ADBE 10-Q — Smart Summary

• Revenue sources: Revenue is derived from cloud-enabled software subscriptions, cloud-hosted offerings, term-based, royalty, and perpetual software licenses, associated software maintenance and support plans, consulting services, training and technical support.
• Deferred revenue: Balance was $7.4B as of February 27, 2026 (including $65M of refundable customer deposits and approximately 4% from non-cancellable, non-refundable committed enterprise funds), up from $7B as of November 28, 2025; approximately $3.2B of revenue recognized in the three months ended February 27, 2026 was included in the November 28, 2025 deferred revenue balance.
• Remaining performance obligations: Approximately $22.2B as of February 27, 2026, with approximately 4% from non-cancellable, non-refundable enterprise funds; approximately 67% of the remainder (excluding those enterprise agreements) expected to be recognized over the next 12 months.
• Trade receivables & contract assets: Trade receivables, net, were $2.1B (inclusive of $81M unbilled) as of February 27, 2026, with an allowance for doubtful accounts of $12M; contract assets were $201M and capitalized contract acquisition costs were $755M as of February 27, 2026.

• Total liquidity position: Cash, cash equivalents, and short-term investments totaled $6.9B as of February 27, 2026, up from $6.6B as of November 28, 2025, driven primarily by growth in money market funds ($4.2B vs. $3.6B) and corporate debt securities held as cash equivalents ($1.4B vs. $928M), partially offset by a reduction in short-term investments ($558M vs. $1.2B).
• Short-term investment maturity profile: Of the $558M in short-term fixed income securities as of February 27, 2026, $533M is due within one year and $25M is due between one and two years; holdings consist of corporate debt securities ($457M) and U.S. Treasury securities ($101M).
• Unrealized gains/losses: There were no unrealized gains or losses on any investments in either period, and no allowance for credit-related losses was recognized during the three months ended February 27, 2026 or February 28, 2025.

• Level hierarchy: All fair-valued assets and liabilities fall within Level 1 (quoted prices) or Level 2 (observable inputs); no Level 3 instruments were held at either measurement date.
• Fixed income valuation: Available-for-sale debt securities are categorized as Level 2, valued by independent pricing vendors using matrix pricing, market approach methodologies, and discounted cash flow methodologies, with inputs including benchmark yields, issuer spreads, interest rates, and U.S. Treasury or swap curves.
• Derivative fair values: Over-the-counter foreign currency and interest rate swap derivatives are valued using pricing models and discounted cash flow methodologies based on observable foreign exchange and interest rate data at the measurement date; net derivative liabilities totaled $162M at February 27, 2026 versus $108M at November 28, 2025.
• Senior notes (nonrecurring): The fair value of senior notes was $6.2B as of February 27, 2026, excluding associated interest rate swaps, categorized as Level 2 based on observable market prices in less active markets.

• Cash flow hedges: Foreign exchange forward and option contracts hedge forecasted foreign currency revenue and expenses with maturities of up to 24 months; gross notional amounts were $6.1B as of February 27, 2026 and $6B as of November 28, 2025, covering exposures in Euros, Japanese Yen, British Pounds, Australian Dollars, Indian Rupees, and Canadian Dollars. As of February 27, 2026, net derivative losses on these hedges are expected to be recognized within the next 36 months, of which $93M of net losses are expected to be reclassified into revenue within the next 12 months.
• Fair value hedges: Interest rate swaps convert fixed rates on certain senior notes to floating rates based on the Secured Overnight Financing Rate Overnight Index Swap Rate (SOFR OIS) on a $2.7B notional amount through respective par call dates; Adobe pays quarterly at daily compounded SOFR OIS plus a fixed spread and receives fixed-rate interest semi-annually from counterparties.
• Non-designated hedges: Foreign currency forward contracts hedge monetary assets and liabilities in non-functional currencies; gross notional amounts were $734M as of February 27, 2026 (primarily Euros, Indian Rupees, British Pounds, Australian Dollars) and $563M as of November 28, 2025 (primarily Indian Rupees, Australian Dollars, British Pounds, Euros).
• OCI and income statement impact: For the three months ended February 27, 2026, net losses of $96M were recognized in other comprehensive income on foreign exchange contracts (vs. net gains of $94M for the three months ended February 28, 2025); effects on the condensed consolidated statements of income were immaterial for both periods.

