ADBE 10-Q: Smart Summary

• Basis of presentation: Unaudited condensed consolidated financial statements prepared under GAAP and SEC rules, with all normal recurring adjustments applied; to be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended November 28, 2025.
• Significant accounting policies: No material changes to significant accounting policies relative to those described in the Annual Report.
• Pending pronouncements: Three ASUs not yet adopted: (1) ASU 2023-09 (Income Taxes disaggregation), effective for fiscal 2026 annual report — impact under evaluation; (2) ASU 2024-03 (Expense Disaggregation Disclosures), effective for annual periods beginning fiscal 2028 and interim periods beginning Q1 fiscal 2029, early adoption permitted — impact under evaluation; (3) ASU 2025-06 (Internal-Use Software capitalization), effective for interim and annual periods beginning fiscal 2029, early adoption permitted — impact under evaluation.

• Trade receivables: Net of allowance for doubtful accounts, trade receivables were $2B as of May 29, 2026 (inclusive of $89M unbilled receivables) versus $2.3B as of November 28, 2025 (inclusive of $74M unbilled receivables); the allowance for doubtful accounts was $14M and $13M as of those dates, respectively.
• Deferred revenue: The balance was $7.3B as of May 29, 2026 (including $99M of refundable customer deposits; non-cancellable and non-refundable committed funds comprised approximately 4% of total deferred revenue), up from $7B as of November 28, 2025; approximately $2.1B and $5.3B of revenue was recognized in the three and six months ended May 29, 2026, respectively, from amounts deferred as of November 28, 2025.
• Remaining performance obligations: Approximately $22.3B as of May 29, 2026; non-cancellable and non-refundable enterprise committed funds comprised approximately 3% of the total, and approximately 67% of the remainder is expected to be recognized over the next 12 months.
• Capitalized contract acquisition costs: $782M as of May 29, 2026 versus $721M as of November 28, 2025; refund liabilities were $122M and $137M as of those same dates, respectively.

• Adobe acquired Semrush Holdings, Inc. (completed April 28, 2026): Adobe completed the acquisition of Semrush Holdings, Inc. (Semrush), a publicly held brand visibility platform company, for $1.9B, primarily in cash consideration; the acquisition is intended to enhance Adobe's ability to serve marketers at every scale with solutions for search engine optimization, generative engine optimization, and agentic search optimization, and Semrush's financial results have been included in Adobe's condensed consolidated financial statements beginning on the acquisition date.
• Purchase price allocation (preliminary): The $1.9B total purchase price was allocated to purchased technology ($415M, 7-year useful life), customer contracts and relationships ($107M, 11-year useful life), trademarks ($60M, 7-year useful life), total identifiable intangible assets ($582M), cash and cash equivalents ($262M), other net liabilities assumed primarily comprised of deferred revenue and deferred tax liabilities ($221M), and goodwill ($1.3B, non-deductible for income tax purposes); goodwill is primarily attributable to the assembled workforce and expected synergies from combining Semrush's platform with Adobe's existing offerings.

• Total cash, cash equivalents and short-term investments: $5.6B as of May 29, 2026, down from $6.6B as of November 28, 2025; in both periods, amortized cost equaled estimated fair value with zero unrealized gains or losses across all holdings.
• Composition as of May 29, 2026: Cash of $766M; cash equivalents of $4.2B (comprising $3.3B in money market funds, $806M in corporate debt securities, and $95M in time deposits); short-term investments of $707M (comprising $606M in corporate debt securities and $101M in U.S. Treasury securities), all with stated effective maturities within one year.
• Composition as of November 28, 2025: Cash of $711M; cash equivalents of $4.7B (comprising $3.6B in money market funds, $928M in corporate debt securities, $85M in time deposits, and $100M in U.S. Treasury securities); short-term investments of $1.2B (comprising $914M in corporate debt securities and $250M in U.S. Treasury securities).
• Credit losses: During the six months ended May 29, 2026 and May 30, 2025, Adobe did not recognize an allowance for credit-related losses on any of its investments.

