FINANCIAL REVIEW AND PROSPECTS For discussion related to our financial condition, changes in financial condition, and the results of operations for 2024 compared to 2023, refer to Part I, Item 5. Operating and Financial Review and Prospects, in our Annual Report on Form 20-F for the fiscal year ended December 31, 2024, which was filed with the U.S. Securities and Exchange Commission on March 17, 2025 and which is hereby incorporated by reference. The following discussion and analysis is based on our consolidated financial statements including the related notes, and should be read in conjunction with them. Our consolidated financial statements are provided in “Item 18 – Financial Statements”. Overview We develop, market and support a wide range of products and services for IT security by offering a multilevel security architecture that defends enterprises’ cloud, network, mobile devices, Endpoints information and IOT solutions. Our solutions operate under a unified security architecture, Infinity, that enables end-to-end security with a single line of unified security gateways and allow a single agent for all endpoint security that can be managed from a single unified management console. This unified management allows for ease of deployment and centralized control and is supported by, and reinforced with, real-time threat intelligence and autonomous security updates. Our products and services are sold to enterprises, service providers, small and medium sized businesses and consumers. Our open platform framework allows customers to extend the capabilities of our products and services with third-party hardware and security software applications. Our products are sold, integrated and serviced by a network of channel partners worldwide. Our business is subject to the effects of general global economic conditions and, in particular, market conditions in the IT, internet security and data security industries. If general economic and industry conditions deteriorate, demand for our products could be adversely affected. Information concerning the effect of governmental regulation on our business is provided in “Item 5 – Operating and Financial Review and Prospects” under the caption “Taxes on income” and in “Item 10 – Additional Information” under the caption “Israeli taxation, foreign exchange regulation and investment programs”. 36 We derive our sales primarily through indirect channels. During each of 2025, 2024 and 2023, we derived approximately 57%, 56%, and 56%, respectively, of our sales from our ten largest channel partners. In 2025, 2024 and 2023, our three largest distributors accounted for approximately 39%, 39% and 40% respectively, of our sales. The following table presents the percentage of total consolidated revenues that we derive from sales in each of the regions shown: Year Ended December 31, 2025 2024 2023 Region: Americas, principally U.S. 42 % 42 % 43 % Europe, Middle East and Africa 46 % 47 % 46 % Asia-Pacific 12 % 11 % 11 % For information on the impact of foreign currency fluctuations, please refer to “Item 11 – Quantitative and Qualitative Disclosures about Market Risk – Foreign Currency Risk”. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions that we make are reasonable based upon information available to us at the time that these estimates, judgments and assumptions were made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our consolidated financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following: • Revenue recognition; • Accounting for income taxes; and • Business combination. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical accounting policies and related disclosures with the audit committee of our board of directors. You can see a summary of our significant accounting policies in Note 2 to our consolidated financial statements, as set forth in Item 18. Revenue recognition We derive our revenues mainly from sales of products and licenses, security subscriptions and software updates and maintenance. Our products are generally integrated with software that is essential to the functionality of the product. We sell our products primarily through channel partners including distributors, resellers, Original Equipment Manufacturers (“OEMs”), system integrators and Managed Security Service Providers (“MSSPs”), all of whom are considered end users. Security subscriptions provide customers with access to its suite of security solutions and is sold as a service. Software updates and maintenance provide customers with rights to unspecified software product upgrades released during the term of the agreement and include maintenance services to end-user customers, through primarily telephone access to technical support personnel as well as hardware support services. We recognize revenues under the core principle that transfer of control to our customers should be depicted in an amount reflecting the consideration we expect to receive in revenue. Therefore, we identify a contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to each performance obligation in the contract and recognize revenues when (or as) we satisfy a performance obligation. 