Risk Factors
An investment in our ordinary shares involves a high degree of
risk. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware
of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize,
our business, financial condition, results of operations and prospects could be materially harmed. In that event, the market price of
our ordinary shares could decline and you could lose part or all of your investment.
Risk Factors Summary
The following is a summary of the principal risks that could
materially and adversely affect our business, financial condition, operating results and growth prospects.
Risks Related to Our Business and Our Market
• If the market for information and network security solutions does not continue to grow, our business will be adversely affected.
• We may not be able to successfully compete, which could adversely affect our business and results of operations.
• If we fail to enhance our existing products, develop or acquire new and more technologically advanced products, or fail to successfully commercialize these products, our business and results of operations will suffer.
• We may need to change our pricing models to compete successfully.
• Our business, results of operations and financial condition are subject to, have been and may continue to be adversely affected by the risks of earthquakes, fire, floods, pandemics and other natural events, as well as manmade problems such as power disruptions or terrorism or war, such as the war between Israel, the U.S. and Iran and the ongoing hostilities between Israel and Hezbollah, Hamas and Yemen.
• Prolonged economic uncertainties or downturns, globally or in certain regions or industries, could materially adversely affect our business.
• If our products fail to protect against attacks and our customers experience security breaches, our reputation and business could be harmed.
• Product defects may increase our costs and impair the market acceptance of our products and technology.
• We are subject to risks relating to acquisitions.
• We are dependent on a limited number of product families.
• Competition for highly skilled personnel is intense.
• Issues in the development and deployment of AI may results in reputational harm and legal liability and could adversely affect our results of operations.
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Risks Related to Our Dependence on Third-Parties
• We are dependent on a small number of distributors.
• We purchase several key components and finished products from limited sources, and we are increasingly dependent on contract manufacturers for our hardware products.
• We incorporate third-party technology in our products, which may make us dependent on the providers of these technologies and expose us to potential intellectual property claims.
• Failures of the third party technology, third-party servers, cloud service providers, such as Amazon Web Services (“AWS”), and other third-party hardware, software and infrastructure on which we rely could adversely affect our business.
Risks Related to Tax, Legal and Regulatory Matters
• We are the defendants in various lawsuits and have been subject to tax disputes and governmental proceedings, which could adversely affect our business, results of operations and financial condition.
• Uncertainties in the interpretation and application of worldwide tax reforms, complex tax laws and regulations could materially affect our tax obligations and effective tax rate.
• Class action litigation due to stock price volatility or other factors could cause us to incur substantial costs and divert our management’s attention and resources.
• We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.
• Changes in government trade policies and international trade disputes that result in tariffs and other protectionist measures could adversely affect our business in the future.
Risks Related to Our Intellectual Property
• We may not be able to successfully protect our intellectual property rights, which could cause substantial harm to our business.
• We incorporate open source technology in our products which may expose us to liability and have a material impact on our product development and sales.
• If a third-party asserts that we are infringing its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation or expensive licenses, which could harm our business.
• Due to the global nature of our business, we must comply with various anti-bribery regimes and any failure to do so could adversely affect our business.
Other General Risks and Risks Related to Capitalization and
Ownership of Our Ordinary Shares
• We are exposed to various legal, business, political, economic, health-related and other risks associated with our international operations; these risks could increase our costs, reduce future growth opportunities and affect our results of operations.
• Our actual or perceived failure to adequately protect personal data or customer data, or otherwise comply with data privacy and protection laws and regulations or other technology related regulations, could subject us to sanctions and damages and could harm our reputation and business.
• Issues relating to our use of artificial intelligence and machine learning technologies, combined with an uncertain legal and regulatory environment, could materially and adversely affect our business, financial condition and results of operations.
• Repaying and servicing our existing and future debt, including our outstanding convertible notes may require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our indebtedness.
• Our Convertible Notes may impact our financial results, result in the dilution of existing shareholders and create downward pressure on the price of our ordinary shares.
• Our ability to pay cash upon conversion or repurchase of our outstanding Convertible Notes may be limited.
• Our capped call transactions may affect the value of our ordinary shares.
• We are subject to counterparty risk with respect to the capped call transactions.
• Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance.
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• A small number of shareholders own a substantial portion of our ordinary shares, and they may make decisions with which you or others may disagree.
• Our cash balances and investment portfolio have been, and may continue to be, adversely affected by market conditions and interest rates.
• Currency fluctuations may affect the results of our operations or financial condition.
• Our information technology systems, networks and products and services have been, and may continue to be, subject to various security threats and cyber security incidents.
• We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could adversely affect our business, and we may not be able to successfully navigate the recent leadership changes while maintaining key aspects of our culture, which could have a significant negative effect on our existing business and our ability to pursue future plans.
Risks Related to Our Operations in Israel
• The ongoing war and hostilities and other potential political, economic and military instability in Israel, where our principal executive offices and our principal research and development facilities are located, may adversely affect our results of operations.
• Our operations may be disrupted by the obligations of our personnel to perform military service.
• We are subject to risks in connection with the development of our new campus in Tel Aviv, Israel
• 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.
• Shareholder rights and responsibilities are, and will continue to be, governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies.
• Provisions of Israeli law and our articles of association may delay, prevent or make difficult an acquisition of us, prevent a change of control, and negatively impact our share price.
• As a foreign private issuer we are not subject to the provisions of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Act reports.
• As a foreign private issuer whose shares are listed on the Nasdaq Global Select Market (“Nasdaq”), we may follow certain home country corporate governance practices instead of certain Nasdaq requirements.
Risks Related to Our Business and Our Market
If the market for information and network security solutions does
not continue to grow, our business will be adversely affected
The market for information and network security solutions may
not continue to grow. Continued growth of this market will depend, in large part, upon:
• the continued expansion of internet usage and the number of organizations adopting or expanding intranets;
• the continued adoption of “cloud” infrastructure by organizations;
• the ability of the infrastructures implemented by organizations to support an increasing number of users and services;
• the continued development of new and improved services for implementation across the internet and between the internet and intranets;
• the adoption of data security measures as it pertains to data encryption and data loss prevention technologies;
• continued access to mobile APIs, APPs and application stores with Apple, Google and Microsoft;
• government regulation of the internet and governmental and non-governmental requirements and standards with respect to data security privacy and data protection; and
• economic, social, or political conditions, including conditions resulting from a decline in the macroeconomic environment, rising interest rates, exchange rate fluctuations, inflation, global pandemics , global supply chain disruptions and conditions resulting from geopolitical uncertainty and instability or war, including the war between Israel, the U.S. and Iran and its effects on the delivery of goods through the Strait of Hormuz, and the ongoing hostilities between Israel and Hezbollah, Hamas and Yemen, and the Russia-Ukraine armed conflict and the tension between China and Taiwan.
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In the last few years, global and regional economies around the
world and financial markets have remained volatile largely as a result of economic and political uncertainty, the war and hostilities
between Israel, the U.S. and Iran, and the ongoing hostilities between Israel and Hezbollah, Hamas and Yemen, rising interest rates, inflation,
terrorist groups in Yemen, which limited the movement of marine shipments to Israel through the Red Sea, the war in Ukraine, terrorism,
governmental instability and other factors. During this period, many organizations have limited their expenditures and a significant portion
of such organizations have remained reluctant to increase their expenditures. If these challenging macroeconomic conditions continue or
worsen, our customers may reduce or postpone their technology spending, which could result in significant reductions in sales of our products,
longer sales cycles, slower adoption of new technologies or increased price competition.
Further, if the necessary infrastructure required to operate
our industry or complementary products and services are not developed in a timely manner and, consequently, the enterprise security, data
security, internet or intranet markets fail to grow or grow more slowly than we currently anticipate, our business, results of operations
and financial condition may be materially adversely affected. Additional details are provided in “Item 4 – Information on
Check Point”.
We may not be able to successfully compete, which could adversely
affect our business and results of operations
The market for information and network security solutions is
intensely competitive and we expect that competition will continue to increase in the future. Our competitors include Cisco Systems, Inc.,
Fortinet Inc., Palo Alto Networks, Inc. and SonicWall Inc. and other companies in the network security space. We also compete with several
other companies, including Zscaler, Inc., Trellix, Trend Micro Inc., NortonLifeLock Inc., Lookout, Inc., Zimperium, Inc, CrowdStrike Holdings,
Inc., SentinelOne, Inc., Sophos Group plc, Proofpoint, Inc., Broadcom, Inc., Mimecast Limited, Microsoft Corp., Netskope, Inc. and Abnormal
Security Corp., with respect to specific products that we offer.
In addition, there are hundreds of small and large companies
that offer security products and services that we may compete with from time to time.
Some of our current and potential competitors have various
advantages over us, including longer operating histories; access to larger customer bases; significantly greater financial, technical
and marketing resources; a broader portfolio of products, applications and services including AI and machine learning; and larger patent
and intellectual property portfolios. As a result, they may be able to adapt better than we can to new or emerging technologies and changes
in customer requirements, or to devote greater resources to the promotion and sale of their products. Furthermore, some of our competitors
with more diversified product portfolios and larger customer bases may be better able to withstand a reduction in spending on information
and network security solutions, as well as a general slowdown or recession in economic conditions in the markets in which they operate.
In addition, some of our competitors have greater financial resources than we do, and they have offered, and in the future may offer,
their products at lower prices than we do, or may bundle security products with their other offerings, which may cause us to lose sales
or to reduce our prices in response to competition. With the introduction of new products and services and new market entrants, we expect
competition to intensify in the future. Industry developments and evolving technology, such as AI, may also impact our competitive landscape
and the factors required to compete effectively in current or prospective markets. For example, companies offering generative AI services
with cybersecurity capabilities, including large language models represent an additional source of competition because they may currently
or in the future serve as alternative cybersecurity systems. If we are not able to continue to compete with companies offering AI systems
with cybersecurity features our business, results of operations and financial condition could be adversely affected.
In addition, consolidation in the markets in which we compete
may affect our competitive position. This is particularly true in circumstances where customers are seeking to obtain a broader set of
products and services than we are able to provide.
The markets in which we compete also include many niche competitors,
generally smaller companies at a relatively early stage of operations, which are focused on specific internet and data security needs.
These companies’ specialized focus may enable them to adapt better than we can to new or emerging technologies and changes in customer
requirements in their specific areas of focus. In addition, some of these companies can invest relatively large resources on very specific
technologies or customer segments. The effect of these companies’ activities in the market may result in price reductions, reduced
gross margins and loss of market share, any of which will materially adversely affect our business, results of operations and financial
condition.
Further, vendors of operating system software, networking hardware
or central processing units (“CPUs”), may enhance their products to include functionality that is currently provided
by our products. The widespread inclusion of similar functionality to that which is offered by our solutions, as standard features of
operating system software and networking hardware could significantly reduce the demand for our products, particularly if the quality
of such functionality were comparable to that of our products. Furthermore, even if the network or application security functionality
provided as standard features by operating systems software and networking hardware is more limited than that of our solutions, a significant
number of customers may elect to accept more limited functionality in lieu of purchasing additional products.