• Recurring fair value — total assets: Total assets measured at fair value on a recurring basis were $5.4B as of May 29, 2026 (vs. $6.4B as of November 28, 2025), composed of Level 1 assets of $3.7B (money market funds $3.3B, time deposits $95M, deferred compensation plan assets $385M) and Level 2 assets of $1.6B (corporate debt securities across cash equivalents and short-term investments, U.S. Treasury securities, foreign currency derivatives, and interest rate swap derivatives); no Level 3 assets were held in either period.
• Recurring fair value — total liabilities: Total liabilities measured at fair value on a recurring basis were $110M as of May 29, 2026 (vs. $108M as of November 28, 2025), consisting entirely of Level 2 instruments — foreign currency derivatives ($98M combined current and non-current) and interest rate swap derivatives ($12M combined current and non-current).
• Valuation methodology: Fixed income available-for-sale debt securities are valued using independent pricing vendors employing matrix pricing and discounted cash flow methodologies with inputs including benchmark yields, issuer spreads, interest rates, and U.S. Treasury or swap curves, and are categorized as Level 2; money market funds, time deposits, and deferred compensation plan assets use quoted prices in active markets (Level 1); over-the-counter foreign currency and interest rate swap derivatives use pricing models and discounted cash flow methodologies based on observable market data (Level 2).
• Nonrecurring fair value — senior notes: The fair value of senior notes was $6.1B as of May 29, 2026, excluding associated interest rate swaps, based on observable market prices in less active markets and categorized as Level 2.

• Cash flow hedges: Foreign exchange forward and option contracts hedge forecasted foreign currency revenue and expenses with maturities up to 24 months; gross notional outstanding was $6.2B as of May 29, 2026 and $6B as of November 28, 2025, covering Euros, Japanese Yen, British Pounds, Australian Dollars, Canadian Dollars, and Indian Rupees. Net derivative losses on these hedges are expected to be recognized within the next 36 months, of which $26M of net losses are expected to be recognized into revenue within the next 12 months.
• Fair value hedges: Interest rate swaps on $2.7B notional convert fixed rates on certain senior notes to floating rates based on SOFR OIS; as of May 29, 2026, swap fair value assets were $35M and liabilities were $12M, versus $94M and $8M as of November 28, 2025.
• Non-designated hedges: Foreign currency forward contracts hedging non-functional-currency monetary assets and liabilities had gross notional of $545M as of May 29, 2026 (primarily Japanese Yen, Euros, Indian Rupees, and Australian Dollars) and $563M as of November 28, 2025 (primarily Euros, Indian Rupees, Australian Dollars, and British Pounds).
• OCI impact: Net of tax unrealized gains/losses on derivatives recognized in comprehensive income for the three and six months ended May 29, 2026 were $54M net gains and $42M net losses, respectively, versus $281M and $187M net losses for the three and six months ended May 30, 2025; effects of derivative instruments on the income statement were immaterial for all periods presented.

• Goodwill: Goodwill was $14B as of May 29, 2026, up from $12.9B as of November 28, 2025, driven by the acquisition of Semrush in the second quarter of fiscal 2026, partially offset by a goodwill impairment charge of $70M associated with the Publishing & Advertising reporting unit, recorded in general and administrative expenses.
• Other intangibles, net: Other intangibles, net increased to $1B as of May 29, 2026 (from $495M as of November 28, 2025), primarily due to identifiable intangible assets acquired through Semrush, partially offset by amortization; gross carrying amount was $2.1B against accumulated amortization of ($1.1B).
• Amortization expense: Amortization expense related to other intangibles was $50M and $91M for the three and six months ended May 29, 2026, respectively, compared to $83M and $167M for the three and six months ended May 30, 2025; of the current-period amounts, $12M and $17M were included in cost of revenue for the three and six months ended May 29, 2026, respectively.
• Future amortization: Estimated aggregate amortization expense totals $1B, with $131M in the remainder of fiscal 2026, $208M in 2027, $151M in 2028, $146M in 2029, $143M in 2030, and $233M thereafter.

Other category: The 'Other' line of $568M (May 29, 2026) and $511M (November 28, 2025) primarily includes general business accruals, accrued hosting fees, and interest payable.