• Goodwill: Goodwill was $12.9B as of February 27, 2026, essentially flat versus $12.9B as of November 28, 2025.
• Amortization expense: Amortization expense on other intangibles was $41M for the three months ended February 27, 2026, down from $84M for the three months ended February 28, 2025; of those amounts, $5M and $43M, respectively, were included in cost of revenue.
• Future amortization: Estimated aggregate amortization expense on the $454M net intangible balance is $120M for the remainder of 2026, $119M in 2027, $73M in 2028, $69M in 2029, $65M in 2030, and $8M thereafter.

Other category: The 'Other' line of $599M (February 27, 2026) vs. $511M (November 28, 2025) primarily includes general business accruals, royalties payable, and accrued hosting fees.

Compensation and derivative shifts: Accrued compensation costs declined from $1.3B to $891M quarter-over-quarter, while fair value of derivative liabilities increased from $102M to $147M and derivative collateral liabilities decreased from $101M to $74M.

• RSU activity: Beginning balance of 7.9 million shares grew to an ending outstanding balance of 12.5 million shares (weighted average grant date fair value of $375.57) after 5.6 million shares awarded at $304.19, 0.9 million released at $453.46, and 0.1 million forfeited at $426.01; expected to vest stands at 11.3 million shares with aggregate intrinsic value of $3B; total fair value of RSUs vested in the three months ended February 27, 2026 was $276M.
• Performance shares: Ending outstanding balance of 0.6 million shares at weighted average grant date fair value of $430.26 (aggregate intrinsic value $158M); the 2023 Performance Share Program paid out at 83% of target as certified by the ECC in Q1 fiscal 2026; total fair value of performance shares vested was $62M; participants can receive up to 200% of target shares under outstanding programs.
• ESPP: Employees purchased 0.3 million shares at an average price of $297.49 in the three months ended February 27, 2026 versus 0.3 million shares at $305.04 in the three months ended February 28, 2025; intrinsic value of shares purchased was $15M and $44M, respectively.
• Unrecognized compensation cost: $4.4B of unrecognized compensation cost (adjusted for estimated forfeitures) related to unvested awards and purchase rights, to be recognized over a weighted average period of 2.73 years.

AOCI components: As of February 27, 2026, total accumulated other comprehensive loss was ($295M) (net of taxes), deteriorating from ($245M) as of November 28, 2025, driven by a ($73M) net increase in losses during the three months ended February 27, 2026.

• Derivative hedges: Net unrealized losses on derivative instruments designated as hedging instruments widened to ($118M) from ($45M), reflecting a ($96M) increase in losses partially offset by $23M in reclassification adjustments; reclassification adjustments for foreign currency hedges are classified in revenue or operating expenses depending on the nature of the underlying transaction, and adjustments for Treasury lock hedges are classified in interest expense.
• Currency translation: Cumulative foreign currency translation adjustments improved to ($177M) from ($200M), a $23M favorable move with no reclassification adjustments.
• Tax impact: Taxes related to each component of other comprehensive income (loss) for the three months ended February 27, 2026 and February 28, 2025 were immaterial.

Repurchase authority: The Board of Directors granted authority in March 2024 to repurchase up to $25B in common stock through March 14, 2028, with $3.9B remaining as of February 27, 2026.

Accounting treatment: Prepayments for stock repurchases are classified as treasury stock, a component of stockholders' equity, at the payment date; only shares physically delivered by period-end are excluded from the computation of net income per share.

Anti-dilutive shares: Anti-dilutive potential common shares rose to 6.3 million for the three months ended February 27, 2026, up from 2.6 million in the prior-year period, reflecting a larger pool of out-of-the-money or excluded awards.

Commitments

• Semrush Holdings acquisition (~$1.9B, expected Q2 fiscal 2026): Definitive agreement signed November 18, 2025 to acquire Semrush Holdings, Inc. for approximately $1.9B, primarily cash; subject to regulatory approvals and customary closing conditions.

