marketing expense and research and development expense, adjusted to exclude stock-based compensation and related employer payroll taxes, amortization of acquired intangible assets and restructuring and other charges.
(2) General and administrative expense adjusted to exclude stock-based compensation and related employer payroll taxes and acquisition-related expenses.
(3) Other segment items, net include interest income, interest expense, other expense, net and provision for income taxes.

Note 17. Subsequent Event
On February 5, 2026, we acquired all the equity of SquareX Holdings, Inc. (“SquareX”), a privately held cybersecurity company specializing in web-based threat protection. We anticipate that this acquisition will extend our browser capabilities to unmanaged devices. The total purchase price for the transaction was approximately $ 113.0  million, subject to certain purchase price adjustments, and is payable in cash. Certain of the consideration was withheld at the closing to secure certain indemnity obligations. We will allocate the purchase price to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Due to the proximity of the closing, the initial accounting is currently incomplete; accordingly, we cannot yet disclose the preliminary fair values of the acquired net assets. We expect to complete the initial accounting during the third quarter of fiscal 2026 .
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Item 2. 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 the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended July 31, 2025 (the "Fiscal 2025 Form 10-K"), filed with the SEC on September 11, 2025. As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such difference include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. Our fiscal year end is July 31, and our fiscal quarters end on October 31, January 31, April 30 and July 31. Our fiscal year ended July 31, 2025 is referred to as fiscal 2025 and our fiscal year ending July 31, 2026 is referred to as fiscal 2026.

Overview
Zscaler was incorporated in 2007, during the early stages of cloud adoption and mobility, based on a vision that the internet would become the new corporate network as the cloud becomes the new data center. We correctly predicted that with rapid cloud adoption and increasing workforce mobility, traditional perimeter security approaches would prove to be inadequate in protecting users and data, prohibitively expensive and result in poor user experience. Enterprises now rely on external SaaS applications for critical business functions and have or are moving their internally managed applications to the public cloud infrastructure. As a result, users now expect to be able to seamlessly access applications and data, wherever they are hosted, from any device, anywhere in the world. The emergence and rapid adoption of AI is revolutionizing the transformational impact of cloud adoption and mobility. AI is fundamentally changing how organizations operate, creating new cybersecurity threats and IT challenges, but also the opportunity to use AI to counter cybersecurity threats and improve IT operations.
We generate revenue primarily from sales of subscriptions to access our cloud platform, together with related support services. We also generate an immaterial amount of revenue from professional and other services, which consist primarily of fees associated with mapping, implementation, network design and training. Our subscription pricing is calculated on a per-user and metered-usage basis. We recognize subscription and support revenue ratably over the life of customer contracts, which is generally one to three years. As of July 31, 2025, we had expanded our operations to over 9,400 customers across major industries, with users in over 185 countries. Government agencies and some of the largest enterprises in the world rely on us to support their secure digital transformation.
We operate our business as one reportable segment. Our revenue has experienced significant growth in recent periods. For the six months ended January 31, 2026 and 2025, our revenue w as $1,603.9 million and $1,275.9 million , respectively. We have incurred net losses in all annual periods since our inception. For the six months ended January 31, 2026 and 2025, our net loss was $45.9 million and $19.8 million , respectively. We expect we will continue to incur net losses for the foreseeable future, as we continue to invest in our sales and marketing organization to maximize our market opportunity, to invest in research and development efforts to enhance the functionality of our cloud platform and to address any legal matters and related accruals, as further described in Note 12, Commitments and Contingencies, of the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Impact of Macroeconomic Conditions
Changes in macroeconomic and geopolitical conditions can cause uncertainty in our business. We continue to see customer scrutiny of and elongated approval processes for transactions, particularly larger deals, as customers continue to carefully consider purchasing decisions and are requiring multiple approvals for large expenditures in response to the
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uncertain economic environment. Macroeconomic conditions may impact the future demand for subscriptions of our cloud platform.
Certain Factors Affecting Our Performance
Increased Internet Traffic and Adoption of Cloud-Based Software and Security
In a cloud, mobile-first and AI-enabled world where organizations depend on public and third-party infrastructure and technologies to access critical applications that power their businesses, enterprises that continue to rely on outdated network and security architecture built on firewalls and VPNs face serious challenges. The adoption of cloud applications and infrastructure, the explosion of internet traffic volumes, the shift to mobile-first computing generally and the pace at which enterprises adopt the internet as their corporate network in particular, impact our ability to drive market adoption of our cloud platform. In addition, the dependence on the internet, expanding digital transformation and growing AI usage have increased exposure to malicious or compromised websites, and sophisticated hackers are exploiting the gaps left by legacy network security appliances. To securely access the internet, transform their networks and expand their AI adoption, organizations must make fundamental changes in their network and security architectures. We believe that most organizations have yet to fully make these investments. Because our cloud platform enables organizations to securely embrace digital transformation, we believe that the imperative for organizations to securely move to the cloud and safely realize the benefits of AI will increase demand for our cloud platform and broaden our customer base.
New Customer Acquisition
We believe that our ability to increase the number of customers, and more significantly large enterprises, on our cloud platform is an indicator of our market penetration and our future business opportunities. As of July 31, 2025 and 2024, we had over 9,400 and over 8,650 customers, respectively, across all major geographies. As of July 31, 2025, we had approximately 40% of the Forbes Global 2000 as customers. Our ability to continue to grow these numbers will increase our future opportunities for renewals and follow-on sales. We believe that we have significant room to capture additional market share and intend to continue to invest significantly in sales and marketing to engage our prospective customers, increase brand awareness, further leverage our channel partnerships and drive adoption of our solution. However, as a result of the challenging and uncertain economic environment, potential new customers are carefully considering purchasing decisions, particularly for large expenditures. We expect customer cautiousness to continue in the near term, elongating our sales cycles and the timing of large deals.
Follow-On Sales
We typically expand our relationship with our customers over time. While most of our new customers route all of their internet-bound web traffic through our cloud platform, some of our customers initially use our services for a specific security functionality. We leverage our land-and-expand model with the goal of generating incremental revenue, often within the term of the initial subscription, by increasing sales to our existing customers in one of three ways:
• expanding deployment of our cloud platform to cover additional users and services;
• upgrading to more advanced capabilities, including AI-enabled features; and
• selling a subscription to a new solution or product, for example selling data security or AI security services to an existing ZIA or ZPA customer.
Investing in Business Growth
Since our founding, we have invested significantly in growing our business. We intend to continue to invest significantly in sales and marketing to grow and train our sales force, broaden our brand awareness and expand and deepen our channel partner relationships. While these planned investments will increase our operating expenses in the short term, we
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believe that over the long term these investments will help us to expand our customer base and grow our business. We also are investing in programs to increase recognition of our brand and solutions, including joint marketing activities with our channel partners and strategic partners.
We also intend to continue (i) investing in our research and development organization and our development efforts to offer new solutions on our cloud platform and (ii) dedicating resources to update and upgrade our existing solutions, including upgrades to our cloud platform.
In addition, we expect our general and administrative expenses to increase in absolute dollars in the foreseeable future, as we continue to operate as a public company, and address any legal matters and related accruals. This is further described in Note 12, Commitments and Contingencies, of the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
While we expect our operating expenses to increase in absolute dollars in the foreseeable future, as a result of these activities, we intend to balance these investments in future growth with a continued focus on managing our results of operations and investing judiciously. In the long term we anticipate that these investments will positively impact our business and results of operations.