• RSU activity: RSUs outstanding grew from 7.9 million to 12.8 million shares (including 0.4 million added via acquisition) over the six months ended May 29, 2026, with 7.0 million awarded at a weighted average grant date fair value of $293.34, 2.0 million released at $421.11, and 0.5 million forfeited at $406.22; ending aggregate intrinsic value was $3.3B, with 11.7 million shares expected to vest at $3B intrinsic value. Total fair value of RSUs vested in the period was $541M.
• Performance share activity: Performance shares outstanding held at 0.6 million shares over the six months ended May 29, 2026 (0.3 million awarded at $339.26, 0.2 million released at $472.18, 0.1 million forfeited at $477.37); ending aggregate intrinsic value was $155M, with 0.5 million shares expected to vest at $140M intrinsic value. 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 these programs.
• ESPP: Employees purchased 0.3 million shares at an average price of $297.49 for the six months ended May 29, 2026, versus 0.3 million shares at $305.04 for the six months ended May 30, 2025; intrinsic value of shares purchased was $15M and $44M, respectively.
• Unrecognized compensation cost: As of May 29, 2026, unrecognized compensation cost (adjusted for estimated forfeitures) was $4.2B, to be recognized over a weighted average period of 2.55 years.

• Reclassification adjustments: Reclassification adjustments for gains/losses on foreign currency hedges are classified in revenue or operating expenses depending on the nature of the underlying transaction; adjustments for gains/losses on Treasury lock hedges are classified in interest expense.
• Taxes: Taxes related to each component of other comprehensive income (loss) for the three and six months ended May 29, 2026 and May 30, 2025 were immaterial.

• Repurchase authority: The Board granted authority to repurchase up to $25B in common stock through March 14, 2028 (granted March 2024), and in April 2026 granted an additional $25B authority through April 30, 2030; as of May 29, 2026, $26.8B remained under these combined authorities.
• Six months ended May 29, 2026: Open market repurchases totaled 16.6 million shares for $4.6B.
• Six months ended May 30, 2025: Repurchases totaled 15.6 million shares for $6.8B, comprising accelerated share repurchase agreements (14.5 million shares, $6.3B) and open market repurchases (1.1 million shares, $500M).
• Treasury stock classification: Prepayments for stock repurchases are classified as treasury stock within stockholders' equity at the payment date, though only shares physically delivered by period-end are excluded from the computation of net income per share.

• EPS methodology: Basic EPS excludes unvested stock-based awards and purchase rights; diluted EPS adds dilutive potential common shares from stock plans using the treasury stock method. Performance share awards are included based on shares that would be issued if the end of the reporting period were the end of the performance period.
• Anti-dilutive shares: Anti-dilutive potential common shares were 12.1 million for the three months ended May 29, 2026 (vs. 6.4 million in the prior-year period) and 9.2 million for the six months ended May 29, 2026 (vs. 4.5 million), indicating a meaningful increase in excluded shares year over year.

Legal Proceedings

• DOJ v. Adobe (settled March 12, 2026): DOJ filed civil complaint June 17, 2024 alleging ROSCA and FTC Act violations re: subscription disclosure/cancellation practices; settled March 12, 2026, stipulation of dismissal filed March 13, 2026.
• In Re Adobe Inc. Securities Litigation (Case No. 1:23-cv-09260): Securities class action alleging misleading statements re: Figma competition during July 23, 2021–September 22, 2022; motion to dismiss granted March 27, 2025, leave to amend denied November 7, 2025; plaintiff appealing.
• Derivative Actions (various, presently stayed): Five consolidated shareholder derivative actions alleging breach of fiduciary duty, unjust enrichment, and Exchange Act violations based on same Figma-related facts as Securities Action; unspecified damages sought, no loss estimate possible.

• Senior notes structure: Total senior notes outstanding at par were $6.2B as of both May 29, 2026 and November 28, 2025; the current portion as of May 29, 2026 was $1.4B (carrying value $1.3B), representing the 2.15% 2027 Notes ($850M) and 4.85% 2027 Notes ($500M), both due in 2027, while the long-term carrying value was $4.8B (vs. $6.2B at November 28, 2025), reflecting the reclassification of the current portion plus a $23M fair value of interest rate swaps and ($21M) of unamortized discount and issuance costs.
• Interest rate swaps: Adobe has entered into interest rate swaps that effectively convert the fixed interest rates on certain senior notes to floating rates based on the SOFR OIS; the fair value of these swaps was $23M as of May 29, 2026 and $86M as of November 28, 2025, included in the carrying value of debt.
• Note covenants and terms: The senior notes rank equally with other unsecured and unsubordinated indebtedness, contain no financial covenants, and may be redeemed at any time subject to a make-whole premium; the February 2020 notes additionally include a 101% change-of-control repurchase obligation plus covenants limiting liens and sale-leaseback transactions.
• Revolving credit and commercial paper: The $1.5B revolving credit facility (entered June 2022, five-year term, expandable by up to $500M to a maximum of $2B) had no outstanding borrowings as of May 29, 2026; the commercial paper program (established September 2023, up to $3B outstanding, maturities up to 397 days) had $500M outstanding as of May 29, 2026 with a carrying value of $494M and a weighted average interest rate of 3.76%, compared to no outstanding borrowings as of November 28, 2025.