Legal Proceedings

• DOJ v. Adobe (settled March 12, 2026): DOJ filed civil complaint June 17, 2024 alleging ROSCA and FTC Act violations over subscription disclosure and cancellation practices; case settled March 12, 2026 with stipulation of dismissal filed March 13, 2026.
• In Re Adobe Inc. Securities Litigation, Case No. 1:23-cv-09260 (motion to dismiss granted March 27, 2025): Securities class action alleging misleading statements about Figma competition during July 23, 2021–September 22, 2022 class period; dismissal granted in full, leave to amend denied November 7, 2025, plaintiff appealing; exposure unspecified.
• Derivative Actions (presently stayed): Five consolidated shareholder derivative actions alleging breach of fiduciary duty, unjust enrichment, and securities law violations based on same Figma-related facts; seek unspecified damages, disgorgement, and governance improvements; financial exposure not estimable.

• Debt reclassification: During the first quarter of fiscal 2026, the 2.15% senior notes due February 1, 2027 ($850M par) were reclassified as current debt, resulting in carrying value of current debt of $849M as of February 27, 2026, with no comparable current portion as of November 28, 2025.
• Senior notes structure: Total debt outstanding at par was $6.2B at both period ends across 8 tranches ranging from the 2.15% 2027 Notes (issued February 2020) to the 5.30% 2035 Notes (issued January 2025); notes are unsecured, unsubordinated, contain no financial covenants, and are redeemable at any time subject to a make-whole premium.
• Interest rate swaps: Fair value of interest rate swaps — which convert fixed rates to floating rates based on SOFR OIS — added $102M to carrying value as of February 27, 2026, up from $86M as of November 28, 2025; unamortized discount and debt issuance costs were ($23M) and ($26M), respectively, yielding long-term debt carrying value of $5.4B vs. $6.2B.
• Undrawn facilities: As of February 27, 2026, there were no outstanding borrowings under the $1.5B Revolving Credit Agreement (established June 2022, five-year term, expandable to $2B) or under the $3B commercial paper program (established September 2023, maturities up to 397 days).

Single reportable segment: In the first quarter of fiscal 2026, the company combined its former segments — Digital Media, Digital Experience, and Publishing and Advertising — into a single operating and reportable segment, reflecting a shift to unified selling motions and integrated product innovation. Prior period information has been recast to reflect this change.

Chief operating decision maker: The CEO reviews consolidated results, including net income, to assess segment performance and allocate resources, comparing actual results to prior period results and to quarterly and annual forecasts.

Segment assets: The measure of segment assets is reported on the condensed consolidated balance sheets as total assets.

Footnote on non-operating income: Non-operating (income) expense, net includes interest income of $63M and $80M for the three months ended February 27, 2026 and February 28, 2025, respectively.

• Mission and platform: Adobe describes its mission as empowering creativity across ideation, creation, production and activation through integrated platforms serving business professionals, consumers, creators, creative professionals and marketing professionals across the Americas, EMEA and APAC.
• AI strategy: In the AI era, Adobe states it is harnessing AI by combining commercially safe first-party and leading partner AI models; deploying conversational and agentic capabilities; ensuring ubiquity on all surfaces; delivering trusted and secure solutions; and expanding its global presence.
• Segment consolidation: In the first quarter of fiscal 2026, Adobe combined its former segments — Digital Media, Digital Experience and Publishing and Advertising — into a single operating and reportable segment, reflecting a shift to unified selling motions and integrated product innovation and changes in how management evaluates results and allocates resources.

• Demand and revenue growth: Adobe reported strong demand across its portfolio in Q1 fiscal 2026, with continued growth in software-based subscription revenue, driven by AI-powered and highly differentiated product innovation.
• Customer segments: Adobe's go-to-market strategy is organized around two customer groups: Business Professionals & Consumers and Creative & Marketing Professionals, encompassing business professionals, consumers, creators, creative professionals, and marketing professionals.

• Revenue growth: Creative & Marketing Professionals customer group subscription revenue was $4.4B in the first quarter of fiscal 2026, up from $3.9B in the first quarter of fiscal 2025, representing 12% year-over-year growth.
• Product scope: Solutions include Creative Cloud flagship apps (Photoshop, Lightroom, Illustrator, Premiere) and customer experience orchestration offerings powered by Adobe Firefly models, with products spanning Adobe Analytics, Adobe Real-Time Customer Data Platform, Adobe Experience Manager, Adobe Commerce, Adobe GenStudio for Performance Marketing, Adobe Marketo Engage, Adobe Campaign, and Adobe Experience Platform.
• Strategic positioning: Adobe's integrated solutions such as GenStudio and Firefly Services are described as bridging content creation and marketing execution, enabling collaboration across content ideation, creation, production, and activation.