Key Business Metrics and Other Financial Measures
We review a number of operating and financial metrics, including the following key metrics, to measure our performance, identify trends, formulate business plans and make strategic decisions.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In particular, free cash flow is not a substitute for cash provided by operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit as GAAP gross profit excluding stock-based compensation expense and related payroll taxes, amortization expense of acquired intangible assets and restructuring and other charges. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue.
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Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025

(in thousands)

GAAP gross profit $ 624,491  $ 499,402  $ 1,227,850  $ 985,895 
Add:
Stock-based compensation expense and related payroll taxes 22,880  17,619  42,862  33,412 
Amortization expense of acquired intangible assets
6,917  3,815  12,609  7,490 
Restructuring and other charges —  —  750  — 
Non-GAAP gross profit $ 654,288  $ 520,836  $ 1,284,071  $ 1,026,797 
GAAP gross margin 77  % 77  % 77  % 77  %
Non-GAAP gross margin
80  % 80  % 80  % 80  %

Non-GAAP Income from Operations and Non-GAAP Operating Margin
We define non-GAAP income from operations as GAAP loss from operations, excluding stock-based compensation expense and related payroll taxes, amortization expense of acquired intangible assets, restructuring and other charges and acquisition-related expenses. We define non-GAAP operating margin as non-GAAP income from operations as a percentage of revenue.

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025

(in thousands)

GAAP loss from operations $ (51,773) $ (40,140) $ (88,135) $ (70,807)
Add:
Stock-based compensation expense and related payroll taxes 220,413  176,356  414,174  336,930 
Amortization expense of acquired intangible assets 11,114  4,245  19,747  8,485 
Restructuring and other charges —  —  4,741  — 
Acquisition-related expenses 1,212  —  2,295  — 
Non-GAAP income from operations $ 180,966  $ 140,461  $ 352,822  $ 274,608 
GAAP operating margin (6) % (6) % (5) % (6) %
Non-GAAP operating margin
22  % 22  % 22  % 22  %

Free Cash Flow and Free Cash Flow Margin
Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by operating activities less purchases of property, equipment and other assets and capitalized internal-use software. Free cash flow margin is calculated as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations. This amount, after investments in property, equipment and other assets and capitalized internal-use software, can be used for strategic initiatives, including investing in our business and strengthening our financial position.
Free cash flow includes the cyclical impact of inflows and outflows resulting from contributions to our employee stock purchase plan for which the purchase period of approximately six months ends in each of our second and fourth fiscal quarters. Payroll contributions accrued as of January 31, 2026 will be used to purchase shares at the end of the current ESPP purchase period ending on June 15, 2026. Payroll contributions ultimately used to purchase shares are reclassified to stockholders' equity on the purchase date.
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Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025

(in thousands)

Net cash provided by operating activities $ 204,073  $ 179,433  $ 652,353  $ 510,768 
Less:
Purchases of property, equipment and other assets (17,755) (15,018) (35,066) (32,043)
Capitalized internal-use software (17,189) (20,987) (34,862) (43,416)
Free cash flow $ 169,129  $ 143,428  $ 582,425  $ 435,309 
As a percentage of revenue:

Net cash provided by operating activities 25  % 27  % 41  % 40  %
Less:
Purchases of property, equipment and other assets (2) % (2) % (3) % (3) %
Capitalized internal-use software (2) % (3) % (2) % (3) %
Free cash flow margin 21  % 22  % 36  % 34  %

Annual Recurring Revenue ("ARR")
ARR is a non-GAAP financial measure that we believe is a key metric to measure our periodic performance. ARR refers to the next 12 months of revenue from subscription contracts as of the measurement date. To establish ARR for a customer, we assume that any contract expiring during the next 12 months will be renewed under the existing terms, excluding Red Canary's subscription contracts expiring in fiscal year 2026. ARR as of January 31, 2026 and 2025 was $3,359 million and $2,683 million, respectively.

