NOTE 3. REVENUE RECOGNITION

Disaggregation of Revenue

The Company views its segment results to be the best view of disaggregated revenue. Refer to Note 4 – Segments.

Remaining Performance Obligations

The remaining performance obligation (“RPO”) represents the aggregate amount of contractual deliverables yet to be recognized as revenue at the end of the reporting period. It is intended to be a statement of overall work under contract that has not yet been performed and does not include contracts in which the customer is not committed. The customer is not considered committed when it is able to terminate for convenience without payment of a substantive penalty. The RPO also includes estimates of variable consideration. RPO estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidations, adjustments for revenue that has not materialized and adjustments for currency.

At June 30, 2026, the aggregate amount of RPO related to customer contracts that are unsatisfied or partially unsatisfied was $32.2 billion. Approximately 59 percent of the amount is expected to be recognized as revenue in the next two years, approximately 37 percent in the subsequent three years, and the balance thereafter.

During the three months ended June 30, 2026 and June 30, 2025, revenue increased by $2 million and $13 million, respectively from performance obligations satisfied (or partially satisfied) in previous periods, mainly due to changes in estimates.

Contract Balances

The following table provides information about receivables, contract assets and deferred income balances:

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The amount of revenue recognized during the three months ended June 30, 2026 and June 30, 2025 that was included within the deferred income balance at March 31, 2026 and March 31, 2025 was $392 million and $322 million, respectively.

The following table provides roll-forwards of the accounts receivable allowance for expected credit losses for the three months ended June 30, 2026 and 2025:

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The allowance for expected credit losses of long-term accounts receivable, sales-type leases receivable, and contract assets was not material in any of the periods presented.

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Major Clients

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No single client represented more than 10 percent of the Company’s total revenue during the three months ended June 30, 2026 and 2025. No single client represented more than 10 percent of the Company’s total accounts receivable balance as of June 30, 2026 and March 31, 2026, respectively.

Deferred Costs

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The following table provides amounts of capitalized costs to acquire and fulfill customer contracts at June 30, 2026 and March 31, 2026:

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The amount of total deferred costs amortized for the three months ended June 30, 2026 was $426 million, composed of $56 million of amortization of deferred transition costs, $275 million of amortization of prepaid software costs and $94 million of amortization of capitalized contract costs. The amount of total deferred costs amortized for the three months ended June 30, 2025 was $414 million, composed of $63 million of amortization of deferred transition costs, $245 million of amortization of prepaid software costs and $106 million of amortization of capitalized contract costs.