• Revenue growth: Business Professionals & Consumers subscription revenue was $1.8B in the first quarter of fiscal 2026, up from $1.5B in the first quarter of fiscal 2025, representing 16% year-over-year growth.
• Product portfolio: The customer group is served by Adobe Acrobat offerings (document productivity including create, collaborate, review, approve, sign, and track across devices), Adobe Express (web and mobile app for novice content creators and communicators), and Acrobat AI Assistant (conversational AI for deriving insights within individual documents or across documents in PDF Spaces).
• Platform integration: Acrobat Studio is described as an all-in-one platform uniting Adobe Acrobat, Adobe Express, and AI agents to enable productivity and creation workflows.

• Total Adobe ARR: Grew to $26.1B at the end of the first quarter of fiscal 2026, representing 10.9% year-over-year growth, driven by strength in Creative Cloud Pro, Acrobat, and Adobe Experience Platform and related apps, partially offset by a decrease from Adobe Stock.
• Subscription revenue: Total customer group subscription revenue grew to $6.2B in the first quarter of fiscal 2026, up from $5.5B in the first quarter of fiscal 2025, representing 13% year-over-year growth.
• ARR methodology: Management evaluates the customer-focused strategy using Total Adobe ARR, which represents the annual value of subscription contracts across Creative & Marketing Professionals and Business Professionals & Consumers customer groups; reported ARR is based on currency rates set at the beginning of the year and held constant throughout the year, with prior year ARR balances revalued at the new rates for comparability.
• Strategy focus: Growth is pursued through acquisition and retention of the customer base via new features — including generative AI capabilities — and expansion across additional surfaces, with an emphasis on recurring, ratably recognized revenue.

• Macro exposures: The company identifies global inflationary pressures and interest rates, foreign currency exchange rate fluctuations, potential economic slowdowns or recessions, and geopolitical pressures — including unknown impacts of current and future trade regulations — as active macroeconomic risks it continuously monitors.
• Revenue predictability: Management notes that revenue and earnings are relatively predictable as a result of the subscription-based business model, but characterizes the broader long-term implications of these macroeconomic events on business, results of operations, and overall financial position as uncertain.

• ARR and RPO: Total Adobe ARR of $26.1B as of February 27, 2026 increased by 10.9% from $23.5B as of February 28, 2025 (revalued using currency rates determined at the beginning of fiscal 2026); remaining performance obligations of $22.2B as of February 27, 2026 increased by 13% from $19.7B as of February 28, 2025.
• Revenue: Total revenue of $6.4B during the three months ended February 27, 2026 increased by $684M, or 12%, compared to the year-ago period, with total subscription revenue of $6.2B increasing by $715M, or 13%.
• Costs and income: Cost of revenue of $664M increased by $42M, or 7%, and operating expenses of $3.3B increased by $387M, or 13%, while net income of $1.9B increased by $78M, or 4%, compared to the year-ago period.
• Cash flows: Cash flows from operations of $3B during the three months ended February 27, 2026 increased by $476M, or 19%, compared to the year-ago period.

• Revenue mix: Subscription revenue dominated at 97% of total revenue in the current quarter vs. 96% in the prior-year period, while Product declined 5% to $90M (1% of total) and Services and other fell 19% to $110M (2% of total).
• Total revenue growth: Total revenue grew 12% to $6.4B for the three months ended February 27, 2026 from $5.7B in the prior-year period.

• Revenue recognition: Subscription revenue is recognized ratably over the contract term beginning at commencement of service; certain transaction-based offerings are recognized on a usage basis aligned to performance, customer benefit, and consumption.
• Creative & Marketing Professionals: Subscription revenue grew 12% to $4.4B in the three months ended February 27, 2026 from $3.9B in the prior-year period, driven by Creative Cloud Pro and other flagship apps, Adobe Experience Platform and related apps, Adobe Experience Manager, and GenStudio solutions.
• Business Professionals & Consumers: Subscription revenue grew 16% to $1.8B from $1.5B, driven by strength in Acrobat.