Components of Results of Operations
Revenue
We generate revenue primarily from sales of subscriptions to access our cloud platform, together with related support services. Subscription and related support services accounted for approximately 98% of our revenue for the three and six months ended January 31, 2026, respectively, and 98% and 97% of our revenue for the three and six months ended January 31, 2025, respectively. Our contracts with our customers do not at any time provide the customer with the right to take possession of the software that runs our cloud platform. Our customers may also purchase professional services, such as mapping, implementation, network design and training. Professional services account for an immaterial portion of our revenue.
We generate revenue from contracts with typical durations ranging from one to three years. We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance. We recognize revenue ratably over the life of the contract. Amounts that have been invoiced are recorded in deferred revenue or in revenue, if the revenue recognition criteria have been met. Subscriptions that are invoiced annually in advance or multi-year in advance represent a significant portion of our short-term and long-term deferred revenue in comparison to invoices issued quarterly in advance or monthly in advance. We cannot predict the mix of invoicing schedules in any given period.
We generally experience seasonality in terms of when we enter into agreements with our customers. We typically enter into a higher percentage of agreements with new customers, as well as renewal agreements with existing customers, in the second half of our fiscal year. However, because we recognize revenue ratably over the terms of our subscription contracts, a substantial portion of the revenue that we report in each period is attributable to the recognition of deferred revenue relating to agreements that we entered into during previous periods. Consequently, increases or decreases in new sales or renewals in
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any one period may not be immediately reflected as revenue for that period. Accordingly, the effect of downturns in sales and market acceptance of our platform, and potential changes in our rate of renewals, may not be fully reflected in our results of operations until future periods.
Cost of Revenue
Cost of revenue includes expenses related to operating our cloud platform in data centers, including public cloud providers, depreciation of our data center equipment, amortization of our capitalized internal-use software, amortization of intangible assets acquired through our business acquisitions and allocated overhead expenses (i.e., facilities, IT, depreciation expense and amortization expense). Cost of revenue also includes employee-related expenses, including salaries, bonuses, stock-based compensation expense and employee benefit expenses associated with our customer support and cloud operations organizations.
As our customers expand and increase the use of our cloud platform, driven by additional applications and connected devices, our cost of revenue will increase due to higher bandwidth and data center expenses. However, we expect to continue to benefit from economies of scale as our customers increase the use of our cloud platform. We intend to continue to invest additional resources in our cloud platform and our customer support organizations as we grow our business. The level and timing of investment in these areas could affect our cost of revenue in the future.
Gross Profit and Gross Margin
Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, including the timing of our acquisition of new customers and our renewals of and follow-on sales to existing customers, the average sales price of our services, mix of services offered in our solutions, including new product introductions, the data center and bandwidth costs associated with operating our cloud platform, the extent to which we expand our customer support and cloud operations organizations and the extent to which we can increase the efficiency of our technology, infrastructure and data centers through technological improvements. We expect our gross profit to increase in absolute dollars and our gross margin to increase slightly over the long term, although our gross profit and gross margin could fluctuate from period to period depending on the interplay of the above factors.
Operating Expenses
Our operating expenses consist of sales and marketing expenses, research and development expenses and general and administrative expenses. Personnel expenses are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation expense and, with respect to sales and marketing expenses, sales commissions that are recognized as expenses over the period of benefit. Operating expenses also include overhead expenses (i.e., facilities, IT, depreciation expense and amortization expense).
Sales and Marketing
Sales and marketing expenses consist primarily of employee compensation and related expenses, including salaries, bonuses and benefits for our sales and marketing employees, sales commissions that are recognized as expenses over the period of benefit, stock-based compensation expense, marketing programs, travel and entertainment expenses, expenses for conferences and events, amortization of intangible assets acquired through our business acquisitions and allocated overhead expenses (i.e., facilities, IT, depreciation expense and amortization expense). We capitalize our sales commissions and associated payroll taxes that are incremental to the acquisition of customer contracts and recognize them as expenses over the estimated period of benefit. The amount recognized in our sales and marketing expenses reflects the amortization of expenses previously deferred as attributable to each period presented in this Quarterly Report on Form 10-Q, as described below under "Critical Accounting Policies and Estimates."
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We intend to continue to make significant investments in our sales and marketing organization to drive additional revenue, further penetrate the market and expand our global customer base. As a result, we expect our sales and marketing expenses to continue to increase in absolute dollars and to be our largest operating expense category for the foreseeable future. In particular, we will continue to invest in growing and training our sales force, broadening our brand awareness and expanding and deepening our channel partner relationships. However, we expect our sales and marketing expenses to decrease as a percentage of our revenue over the long term, although our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.
Research and Development
Our research and development expenses support our efforts to add new products, new features to our existing offerings and to ensure the reliability, availability and scalability of our solutions. Our cloud platform is software-driven, and our research and development teams employ software engineers in the design, and the related development, testing, certification and support, of these solutions. Accordingly, a majority of our research and development expenses result from employee-related expenses, including salaries, bonuses and benefits, stock-based compensation expense and expenses associated with technology tools used by our engineers. We expect our research and development expenses to continue to increase in absolute dollars for the foreseeable future, as we continue to invest in research and development efforts to enhance the functionality of our cloud platform, improve the reliability, availability and scalability of our platform and access new customer markets. However, we expect our research and development expenses to decrease as a percentage of our revenue over the long term, although our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.
General and Administrative
General and administrative expenses consist primarily of employee-related expenses, including salaries and bonuses, stock-based compensation expense and employee benefit expenses for our finance, legal, human resources and administrative personnel, as well as professional fees for external legal services (including certain litigation-related expenses), accounting and other related consulting services. The litigation-related expenses include professional fees and related expenses incurred by us in defending or settling claims and, if applicable, accruals related to estimated losses in connection with these claims. We expect our general and administrative expenses to increase in absolute dollars for the foreseeable future as we increase the size of our general and administrative organizations, incur additional costs to support our business growth and due to any legal matters and related accruals, as further described in Note 12, Commitments and Contingencies, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. However, we expect our general and administrative expenses to decrease as a percentage of our revenue over the long term, although our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses. In particular, litigation-related expenses related to significant litigation claims may result in significant fluctuations from period to period as they are inherently subject to change and difficult to estimate.
Interest Income
Interest income consists primarily of income earned on our cash equivalents and short-term investments.
Interest Expense
Interest expense consists primarily of amortization of debt issuance costs, recognition of contractual interest expense related to the convertible senior notes , and gains and losses related to changes in the fair value of interest rate swaps. For further information refer to Note 8, Derivative Instruments, and Note 10, Convertible Senior Notes, of our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency transaction gains and losses and changes in fair value of our non-designated derivati ve instruments.
Provision For (Benefit From) Income Taxes
Provision for (benefit from) income taxes consists of state income taxes in the United States ("U.S."), foreign income taxes, and withholding taxes related to customer payments in certain foreign jurisdictions in which we conduct business. We weigh all available positive and negative evidence, including but not limited to our earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies and the nature of each deferred tax assets in assessing the extent to which a valuation allowance should be applied against our U.S. and foreign deferred tax assets.
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Results of Operations
The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025
(in thousands)
Revenue $ 815,751  $ 647,900  $ 1,603,863  $ 1,275,855 
Cost of revenue (1) (2) (3)
191,260  148,498  376,013  289,960 
Gross profit 624,491  499,402  1,227,850  985,895 
Operating expenses:
Sales and marketing (1) (2) (3)
368,946  307,872  742,508  613,959 
Research and development (1) (2) (3)
229,137  170,860  429,635  325,114 
General and administrative (1) (4)
78,181  60,810  143,842  117,629 
Total operating expenses 676,264  539,542  1,315,985  1,056,702 
Loss from operations (51,773) (40,140) (88,135) (70,807)
Interest income 33,893  30,878  67,047  60,926 
Interest expense (5)
(4,221) (2,339) (6,348) (5,482)
Other income (expense), net 803  (4,936) (2,236) (5,588)
Loss before income taxes (21,298) (16,537) (29,672) (20,951)
Provision for (benefit from) income taxes (6)
13,014  (8,813) 16,255  (1,176)
Net loss $ (34,312) $ (7,724) $ (45,927) $ (19,775)