37 We recognize revenues from sales of products and licenses, under Topic 606, upon shipment when control of the promised goods is transferred to the customer, or upon electronic transfer of the Certificate Key to the customer. We recognize revenues from security subscriptions and software updates and maintenance ratably over the term of the agreement due to the continuous transfer of control to the customer over the period and upon the transfer of services to the customers. Our arrangements typically contain multiple deliverables, such as products and licenses, security subscriptions and software updates and maintenance, which are generally capable of being distinct and accounted for as separate performance obligations. We evaluated the criteria to be distinct under Topic 606, and concluded that the products and the licenses were distinct and distinct in the context of the contract from the security subscription and the software updates and maintenance, as the customer can benefit from the products and licenses without the services and the services are separately identifiable within the arrangement. We allocate the transaction price to each performance obligation based on relative standalone selling price basis, by using the prices charged for a performance obligation when sold separately. Deferred revenues represent mainly the unrecognized revenue billed for security subscriptions and for software updates and maintenance. Such revenues are recognized ratably over the term of the related agreement. We recognize revenues net of estimated amounts that may be refunded for sales returns, rebates, stock rotations and other rights provided to customers on product and service related sales subject to varying limitations. We estimate and record these reductions based on our historical sales returns experience, analysis of credit memo data, rebate plans, stock rotation and other known factors. In each accounting period, we use judgments and estimates to determine potential future sales credits, returns and stock rotation, related to current period revenue. These estimates affect our “revenue” line item on our consolidated statements of income and affect our “deferred revenues” and “accrued expenses and other liabilities” on our consolidated balance sheets. Accounting for income tax We are subject to income taxes in Israel, the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate, or upon lapse of statute of limitations. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. Business combination We apply the provisions of ASC 805, Business Combinations and allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed or incurred, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed or incurred, management makes significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired technology, and customer relationships from a market participant perspective, useful lives and discount rates. We also apply the provisions of ASU 2021-08, Business Combinations (Topic 805)(“ASU 2021-08”) which requires that we recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”) and that at the acquisition date, we account for related revenue contracts in accordance with ASC 606 as if we had originated the contracts. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. 38 Results of Operations The following table presents information concerning our results of operations in 2025 and 2024: Year Ended December 31, 2025 2024 (in millions) Revenues: Products and licenses $ 548.2 $ 507.9 Security subscriptions 1,219.0 1,104.2 Software updates and maintenance 958.2 952.9 Total revenues 2,725.4 2,565.0 Operating expenses (*): Cost of products and licenses 105.8 97.8 Cost of security subscriptions 90.9 72.6 Cost of software updates and maintenance 132.6 123.9 Amortization of technology 32.5 25.0 Total cost of revenues 361.8 319.3 Research and development 456.7 394.9 Selling and marketing 947.0 862.9 General and administrative 128.8 111.9 Total operating expenses 1,894.3 1,689.0 Operating income 831.1 876.0 Financial income, net 114.0 96.1 Income before taxes on income (tax benefit) 945.1 972.1 Taxes on income (tax benefit) (111.8 ) 126.4 Net income $ 1,056.9 $ 845.7 39 (*) Including pre-tax charges for stock-based compensation, amortization of intangible assets and acquisition related expenses in the following items: Year Ended December 31, 2025 2024 (in millions) Amortization of intangible assets and acquisition related expenses Amortization of technology $ 32.5 $ 25.0 Research and development 4.6 6.5 Selling and marketing 40.1 40.3 Total amortization of intangible assets and acquisition related expenses $ 77.2 $ 71.8 Stock-based compensation Cost of products and licenses $ 0.6 $ 0.4 Cost of software updates and maintenance 13.5 8.2 Research and development 76.3 53.1 Selling and marketing 79.8 58.2 General and administrative 35.4 29.8 Total stock-based compensation $ 205.6 $ 149.7 The following table presents information concerning our results of operations as a percentage of revenues for the periods indicated: Year Ended December 31, 2025 2024 Revenues: Products and licenses 20 % 20 % Security subscriptions 45 43 Software updates and maintenance 35 37 Total revenues 100 % 100 % Operating expenses: Cost of products and licenses 4 4 Cost of security subscriptions 3 3 Cost of software updates and maintenance 5 5 Amortization of technology 1 1 Total cost of revenues 13 13 Research and development 17 15 Selling and marketing 35 34 General and administrative 5 4 Total operating expenses 70 66 Operating income 30 34 Financial income, net 5 4 Income before taxes on income (tax benefit) 35 38 Taxes on income (tax benefit) (4 ) 5 Net income 39 % 33 % 40 Revenues