Product revenue composition: Product revenue consists primarily of fees related to licenses for on-premise software purchased on a perpetual basis, for a fixed period of time, or based on usage for certain original equipment manufacturer and royalty agreements.

• Revenue recognition: Product revenue is primarily recognized at the point in time the software is available to the customer, provided all other revenue recognition criteria are met.

• Revenue composition: Services and other revenue consists primarily of fees from project-based consulting and training, maintenance and support for certain on-premise licenses, and advertising offerings.
• Consulting recognition: Project-based consulting contracts are sold on a time-and-materials or fixed-fee basis; time-and-materials revenue is recognized as services are performed, while fixed-fee contracts are recognized on a relative performance basis.
• Maintenance and support: Maintenance and support offerings entitle customers, partners, and developers to desktop product upgrades and enhancements or technical support, and are generally recognized ratably over the term of the arrangement.
• Advertising and training: Training revenues are recognized as services are performed; transaction-based advertising revenue is recognized on a usage basis as performance obligations are satisfied.

• Revenue growth: Revenue grew 12% to $6.4B for the three months ended February 27, 2026 from $5.7B for the three months ended February 28, 2025, with all three geographic regions posting gains — Americas +10%, EMEA +16%, and APAC +12%.
• FX impact: The U.S. Dollar weakened primarily against EMEA currencies during the three months ended February 27, 2026, resulting in a net revenue increase of approximately $123M in U.S. Dollar equivalents, partially offset by net hedging losses of $49M from the cash flow hedging program.

• Cost components: Cost of subscription revenue consists primarily of third-party hosting services and data center costs, including expenses related to operating the network infrastructure and AI inferencing costs, as well as compensation costs for network operations, implementation, account management and technical support personnel, royalty fees, software costs, and amortization of certain intangible assets.
• Period-over-period trend: Cost of subscription revenue increased during the three months ended February 27, 2026 as compared to the three months ended February 28, 2025, though the filing text does not enumerate the specific drivers of the increase.

Cost of product revenue: Consists primarily of third-party royalties, localization costs, and costs associated with the manufacturing of products.

Cost of services and other revenue: Primarily comprised of compensation and contracted costs incurred to provide consulting services, training and product support, and hosting services and data center costs.

• Cost composition: Research and development expenses consist primarily of compensation and contracted costs associated with software development, third-party hosting services and data center costs including AI training costs, related facilities costs, and expenses associated with computer equipment and software used in development activities.
• Period-over-period change: R&D expenses increased during the three months ended February 27, 2026 compared to the three months ended February 28, 2025, primarily due to increases in compensation costs.
• Strategic priority: Management states that investments in R&D, including recruiting and hiring of software developers, are critical to remain competitive and directly related to development of new and enhanced offerings; the company will continue to make significant investments in subscription and service offerings, apps, and tools.

• Expense composition: Sales and marketing expenses consist primarily of compensation costs, amortization of contract acquisition costs (including sales commissions), travel expenses, related facilities costs for sales/marketing/order management/global supply chain management personnel, and costs of revenue-generating programs such as advertising, trade shows and events, public relations, and other market development programs.
• Period-over-period driver: Sales and marketing expenses increased during the three months ended February 27, 2026 as compared to the three months ended February 28, 2025, primarily due to increases in advertising expenses and, to a lesser extent, compensation costs.

G&A composition: General and administrative expenses consist primarily of compensation and contracted costs, travel expenses and related facilities costs for finance, facilities, human resources, legal, information services and executive personnel, as well as outside legal and accounting fees, computer equipment and software expenses, charitable contributions, provision for bad debts, and various forms of insurance.

• Period trend: General and administrative expenses increased during the three months ended February 27, 2026 as compared to the three months ended February 28, 2025; however, the specific drivers of the increase are not detailed in the provided text.

• Loss contingency: A loss contingency associated with a legal settlement was incurred during the three months ended February 27, 2026, accounting for 17% of the total 26% change; further details are in Note 12.
• Other drivers: Compensation costs contributed 4%, software licenses contributed 3%, and various individually insignificant items contributed 2% to the total 26% change.