(1) Includes stock-based compensation expense and related payroll taxes:

Cost of revenue $ 22,880  $ 17,619  $ 42,862  $ 33,412 
Sales and marketing 81,647  69,979  153,215  134,845 
Research and development 84,689  65,896  159,925  124,761 
General and administrative 31,197  22,862  58,172  43,912 
Total $ 220,413  $ 176,356  $ 414,174  $ 336,930 

(2)  Includes amortization expense of acquired intangible assets:

Cost of revenue $ 6,917  $ 3,815  $ 12,609  $ 7,490 
Sales and marketing 4,197  425  7,138  850 
Research and development —  5  —  145 
Total $ 11,114  $ 4,245  $ 19,747  $ 8,485 

(3)  Includes restructuring and other charges:

Cost of revenue $ —  $ —  $ 750  $ — 
Sales and marketing —  —  2,809  — 
Research and development —  —  1,182  — 
Total $ —  $ —  $ 4,741  $ — 

(4) Acquisition-related expenses
$ 1,212  $ —  $ 2,295  $ — 

(5) Includes amortization of debt issuance costs
$ 2,040  $ 982  $ 4,078  $ 1,963 

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(6) During the three months ended January 31, 2025, we recognized a tax benefit of $17.2 million attributable to the release of the valuation allowance on United Kingdom (U.K.) deferred tax assets.

Three Months Ended January 31, Six Months Ended January 31,
2026 2025 2026 2025
Revenue 100% 100% 100% 100%
Cost of revenue 23 23 23 23
Gross margin 77 77 77 77
Operating expenses
Sales and marketing 45 48 46 48
Research and development 28 26 27 25
General and administrative 10 9 9 10
Total operating expenses 83 83 82 83
Operating margin (6) (6) (5) (6)
Interest income 4 5 3 4
Interest expense (1) — — —
Other income (expense), net — (2) — —
Loss before income taxes (3) (3) (2) (2)
Provision for (benefit from) income taxes 1 (2) 1 —
Net loss (4)% (1)% (3)% (2)%
    
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Comparison of the Three Months Ended January 31, 2026 and 2025
Revenue
Three Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Revenue $ 815,751  $ 647,900  $ 167,851  26  %

Revenue increased by $167.9 million, or 26%, for the three months ended January 31, 2026, compared to the three months ended January 31, 2025. The change in revenue was driven primarily by sales of additional subscriptions to existing customers, which contributed $96.9 million in additional revenue. The remainder of the increase was primarily attributable to the addition of new customers, as we increased our customer base b y 15% from January 31, 2025 to January 31, 2026.
Cost of Revenue and Gross Margin
Three Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Cost of revenue $ 191,260  $ 148,498  $ 42,762  29  %
Gross margin 77  % 77  %

Cost of revenue increased by $42.8 million, or 29%, for the three months ended January 31, 2026, compared to the three months ended January 31, 2025 . The overall increase in cost of revenue was driven primarily by the expanded use of our cloud platform by existing and new customers, which led to an increase of $26.9 million for data center and equipment-related costs for hosting and operating our cloud platform. The remainder of the increase was primarily attributable to employee-related expenses of $12.4 million, inclusive of an increase of $5.6 million in stock-based compensation expense, driven primarily by an increase in headcount, and higher amortization of acquired intangible assets of $3.1 million.
Gross margin remained flat from 77% for the three months ended January 31, 2026, compared to the three months ended January 31, 2025.
Operating Expenses
Sales and Marketing Expenses
Three Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Sales and marketing expenses $ 368,946  $ 307,872  $ 61,074  20  %