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We may not be able to continue competing successfully against
our current and future competitors, and increased competition within the market may result in price reductions, reduced gross margins
and operating margins, reduced net income, and loss of market share, any or all of which may materially adversely affect our business,
results of operations and financial condition. For additional information, see “Item 4 – Information on Check Point”.
If we fail to enhance our existing products, develop or acquire
new and more technologically advanced products, or fail to successfully commercialize these products, our business and results of operations
will suffer
The information and network security industry is characterized
by rapid technological advances, changes in customer requirements, frequent new product introductions and enhancements, and evolving industry
standards in computer hardware and software technology. In particular, the markets for data security, internet and intranet applications
are rapidly evolving. As a result, we must continually change and improve our products in response to changes in operating systems, application
software, computer and communications hardware, networking software, programming tools, and computer language technology. We must also
continually change our products in response to changes in network infrastructure requirements, including the expanding use of cloud computing.
Further, we must continuously improve our products to protect our customers’ data and networks from evolving security threats.
Our future results of operations will depend upon our ability
to enhance our current products and to develop and introduce new products on a timely basis; to address the increasingly sophisticated
needs of our customers; and to keep pace with technological developments, new competitive product offerings, and emerging industry standards.
Our competitors’ introduction of products embodying new technologies and the emergence of new industry standards may render our
existing products obsolete or unmarketable. While we have historically been successful in developing, acquiring, and marketing new products
and product enhancements that respond to technological change and evolving industry standards, we may not be able to continue to do so.
In addition, we may experience difficulties that could delay or prevent the successful development, introduction, and marketing of these
products, as well as the integration of acquired products. Furthermore, our new products or product enhancements may not adequately meet
the requirements of the marketplace or achieve market acceptance. In some cases, a new product or product enhancements may negatively
affect sales of our existing products. If we do not respond adequately to the need to develop and introduce new products or enhancements
of existing products in a timely manner in response to changing market conditions or customer requirements, our business, results of operations
and financial condition may be materially adversely affected.
For additional information, see “Item 4 – Information
on Check Point” and under the caption “We may not be able to successfully compete, which could adversely affect our business
and results of operations” in this “Item 3 – Key Information – Risk Factors”.
We may need to change our pricing models to compete successfully
The intense competition we face in the sales of our products and
services and general economic and business conditions can put pressure on us to change our prices. If our competitors offer deep discounts
on certain products or services or develop products that the marketplace considers more valuable, we may need to lower prices or offer
other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect results of operations.
Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors may unfavorably impact pricing
in both our on-premises enterprise software business and our cloud business, as well as overall demand for our on-premises software product
and service offerings, which could reduce our revenues and profitability. Our competitors may offer lower pricing on their support offerings,
which could put pressure on us to further discount our product or support pricing.
Our business, results of operations and financial condition are
subject to, have been and may continue to be adversely affected by the risks of earthquakes, fire, floods, pandemics and other natural
events, as well as manmade problems such as power disruptions or terrorism or war, such as the war between Israel, the U.S. and Iran,
and the ongoing hostilities between Israel and Hezbollah, Hamas and Yemen
We operate our business primarily from Israel, and operate and
sell our products worldwide. Our headquarters in the United States, as well as certain of our research and development operations, are
located in the Silicon Valley area of Northern California, a region known for seismic activity. We also have significant operations in
other regions that have experienced natural disasters. A significant natural disaster occurring at our facilities in Israel, in the United
States or elsewhere, or where our channel partners are located, could have a material adverse impact on our business, results of operations
and financial condition. In addition, acts of terrorism or war (including the war between Israel, the U.S. and Iran, and the ongoing hostilities
between Israel and Hezbollah, Hamas and Yemen, and the significant military action against Ukraine launched by Russia and any related
political or economic responses and counter-responses or otherwise by various global actors or general effect on the global economy) have
caused disruptions and could in the future cause disruptions to our or our customers’ businesses or the economy as a whole.
Further, we rely on information technology systems to communicate among our workforce located worldwide. Any disruption to our internal
communications, whether caused by a natural disaster, pandemics or by manmade problems, such as power disruptions or terrorism or war,
could delay our research and development efforts. To the extent any of the foregoing causes disruptions or result in delays or cancellations
of customer orders, our research and development efforts or the deployment of our products, our business and results of operations would
be materially and adversely affected.
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In addition, following the Russia-Ukraine armed conflict, the
United States and other countries imposed economic sanctions and severe export control restrictions against Russia and Belarus, and the
United States and other countries could impose wider sanctions and export restrictions and take other actions should the conflict further
escalate, which affect our exports or sales into Russia and Belarus and create difficulties in business planning and forecasting due to
the uncertainty of the impact of the war on aspects of our business, such as on our distributors, resellers and end-customers. As
discussed elsewhere in these risk factors, additional worldwide trade protectionism may increase as a result of the trade policies of
the U.S. administration and/or as a result of the global response to such policies. Our efforts to comply with any such measures may be
costly and time consuming. We take precautions to ensure that we and our partners comply with all relevant sanctions-related regulations,
any alleged or actual failure by us or our partners to comply with such laws and regulations could have negative consequences for us,
including reputational harm, government investigations and penalties. The sanctions and other macroeconomic effects of the war or global
trade protectionism may also result in the devaluation of the local currency and other inflationary effects.
Prolonged economic uncertainties or downturns, globally or in
certain regions or industries, could materially adversely affect our business
Our business depends on our current and prospective customers’
ability and willingness to invest money in our products and security, which in turn is dependent upon their overall economic health and
the strength of the broader macroeconomic environment. The negative economic conditions in the global economy or certain regions, including
conditions resulting from financial and credit market fluctuations (including rising interest rates), exchange rate fluctuations, or inflation,
and the potential for regional or global recessions could cause a decrease in corporate spending on cyber security software. Other matters
that influence customer confidence and spending, such as, political unrest, public health crises, terrorist attacks, armed conflicts (such
as the war between Israel, the U.S. and Iran, and the ongoing hostilities between Israel and Hezbollah, Hamas and Yemen, and the ongoing
conflict between Russia and Ukraine), rising energy costs, and natural disasters, could also negatively affect our customers’ spending
on our products and services. The activities of certain terrorist groups in Yemen, have previously limited the movement of marine
shipments to Israel through the Red Sea, and the armed conflict involving Russia and Ukraine has resulted in sanctions which restrict
the selling of goods, services, or technology in affected regions. The instability in these regions could further exacerbate the macroeconomic
impacts on a global scale.
Negative economic conditions may cause existing and prospective
customers to reduce their spending. Customers may delay or cancel cyber security projects or seek to lower their costs by renegotiating
renewals or maintenance and support agreements. Further, customers or channel partners may be more likely to refrain from making payments
and/or make late payments in worsening economic conditions. If the economic conditions of the general economy or industries in which we
operate continue to worsen from present levels, our business, results of operation and financial condition could be adversely affected.
If our products fail to protect against attacks and our customers
experience security breaches, our reputation and business could be harmed
Hackers and other malevolent actors are increasingly sophisticated,
often affiliated with organized crime and operate large scale and complex attacks. In addition, their techniques change frequently and
generally are not recognized until launched against a target. If we fail to identify and respond to new and increasingly complex methods
of attack and to update our products to detect or prevent such threats in time to protect our customers’ high-value business data,
our business and reputation will suffer.
In addition, an actual or perceived security breach or theft
of the confidential data of one of our customers, regardless of whether the breach is attributable to the failure of our products, could
adversely affect the market’s perception of our security products. Despite our best efforts, there is no guarantee that our products
will be free of flaws or vulnerabilities, and even if we discover these weaknesses, we may not be able to correct them promptly, if at
all. Our customers may also misuse our products, or may not properly configure or securely deploy our products, which could result in
a breach or theft of business data.
Product defects may increase our costs and impair the market acceptance
of our products and technology
Our products are complex and must meet stringent quality requirements.
They may contain undetected hardware or software errors or defects, especially when new or acquired products are introduced or when new
versions are released. In particular, the personal computer hardware environment is characterized by a wide variety of non-standard configurations
that make pre-release testing for programming or compatibility errors very difficult and time-consuming. We may need to divert the attention
of our engineering personnel from our research and development efforts to address instances of errors or defects.
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Our products are used to deploy and manage internet security
and protect information, which may be critical to organizations. As a result, the sale and support of our products entails the risk of
product liability and related claims. We do not know whether, in the future, we will be subject to liability claims or litigation for
damages related to product errors, or will experience delays as a result of these errors. Our sales agreements and product licenses typically
contain provisions designed to limit our exposure to potential product liability or related claims. In selling our products, we rely primarily
on “shrink wrap” licenses that are not signed by the end user, and for this and other reasons, these licenses may be unenforceable
under the laws of some jurisdictions. As a result, the limitation of liability provisions contained in these licenses may not be effective.
Although we maintain product liability insurance for most of our products, the coverage limits of these policies may not provide sufficient
protection against an asserted claim. If litigation were to arise, it could, regardless of its outcome, result in substantial expense
to us, significantly divert the efforts of our technical and management personnel, and disrupt or otherwise severely impact our relationships
with current and potential customers. In addition, if any of our products fail to meet specifications or have reliability, quality or
compatibility problems, our reputation could be damaged significantly and customers might be reluctant to buy our products, which could
result in a decline in revenues, a loss of existing customers, and difficulty attracting new customers.
We are subject to risks relating to acquisitions
We have made acquisitions in the past, including the acquisitions
of Cyclops Security Ltd. and Cyata Security Ltd. in February of 2026, the talent of Rotate Ltd. in February of 2026, Lakera AI AG
and Veriti Security Ltd. in October and June of 2025, respectively. Cyberint Technologies Ltd. in 2024, Perimeter 81 Ltd., Atmosec Ltd.
and rmsource, Inc. in 2023, Spectral Cyber Technologies Ltd in 2022 and Avanan, Inc. in 2021, and we may make additional acquisitions
in the future. The pursuit of acquisitions may divert the attention of management and cause us to incur various expenses in identifying,
investigating, and pursuing suitable acquisitions, whether or not they are consummated.
Competition within our industry for acquisitions of businesses,
technologies, assets and product lines has been, and may in the future continue to be, intense. As such, even if we are able to identify
an acquisition that we would like to consummate, we may not be able to complete the acquisition on commercially reasonable terms or because
the target is acquired by another company. Furthermore, in the event that we are able to identify and consummate any future acquisitions,
we could:
• issue equity securities which would dilute the current shareholders’ percentage of ownership;
• incur substantial debt;
• assume contingent liabilities; or
• expend significant cash.