We derive our revenues mainly from the sale of products and licenses, security subscriptions and software updates and maintenance. Our revenues were $2,725 million in 2025 and $2,565 million in 2024. Total revenues in 2025 increased by 6% compared to 2024. Product and license revenues were $548 million in 2025 and $508 million in 2024. We continued to deliver increasingly more of our latest security offerings as subscriptions resulting in increased sales of our security subscription packages, including considerable demand for our emerging products portfolio and across all 3 pillars: Hybrid Mesh, Workspace and CTEM . As a result, security subscription revenues increased by $115 million, or 10%, from $1,104 million in 2024 to $1,219 million in 2025. Software updates and maintenance revenues increased by $5 million, or 1%, from $953 million in 2024 to $958 million in 2025, primarily as a result of renewals of existing and sales of new maintenance contracts and professional services. Cost of Revenues Total cost of revenues was $362 million in 2025 and $319 million in 2024. Cost of revenues includes cost of product and licenses, cost of security subscriptions and cost of software updates and maintenance and amortization of technology. Our cost of products and licenses includes mainly cost of software and hardware production, packaging and shipping. Our cost of security subscriptions is comprised of costs paid to third parties, hosting and infrastructure costs and cost of customer support related to these services. Our cost of software updates and maintenance include mainly the cost of post-sale customer support. Cost of products and licenses was $106 million in 2025 and $98 million in 2024. Cost of security subscriptions was $91 million in 2025 and $73 million in 2024. Cost of software updates and maintenance was $133 million in 2025 and $124 million in 2024. In 2025, amortization of technology was $33 million compared to $25 million in 2024. The increase in 2025 is attributed to the acquisitions made during 2025 and 2024. Research and Development Research and development expenses were $457 million in 2025 and $395 million in 2024, and represented 17% of revenues in 2025 and 15% of revenues in 2024. Research and development expenses consist primarily of salaries and other related expenses for personnel as well as the cost of our cloud infrastructure expenses. The $62 million increase in 2025 is primarily a result of an increase in compensation and related expenses for personnel , cloud infrastructure expenses and a $7 million expense related to currency exchange and hedging. The majority of our personnel engaged in research and development are located in Israel, where compensation-related expenses are paid in Israeli Shekels, while our research and development expenses are reported in U.S. dollars. Therefore, changes to the exchange rate between the Israeli Shekel and the U.S. dollar have affected and may in the future affect our research and development expenses. We have forward contracts to hedge against a certain portion of the exposure mentioned above. Selling and Marketing Selling and marketing expenses consist primarily of salaries, commissions, advertising, trade shows, seminars, public relations, co-op activities with partners, travel and other related expenses. Selling and marketing expenses were $947 million in 2025 and $863 million in 2024, which represented 35% of revenues in 2025 and 34% of revenues in 2024. The net increase of $84 million in selling and marketing costs in 2025 primarily stems from significant investments in partners and marketing programs. Our selling and marketing expenses worldwide are paid in local currencies and are reported in U.S. dollars. Therefore, changes to the exchange rates between the local currencies and the U.S. dollar have affected, and may in the future affect, our expense level. General and Administrative General and administrative expenses consist primarily of salaries and other related expenses for personnel, professional fees, insurance costs, legal and other expenses. General and administrative expenses were $129 million in 2025 and $112 million in 2024 , which represented 5% of revenues in 2025 and 4% of revenues in 2024. Operating Income Margin In 2025, our operating margin was 30% compared to 34% in 2024. The decrease in our operating margin was primarily due to an increase in our workforce related expenses, cloud expenses, stock-based compensation expenses and amortization of intangibles expenses in related to our acquisitions. We may experience future fluctuations or declines in operating margins from historical levels due to several factors, as described above in “Item 3 – Key Information” under the caption “Risk Factors – Risks Related to Our Business and Our Market”. Financial Income, Net Net financial income consists primarily of interest earned on cash equivalents, short-term deposits and marketable securities. Net financial income was $114 million in 2025 and $96 million in 2024. As we generally hold debt securities until maturity, our current portfolio’s yield is derived primarily from interest rates and the yield on securities at time of purchase. Since most of our investments are U.S. dollars denominated securities, our net financial income is heavily dependent on prevailing U.S. interest rates changes and the market expectations to such changes. The higher financial income is mainly due to higher reinvestment yield in our investment portfolios in 2025, as well as additional interest income on operational cash. Additionally, in December, 2025, we completed a $2,000 million Convertible Senior Note issuance, while the net cash received during the last month of the year contributed additional interest income. For further risk related to our portfolio see also Item 3, “Risk Factors – Risks Related to Our Business and Our Market – Our cash balances and investment portfolio have been, and may continue to be, adversely affected by market conditions and interest rates”. 