Sales and marketing expenses increased by $61.1 million, or 20%, for the three months ended January 31, 2026, compared to the three months ended January 31, 2025. The change was driven primarily by an increase of $48.6 million in employee-related expenses, inclusive of an increase of $11.6 million in stock-based compensation expense and $9.2 million in sales commissions expense. The increase in employee-related expenses was primarily due to an increase in headcount . The remainder of the increase was primarily attributable to $5.6 million in facility related expenses, $3.8 million in amortization of acquired intangible assets and $2.9 million in travel expenses.
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Research and Development Expenses
Three Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Research and development expenses $ 229,137  $ 170,860  $ 58,277  34  %

Research and development expenses increased by $58.3 million, or 34%, for the three months ended January 31, 2026, compared to the three months ended January 31, 2025, as we continue to develop and enhance the functionality of our cloud platform and integrate technologies acquired through our business acquisitions. The change was driven primarily by an increase of $40.6 million in employee-related expenses, inclusive of an increase of $19.1 million in stock-based compensation expense, primarily due to an increase in headcount . The remainder of the increase was primarily attributable to increased expenses of $13.7 million in facility, cloud hosting, software and equipment-related expenses to support our growth and lower capitalized internal-use software development costs of $3.8 million.
General and Administrative Expenses
Three Months Ended January 31, Change

2026 2025 $ %

(in thousands)

General and administrative expenses $ 78,181  $ 60,810  $ 17,371  29  %

General and administrative expenses increased by $17.4 million, or 29%, for the three months ended January 31, 2026, compared to the three months ended January 31, 2025. The change was driven primarily by an increase of $13.0 million in employee-related expenses, inclusive of an increase of $8.2 million in stock-based compensation expense, primarily due to an increase in headcount. The remainder of the increase was primarily attributable to increased expenses of $1.2 million in acquisition-related expenses and the rise of miscellaneous expenses to support the growth of our business.

Interest Income
Three Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Interest income $ 33,893  $ 30,878  $ 3,015  10  %

Interest income increased by $3.0 million, or 10%, for the three months ended January 31, 2026, compared to the three months ended January 31, 2025. The change was driven primarily by our increased balance of cash equivalents and short-term investments.
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Interest Expense
Three Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Interest expense $ (4,221) $ (2,339) $ (1,882) 80  %

Interest expense increased by $1.9 million for the three months ended January 31, 2026, compared to the three months ended January 31, 2025 . The change was driven primarily by higher amortization of debt issuance costs.
Other Income (Expense), Net
Three Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Other income (expense), net $ 803  $ (4,936) $ 5,739  (116) %

Other income (expense), net increased by $5.7 million for the three months ended January 31, 2026 compared to the three months ended January 31, 2025. The change was driven primarily by fluctuations in foreign currency transactions gains and losses.
Provision For (Benefit From) Income Taxes
Three Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Provision for (benefit from) income taxes $ 13,014  $ (8,813) $ 21,827  (248) %

Our provision for (benefit from) income taxes increased by $21.8 million for the three months ended January 31, 2026, compared to the three months ended January 31, 2025. The change is primarily attributable to the prior year's non-recurring release of valuation allowance on United Kingdom deferred tax assets.
Our provision for (benefit from) income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each fiscal quarter, we update our estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period.
Our quarterly tax provision for (benefit from), and estimate of our annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in our business operations and changes in tax laws. Our estimated annual effective tax rate for the year differs from the U.S. statutory rate of 21% as a result of our U.S. losses for which no tax benefit will be realized, as well as our foreign operations which are subject to tax rates that differ from those in the United States.
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The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. We assess our ability to realize the deferred tax assets on a quarterly basis and we establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. We weigh all available positive and negative evidence, including our earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. Due to the weight of objectively verifiable negative evidence, including our history of losses in certain jurisdictions, we believe that it is more likely than not that our U.S. federal, state and certain foreign jurisdictions deferred tax assets will not be realized. Accordingly, we have maintained a valuation allowance on our U.S. federal, state and certain foreign jurisdiction deferred tax assets.
Many non-U.S. countries are beginning to implement legislation and other guidance to align their international tax rules with the Organization for Economic Cooperation and Development’s (“OECD”) Base Erosion and Profit Shifting recommendations, an action plan that aims to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer pricing documentation rules and nexus-based tax incentive practices. The OECD is also continuing discussions surrounding fundamental changes in allocation of profits among tax jurisdictions in which companies do business, as well as the implementation of “Pillar Two”, a global minimum tax. We have analyzed the impact of the enacted tax laws regarding Pillar Two and have determined there is an immaterial impact on the income tax provision for the three months ended January 31, 2026.

The OECD's January 2026, guidance introduced a "Side-by-Side Safe Harbor" that may exempt our U.S. operations from certain global minimum tax rules effective for fiscal years beginning on or after January 1, 2026. However, this relief does not extend to foreign jurisdictions where local minimum tax requirements remain applicable. We continue to monitor these developments and are assessing the potential impact on the income tax provision beginning in fiscal 2027.

On July 4, 2025, the United States enacted tax reform legislation through the One Big Beautiful Bill Act. Included in this legislation are provisions that allow for the immediate expensing of domestic research and development expenses, immediate expensing of certain capital expenditures, and other changes to the U.S. taxation of profits derived from foreign operations. We began accounting for the provisions in the legislation in fiscal 2026, which resulted in an immaterial favorable effect on the income tax provision, mainly due to the Company's valuation allowance.