These financing activities or expenditures could harm our business,
results of operations and financial condition or the price of our ordinary shares. Alternatively, due to difficulties in the capital and
credit markets, we may be unable to secure capital on acceptable terms, or at all, to complete acquisitions. In addition, we may not be
able to integrate acquired personnel, operations, and technologies successfully or effectively manage the combined business following
the completion of any future acquisition. Additionally, such integration may impact our revenue and operating results. We may also not
achieve the anticipated benefits from the acquired businesses due to a number of factors, including:
• unanticipated costs, liabilities or compliance issues associated with the acquisition;
• incurrence of acquisition-related costs;
• diversion of management’s attention from other business concerns;
• harm to our existing business relationships with manufacturers, distributors and customers as a result of the acquisition;
• the potential loss of key employees;
• use of resources that are needed in other parts of our business;
• use of substantial portions of our available cash to consummate the acquisition; or
• unrealistic goals or projections for the acquisition.
Moreover, even if we do obtain benefits from acquisitions in
the form of increased sales and earnings, there may be a delay between the time when the expenses associated with an acquisition are incurred
and the time when we recognize such benefits.
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We are dependent on a limited number of product families
Currently, we derive the majority of our revenues from sales
of integrated appliances and internet security products, as well as related revenues from security subscriptions and from software updates
and maintenance. We expect that this concentration of revenues from a small number of product families will continue for the foreseeable
future. Endpoint security products and associated software updates, maintenance, and security subscriptions represent an additional revenue
source as well as our cloud initiatives. Our future growth depends heavily on our ability to effectively develop and sell new and acquired
products as well as add new features to existing products. For more details, see “Item 4 – Information on Check Point”
and “Item 5 – Operating and Financial Review and Prospects”.
Competition for highly skilled personnel is intense
We compete in a market marked by rapidly changing technologies
and an evolving competitive landscape. In order for us to successfully compete and grow, we must attract, recruit, retain and develop
personnel, at an appropriate cost, with requisite qualifications to provide expertise across the entire spectrum of our intellectual capital
and business needs. In recent years, the industry has experienced record growth and activity and as a result, the high-tech industry in
Israel has experienced significant levels of employee attrition and is currently facing a shortage of skilled human capital including
in the areas of AI and machine learning. Similar competition for highly skilled personnel exists in the U.S. and in other markets in which
we operate. Failure to retain or attract qualified personnel, at an appropriate cost, could have a material adverse effect on our business,
financial condition and results of operations.
Issues in the development and deployment of AI may result in reputational
harm and legal liability and could adversely affect our results of operations
We have incorporated, and are continuing to develop and deploy,
AI into many of our products and solutions, including services that support our products and solutions. We are also incorporating AI into
the operations of our business. AI presents challenges and risks that could affect our products and solutions, and the operations of our
business. For example, AI algorithms may have flaws, and datasets used to train models may be insufficient or contain biased information.
The AI that is being incorporated into our products, solutions, and business operation tools may not be successful or beneficial, and
instead may cause technical, legal or ethical problems or result in increased costs. The investments that we are making across our business
in AI reflect our ongoing efforts to innovate and provide products and services that are useful to our customers, as well as provide efficiencies
in our business. Such investments ultimately may not be commercially viable or may not result in an adequate return of capital and we
may incur unanticipated liabilities. These efforts could subject us to regulatory risk, legal liability, including under legislation regulating
AI in jurisdictions such as the E.U. and laws and regulations being considered in other jurisdictions, or brand or reputational harm.
The rapid evolution of AI, including potential government regulation
of AI, requires us to invest significant resources to develop, test, and maintain AI in our products and services in a manner that meets
evolving requirements and expectations. The rules and regulations adopted by policymakers over time may require us to make changes to
our business practices. Developing, testing, and deploying AI systems may also increase the cost profile of our offerings due to the nature
of the computing costs involved in such systems.
The intellectual property ownership and license rights surrounding
AI technologies, as well as data protection laws related to the use and development of AI, are currently not fully addressed by courts
or regulators. The use or adoption of AI technologies in our products may result in exposure to claims by third parties of copyright infringement
or other intellectual property misappropriation, which may require us to pay compensation or license fees to third parties. The evolving
legal, regulatory, and compliance framework for AI technologies may also impact our ability to protect our own data and intellectual property
against infringing use.
Risks Related to Our Dependence on Third-Parties
We are dependent on a small number of distributors
We derive our sales primarily through indirect channels. During
2025, 2024 and 2023, we derived approximately 57%, 56% and 56%, respectively, of our sales from our ten largest distributors. In each
of 2025, 2024 and 2023, our three largest distributors accounted for approximately 39%, 39% and 40%, respectively, of our sales. We expect
that a small number of distributors will continue to generate a significant portion of our sales. Furthermore, there has been an industry
trend toward consolidation among distributors, and we expect this trend to continue in the near future which could further increase our
reliance on a small number of distributors for a significant portion of our sales. If these distributors reduce the amount of their purchases
from us for any reason, including because they choose to focus their efforts on the sales of the products of our competitors, our business,
results of operations and financial condition could be materially adversely affected.
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Our future success is highly dependent upon our ability to establish
and maintain successful relationships with our distributors. In addition, we rely on these entities to provide many of the training and
support services for our products and equipment. Accordingly, our success depends in large part on the effective performance of these
distributors. Recruiting and retaining qualified distributors and training them in our technology and products requires significant time
and resources. Further, we have no minimum purchase commitments with any of our distributors, and our contracts with these distributors
do not prohibit them from offering products or services that compete with ours. Our competitors may be effective in providing incentives
to existing and potential distributors to favor their products or to prevent or reduce sales of our products. Our distributors may choose
not to offer our products exclusively or at all. Our failure to establish and maintain successful relationships with distributors would
likely materially adversely affect our business, results of operations and financial condition.
We purchase several key components and finished products from
limited sources, and we are increasingly dependent on contract manufacturers for our hardware products
Many components, subassemblies, and modules necessary for the
manufacture or integration of our hardware products are obtained from a limited group of suppliers. The majority of our hardware is manufactured
in Taiwan. Any increase in the tension between China and Taiwan, could adversely affect our manufacturing operations in Taiwan. Although
we do not manufacture in China, some of our component parts are sourced from China. Our reliance on sole or limited suppliers, particularly
foreign suppliers, and our reliance on subcontractors involves several risks, including a potential inability to obtain an adequate supply
of required components, subassemblies, or modules and limited control over pricing, quality, and timely delivery of components, subassemblies
or modules. Such risks could become exacerbated to the extent such suppliers and subcontractors are materially disrupted by quarantines,
factory slowdowns or shutdowns and border closings, as well as travel restrictions. For example, global supply chain disruptions associated
with geopolitical events, such as the war between the U.S., Israel and Iran and its effects on the delivery of goods through the Strait
of Hormuz, and silicon industry impacted the availability of raw products and resulted in prolonged shipping and delivery times. Availability
of specific components continues to impact the global supply chain, mainly impacting lead times. Demand is increasing supply requirements
and the fast growing technology innovation can impact the availability and manufacturers’ capacity. For example, there is currently
a worldwide shortage of semiconductor, memory and other electronic components driven by the proliferation of AI infrastructure and the
high energy demands of such production. Our products are dependent upon some of these components and a continued shortage or increased
prices drive by global semiconductor shortages may negatively impact our business by increasing lead times and prices from our suppliers,
which could adversely affect our results of operations. Any material supply chain disruption could negatively impact our business, financial
condition and results of operations. Although we have been successful in the past, replacing suppliers may be difficult and it is possible
it could result in an inability or delay in producing designated hardware products. Managing our supplier and contractor relationships
is particularly difficult during time periods in which we introduce new products and during time periods in which demand for our products
is increasing, especially if demand increases more quickly than we expect. We also have extended support contracts with these suppliers
and have been dependent on their ability to perform over a period of years.
We incorporate third-party technology in our products, which may
make us dependent on the providers of these technologies and expose us to potential intellectual property claims
Our products contain certain technology that we license from
other companies. Third-party developers or owners of technologies may not be willing to enter into, or renew, license agreements with
us regarding technologies that we may wish to incorporate in our products, either on acceptable terms or at all. If we cannot obtain licenses
to these technologies, we may be at a disadvantage compared with our competitors who are able to license these technologies. In addition,
when we do obtain licenses to third-party technologies that we did not develop, we may have little or no ability to determine in advance
whether the technology infringes the intellectual property rights of others. In the event such third-party developers and owners are otherwise
unable to provide such technology or services to us, our ability to provide our products and services could be disrupted. This includes
mandated government shutdowns. Our suppliers and licensors may not be required or may not be able to indemnify us in the event that a
claim of infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would
be responsible for any further costs or damages. Any failure to obtain licenses to intellectual property or any exposure to liability
as a result of incorporating third-party technology into our products could materially and adversely affect our business, results of operations
and financial condition.
Failures of the third-party technology, third-party servers, cloud
service providers, such as AWS, and other third-party hardware, software and infrastructure on which we rely could adversely affect our
business
We rely on third-party technology, third-party servers, cloud
service providers, such as AWS, and other third-party hardware, software and infrastructure to support our operations. The owners and
operators of the data centers and cloud services with which we are engaged, and the other third parties on which we rely, do not guarantee
uninterrupted or error-free technology, products or services. Problems faced by our third-party providers, including technological or
business-related disruptions, could adversely impact our business and results of operations, including by adversely impacting our products
and services.
Our
servers, data centers and other facilities are also vulnerable to damage or interruption from fires, natural disasters, terrorist attacks,
power loss, telecommunications failures, pandemics or similar catastrophic events. Disruptions to these servers or facilities could interrupt
our ability to provide our products and services and materially adversely affect our business and results of operations.
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Risks Related to Tax, Legal and Regulatory Matters
We are the defendants in various lawsuits and have been subject
to tax disputes and governmental proceedings, which could adversely affect our business, results of operations and financial condition
As a global company we are subject to taxation in Israel, the
United States and various other countries. We attempt to utilize an efficient operating model and accordingly to pay taxes based on the
laws in the countries in which we operate. Nonetheless, various tax authorities in different parts of the world may disagree with our
operating sale model. This may lead to disputes and to tax assessments, which can have a negative effect on our tax liabilities.
In addition, we are subject to the continuous examination by
tax authorities around the world. It is possible that tax authorities may disagree with certain positions we have taken and any adverse
outcome of such a review, investigation or audit could have a negative effect on our financial position and results of operations. We
regularly assess the likelihood of adverse outcomes resulting from these examinations, and audits to determine the adequacy of our provision
for income and other taxes, but the determination of our worldwide provision for income taxes and other tax liabilities requires significant
judgment by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates
are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially
affect our financial results in the period or periods for which such determination is made. There can be no assurance that the outcomes
from continuous examinations will not have an adverse effect on our business, financial condition and results of operations.