• Segment consolidation: 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.
• CODM and performance metric: The Chief Executive Officer, as chief operating decision maker, reviews consolidated results including net income to assess segment performance and allocate resources, comparing actuals 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.
• Interest income: Non-operating (income) expense, net includes interest income of $56M for both the three months ended May 29, 2026 and May 30, 2025, and $119M and $136M for the six months ended May 29, 2026 and May 30, 2025, respectively.

• Business description: Adobe builds platforms and tools for creativity, productivity, and personalized customer experiences, serving business professionals, consumers, creators, creative professionals, and marketing professionals, with operations in the Americas, EMEA, and APAC.
• AI strategy: In the AI era, Adobe is harnessing AI across its solutions 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 change: 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 the company's shift to unified selling motions and integrated product innovation.

• Demand drivers: Strong demand across the portfolio of subscription-based solutions in Q2 fiscal 2026 was attributed to AI-powered and highly differentiated product innovation, with continued growth in software-based subscription revenue as the company executes on long-term growth initiatives.
• Customer segments: The company serves two customer groups — Business Professionals & Consumers and Creative & Marketing Professionals — spanning business professionals, consumers, creators, creative professionals, and marketing professionals, with product innovation and go-to-market strategy organized around these groups.

• Segment definition: The Creative & Marketing Professionals customer group encompasses customer experience orchestration offerings and Creative Cloud flagship apps including Photoshop, Lightroom, Illustrator, and Premiere, with solutions spanning ideation-to-creation (powered by Adobe Firefly models) and end-to-end content supply chain and marketing execution products such as Adobe Analytics, Adobe Real-Time Customer Data Platform, Adobe Experience Manager, Adobe Commerce, Adobe GenStudio for Performance Marketing, Adobe Marketo Engage, and Adobe Campaign.
• Recent acquisition: The acquisition of Semrush in April 2026 enhances Adobe Experience Manager offerings with search engine optimization and generative engine optimization solutions.
• Revenue growth: Creative & Marketing Professionals customer group subscription revenue was $4.5B in the second quarter of fiscal 2026, up from $4B in the second quarter of fiscal 2025, representing 13% year-over-year growth.

• Product scope: The Business Professionals & Consumers customer group covers Adobe Acrobat offerings (document creation, collaboration, review, approval, signing, and tracking, plus Acrobat AI Assistant for conversational document insights) and Adobe Express (web and mobile app for content creation and customization); Acrobat Studio is described as an all-in-one platform uniting Adobe Acrobat, Adobe Express, and AI agents.
• Revenue growth: Subscription revenue for this customer group was $1.9B in the second quarter of fiscal 2026, up from $1.6B in the second quarter of fiscal 2025, representing 16% year-over-year growth.

• Total Adobe ARR: Grew to $27.1B at the end of the second quarter of fiscal 2026, representing 12.5% year-over-year growth, including approximately $480M from the Semrush acquisition and further driven by strength in Creative Cloud Pro, Acrobat, and Adobe Experience Platform and related apps.
• Customer group subscription revenue: Grew to $6.4B in the second quarter of fiscal 2026, up from $5.6B in the second quarter of fiscal 2025, representing 14% year-over-year growth.
• ARR measurement methodology: Total Adobe ARR represents the annual value of subscription contracts across the Creative & Marketing Professionals and Business Professionals & Consumers customer groups; reported ARR is based on currency rates set at the beginning of the fiscal year and held constant throughout the year, with prior year ARR balances revalued at the new currency rates for comparative purposes.

Critical accounting estimates: No material changes disclosed; management identifies revenue recognition, business combinations, and income taxes as the 3 critical accounting policies with the greatest potential impact on the condensed consolidated financial statements, noting that historical assumptions, judgments, and estimates relative to these policies have not differed materially from actual results.