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Comparison of the Six Months Ended January 31, 2026 and 2025
Revenue
Six Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Revenue $ 1,603,863   $ 1,275,855   $ 328,008  26  %

Revenue increased by $328.0 million , or 26% , for the six months ended January 31, 2026 , compared to the six months ended January 31, 2025 . The change in revenue was driven primarily by sales of additional subscriptions to existing customers, which contributed $195.8 million in additional revenue. The remainder of the increase was primarily attributable to the addition of new customers, as we increased our customer base b y 15% from January 31, 2025 to January 31, 2026.
Cost of Revenue and Gross Margin
Six Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Cost of revenue $ 376,013   $ 289,960   $ 86,053  30  %
Gross margin 77  % 77  %

Cost of revenue increased by $86.1 million , or 30% , for the six months ended January 31, 2026 , compared to the six months ended January 31, 2025. The overall increase in cost of revenue was driven primarily by the expanded use of our cloud platform by existing and new customers, which led to an increase of $53.8 million for data center and equipment-related costs for hosting and operating our cloud platform. The remainder of the increase was primarily attributable to employee-related expenses of $23.8 million, inclusive of an increase of $10.3 million in stock-based compensation expense, driven primarily by an increase in headcount, higher amortization of acquired intangible assets of $5.1 million and facility related expenses of $2.2 million.
Gross margin remained flat from 77% for the six months ended January 31, 2026, compared to the six months ended January 31, 2025.
Operating Expenses
Sales and Marketing Expenses
Six Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Sales and marketing expenses $ 742,508   $ 613,959   $ 128,549  21  %

Sales and marketing expenses increased by $128.5 million , or 21%, for the six months ended January 31, 2026, compared to the six months ended January 31, 2025. The change was driven primarily by an increase of $87.3 million in employee-related expenses, inclusive of an increase of $18.8 million in sales commissions expense and $17.1 million in stock-based compensation expense. The increase in employee-related expenses was primarily due to an increase in headcount . The remainder of the increase was primarily attributable to $12.6 million in facility related expenses, $10.2 million in marketing and advertisement expenses, $9.7 million in travel expenses and $6.3 million in amortization of acquired intangible assets.
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Research and Development Expenses
Six Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Research and development expenses $ 429,635   $ 325,114   $ 104,521  32  %

Research and development expenses increased by $104.5 million , or 32%, for the six months ended January 31, 2026, compared to the six months ended January 31, 2025, as we continue to develop and enhance the functionality of our cloud platform and integrate technologies acquired through our business acquisitions. The change was driven primarily by an increase of $69.6 million in employee-related expenses, inclusive of an increase of $34.6 million in stock-based compensation expense, primarily due to an increase in headcount . The remainder of the increase was primarily attributable to increased expenses of $24.2 million in facility , cloud hosting, software and equipment-related expenses to support our growth and lower capitalized internal-use software development costs of $8.6 million .
General and Administrative Expenses
Six Months Ended January 31, Change

2026 2025 $ %

(in thousands)

General and administrative expenses $ 143,842   $ 117,629   $ 26,213  22  %

General and administrative expenses increased by $26.2 million , or 22%, for the six months ended January 31, 2026, compared to the six months ended January 31, 2025. The change was driven primarily by an increase of $21.2 million in employee-related expenses, inclusive of an increase of $14.0 million in stock-based compensation expense, primarily due to an increase in headcount. The remainder of the increase was primarily attributable to increased expenses of $2.3 million in acquisition-related expenses and the rise of miscellaneous expenses to support the growth of our business.
Interest Income
Six Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Interest income $ 67,047   $ 60,926   $ 6,121  10  %

Interest income increased by $6.1 million , or 10%, for the six months ended January 31, 2026, compared to the six months ended January 31, 2025. The change was driven primarily by our increased balance of cash equivalents and short-term investments.
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Interest Expense
Six Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Interest expense $ ( 6,348 ) $ ( 5,482 ) $ (866) 16  %

Interest expense increased by $0.9 million for the six months ended January 31, 2026, compared to the six months ended January 31, 2025.
Other Expense, Net
Six Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Other expense, net $ ( 2,236 ) $ ( 5,588 ) $ 3,352  (60) %

Other expense, net decreased by $3.4 million for the six months ended January 31, 2026 compared to the six months ended January 31, 2025. The change was driven primarily by fluctuations in foreign currency transactions gains and losses.
Provision For (Benefit From) Income Taxes
Six Months Ended January 31, Change

2026 2025 $ %

(in thousands)

Provision for (benefit from) income taxes $ 16,255   $ ( 1,176 ) $ 17,431  (1,482) %

Our provision for (benefit from) income taxes increased by $17.4 million for the six months ended January 31, 2026 , compared to the six months ended January 31, 2025 . The change is primarily attributable to the prior year's non-recurring release of valuation allowance on United Kingdom deferred tax assets.
Our provision for (benefit from) income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each fiscal quarter, we update our estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period.
Our quarterly tax provision for (benefit from), and estimate of our annual effective tax rate, is subject to variation due to several factors, including variability in pre-tax income (or loss), the mix of jurisdictions to which such income relates, changes in our business operations and changes in tax laws. Our estimated annual effective tax rate for the year differs from the U.S. statutory rate of 21% as a result of our U.S. losses for which no tax benefit will be realized, as well as our foreign operations which are subject to tax rates that differ from those in United States.
The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. We assess our ability to realize the deferred tax assets on a quarterly basis and we establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. We weigh all available positive and negative evidence, including our earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies. Due to the weight of objectively verifiable negative evidence, including our history of losses in certain jurisdictions, we believe that it is more likely than not that our U.S. federal, state and certain foreign jurisdictions deferred tax assets will not be realized. Accordingly, we have maintained a valuation allowance on our U.S. federal, state and certain foreign jurisdiction deferred tax assets.
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Many non-U.S. countries are beginning to implement legislation and other guidance to align their international tax rules with the Organization for Economic Cooperation and Development’s (“OECD”) Base Erosion and Profit Shifting recommendations, an action plan that aims to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer pricing documentation rules and nexus-based tax incentive practices. The OECD is also continuing discussions surrounding fundamental changes in allocation of profits among tax jurisdictions in which companies do business, as well as the implementation of “Pillar Two”, a global minimum tax. We have analyzed the impact of the enacted tax laws regarding Pillar Two and have determined there is an immaterial impact on the income tax provision for the six months ended January 31, 2026 .