In January 2023, the Israeli Tax Authority (the “ITA”)
issued orders for the years 2016 through 2019 challenging our positions on several issues and, demanded the payment of additional
taxes in the aggregate amount of NIS 536 million (approximately $158 million), not including an amount of NIS 476 million (approximately
$140 million) related to expenses that will be deductible in future years, with respect of these four tax years (these amounts include
interest and indexation up to the tax settlement’s payment date, i.e. 31 July 2025). On November 29, 2023, the Company filed an
appeal to the District Court of Tel Aviv against these orders.
In addition, the ITA has issued a tax assessment for the 2020
tax year in which it demanded the payment of additional taxes in the aggregate amount of NIS 94 million (approximately $28 million), not
including an amount of NIS 106 million (approximately $31 million) related to expenses that will be deductible in future years, with respect
to the 2020 tax year (these amounts include interest and indexation up to the tax settlement’s payment date, i.e. 31 July 2025).
On December 31, 2023 we submitted a tax appeal against the 2020 tax assessment to the ITA.
On July 15, 2025, the Company and the ITA entered into a settlement
agreement under which the Company agreed to pay total additional taxes of NIS 223.2 million (approximately $66 million) in respect of
the 2016–2020 tax years, which was ratified by the District Court of Tel Aviv on July 16, 2025. The Company settled the tax
demand payment to the ITA on July 31, 2025. The settlement fully and finally resolves all tax matters between the Company and the ITA
relating to the 2016-2020 tax years.
We are the defendant in various other lawsuits, including employment-related
litigation claims, construction claims and other legal proceedings in the normal course of our business. Litigation and governmental proceedings
can be expensive, lengthy and disruptive to normal business operations, and can require extensive management attention and resources,
regardless of their merit. While we currently intend to defend the aforementioned matters vigorously, we cannot predict the results of
complex legal proceedings, and an unfavorable resolution of a lawsuit or proceeding could materially adversely affect our business, results
of operations and financial condition. See also “Item 8 – Financial Information” under the caption “Legal Proceedings”.
Uncertainties in the interpretation and application of worldwide
tax reforms, complex tax laws and regulations could materially affect our tax obligations and effective tax rate
On July 4, 2025, the One, Big, Beautiful Bill Act was enacted,
which, among other changes to U.S. federal income tax law, permanently suspends the requirement to capitalize and amortize domestic research
and development expenditures and permits such deductions on a current basis, and reinstates 100% bonus depreciation for certain qualified
property. The Bill also allows to some extent an accelerated amortization of domestic research and development expenditures that had previously
been amortized during the years 2022-2024.
In addition, California recently enacted a temporary suspension
on the use of California net operating loss carryforwards under certain conditions in the taxable years beginning in 2024, 2025 and 2026,
and other state tax limitations may apply.
The base erosion and profit shifting (“BEPS”) project
undertaken by the Organisation for Economic Co-operation and Development (“OECD”) may have adverse consequences to our tax
liabilities. The first pillar of BEPS’s project is focused on the allocation of taxing rights between countries for in-scope large
multinational enterprises that sell goods and services into countries with minor or no local physical presence. We do not expect to be
within the scope of Pillar One.
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In December 2022, the Council of the European Union (“EU”)
unanimously adopted the Directive on BEPS’s Pillar Two ensuring a global minimum tax rate of 15% for certain
companies with an annual global turnover of at least €750 million, in the Union (the Directive). The OECD has also
issued the Safe Harbours and Penalty Relief : Global Ani-Base Erosion Rules (“Pillar Two Rules”) and related
guidance. EU Member States and other non-EU countries enacted legislation to integrate the provisions of the
Directive and Pillar Two rules into their national laws by December 31, 2023 and the majority of those countries generally
apply these provisions for fiscal years starting on or after December 31, 2023.
On December 2025, the Israeli Knesset approved the Minimum Corporate
Tax Law (Multinational Group), 2025 (the “Law”) which adopts BEPS’s Pillar Two Rules. The Law introduces
a qualified domestic minimum top-up tax, pursuant to which multinational enterprise groups with annual global turnover of
at least €750 million are subject to a minimum corporate tax rate of 15% on the Israeli Constituent Entity
as defined under the OECD’s Pillar Two Rules. The Law enters into force with effective date of January 1, 2026.
In parallel, as part of the Israeli Economic Program Law for
the 2026 budget year, legislation to incentivize research and development activities (the “R&D Incentive Legislation”)
was enacted on March 30, 2026 and entered into force as of January 1, 2026.
The R&D Incentive Legislation introduces a tax credit, at
varying rates based on specified thresholds, for qualifying research and development expenditures incurred in Israel by eligible Israeli
companies that are part of multinational enterprise groups, subject to meeting defined eligibility criteria. The tax credit may be utilized
to offset Israeli corporate income tax or the Israeli domestic minimum top-up tax.
In addition, the R&D Incentive Legislation, subject to conditions
as prescribed therein, provides that all or a portion of the unutilized R&D tax credit will be provided to eligible companies
in the form of a cash grant upon the lapse of a period stipulated by the R&D Incentive Legislation, rather than being utilized solely
as a tax credit. This mechanism is intended, among other things, to support the qualification of the incentive under the OECD Pillar Two
framework.
The implementation of the Israeli Pillar Two Law is expected
to increase our reported tax expenses beginning in 2026. Based on the current Proposed R&D Incentive Legislation and its associated
tax credit, and assuming enactment effective January 1, 2026, income tax expense is expected to increase, while the net cash impact is
not expected to be material. However, the ultimate impact will depend on the final form of the proposed R&D Incentive Legislation,
if and when enacted and the amount of tax credits approved thereunder.
We are currently monitoring the local minimum corporate tax legislations
in the relevant jurisdictions and awaiting further guidance on the Israeli Proposed R&D Incentive Legislation and its effective
date.
Indirect taxes, including digital service tax (“DST”)
measures as unilaterally adopted by certain jurisdiction, could also adversely affect our tax obligations. These measures generally aim
at securing taxation rights of the jurisdiction for the revenues/profits generated by the transnational e-commerce activities with customers
who are resident in this specific jurisdiction. Current or future attempts to impose sales, income, or other taxes on e-commerce would
likely increase the cost of doing business online and decrease the attractiveness of advertising and selling products over the internet
and could lead to significant increases in internal costs necessary to capture data and collect and remit taxes.
Finally, we are subject to audit by taxing authorities in several
jurisdictions, and tax laws may be interpreted differently by the competent tax authorities and courts, which could lead to an increase
of our tax burden and increased costs to us to comply with new laws and interpretations thereof and tax auditors. New taxes or reporting
obligations could also result in additional costs necessary to collect the data required to assess these taxes and to remit them to the
relevant tax authorities or to comply with these reporting obligations.
Class action litigation due to stock price volatility or
other factors could cause us to incur substantial costs and divert our management’s attention and resources
In the past, following periods of volatility in the market price
of a public company’s securities, securities class action litigation has often been instituted against that company. Companies such
as ours in the technology industry are particularly vulnerable to this kind of litigation as a result of the volatility of their stock
prices. We have been named as a defendant in this type of litigation in the past. Any litigation of this sort in the future could result
in substantial costs and a diversion of management’s attention and resources.
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We are subject to governmental export and import controls that
could subject us to liability or impair our ability to compete in international markets
Because we incorporate encryption technology into our products,
certain of our products are subject to U.S. export controls and may be exported outside the U.S. only with the required export license
or through an export license exception. If we were to fail to comply with U.S. export licensing requirements, U.S. customs regulations,
U.S. economic sanctions, or other laws, we could be subject to substantial civil and criminal penalties, including fines, incarceration
for responsible employees and managers, and the possible loss of export or import privileges. Obtaining the necessary export license for
a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws
and economic sanctions prohibit the shipment of certain products to U.S. embargoed or sanctioned countries, governments, and persons.
Even though we take precautions to ensure that we comply with all relevant regulations, any failure by us or any partners to comply with
such regulations could have negative consequences for us, including reputational harm, government investigations, and penalties.
In addition, various countries regulate the import of certain
encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to
distribute our products or could limit our end-customers’ ability to implement our products in those countries. Changes in our products
or changes in export and import regulations for whatever reason may create delays in the introduction of our products into international
markets, prevent our end-customers with international operations from deploying our products globally or, in some cases, prevent or delay
the export or import of our products to certain countries, governments, or persons altogether. Any change in export or import regulations,
economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments,
persons, or technologies targeted by such regulations or protectionist measures, could result in decreased use of our products by, or
in our decreased ability to export or sell our products to, existing or potential end-customers with international operations. Any decreased
use of our products or limitation on our ability to export to or sell our products in international markets would likely adversely affect
our business, financial condition, and results of operations.
Changes in government trade policies and international trade disputes
that result in tariffs and other protectionist measures could adversely affect our business in the future
The U.S. government and the current administration have made
public statements and taken certain actions indicating significant changes in U.S. trade policy, including imposing new or increased tariffs
on certain goods imported into the United States from Canada, Mexico and China. In response, a number of other countries have announced
an intention to impose additional duties on imports from the United States. To date, our business has not been affected by such actions.
However, changes in government trade policies and international trade disputes that result in tariffs and other protectionist measures
could adversely affect our business in the future.
Risks Related to Our Intellectual Property
We may not be able to successfully protect our intellectual property
rights, which could cause substantial harm to our business
We seek to protect our proprietary technology by relying on a
combination of statutory as well as common law copyright and trademark laws, trade secrets, confidentiality procedures and contractual
provisions as indicated below in the section entitled “Proprietary Rights” in “Item 4 – Information on Check Point”.
We have certain patents in the United States and in several other countries, as well as pending patent applications. We cannot assure
you that pending patent applications will be issued, either at all or within the scope of the patent claims that we have submitted. In
addition, someone else may challenge our patents and these patents may be found invalid. Furthermore, others may develop technologies
that are similar to or better than ours, or may work around any patents issued to us. Despite our efforts to protect our proprietary rights,
others may copy aspects of our products or obtain and use information that we consider proprietary. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent as the laws of the United States and Israel. Our efforts to protect
our proprietary rights may not be adequate and our competitors may independently develop technology that is similar to our technology.
In addition to patents, we rely on trade secret and other rights
to protect our unpatented proprietary intellectual property and technology. Despite our efforts to protect our proprietary technologies
and our intellectual property rights, unauthorized parties, including our employees, consultants, service providers or customers, may
attempt to copy aspects of our products or obtain and use our trade secrets or other confidential information. We generally enter into
confidentiality agreements with our employees, consultants, and other service providers, and generally limit access to and distribution
of our proprietary information and proprietary technology through certain procedural safeguards. These agreements and arrangements may
not effectively prevent unauthorized use or disclosure of our intellectual property or technology and may not provide an adequate remedy
in the event of unauthorized use or disclosure of our intellectual property or technology. We cannot be certain that the steps taken by
us will prevent misappropriation of our intellectual property or technology or infringement of our intellectual property rights.
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If we are unable to secure, protect and enforce our intellectual
property rights, such failure could harm our brand and adversely impact our business, financial condition and results of operations.