Total non-operating income: Total non-operating income (expense), net declined to $4M from $19M in the prior-year quarter, with the primary drag coming from Other income (expense), net falling 17% to $62M versus $75M, while interest expense rose 2% to ($63M) versus ($62M), and investment gains (losses), net decreased modestly to $5M from $6M.

• Composition: Investment gains (losses), net consists principally of unrealized holding gains and losses associated with deferred compensation plan assets.
• Other income (expense), net: Consists primarily of interest earned on cash, cash equivalents, and short-term fixed income investments, and also includes realized gains and losses on fixed income investments and foreign exchange gains and losses; this line decreased during the three months ended February 27, 2026 compared to the three months ended February 28, 2025, primarily due to decreases in interest income driven by lower average overall cash balances and interest rates.

• Provision and rate: Provision for income taxes rose 44% to $533M for the three months ended February 27, 2026 from $371M for the three months ended February 28, 2025, with the effective tax rate increasing approximately five percentage points to 22% from 17%, primarily due to an increase in the anticipated benefit from a foreign tax asset in the prior year, an increase in net tax expense related to stock-based compensation, and a decrease in net tax benefit from effects of non-U.S. operations in the current year.
• Rate vs. statutory: The 22% effective rate for the three months ended February 27, 2026 exceeded the U.S. federal statutory rate of 21%, driven by state taxes and net tax expense related to stock-based compensation, partially offset by net tax benefits from non-U.S. operations and the U.S. federal research tax credit.
• Valuation allowance: Adobe continues to carry a valuation allowance against deferred tax assets totaling $833M as of February 27, 2026, primarily related to certain U.S. state and federal credits and capital loss carryforwards.
• 2025 U.S. Tax Act: The One Big Beautiful Bill Act, enacted July 4, 2025, restores immediate expensing of domestic research and development costs and modifies certain international provisions effective for fiscal 2026 and 2027, respectively; management anticipates a reduction to effective rates for cash taxes paid for fiscal 2026 and beyond.

• Unrecognized tax benefits: Gross liabilities for unrecognized tax benefits (excluding interest and penalties) were $702M as of February 27, 2026 and $657M as of February 28, 2025; if fully recognized, $536M and $492M, respectively, would decrease the effective tax rates for those periods.
• Near-term resolution: Management states it is reasonably possible that within the next 12 months certain audits will conclude or statutes of limitations on certain examination periods will expire, which could cause large fluctuations in the balance sheet classification of tax assets and liabilities.
• Tax rate risk factors: Future effective tax rates may be materially affected by changes in tax rates in jurisdictions where income is earned, changes in determinations of where profits are taxed, changes in valuation of deferred tax assets and liabilities, and unexpected changes in business and market conditions that could reduce certain tax benefits.
• Legislative and regulatory risk: Tax laws in the U.S. and other jurisdictions are subject to change; bodies including the European Commission and the Organization for Economic Cooperation and Development have made or could make assertions about how taxation is determined and have proposed or enacted laws contrary to historical interpretations, potentially adversely affecting effective tax rates or requiring changes to business structure.

• Primary cash sources: Receipts from revenue, proceeds from maturities and sales of short-term investments, and issuance of debt instruments.
• Primary cash uses: General business expenses including payroll and related benefits costs, income taxes, marketing and third-party hosting services, stock repurchase program, purchases of short-term investments, property and equipment, payments for taxes related to net share settlement of equity awards, repayment of debt instruments, and business acquisitions.
• Balance sheet liquidity: Cash and cash equivalents increased to $6.3B as of February 27, 2026 from $5.4B as of November 28, 2025; short-term investments declined to $558M from $1.2B; working capital deteriorated to ($1B) from ($37M); stockholders' equity was $11.4B versus $11.6B.
• Net cash change: Net cash provided by operating activities was $3B for the three months ended February 27, 2026 versus $2.5B in the prior-year period; investing activities swung to a $474M inflow from a ($484M) outflow; financing activities used ($2.5B) versus ($2.8B); resulting in a net increase in cash and cash equivalents of $901M compared to a ($855M) decrease in the prior-year period.

• Operating cash flow: Net cash provided by operating activities was $3B for the three months ended February 27, 2026, primarily comprised of net income adjusted for the net effect of non-cash items.
• Working capital sources: Cash inflows from working capital included decreases in trade receivables driven by strong cash collections and increases in deferred revenue due to the timing of billings during the quarter.
• Working capital uses: The primary working capital use of cash was decreases in accrued expenses and other liabilities, largely driven by the payment of accrued bonuses.