The OECD's January 2026, guidance introduced a "Side-by-Side Safe Harbor" that may exempt our U.S. operations from certain global minimum tax rules effective for fiscal years beginning on or after January 1, 2026. However, this relief does not extend to foreign jurisdictions where local minimum tax requirements remain applicable. We continue to monitor these developments and are assessing the potential impact on the income tax provision beginning in fiscal 2027.

On July 4, 2025, the United States enacted tax reform legislation through the One Big Beautiful Bill Act. Included in this legislation are provisions that allow for the immediate expensing of domestic research and development expenses, immediate expensing of certain capital expenditures, and other changes to the U.S. taxation of profits derived from foreign operations. We began accounting for the provisions in the legislation in fiscal 2026, which resulted in an immaterial favorable effect on the income tax provision, mainly due to the Company's valuation allowance.

Liquidity and Capital Resources
As of January 31, 2026, our principal sources of liquidity were cash, cash equivalents and short-term investments totaling $3,512.8 million, which were held for working capital and general corporate purposes. Our cash equivalents and investments consist of highly liquid investments in money market funds, U.S. treasury securities, U.S. government agency securities, certificates of deposit, corporate debt securities and asset-backed securities.
In July 2025, we completed the private offering of the Convertible Senior Notes due 2028 (the “2028 Notes”) with an aggregate principal amount of $1,725.0 million. The total net proceeds from the offering, after deducting initial purchase discount and issuance costs, was $1,700.0 million. The 2028 Notes mature on July 15, 2028. In connection with the 2028 Notes, we entered into the capped call transactions which are expected to reduce the potential dilution of our common stock upon any conversion of the 2028 Notes and/or offset any cash payments we could be required to make in excess of the principal amount of the converted notes. We used an aggregate amount of $196.8 million of the net proceeds of the 2028 Notes to purchase the capped call transactions. For further information refer to Note 10, Convertible Senior Notes, to the audited consolidated financial statements included in our Fiscal 2025 Form 10-K.
We have generated significant losses from operations, as reflected in our accumulated deficit of $1,235.5 million as of January 31, 2026. We expect to continue to incur operating losses and have in the past and may in the future generate negative cash flows due to expected investments to grow our business, including potential business acquisitions and other strategic transactions.
We believe that our existing cash, cash equivalents and short-term investments will be sufficient to fund our working capital, capital expenditure and convertible senior notes repayment requirements for at least the next 12 months from the date of issuance of our financial statements. Our foreseeable cash needs, in addition to our recurring operating costs, include our expected capital expenditures to support expansion of our infrastructure and workforce, lease obligations, purchase commitments, potential business acquisitions, convertible senior notes repayment requirements and other strategic transactions. Our assessment of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Our actual results could vary as a result of,
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and our future capital requirements, both near-term and long-term, will depend on, many factors, including our growth rate, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing and international operating activities, the timing of new introductions of solutions or features, and the continuing market acceptance of our services, the impact of macroeconomic and geopolitical conditions to our and our customers', vendors' and partners' businesses. We have and may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Additionally, some of the factors that may influence our operations are not within our control, such as general economic conditions, geopolitical developments and the impact of global crises. We may be required 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, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, operating results and financial condition would be adversely affected.
We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, monthly in advance or multi-year in advance. Therefore, a substantial source of our cash is from such prepayments, which are included on our consolidated balance sheets as a contract liability. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is subsequently recognized as revenue in accordance with our revenue recognition policy. As of January 31, 2026, we had deferred revenue of $2,355.4 million, of which $1,983.6 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met. Subscriptions that are invoiced annually in advance or multi-year in advance contribute significantly to our short-term and long-term deferred revenue in comparison to our invoices issued quarterly in advance or monthly in advance.
As of January 31, 2026, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
The following table summarizes our cash flows for the periods presented:

Six Months Ended January 31,
2026 2025

(in thousands)

Net cash provided by operating activities $ 652,353  $ 510,768 
Net cash used in investing activities $ (1,863,124) $ (201,142)
Net cash provided by financing activities $ 24,499  $ 25,800 