We incorporate open source technology in our products which may
expose us to liability and have a material impact on our product development and sales
Some of our products utilize open source technologies. These
technologies are licensed to us under varying license structures, including the General Public License. If we have improperly used, or
in the future improperly use, software that is subject to such licenses with our products in such a way that our software becomes subject
to the General Public License, we may be required to disclose our own source code to the public. This could enable our competitors to
eliminate any technological advantage that our products may have over theirs. Any such requirement to disclose our source code or other
confidential information related to our products could materially and adversely affect our competitive position and impact our business,
results of operations and financial condition.
If a third-party asserts that we are infringing its intellectual
property, whether successful or not, it could subject us to costly and time-consuming litigation or expensive licenses, which could harm
our business
There is considerable patent and other intellectual property
development activity in our industry. Our success depends, in part, upon our ability not to infringe upon the intellectual property rights
of others. Our competitors, as well as a number of other entities and individuals, own or claim to own intellectual property relating
to our industry. From time to time, third parties have brought, and continue to bring, claims that we are infringing upon their intellectual
property rights, and we may be found to be infringing upon such rights. In addition, third-parties have in the past sent us correspondence
claiming that we infringe upon their intellectual property, and in the future we may receive claims that our products infringe or violate
their intellectual property rights. Furthermore, we may be unaware of the intellectual property rights of others that may cover some or
all of our technology or products. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted
against us, could require that we pay substantial damages or royalty payments, prevent us from selling our products, or require that we
comply with other unfavorable terms. In addition, we may decide to pay substantial settlement costs and/or licensing fees in connection
with any claim or litigation, whether or not successfully asserted against us. Even if we were to prevail, any disputes or litigation
regarding intellectual property matters could be costly and time-consuming and divert the attention of our management and key personnel
from our business operations. As such, third-party claims with respect to intellectual property may increase our cost of goods sold and
operating expenses, reduce the sales of our products, and may have a material and adverse effect on our business.
Due to the global nature of our business, we must comply with
various anti-bribery regimes and any failure to do so could adversely affect our business
The global nature of our business creates various domestic and
local regulatory challenges. The U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.K. Bribery Act
2010 (the “U.K. Bribery Act”), Chapter 9 (sub-chapter 5) of the Israeli Penal Law, 1977, the Israeli Prohibition on Money
Laundering Law – 2000 (the “Israeli Anti-Bribery Laws”) and similar anti-bribery laws in other jurisdictions generally
prohibit companies and their intermediaries from making improper payments to foreign government officials and other persons for the purpose
of obtaining or retaining business. In addition, companies are required to maintain records that accurately and fairly represent their
transactions and have an adequate system of internal accounting controls. Further, changes in laws could result in increased regulatory
requirements and compliance costs which could adversely affect our business, financial condition and results of operations.
As a result, we are exposed to a risk of violating anti-bribery
laws in the countries where we operate. Although we have internal policies and procedures, including a code of ethics and proper business
conduct, reasonably designed to promote compliance with anti-bribery laws, we cannot assure that our employees or other agents will not
engage in prohibited conduct and render us responsible under the FCPA, the U.K. Bribery Act, the Israeli Anti-Bribery Laws or any similar
anti-bribery laws in other jurisdictions. If we are found to be in violation of the FCPA, the U.K. Bribery Act, the Israeli Anti-Bribery
Laws or other anti-bribery laws (either due to acts or inadvertence of our employees, or due to the acts or inadvertence of others), we
could suffer criminal or civil penalties or other sanctions, which could have a material adverse effect on our business, results of operations,
cash flows, financial condition, reputation and ability to win future business or maintain existing contracts.
Other General Risks and Risks Related to the Ownership of Our Ordinary
Shares
We are exposed to various legal, business, political, economic,
health-related and other risks associated with our international operations; these risks could increase our costs, reduce future growth
opportunities and affect our results of operations
We operate our business primarily from Israel, we sell our products
worldwide, and we generate a significant portion of our revenue outside the United States. We intend to continue to expand our international
operations, which will require significant management attention and financial resources. In order to continue to expand worldwide, we
will need to establish additional operations, hire additional personnel and recruit additional channel partners internationally. To the
extent that we are unable to do so effectively, our growth is likely to be limited and our business, results of operations and financial
condition may be materially adversely affected.
15
Our international sales and operations subject us to many potential
risks inherent in international business activities, including, but not limited to:
• technology import and export license requirements;
• costs of localizing our products for foreign countries, and the lack of acceptance of localized products in foreign countries;
• varying economic and political instability or war, including the war between Israel, the U.S. and Iran and the ongoing hostilities between Israel and Hezbollah, Hamas and Yemen and the significant military action against Ukraine launched by Russia;
• potential tariffs, sanctions, fines or other trade restrictions, including any political or economic responses and counter-responses or otherwise by various global actors to the significant military action against Ukraine launched by Russia, as well as the possibility of further international trade disputes that result in tariffs and other protectionist measures;
• imposition of or increases in tariffs or other payments on our revenues in these markets;
• greater difficulty in protecting intellectual property;
• difficulties in managing our overseas subsidiaries and our international operations;
• economic, social, or political conditions, including conditions resulting from a decline in the macroeconomic environment, rising interest rates, exchange rate fluctuations and inflation;
• political instability and civil unrest which could discourage investment and complicate our dealings with governments;
• widespread health emergencies or pandemic;
• difficulties in complying with a variety of foreign laws and legal standards and changes in regulatory requirements;
• expropriation and confiscation of assets and facilities;
• difficulties in collecting receivables from foreign entities or delayed revenue recognition;
• recruiting and retaining talented and capable employees;
• differing labor standards;
• increased tax rates;
• potentially adverse tax consequences, including taxation of a portion of our revenues at higher rates than the tax rate that applies to us in Israel;
• fluctuations in currency exchange rates and the impact of such fluctuations on our results of operations and financial position; and
• the introduction of exchange controls and other restrictions by foreign governments.
These difficulties could cause our revenues to decline, increase
our costs or both. This is also specifically tied to currency exchange rates which have an impact on our financial statements based on
currency rate fluctuations.
Our actual or perceived failure to adequately protect personal data or customer data,
or to otherwise comply with data privacy and protection laws and regulations or other technology related regulations, could subject us
to sanctions and damages and could harm our reputation and business
A variety of state, national, foreign, and international laws
and regulations apply to the collection, use, retention, protection, disclosure, transfer, and other processing of personal data and customer
data, and other areas in new and evolving technologies. These laws and regulations, as demonstrated by the examples below, continue to
evolve. New or modified laws and regulations relating to these matters are proposed and implemented frequently and existing laws and regulations
subject to new or different interpretations. Compliance with these laws and regulations can be costly and can delay or impede the development
and offering of new products and services.
16
For example, the General Data Protection Regulation (“GDPR”)
(which is applicable in both the EU and the UK), imposes stringent requirements for data processors and controllers. Such requirements
include amongst other things, obligations to: i) provide data subjects with fulsome disclosures about the processing of personal information;
ii) adhere to reasonable data retention limits; iii) comply with individual requests in relation to their personal data, including access
and deletion requests; iv) ensure suitable security / protection of personal data and comply with mandatory notification requirements
in the case of a data breach; v) adhere to elevated standards regarding valid consent in some specific cases of data processing; and vi)
comply with stringent data transfer obligations, including in relation to international transfers of personal data. The GDPR also includes
potentially severe penalties for failure to comply, inter alia, a fine up to 20 million EUR / 17.5 million GBP (as applicable) or up to
4% of the annual worldwide turnover, whichever is greater, which can be imposed. Compliance with these stringent requirements on privacy
user notifications and data handling (both as they apply to us but also our customers) could increase our financial risk exposure, require
us to adapt our business in order to comply with the GDPR requirements and incur additional costs.
Additionally, the United States has various privacy laws with
privacy laws now having been implemented in 19 US states. In some respects the laws across US states are harmonised but there remain points
of difference and fragmented regulations increase the burden of compliance. In California, the California Consumer Privacy Act (“CCPA”)
and California Privacy Rights Act (“CPRA”) provide data privacy rights for consumers and privacy-related operational requirements
for companies. The CCPA and CPRA, and other US state laws are making it easier for certain individuals to opt-out of having their
personal data processed and disclosed to third parties through various opt-out mechanisms, which could result in an increase to our operational
costs to ensure compliance with such legal and regulatory requirements.
Other jurisdictions have also enacted and strengthened data protection
laws, which have increased the cost of complying with them for businesses. For example, Israel has enacted laws and regulations relating
to privacy, data protection, and security, including Israeli Privacy Protection Law 5741-1981 and its associated regulations that have
brought the Israeli regime closer to the GDPR, in particular with regard to enforcement with the law providing for administrative fines
of up to 5% of global turnover. In Latin America, Brazil’s Lei Geral de Proteção de Dados (LGPD), one of the most impactful
data protection laws in Latin America, is largely aligned to the GDPR. In China, Personal Information Protection Law of the People’s
Republic of China (“PIPL”) applies and has parallels with the GDPR given that is has extra-territorial effect, applying to
data processing activities in China and outside of China in certain circumstances. In Australia, the Privacy and Other Legislation Amendment
Act 2024 (POLA) modernised Australia’s data privacy legislation and introducing GDPR‑style features, new enforcement powers,
and expanded individual rights.
In addition, the increasing use of artificial intelligence and
AI-enabled tools in business operations, including by third-party service providers, may increase the risk that personal data is processed,
disclosed or retained in ways that are inconsistent with applicable data protection laws or contractual obligations. Regulatory frameworks
governing the use of AI and automated data processing are also evolving in multiple jurisdictions (for example in the EU through the EU
AI Act), which may further increase our compliance costs and exposure to regulatory scrutiny, penalties and other liabilities, all of
which could have a material adverse effect on our business and results of operations.
Stringent privacy, data protection and security requirements
in the GDPR, CCPA, and other laws and regulations (e.g., in those regulating AI) could decrease demand for our products and services,
increase our costs, and impair our ability to maintain and grow our customer base and increase our revenue, We may face challenges in
addressing these requirements and making necessary changes to our policies and practices, and may incur significant costs and expenses
in an effort to do so. Moreover, because the interpretation and application of many laws, regulations, industry standards, contractual
obligations and other actual and asserted obligations to which we are or may become subject relating to privacy, data protection,
security, AI, and other new and evolving areas are uncertain, it is possible that these laws, regulations, industry standards, contractual
obligations or other actual or asserted obligations to which we are or may become subject may be interpreted and applied in a manner that
is inconsistent with our existing or future data processing practices or features of our products and services. Our actual or alleged
failure to comply with applicable laws and regulations, or any other actual or asserted obligations relating to the collection, use, retention,
protection, disclosure, transfer, and other processing of personal data and customer data, could result in investigations, enforcement
actions and other proceedings, significant penalties imposed or sought by a regulator or data subject, claims, demands, and litigation
or other legal action or proceedings against us or our customers or suppliers, which could result in negative publicity, increased operating
costs, restrictions upon our practices and damages, financial penalties and other liabilities, all of which could have a material adverse
effect on our business and results of operations.