• Net cash from investing: Net cash provided by investing activities was $474M for the three months ended February 27, 2026, primarily due to proceeds from maturities of short-term investments, partially offset by purchases of short-term and long-term investments.

• Financing cash outflows: Net cash used for financing activities was $2.5B for the three months ended February 27, 2026, driven primarily by common stock repurchases and taxes paid related to net share settlement of equity awards, partially offset by proceeds from re-issuance of treasury stock related to the employee stock purchase plan.

• Liquidity adequacy: Management believes existing cash, cash equivalents, and short-term investment balances, anticipated cash flows from operations, and the available revolving credit facility will be sufficient to meet working capital, operating resource expenditure, and capital expenditure requirements for the next twelve months and for the foreseeable future.
• Portfolio composition: As of February 27, 2026, the cash equivalent and short-term investment portfolio consisted of money market funds, corporate debt securities, U.S. Treasury securities, time deposits, and other investments.
• Capital deployment priorities: Cash reserves may be used to repurchase stock under the stock repurchase program, fund continued investing activities (short-term and long-term investments, computer and server hardware for network infrastructure), and strategically acquire companies, products, or technologies complementary to the business.
• Pending acquisition: On November 18, 2025, the company entered into a definitive agreement to acquire Semrush Holdings, Inc., a publicly held brand visibility platform company, for approximately $1.9B, primarily in cash consideration, expected to close in the second quarter of fiscal 2026 and to be financed using cash on hand, subject to regulatory approvals and customary closing conditions.

• Facility size and tenor: $1.5B senior unsecured revolving credit agreement with a syndicate of lenders, maturing June 30, 2027, with an option to increase commitments by up to an additional $500M (subject to lender agreement) for a maximum aggregate commitment of $2B.
• Utilization: As of February 27, 2026, there were no outstanding borrowings and the entire $1.5B credit line remains available for borrowing.
• Dividend restriction: Under the terms of the Revolving Credit Agreement, cash dividends are not prohibited unless payment would trigger an event of default or if one currently exists.

• Program capacity: The commercial paper program allows issuance of unsecured commercial paper up to $3B outstanding at any time, with maturities of up to 397 days from the date of issue.
• Intended use: Net proceeds may be used for general corporate purposes, including working capital, capital expenditures, acquisitions, stock repurchases, and refinancing indebtedness.
• Current utilization: As of February 27, 2026, there were no outstanding borrowings under the commercial paper program.

• Outstanding senior notes: $6.2B of senior notes outstanding, ranking equally with other unsecured and unsubordinated indebtedness; as of February 27, 2026, carrying value was $6.2B, net of fair value of interest rate swaps and unamortized discount and debt issuance costs.
• Interest obligations: Maximum commitment for interest payments was $933M for the remaining duration of outstanding senior notes and interest rate swaps; interest on notes is payable semi-annually in arrears, and interest on swaps is payable quarterly. The senior notes contain no financial covenants.
• Current debt reclassification: During Q1 fiscal 2026, the senior notes due February 1, 2027 were reclassified as current debt; as of February 27, 2026, carrying value of current debt was $849M, net of related discount and issuance costs. Management intends to refinance the current portion on or before the due date, subject to market conditions.

• Repurchase authority: In March 2024, the Board authorized repurchases of up to $25B in common stock through March 14, 2028; as of February 27, 2026, $3.9B remained under this authority.
• Q1 activity: During the three months ended February 27, 2026, the company entered into stock repurchase arrangements with large financial institutions and made payments totaling $2.5B to repurchase shares.

• Customer indemnifications: In the ordinary course of business, the company provides indemnifications of varying scope to customers and channel partners against third-party intellectual property infringement claims arising from use of its products; historically, costs related to these provisions have not been significant and the company is unable to estimate the maximum potential impact on future results of operations.
• Officer and director indemnifications: To the extent permitted under Delaware law, the company indemnifies officers and directors for certain events or occurrences during their lifetime while serving in such capacity; the maximum potential future payments under these agreements is unlimited, though director and officer insurance coverage reduces exposure and enables recovery of a portion of any future amounts paid.