Purchase price allocation: Management allocates acquired companies' purchase prices to tangible and intangible assets and liabilities assumed at estimated fair values at the acquisition date, with critical estimates covering future expected cash flows from software licenses, subscriptions, support agreements, consulting contracts, and acquired developed technologies and patents; expected costs to develop acquired technologies internally; historical and expected customer attrition rates and anticipated revenue growth; acquired trade names and trademarks and their expected useful life in the combined portfolio; expected use of acquired assets; and discount rates.

• No other changes: There have been no other changes in critical accounting policies and estimates during the six months ended May 29, 2026, as compared to those disclosed in the Annual Report on Form 10-K for the year ended November 28, 2025.

• ARR and RPO: Total Adobe ARR of $27.1B as of May 29, 2026 increased by 12.5% from $24.1B as of May 30, 2025 (revalued using currency rates determined at the beginning of fiscal 2026); remaining performance obligations of $22.3B as of May 29, 2026 increased by 13% from $19.7B as of May 30, 2025.
• Revenue: Total revenue of $6.6B during the three months ended May 29, 2026 increased by $745M, or 13%, compared to the year-ago period, with total subscription revenue of $6.4B increasing by $775M, or 14%.
• Costs and operating expenses: Cost of revenue of $715M increased by $77M, or 12%, while operating expenses of $3.7B increased by $539M, or 17%, compared to the year-ago period.
• Net income and cash flows: Net income of $1.7B during the three months ended May 29, 2026 remained relatively flat compared to the year-ago period; cash flows from operations of $5.1B during the six months ended May 29, 2026 increased by $450M, or 10%, compared to the year-ago period.

• Subscription revenue: Rose 14% to $6.4B in the three months ended May 29, 2026 (vs. $5.6B), and 13% to $12.6B in the six months ended May 29, 2026 (vs. $11.1B), representing 97% of total revenue in both periods vs. 96% in the prior-year comparable periods.
• Product revenue: Essentially flat at $89M (vs. $88M, +1%) for the three-month period; declined 2% to $179M (vs. $183M) for the six-month period, in both cases representing 1% of total revenue.
• Services and other revenue: Declined 22% to $113M (vs. $144M) for the three-month period and 20% to $223M (vs. $280M) for the six-month period, each representing 2% of total revenue.
• Total revenue: Grew 13% to $6.6B for the three months ended May 29, 2026 (vs. $5.9B) and 12% to $13B for the six months ended May 29, 2026 (vs. $11.6B).

• Revenue recognition: Subscription revenue is recognized ratably over agreement terms beginning at commencement of service; certain offerings where fees are based on transaction volumes and invoicing aligns to performance, customer benefit, and consumption are recognized on a usage basis.
• Creative & Marketing Professionals drivers: Subscription revenue growth for this group was driven by strength in Creative Cloud Pro and other flagship apps, Adobe Experience Platform and related apps, and Adobe Experience Manager.
• Business Professionals & Consumers drivers: Subscription revenue growth for this group was 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 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 contracts: Project-based consulting is 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: These 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: Transaction-based advertising revenue is recognized on a usage basis as performance obligations to customers are satisfied.

• Revenue growth: Overall revenue grew 13% to $6.6B in the three months ended May 29, 2026 and 12% to $13B in the six months ended May 29, 2026, with growth recorded across all geographic regions in both periods.
• FX tailwind: The U.S. Dollar primarily weakened against EMEA currencies, resulting in a net increase in revenue in U.S. Dollar equivalents of approximately $116M and $240M for the three and six months ended May 29, 2026, respectively, partially offset by net hedging losses from the cash flow hedging program of $22M and $71M, respectively, as compared to the year-ago periods.

• Subscription cost: Rose 16% to $586M in the three months ended May 29, 2026 (vs. $505M) and 13% to $1.1B in the six months ended May 29, 2026 (vs. $995M), holding steady at 9% of total revenue in both periods.
• Services and other cost: Declined 2% to $124M in the three-month period and 4% to $242M in the six-month period, each remaining at 2% of total revenue.
• Product cost: Fell 17% to $5M in the three-month period and 8% to $11M in the six-month period, representing less than 1% of total revenue in all periods.