Issues relating to our use of artificial intelligence and machine
learning technologies, combined with an uncertain legal and regulatory environment, could materially and adversely affect our business,
financial condition and results of operations.
We have incorporated and may continue to incorporate artificial
intelligence and machine learning solutions and features into our products or services, and
otherwise within our business, and these solutions and features may become more important to our operations, including our product development,
product demand, customer support and internal processes, or to our future growth over time. There can be no assurance that we will realize
the desired or anticipated benefits from artificial intelligence and machine learning technologies, or at all, and we may fail to properly
implement or market our artificial intelligence and machine learning solutions and features. Additionally, our artificial intelligence
and machine learning solutions and features may expose us to additional claims, demands, and proceedings by private parties and regulatory
authorities and subject us to legal liability as well as brand and reputational harm. For example, if artificial intelligence models used
in our products or services are incorrectly designed, the data used to train them is incomplete or inadequate, or we do not have sufficient
rights to use data on which such models rely, the performance of our artificial intelligence and machine learning solutions and features,
as well as our reputation, could suffer or we could incur liability through the violation of contractual or regulatory obligations. The
legal, regulatory, and policy environments around artificial intelligence and machine learning are evolving rapidly. For example, the
EU Artificial Intelligence Act (the “AI Act”), which achieved approval by the European Council on February 2, 2024, and the
European Parliament on March 13, 2024, imposes obligations on providers and users of artificial intelligence technologies. The AI Act
may impact the development and adoption of our artificial intelligence and machine learning solutions in Europe. Additionally, several
U.S. states have proposed, and in certain cases have enacted, legislation imposing obligations in connection with the development or use
of, or otherwise regulating, artificial intelligence and machine learning technologies. Other countries also are contemplating laws regulating
artificial intelligence and machine learning technologies. We may become subject to new legal and other obligations in connection with
our use of artificial intelligence and machine learning, which could require us to make significant changes to our policies and practices,
necessitating expenditure of significant time, expense, and other resources.
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Repaying and servicing our existing and future debt, including our outstanding Convertible
Notes may require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our indebtedness.
Our ability to make scheduled payments of the principal of the
Convertible Notes depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our
control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital
expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets,
restructuring debt, or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability
to refinance any future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to
engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
In addition, our indebtedness, combined with our other financial obligations and contractual commitments,
could have other important consequences. For example, it could:
• make us more vulnerable to adverse changes in general economic, industry, and competitive conditions and adverse changes in government regulation;
• limit our flexibility in planning for, or reacting to, changes in our business and our industry;
• place us at a disadvantage compared to our competitors who have less debt;
• limit our ability to borrow additional amounts to fund acquisitions, for working capital, and for other general corporate purposes; and
• make an acquisition of our company less attractive or more difficult.
Any of these factors could harm our business, results of operations,
and financial condition. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service
or repay our indebtedness would increase.
Our Convertible Notes may impact our financial results, result in the dilution of existing
shareholders and create downward pressure on the price of our ordinary shares.
In December 2025, we issued and sold $2.0 billion aggregate principal
amount of 0.00% Convertible Senior Notes due 2030 (the “Convertible Notes”), in a private offering to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, all of which were outstanding as of December 31, 2025.
Our Convertible Notes may affect our earnings per share figures,
as accounting procedures may require that we include in our calculation of earnings per share the number of ordinary shares into which
the Convertible Notes are convertible. The Convertible Notes may be converted under the conditions specified in the indenture governing
the Convertible Notes (the “Indenture”). Upon conversion, we will satisfy our conversion obligation by paying cash up to the
aggregate principal amount of the Convertible Notes being converted and by paying and/or delivering, as the case may be, ordinary shares
or cash or a combination of cash and ordinary shares, at our election, in respect of the remainder, if any, of our conversion obligation
in excess thereof. If our ordinary shares are issued to holders of the Convertible Notes upon conversion, it will cause dilution to our
shareholders’ equity, and the market price of our ordinary shares may decrease due to the additional selling pressure in the market.
We may determine in the future to repurchase all or portions
of the outstanding Convertible Notes from time to time in accordance with applicable Securities and Exchange Commission (“SEC”)
and other legal requirements and in consideration of market and other conditions. Any repurchases or exchanges of our outstanding Convertible
Notes are likely to affect the market price of our ordinary shares. We expect that holders of any Convertible Notes that are repurchased
or exchanged may enter into or unwind various derivatives with respect to our ordinary shares and/or purchase or sell our ordinary shares
in the market to hedge their exposure in connection with these transactions. In addition, in connection with any repurchases of the Convertible
Notes, the counterparties to the Capped Call (as defined below) or their respective affiliates may modify their hedge positions with respect
to the Capped Call by entering into or unwinding various derivatives with respect to our ordinary shares and/or purchasing or selling
our ordinary shares or other securities of ours in secondary market transactions. This activity could impact the market price of our ordinary
shares at that time.
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Our ability to pay cash upon conversion or repurchase of the Convertible Notes may
be limited.
If the last reported sale price of our ordinary shares on the
trading day immediately preceding the business day immediately preceding December 15, 2028 is less than 110% of the conversion price,
holders of the Convertible Notes have the right to require us to repurchase for cash all or any portion of their Convertible Notes on
December 15, 2028 at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued
and unpaid “special interest” (as defined in the Indenture) to, but excluding, the repurchase date. Additionally, holders
of the Convertible Notes have the right, subject to and under the terms of the Indenture to require us to repurchase all or a portion
of their Convertible Notes upon the occurrence of a “fundamental change” before the maturity date, at a repurchase price equal
to 100% of the principal amount of such Convertible Notes to be repurchased, plus accrued and unpaid special interest, if any.
Our ability to repurchase the Convertible Notes upon any required
repurchase event or to pay cash upon maturity or conversion of Convertible Notes may be limited by law, regulatory authority, or agreements
governing our future indebtedness or cash liquidity constraints. In addition, we may not have enough available cash or be able to obtain
financing at the time we are required to make repurchases of the Convertible Notes surrendered or Convertible Notes being converted. Our
failure to repurchase the Convertible Notes at a time when the repurchase is required by the Indenture or to pay cash upon maturity or
conversion of such Convertible Notes as required by the Indenture would constitute a default under the Indenture. A default under the
Indenture or the fundamental change itself within the meaning of the Indenture could also lead to a default under agreements governing
our future indebtedness. If the payments of the related indebtedness were to be accelerated after any applicable notice or grace periods,
we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Notes or to pay cash upon conversion of the
Convertible Notes.
Our capped call transactions may affect the value of our ordinary shares.
In connection with the pricing of the Convertible Notes, we entered
into privately-negotiated capped call transactions (“Capped Calls”) with certain financial institutions (the “option
counterparties”). The Capped Calls are expected generally to reduce the potential dilution to our ordinary shares upon any conversion
of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Convertible
Notes, as the case may be, with such reduction and/or offset subject to a cap.
The option counterparties and/or their respective affiliates
may modify their hedge positions by entering into or unwinding various derivatives with respect to our ordinary shares and/or purchasing
or selling our ordinary shares or other securities of ours in secondary market transactions prior to the maturity of the Convertible Notes
(and are likely to do so following any conversion of the Convertible Notes, any repurchase of the Convertible Notes by us on any fundamental
change repurchase date, any redemption date or any other date on which the Convertible Notes are retired by us, in each case, if we exercise
the relevant election under the Capped Calls and in connection with any negotiated unwind or modification of the Capped Calls). This activity
could cause or avoid an increase or a decrease in the market price of our ordinary shares.
The potential effect, if any, of these transactions and activities
on the trading price of our ordinary shares will depend in part on market conditions. Any of these activities could adversely affect the
market price of our ordinary shares.
We are subject to counterparty risk with respect to the capped call transactions.
We are subject to the risk that any of the option counterparties
may default under the Capped Calls. Our exposure to the credit risk of the option counterparties under the Capped Calls will not be secured
by any collateral. Past global economic conditions, including recent increases in prevailing interest rates, have resulted in the actual
or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency
proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions
with them. Our exposure will depend on many factors. Generally, the increase in our exposure will be correlated to the increase in the
market price and in the volatility of our ordinary shares. In addition, upon a default by any counterparty to any capped call transactions,
we may suffer more dilution than we currently anticipate with respect to our ordinary shares. We can provide no assurances as to the financial
stability or viability of the option counterparties.
Compliance with new and changing corporate governance and public
disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance
Changing laws, regulations and standards relating to accounting,
corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (“Dodd-Frank”), new SEC regulations, amendments to the Israeli Companies Law and Nasdaq rules are creating increased
compliance costs and uncertainty for companies like ours. These new or changed laws, regulations and standards may lack specificity and
are subject to varying interpretations. The implementation of these laws and their application in practice may evolve over time as new
guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and
higher costs of compliance as a result of ongoing revisions to such governance standards.
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In addition, continuing compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 and the related regulations regarding our required assessment of our internal control over financial reporting
requires the commitment of significant financial and managerial resources and the report of an independent registered public accounting
firm on the Company’s internal control over financial reporting.
In connection with our Annual Report for fiscal 2025, our management
assessed our internal control over financial reporting, and determined that our internal control over financial reporting was effective
as of December 31, 2025, and our independent auditors have expressed an unqualified opinion over the effectiveness of our internal
control over financial reporting as of December 31, 2025. However, we will undertake management assessments of our internal control
over financial reporting in connection with each annual report, and any deficiencies uncovered by these assessments or any inability of
our auditors to issue an unqualified report could harm our reputation and the price of our ordinary shares.
A small number of shareholders own a substantial portion of our
ordinary shares, and they may make decisions with which you or others may disagree
As of February 28, 2026, our directors and executive officers
owned approximately 23.96% of the voting power of our outstanding ordinary shares, or 25.43% of our outstanding ordinary shares if
the percentage includes options currently exercisable or exercisable within 60 days of February 28, 2026 and RSUs and PSUs vesting within
60 days of February 28, 2026. The interests of these shareholders may differ from your interests and present a conflict. If these shareholders
act together, they could exercise significant influence over our operations and business strategy. For example, although these shareholders
hold considerably less than a majority of our outstanding ordinary shares, they may have sufficient voting power to influence matters
requiring approval by our shareholders, including the election and removal of directors and the approval or rejection of mergers or other
business combination transactions. In addition, this concentration of ownership may delay, prevent or deter a change in control, or deprive
a shareholder of a possible premium for its ordinary shares as part of a sale of our company.