Operating Activities
Net cash provided by operating activities during the six months ended January 31, 2026 was $652.4 million, which was driven by a net loss of $45.9 million, adjusted for non-cash charges of $629.1 million and net cash inflows of $69.1 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $405.1 million for stock-based compensation expense, $97.6 million for amortization of deferred contract acquisition costs, $67.6 million for depreciation and amortization expense, $38.8 million for non-cash operating lease costs, $19.7 million for amortization expense of acquired intangible assets, and $4.1 million in amortization of debt issuance costs. These non-cash charges were partially offset primarily by $3.6 million in accretion of investments purchased at a discount. Net cash inflows from changes in operating assets and liabilities were primarily attributable to $461.5 million decrease in accounts receivable, primarily due to the timing of billings and collections, as well as an $6.3 million increase in accrued expenses and other current and noncurrent liabilities. These cash inflows were partially offset by cash outflows resulting from a decrease of $187.1 million in
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deferred revenue, an increase of $107.4 million in deferred contract acquisition costs, an increase of $30.2 million in prepaid expenses, other current and noncurrent assets, a decrease of $29.5 million in accrued compensation, a decrease of $22.3 million in operating lease liabilities and a decrease of $22.1 million in accounts payable.
Net cash provided by operating activities during the six months ended January 31, 2025 was $510.8 million, which resulted from a net loss of $19.8 million, adjusted for non-cash charges of $473.3 million and net cash inflows of $57.3 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $329.3 million for stock-based compensation expense, $79.2 million for amortization of deferred contract acquisition costs, $45.9 million for depreciation and amortization expense, $31.6 million for non-cash operating lease costs and $8.5 million for amortization expense of acquired intangible assets and unrealized losses on hedging transactions of $3.0 million . Non-cash charges were partially offset by deferred income taxes of $17.4 million and an accretion of investments purchased at a discount of $10.1 million. Net cash inflows from changes in operating assets and liabilities were primarily the result of $222.0 million in accounts receivable. Net cash inflows were partially offset by cash outflows resulting from an increase of $74.2 million in deferred contract acquisition costs, a decrease of $30.2 million in operating lease liabilities, a decrease of $20.4 million in accrued compensation, a decrease of $16.5 million in deferred revenue, an increase of $12.1 million in prepaid expenses, other current and noncurrent assets and a decrease of $11.5 million in accrued expenses.
Investing Activities
Net cash used in investing activities during the six months ended January 31, 2026, totaled $1,863.1 million. This was primarily driven by purchases of short-term investments of $1,401.5 million, payments for business acquisitions, net of cash acquired, of $672.8 million and capital expenditures of $69.9 million to support the growth and expansion of our cloud platform. These outflows were partially offset by proceeds of $283.1 million from sales and maturities of short-term investments.
Net cash used in investing activities during the six months ended January 31, 2025 of $201.1 million was primarily attributable to purchases of short-term investments of $729.1 million and capital expenditures of $75.5 million to support the growth and expansion of our cloud platform. These activities were partially offset by proceeds from maturities of short-term investments of $605.0 million .
Financing Activities
Net cash provided by financing activities of $24.5 million during the six months ended January 31, 2026 was primarily attributable to $21.5 million in proceeds from the issuance of common stock under the ESPP and $4.0 million was attributable to proceeds from the exercise of stock options.
Net cash provided by financing activities of $25.8 million during the six months ended January 31, 2025 was primarily attributable to $22.3 million in proceeds from the issuance of common stock under the ESPP and $3.5 million was attributable to proceeds from the exercise of stock options.

Contractual Obligations and Commitments
During the six months ended January 31, 2026, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments from those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in Part II, Item 7, of our Fiscal 2025 Form 10-K.
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Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss below.
Our significant accounting policies are described in the Fiscal 2025 Form 10-K. There have been no significant changes to these policies that have had a material impact on the condensed consolidated financial statements and related notes for the six months ended January 31, 2026.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have operations in the United States and internationally, and we are exposed to market risk in the ordinary course of our business. Our assessment of our exposures to market risk has not changed materially since the presentation set forth in Part II, Item 7A of our Fiscal 2025 Form 10-K.
Interest Rate Risk
As of January 31, 2026, we had cash, cash equivalents and short-term investments totaling $3,512.8 million, which were held for working capital purposes. Our cash equivalents and investments consist of highly liquid investments in money market funds, U.S. treasury securities, U.S. government agency securities, certificates of deposit, corporate debt securities and asset-backed securities. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. The carrying amount of our cash equivalents reasonably approximates fair value, due to the short maturities of these instruments. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. As of January 31, 2026, the effect of a hypothetical 100 basis point change in interest rates would have changed the fair value of our investments in available-for-sale securities by $31.4 million. Fluctuations in the fair value of our investments in available for sale securities caused by a change in interest rates (gains or losses on the carrying amount) are recorded in other comprehensive loss, and are realized only if we sell the underlying securities prior to maturity.
Convertible Senior Notes
In July 2025, we issued our 2028 Notes with an aggregate principal amount of $1,725.0 million. In connection with the issuance of the 2028 Notes, we entered into privately negotiated capped call transactions with certain counterparties. The capped calls transactions are expected generally to reduce potential dilution to our common stock as a result of any conversion of the 2028 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2028 Notes, which such reduction and/or offset subject to a cap.
As the 2028 Notes have a 0.0% interest rate, we do not have economic interest rate exposure on the 2028 Notes. However, the fair value of the 2028 Notes is exposed to interest rate risk. Generally, the fair value of the 2028 Notes will increase as interest rates fall and decrease as interest rates rise. We present the fair value for required disclosure purposes only. In addition, the fair value of the 2028 Notes also fluctuates when the market price of our common stock fluctuates. The fair value was determined based on the quoted bid price of the 2028 Notes in an over-the-counter market on the last trading day of the reporting period. For further information refer to Note 10, Convertible Senior Notes, to the consolidated financial statements included in our Annual Report on Form 10-K.
Foreign Currency Risk
The vast majority of our sales contracts are denominated in U.S. dollars, with a small number of contracts denominated in foreign currencies. A portion of our operating expenses are incurred outside the United States, denominated in foreign currencies and subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the British Pound, Indian Rupee, Euro, Israeli Shekel, Canadian Dollar, Australian Dollar and Japanese Yen. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our consolidated statements of operations. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on the unaudited condensed consolidated financial statements for the six months ended January 31, 2026 and 2025.
We have a foreign currency risk management program, and we enter into foreign currency forward contracts to hedge a portion of our forecasted foreign currency-denominated expenses. These foreign currency derivative contracts have a
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maturity up to 24 months or less and are designated as cash flow hedges to protect our earnings subjected to foreign currency risk. We also use foreign currency forward contracts to mitigate variability in gains and losses generated from the remeasurement of certain monetary assets and liabilities denominated in foreign currencies .
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