• Cost components: Cost of subscription revenue consists primarily of third-party hosting services and data center costs (including network infrastructure operations and AI inferencing costs), 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 both the three and six months ended May 29, 2026 compared to the three and six months ended May 30, 2025, but the filing text does not include the specific drivers or amounts that follow this statement.

• R&D expenses: Rose 11% to $1.2B in the three months ended May 29, 2026 (vs. $1.1B) and 9% to $2.3B in the six months ended May 29, 2026 (vs. $2.1B), in both cases driven primarily by increases in compensation costs; R&D held steady at 18% of total revenue across all periods.
• Sales and marketing expenses: Increased 16% to $1.9B in the three months and 15% to $3.6B in the six months, primarily due to increases in advertising expenses and, to a lesser extent, compensation costs; as a percentage of total revenue, S&M was 28% in both three-month periods and moved from 27% to 28% in the six-month comparison.
• General and administrative expenses: Rose 45% to $546M in the three months and 36% to $1B in the six months; G&A as a percentage of total revenue increased from 6% to 8% in both the three- and six-month comparisons; G&A includes items such as impairment of goodwill, outside legal and accounting fees, and charitable contributions.
• Amortization of intangibles: Declined 10% to $37M in the three months and 12% to $72M in the six months, remaining at 1% of total revenue in all periods.

• Goodwill impairment: During the six months ended May 29, 2026, a goodwill impairment charge was recorded related to the Publishing & Advertising reporting unit, representing 19% of the total change.
• Loss contingency: Loss contingencies associated with a legal settlement and other legal matters contributed 8% of the total change during the six months ended May 29, 2026; see Note 13 for further details on the legal settlement.
• Other drivers: Compensation costs contributed 9% and software licenses contributed 6% of the total change, with various individually insignificant items adding 3%, bringing the total change to 45%.

Interest expense: Represents interest associated with debt instruments; interest on senior notes is payable semi-annually in arrears, floating interest payments on interest rate swaps are paid quarterly, and the fixed-rate interest receivable on the swaps is received semi-annually concurrent with the senior notes interest payments.

Composition: Investment gains (losses), net consists principally of unrealized holding gains and losses associated with the company's deferred compensation plan assets.

• Provision for income taxes: Provision rose 28% to $526M for the three months ended May 29, 2026 (vs. $410M for the three months ended May 30, 2025), and 36% to $1.1B for the six months ended May 29, 2026 (vs. $781M for the six months ended May 30, 2025).
• Effective tax rate — quarterly drivers: The effective tax rate increased approximately four percentage points (24% vs. 20%) for the three-month period, primarily due to a decrease in the net tax benefit from effects of non-U.S. operations, an increase in state taxes, and a non-deductible goodwill impairment charge.
• Effective tax rate — year-to-date drivers: The effective tax rate increased approximately five percentage points (23% vs. 18%) for the six-month period, primarily due to an increase in the anticipated benefit from a foreign tax asset in the prior year, a decrease in the net tax benefit from effects of non-U.S. operations, and an increase in the net tax expense related to stock-based compensation in the current year; both periods' rates exceeded the U.S. federal statutory rate of 21% mainly because of 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 and 2025 U.S. Tax Act: The total valuation allowance was $862M as of May 29, 2026, primarily related to certain U.S. state and federal credits and capital loss carryforwards; the One Big Beautiful Bill Act enacted July 4, 2025 restores immediate expensing of domestic R&D costs and modifies certain international provisions effective for fiscal 2026 and 2027, respectively, and 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 $736M as of May 29, 2026 and $685M as of May 30, 2025; if fully recognized, $563M and $516M would decrease the effective tax rate in the respective periods.
• Interest and penalties: Combined accrued interest and penalties included in long-term income taxes payable were not material as of either May 29, 2026 or May 30, 2025.
• Audit resolution uncertainty: Within the next 12 months, it is reasonably possible that certain audits will conclude or statutes of limitations on certain income tax 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 or profit-attribution rules across jurisdictions, changes in valuation of deferred tax assets and liabilities, new or reinterpreted tax laws (including actions by the European Commission and the OECD), and unexpected changes in business and market conditions.