Our cash balances and investment portfolio have been, and may
continue to be, adversely affected by market conditions and interest rates
We maintain substantial balances of cash and liquid investments,
for purposes of general corporate purposes, which may include acquisitions, share repurchases and other purposes. Our cash, cash equivalents,
short-term bank deposits and fixed-income marketable securities valued total of $4,342 million as of December 31, 2025. The performance
of the debt capital markets affects the market values of funds that are held in marketable securities. These assets are subject to price
fluctuations, changes in interest rates and credit spreads, market liquidity and various other factors, including, without limitation,
rating agency upgrades / downgrades that may impair some or all of their value, or unexpected changes in the financial markets’
healthiness worldwide.
We expect that market conditions will continue to fluctuate and
the fair value of our investments may be affected accordingly. Moreover, in case we would like to liquidate some of our investments into
cash – we are dependent on market conditions and liquidity opportunities, which may be impacted by economic, social, or political
conditions, including, without limitation, conditions resulting from a decline in the macroeconomic environment, rising interest rates,
exchange rate fluctuations, inflation, global pandemics, global supply chain disruptions and conditions resulting from geopolitical uncertainty
and instability or wars.
Financial income is an important component of our net income.
The outlook for our financial income is dependent on many factors, some of which are beyond our control, and they include the future direction
of interest rates, foreign exchange rates, amount of any share repurchases, acquisitions that we may execute and the amount of cash flows
from operations that are available for investment. We rely on third-party money managers to manage the majority of our investment portfolio
in a risk-controlled framework and subject to our investment policy. Our investment portfolio is invested primarily in fixed-income securities
and short-term bank deposits, and is affected primarily by changes in interest rates and credit spreads. Interest rates are highly sensitive
to many factors, including governmental monetary policies and domestic and international economic and political conditions, such as the
wars and significant military actions around the globe and any related political or economic responses and counter-responses or otherwise
by various global actors or general effect on the global economy. Any significant decline in our financial income or the value of our
investments due to changes in interest rates, interest rate expectations, credit spreads, deterioration in the credit rating of the securities
in which we have invested, or general market conditions, could have an adverse effect on our results of operations and financial condition.
We generally buy and hold our fixed income securities, while
limiting credit risk by setting a maximum concentration limit per issuer as well as setting minimum credit rating requirement. Our fixed
income investment portfolio consists primarily of government bonds, securities issued by government agencies and corporate debentures.
Although we believe that we generally adhere to conservative investment guidelines, a turmoil in the financial markets may result in impairments
of the carrying value of our investment assets. We classify our investments in fixed maturity securities as available-for-sale. Changes
in the fair value of investments classified as available-for-sale are not recognized as income during the period, but rather are recognized
as a separate component of equity until realized. Realized losses in our investments portfolio may adversely affect our financial position
and results. Had we reported the cumulative changes in the fair value of our fixed income securities as part of our income, our reported
net income for the year ended December 31, 2025, would have increased by $10 million.
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Currency fluctuations may affect the results of our operations
or financial condition
Our functional and reporting currency is the U.S. dollar. We
generate a majority of our revenues and expenses in U.S. dollars. In 2025, we incurred approximately 42% of our expenses in foreign currencies,
primarily Israeli Shekels and Euros. As such, changes in exchange rates may have a material adverse effect on our business, results of
operations and financial condition. The exchange rates between the U.S. dollar and certain foreign currencies have fluctuated substantially
in recent years and may continue to fluctuate substantially in the future. We expect that a majority of our revenues will continue to
be generated in U.S. dollars for the foreseeable future and that a significant portion of our expenses, including payroll related costs,
as well as capital and operating expenditures, will continue to be denominated in the currencies referred to above. The results of our
operations may be adversely affected in relation to foreign exchange fluctuations. During 2025, we entered into forward contracts to hedge
against some of the risk of foreign currency exchange rates fluctuations resulting in changes in future cash flow from payments of payroll
and related expenses denominated in Israeli Shekels and Euros. As of December 31, 2025, our total outstanding forward contracts that
hedge against these fluctuations in foreign currency exchange rates was $329 million.
In addition, we entered into forward contracts to hedge the impact
of fluctuations in exchange rates on assets and liabilities denominated in Israeli Shekels and other currencies. As of December 31,
2025, the total amount of outstanding forward contracts that did not qualify for hedge accounting, was $196 million. We may use derivative
financial instruments, such as foreign exchange forward contracts, put and call options, and others, to mitigate the risk of fluctuations
changes in foreign exchange rates on assets, cash flows receivables and payables denominated in certain currencies. We may not be able
to purchase derivative instruments adequate to fully protect us from foreign currency exchange risks.
Additionally, our hedging activities may also generate losses
as a result of volatility in foreign currency markets. If foreign exchange markets continue to be volatile, such fluctuations in foreign
exchange rates could materially and adversely affect our profit margins and results of operations in future periods. Also, the volatility
in the foreign exchange markets may make it difficult to hedge our foreign currency exposures effectively.
The imposition of exchange or price controls or other restrictions
on the conversion of foreign currencies could also have a material adverse effect on our business, results of operations and financial
condition.
Changes in foreign exchange rates around the globe, could have
an adverse impact on our business and results of operations. These changes may have an impact on some of our expenses which are paid in
local currencies (non-US dollar), as well as an impact on our non-US customers which have their financials in non-US dollar currencies.
Our information technology systems, networks and products and
services have been, and may continue to be, subject to various security threats and cyber security incidents
Our information technology systems, networks, products, and services
have in the past and may in the future be subject to various security threats or cyber security incidents, including from computer malware,
malicious code injection, ransomware, viruses, social engineering (including phishing attacks), denial of service or other attacks, human
error, technical errors, employee theft or misuse and general hacking. For example, we regularly face attempts by others to gain unauthorized
access, or to introduce malicious software to our information technology systems, and certain of these attempts have been successful.
Additionally, malicious hackers have attempted and in the future likely will attempt to gain unauthorized access to, or sabotage, take
control of or otherwise corrupt, our information technology systems, networks, processes, products and services. We are also a target
of attempts to gain access to our network or data centers or those of our customers or end users, steal proprietary information related
to our business, products, services, employees, and customers, or interrupt our information technology systems or networks or those of
our customers or others. We may also be subject to increasing risks in connection with geopolitical events and conflicts, such as the
war that began on February 28, 2026 between Israel, the United Stated and Iran resulting in Iran launching thousands of ballistic missiles
and drones against civilian targets in Israel and against U.S. military bases and other civilian targets in several countries in the Persian
Gulf, and Hezbollah, a terrorist organization based in Lebanon, launching hundreds of missiles and drones Israeli military sites and civilian
targets in Northern Israel, the Russia-Ukraine and the war and hostilities between Israel and Hezbollah, Hamas and Yemen, including risks
of a security breach or incident, ransomware, destructive malware, and distributed denial-of-service attacks, as well as fraud, spam and
fake accounts, cyber attacks or other threats or illegal activity. Additionally, with many of our employees continuing to work remotely,
we face an increased risk of attempted security breaches and incidents.
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We also have incorporated machine learning and other artificial
intelligence technologies into aspects of our products, services, and business, and may continue to incorporate additional artificial
technologies into our products and services and otherwise in our business and operations in the future. The use of artificial intelligence
technologies may create additional cyber security risks or increase cyber security risks and may result in security breaches or other
types of cyber security incidents. Further, artificial intelligence technologies may be used in connection with certain cyber security
attacks, resulting in heightened risks of security breaches and incidents.
There also have been and may continue to be significant supply
chain attacks (such as the attacks resulting from vulnerabilities in SolarWinds Orion and other widely-used software and technology infrastructure)
and we cannot guarantee that our or our third-party providers’ systems have not been breached or compromised or that they do not
contain exploitable defects, vulnerabilities, or bugs that could result in a security breach or incident of or impacting, or other disruption
to, our information technology systems, networks, products or services, or those of third parties that support us and our platform. We
have been impacted by security incidents of widely trusted third-party software and technology infrastructure, such as the SolarWinds
Orion incident in December 2020. We have taken steps to protect our information technology systems, networks and products and services,
but our security measures or those of our customers or third-party service providers could be insufficient and breached or otherwise compromised
or disrupted, including as a result of third-party action, employee, customer or user errors, technological limitations, defects or vulnerabilities,
malfeasance, fraud or malice on the part of employees or third parties, including state-sponsored organizations with significant financial
and technological resources, or from failures in technological resources, failures to comply with policies or otherwise. We have been,
and may in the future be, impacted by these threats and our internal controls and operations regarding security may not be effective in
eliminating the risk of compromise of our information technology systems or networks or our products or services.
While we seek to prevent, detect and investigate unauthorized
attempts, attacks and other threats against our information technology systems, network and products and services, no set of security
safeguards is infallible, and we remain at risk, including to additional known or unknown threats. We have experienced cyber security
incidents of various kinds in the past and we may experience cyber security incidents in the future, and we cannot guarantee that any
such incidents will not have a material adverse impact in the future. Any actual or perceived security breach or incident impacting us,
our third-party service providers, or our customers or users, whether successful or unsuccessful, could result in reputational harm, governmental
inquiries, investigations or other proceedings, penalties and significant costs, including those related to, for example, rebuilding internal
systems, reduced inventory value, providing modifications to our products and services, defending against litigation, responding to regulatory
inquiries or actions, paying damages, or taking other remedial steps, all of which could damage our reputation and reduce demand for our
products and services. Further, we may be required or otherwise find it appropriate to expend significant resources, adapt our business
activities and practices, or modify our operations or information technology in an effort to protect against security incidents and to
mitigate, detect and remediate vulnerabilities, whether in connection with an actual or perceived security breach or incident or otherwise.
We cannot be certain that our insurance coverage will be adequate
for data security liabilities incurred and, that it will cover any indemnification claims against us relating to any incident, that insurance
will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any
future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence
of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements,
could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
We depend on our executive officers and other key employees, and
the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could adversely affect
our business, and we may not be able to successfully navigate the recent leadership changes while maintaining key aspects of our culture,
which could have a significant negative effect on our existing business and our ability to pursue future plans
Our success depends largely upon the continued services of our
executive officers and other key employees. There have been changes in the past, and there may be changes in the future, to our executive
management team resulting from the hiring or departure of executives, which could disrupt our business. In December 2024, Nadav Zafrir
became our new Chief Executive Officer and our founder and former Chief Executive Officer, Gil Shwed, transitioned into the role
of Executive Chairman. In addition, in 2025 we announced the appointments of several senior management members. The loss of one
or more of our executive officers or other key employees could adversely affect our business. Changes in our executive management team
may also cause disruptions in, and adverse impacts to, our business. We also may not be able to successfully navigate the recent
leadership changes while maintaining key aspects of our culture, which could have a significant negative effect on our existing business
and our ability to pursue future plans.