41 Taxes on Income (tax benefit) Total taxes on income (tax benefit) were $(112) million in 2025 and $126 million in 2024. Our effective tax rate was (12)% in 2025 and 13% in 2024. See Note 12 to our consolidated financial statements for further information on our statutory rates. Additional details are provided in “Item 10 – Additional Information” under the caption “Israeli taxation, foreign exchange regulation and investment programs” and “Item 3 – Key Information” under the caption “The tax benefits available to us require us to meet several conditions, and may be terminated or reduced in the future, which would increase our taxes”. Net Income Net income increased by $211 million to $1,057 million in 2025 compared to $846 million in 2024. Liquidity and Capital Resources During 2025 and 2024, we financed our operations through cash generated from operations. Our total cash and cash equivalents, short-term investments and long-term interest bearing investments, were $4,342 million as of December 31, 2025 and $2,784 million as of December 31, 2024. Our cash and cash equivalents and short-term investments were $3,015 million as of December 31, 2025 and $1,372 million as of December 31, 2024. Our long-term interest bearing investments were $1,327 million as of December 31, 2025 and $1,412 million as of December 31,2024. The majority of our financial assets are held and managed through the parent company in Israel and our subsidiaries in Canada and the U.S. In December 2025, we issued and sold $2.0 billion aggregate principal amount of 0.00% Convertible Senior Notes due 2030 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act (all of which were outstanding as of December 31, 2025). We generated net cash from operations of $1,199 million in 2025 and $1,052 million in 2024. Net cash from operations for 2025 and 2024 consisted primarily of net income adjusted for non-cash activity. The increase in our cash from operations includes benefit from balance sheet hedging transaction of $51 million, offset by one-time tax settlement payment of $66 million. Net cash used in investing activities was $680 million in 2025 compared to $24 million in 2024. In 2025, net cash used in investing activities increased compared to 2024, primarily due to higher investment in short term deposit and lease prepayment paid during 2025. Our net cash paid for acquisitions amounted to $273 million in 2025 and $186 million in 2024. Our capital expenditures amounted to $27 million in 2025 and $24 million in 2024, and consisted primarily of computer equipment, software and leasehold improvements. Net cash provided by financing activities was $752 million in 2025 and net cash used in financing activities was $1,060 million in 2024 . In 2025, net cash provided by financing activities was attributed primarily to the issuance of convertible senior notes in the amount of $1,780 net of issuance costs and net of purchased capped call. Net cash used in financing activities in 2025 and 2024 was also attributed to the repurchase of ordinary shares. Under the repurchase programs, we may purchase our ordinary shares from time to time, depending on market conditions, share price, trading volume and other factors. We repurchased ordinary shares in the amount of $1,400 million in 2025 and $1,300 million in 2024. We re-issued the repurchased shares to settle exercises of options and restricted share unit awards to our employees and directors. Proceeds from such activities were $393 million and $259 million in 2025 and 2024, respectively. Our investments in marketable securities are classified as AFS. AFS securities are carried at fair value, with the unrealized gains and losses, net of tax, recorded in other comprehensive income (loss). Amortization of premium, discount and interest is recorded in our consolidated statements of income. Our liquidity could be negatively affected by a decrease in demand for our products and services, or increase in employment costs. Also, if the financial system or the credit markets deteriorate or remain volatile, our investment portfolio may be impacted and the values and liquidity of our investments could be adversely affected. Our principal sources of liquidity consist of our cash and cash equivalents, short-term bank deposits and marketable securities (which aggregated $4,342 million as of December 31, 2025) and our cash flow from operations. We believe that these sources of liquidity will be sufficient to meet our normal operating requirements during the next 12 months and the foreseeable future and to fund capital expenditures. 42 Research and Development, Patents and Licenses, etc. Additional details are provided in this Item 5, under the caption “Results of Operations”. Trend Information Additional details are provided in this Item 5, under the caption “Results of Operations”.