• Primary sources and uses: Primary source of cash is revenue receipts, supplemented by proceeds from maturities and sales of short-term investments and issuance of debt instruments; primary uses include payroll and related benefits costs, income taxes, marketing, third-party hosting services, and the stock repurchase program, with other uses including purchases of short-term investments, property and equipment, taxes related to net share settlement of equity awards, debt repayment, and business acquisitions.
• Balance sheet liquidity: Cash and cash equivalents declined to $4.9B as of May 29, 2026 from $5.4B as of November 28, 2025; short-term investments fell to $707M from $1.2B; working capital deteriorated to ($3B) from ($37M); and stockholders' equity declined modestly to $11.5B from $11.6B.
• Cash flow summary: Operating cash inflows improved to $5.1B in the six months ended May 29, 2026 from $4.7B in the six months ended May 30, 2025; investing outflows increased to ($1.2B) from ($762M); financing outflows narrowed substantially to ($4.4B) from ($6.6B); resulting in a net decrease in cash and cash equivalents of ($512M) versus ($2.7B) in the prior-year period.

• Operating cash flow: Net cash provided by operating activities was $5.1B for the six months ended May 29, 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 period.
• Working capital uses: Primary working capital uses of cash included increases in prepaid expenses and other assets and decreases in accrued expenses and other liabilities.

• Investing outflows: Net cash used for investing activities was $1.2B for the six months ended May 29, 2026, driven primarily by the acquisition of Semrush in the second quarter of fiscal 2026 and purchases of short-term investments, partially offset by proceeds from maturities of short-term investments.

• Financing cash outflows: Net cash used for financing activities was $4.4B for the six months ended May 29, 2026, primarily driven by payments for common stock repurchases and taxes paid related to net share settlement of equity awards, partially offset by proceeds from the issuance of commercial paper.

• 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 May 29, 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 for continued investing activities including short-term and long-term investments, purchases of computer and server hardware for network infrastructure, sales and marketing, product support and administrative staff, stock repurchases under the stock repurchase program, and strategic acquisitions of companies, products, or technologies complementary to the business.

• Facility size and tenor: $1.5B senior unsecured revolving credit agreement with a syndicate of lenders, maturing June 30, 2027, with an option to expand by up to an additional $500M (subject to lender agreement) for a maximum aggregate commitment of $2B.
• Utilization: As of May 29, 2026, no outstanding borrowings; the entire $1.5B credit line remains available.
• Dividend restriction: The Revolving Credit Agreement does not prohibit cash dividends unless payment would trigger an event of default or one currently exists.

• Program capacity: Unsecured commercial paper program allows up to $3B outstanding at any time, with maturities of up to 397 days from the date of issue; proceeds are used for general corporate purposes including working capital, capital expenditures, acquisitions, stock repurchases, and refinancing indebtedness.
• Outstanding balance: As of May 29, 2026, the carrying value of commercial paper outstanding was $494M, net of the related discount.

• Outstanding senior notes: $6.2B of senior notes outstanding as of May 29, 2026, ranking equally with other unsecured and unsubordinated indebtedness; carrying value was $6.2B net of fair value of interest rate swaps and unamortized discount and debt issuance costs, with no financial covenants attached.
• Interest obligations: Maximum commitment for interest payments was $974M for the remaining duration of the outstanding senior notes and interest rate swaps; interest on the notes is payable semi-annually in arrears, and interest on the swaps is payable quarterly.
• Current debt reclassification: During the six months ended May 29, 2026, the senior notes due February 1, 2027 and April 4, 2027 were reclassified as current debt; the carrying value of the current portion was $1.4B, net of related discount and issuance costs, with management stating intent to refinance on or before the due date, subject to market conditions.

Contractual obligations: No material changes in principal commitments (purchase obligations and operating lease arrangements) during the six months ended May 29, 2026.

• Repurchase authorities: The Board granted authority to repurchase up to $25B in common stock through March 14, 2028 (granted March 2024) and an additional $25B through April 30, 2030 (granted April 2026); as of May 29, 2026, $26.8B remained under these combined authorities.
• Six-month activity: During the six months ended May 29, 2026, the company entered into stock repurchase arrangements with large financial institutions and made payments totaling $4.6B to repurchase shares.

• Customer and channel partner indemnification: 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 future impact.
• Officer and director indemnification: To the extent permitted under Delaware law, the company indemnifies officers and directors for certain events or occurrences during their service, with coverage extending across all pertinent events during the officer's or director's lifetime; the maximum potential future payments under these agreements is unlimited, though director and officer insurance reduces exposure and enables recovery of a portion of any amounts paid.