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Risks Related to Our Operations in Israel
The ongoing war and other potential political, economic and military
instability in Israel, where our principal executive offices and our principal research and development facilities are located, may adversely
affect our results of operations
We are incorporated under the laws of the State of Israel, and
our principal executive offices and principal research and development facilities are located in Israel. Accordingly, political, economic
and military conditions in and surrounding Israel may directly affect our business. Since the State of Israel was established in 1948,
a number of armed conflicts have occurred between Israel and its Arab neighbors. Terrorist attacks and hostilities within Israel; and
the war between Israel, the U.S. and Iran, and the ongoing hostilities between Israel and Hezbollah, Hamas and Yemen, have also heightened
these risks.
In October 2023, Hamas terrorists infiltrated Israel’s
southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched
extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip
and in other areas within the State of Israel. These attacks resulted in extensive deaths, injuries and kidnapping of civilians and soldiers.
Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations
commenced in parallel to their continued rocket and terror attacks. Following the attack by Hamas on Israel’s southern border, Hezbollah
in Lebanon has also launched missile, rocket, and shooting attacks against Israeli military sites, troops, and Israeli towns in northern
Israel. In response to these attacks, Israel’s security cabinet declared war against the Hezbollah in southern Lebanon. The Houthi
movement, which controls parts of Yemen, launched missile, rocket, and shooting attacks against Israel and attacks on marine vessels traversing
the Red Sea, which marine vessels were thought to either be in route towards Israel or to be partly owned by Israeli businessmen.
It is possible that other terrorist organizations, including Palestinian military organizations in the West Bank, as well as other hostile
countries will join the hostilities.
On February 28, 2026, Israel and the United States launched a
joint attack against Iran, targeting key officials and military commanders. Iran launched thousands of ballistic missiles and drones against
civilian targets in Israel and against U.S. military bases and other civilian targets in several countries in the Persian Gulf , and Hezbollah
launched hundreds of missiles and drones from Lebanon against Israeli military sites and civilian targets in Northern Israel.
The intensity and duration of the current war between Israel,
the U.S. and Iran, and the ongoing hostilities between Israel and Hezbollah, Hamas and Yemen are difficult to predict, as are such hostilities’
economic implications on our business and operations and on Israel's economy in general. Our principal place of business is located in
Tel Aviv, Israel, and there can be no assurance that attacks launched will not reach our facilities, which could result in a significant
disruption of our business. Further, these events may be intertwined with wider macroeconomic indications of a deterioration of Israel’s
economic standing, that may involve an additional downgrade in Israel's credit rating by rating agencies, which may have an adverse effect
on the Company and our ability to effectively conduct our operations.
Any war or hostilities involving Israel, a significant increase
in terrorism or the interruption or curtailment of trade between Israel and its present trading partners, a potential boycott of any Israeli
products, or a significant downturn in the economic or financial condition of Israel, could materially adversely affect our operations.
Ongoing and revived hostilities or other Israeli political or economic factors could materially adversely affect our business, results
of operations and financial condition. In addition, there have been increased efforts by activists to cause companies and consumers to
boycott Israeli goods based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact
our ability to sell our products.
Our commercial insurance does not cover losses that may occur
as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct
damages that are caused by terrorist attacks or acts of war, we cannot be certain that such government coverage will be maintained or
that it will sufficiently cover our potential damages.
Uprisings and armed conflicts in various countries in the Middle
East and North Africa are affecting the political stability of those countries. This instability may lead to deterioration of the political
and trade relationships that exist between Israel and these countries. In addition, this instability may affect the global economy and
marketplace, including as a result of changes in oil and gas prices.
Beginning in 2023, governmental attempts to pursue a reform in
Israel’s judicial system have prompted significant political tension in Israel. This controversy has prompted protests in Israel
and triggered a considerable political debate. The proposed legislation has not become effective and its scope has not been fully determined.
At this stage we cannot assess the potential business impact of these developments and their likely effect on our business, results of
operation, and financial condition , but we continue to monitor the evolving government tensions.
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Our operations may be disrupted by the obligations of our personnel
to perform military service
Many of our employees in Israel are obligated to perform annual
military reserve duty in the Israel Defense Forces, in the event of a military conflict, could be called to active duty. Our operations
could be disrupted by the absence of a significant number of our employees related to military service or the absence for extended periods
of military service of one or more of our key employees. Military service requirements for our employees could materially adversely affect
our business, results of operations and financial condition.
We are subject to risks in connection with the development of
our new campus in Tel Aviv, Israel
In June 2025, our joint bid with Israel Canada (T.R.) Ltd. for
the long-term prepaid lease of a land lot in Tel Aviv, Israel was approved as the winning bid. Our portion of the aggregate purchase price
payable pursuant to the joint bid was NIS 500 million plus Israeli VAT (total net payment including unrecoverable taxes of approximately
$160 million).
We intend to develop the commercial portion of the land lot,
a piece of land within walking distance from the Company’s current headquarters in Tel Aviv and connected by a park, to address
our expansion plans for the coming years. We expect the construction of the new campus to be completed by 2032.
The successful and timely completion of the new campus project
is subject to numerous risks, many of which are beyond our control. These risks include construction delays, cost overruns and permitting
and regulatory challenges. Any of these factors could increase the total cost of the project above our current expectations and delay
the timing of its completion.
In addition, the design and construction of a large-scale campus
is inherently complex and may require us to make assumptions regarding future workforce size, space utilization, hybrid work environment,
and operational needs. If these assumptions prove to be inaccurate, we may incur inefficiencies in the use of the campus, including underutilized
or excess space. For example, changes in our business, including shifts toward remote or hybrid work arrangements, workforce reductions,
or slower-than-expected growth, could result in a significant portion of the campus being unused or not fully utilized upon completion.
The location of our new campus in Tel Aviv, Israel, is also subject
to risks associated with the ongoing hostilities in the Middle East, and there can be no assurance that attacks launched will not reach
our new campus or delay the construction and buildout of our campus.
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
For the year ended December 31, 2025, our effective tax
rate was (12%). Our income tax benefit was primarily related to the settlement with the ITA and the adjustment of Israeli tax expenses
due to the application of the lower statutory tax rate. We have benefited or currently benefit from a variety of government programs and
tax benefits that generally carry conditions that we must meet in order to be eligible to obtain any benefit.
Our income tax and the effective
tax rate reflected in our financial statements increased beginning 2026 as a result of the recently enacted new corporate
minimum tax law of 15% in Israel and other changes in the tax laws of the countries in which we operate or changes in the mix of countries
where we generate profit.
If we fail to meet the conditions upon which certain favorable
tax treatment is based, we would not be able to claim future tax benefits and could be required to refund tax benefits already received.
Any of the following could have a material effect on our overall
effective tax rate:
• Some programs may be discontinued,
• We may be unable to meet the requirements for continuing to qualify for some programs,
• These programs and tax benefits may be unavailable at their current levels, or
• We may be required to refund previously recognized tax benefits if we are found to be in violation of the stipulated conditions.
Additional details are provided in “Item 5 – Operating
and Financial Review and Prospects” under the caption “Taxes on income”, in “Item 10 – Additional Information”
under the caption “Israeli taxation, foreign exchange regulation and investment programs” and in Note 12 to our Consolidated
Financial Statements.
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Shareholder rights and responsibilities are, and will continue
to be, governed by Israeli law which differs in some material respects from the rights and responsibilities of shareholders of U.S. companies
The rights and responsibilities of the holders of our ordinary
shares are governed by our articles of association and by Israeli law. These rights and responsibilities differ in some material respects
from the rights and responsibilities of shareholders in U.S.- based corporations. In particular, a shareholder of an Israeli company has
a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and
other shareholders, and to refrain from abusing its power in the company, including, among other things, in voting at a general meeting
of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized
share capital, mergers and acquisitions and related party transactions requiring shareholder approval. In addition, a shareholder who
is aware that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director
or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist in understanding
the nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations
and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
Provisions of Israeli law and our articles of association may
delay, prevent or make difficult an acquisition of us, prevent a change of control, and negatively impact our share price
Israeli corporate law regulates acquisitions of shares through
tender offers and mergers, requires special approvals for transactions involving directors, officers or significant shareholders, and
regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax considerations may make potential
acquisition transactions unappealing to us or to some of our shareholders. For example, Israeli tax law may subject a shareholder who
exchanges his or her ordinary shares for shares in a foreign corporation, to taxation before disposition of the investment in the foreign
corporation. These provisions of Israeli law may delay, prevent or make difficult an acquisition of our company, which could prevent a
change of control and, therefore, depress the price of our shares.
In addition, our articles of association contain certain provisions
that may make it more difficult to acquire us, such as the provision which provides that our board of directors may issue preferred shares.
These provisions may have the effect of delaying or deterring a change in control of us, thereby limiting the opportunity for shareholders
to receive a premium for their shares and possibly affecting the price that some investors are willing to pay for our securities.
As a foreign private issuer we are not subject to the provisions
of Regulation FD or U.S. proxy rules and are exempt from filing certain Exchange Act reports
As a foreign private issuer, we are exempt from a number of requirements
under U.S. securities laws that apply to public companies that are not foreign private issuers. In particular, we are exempt from the
rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. In addition, we are not required
under the Exchange Act to file annual and current reports and financial statements with the SEC as frequently or as promptly as U.S. domestic
companies whose securities are registered under the Exchange Act and we are generally exempt from filing quarterly reports with the SEC
under the Exchange Act. We are also exempt from the provisions of Regulation FD, which prohibits issuers from making selective disclosure
of material nonpublic information to, among others, broker-dealers and holders of a company’s securities when it is reasonably foreseeable
that the holder will trade in the company’s securities on the basis of the information. For so long as we qualify as a foreign private
issuer, we are not required to comply with the proxy rules applicable to U.S. domestic companies, although pursuant to the Companies Law,
we disclose the annual compensation of our five most highly compensated office holders (as defined under the Israeli Companies Law) on
an individual basis, including in this Annual Report.
As a foreign private issuer whose shares are listed on the Nasdaq
Global Select Market, we may follow certain home country corporate governance practices instead of certain Nasdaq requirements
As a foreign private issuer whose shares are listed on Nasdaq,
we are permitted to follow certain home country corporate governance practices instead of certain requirements of the Nasdaq Stock Market
Rules. For example, we follow our home country law, instead of the Nasdaq Stock Market Rules, which require that we obtain shareholder
approval for the establishment or amendment of certain equity-based compensation plans and arrangements. Under Israeli law and practice,
in general, the approval of the board of directors is required for the establishment or amendment of equity-based compensation plans and
arrangements, unless the arrangement is for the benefit of a director or a controlling shareholder, in which case compensation committee
or audit committee and shareholder approval are also required. A foreign private issuer that elects to follow a home country practice
instead of Nasdaq requirements must submit to Nasdaq in advance a written statement from an independent counsel in such issuer’s
home country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign
private issuer must disclose in its annual reports filed with the SEC each such requirement that it does not follow and describe the home
country practice followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the same protection
as provided under Nasdaq’s corporate governance rules.
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