Executive Summary

Q1 2025 delivered solid top-line growth and outstanding profitability: revenue $1.54B (+13.8% YoY), GAAP operating margin 29.5%, and record non-GAAP operating margin 34.2% .
EPS beat vs consensus: non-GAAP EPS $0.58 vs $0.53 estimate; revenue essentially in line at $1.54B vs $1.54B estimate; total gross margin rose to 81.9% on normalization of inventory-related charges and cost efficiencies (approx. +380 bps YoY) .
Guidance: Q2 2025 revenue $1.59–$1.65B; FY 2025 revenue $6.65–$6.85B; Fortinet raised the midpoint of FY operating margin guidance due to Q1 outperformance despite FX headwinds (FY non-GAAP op margin 31.5–33.5%, up from 31.0–33.0%) .
Strategic momentum: Unified SASE ARR $1.15B (+25.7% YoY) and Security Operations ARR $434.5M (+30.3% YoY); billings +13.5% YoY to $1.60B; current RPO $3.38B (+15.4% YoY) .
Catalyst narrative: H2 firewall upgrade cycle, product launches (FortiGate 700G series), and expanding SASE adoption could drive estimate revisions and multiple expansion; management remains cautious on macro and FX, but sees limited tariff impact near term .

What Went Well and What Went Wrong

What Went Well

Margin strength: “Total gross margin increased 380 basis points to 81.9%… product gross margin of 67.7% increased 1,200 bps as inventory-related charges normalize” .
SASE and SecOps scaling: Unified SASE ARR up 26%; Security Operations ARR up 30%; combined ARR reached ~$1.58B; billings growth in Unified SASE +18% and SecOps +29% .
Deal momentum and enterprise strength: “Large enterprise was our top-performing customer segment… growth ~30%; number of deals >$1M up 30%, including three 8-figure deals” .

What Went Wrong

Sequential service revenue softness: Q1 service revenue of $1.081B down vs Q4’s $1.086B; management cited fewer days in Q1 vs Q4 and time needed to grow acquired entities’ revenue streams; some churn on acquired customers .
FX headwinds: management embedded ~120 bps operating margin headwind in Q2 and ~90 bps for FY from USD weakening more than anticipated .
Conservative guidance despite pipeline strength: Sales expectations and macro/geopolitical uncertainty drove cautious top-line ranges despite strong close rates and channel activity; no evidence of pull-forwards ahead of tariffs .

Financial Results

Headline P&L and Margins (Quarterly)

Metric	Q3 2024	Q4 2024	Q1 2025
Revenue ($USD Billions)	$1.508	$1.660	$1.540
GAAP Diluted EPS ($)	$0.70	$0.68	$0.56
Non-GAAP Diluted EPS ($)	$0.63	$0.74	$0.58
GAAP Operating Margin (%)	31.2%	34.6%	29.5%
Non-GAAP Operating Margin (%)	36.1%	39.2%	34.2%
Total Gross Margin (%)	—	—	81.9%

Revenue Mix, Billings, and ARR

Metric	Q3 2024	Q4 2024	Q1 2025
Product Revenue ($USD Millions)	$473.9	$574.0	$459.1
Service Revenue ($USD Millions)	$1,034.2	$1,086.1	$1,080.6
Billings ($USD Billions)	$1.582	$2.003	$1.597
Unified SASE ARR ($USD Billions)	—	$1.12	$1.15
Security Operations ARR ($USD Millions)	—	$422.4	$434.5
Remaining Performance Obligations ($USD Billions)	—	$6.42	$6.49
Current RPO to be recognized in 12 months ($USD Billions)	—	—	$3.38

Margin detail (Q1 2025 only)

Metric	Q1 2025
Product Gross Margin (%)	67.7%
Service Gross Margin (%)	87.8%
Cash Flow from Operations ($USD Millions)	$863.3
Free Cash Flow ($USD Millions)	$782.8

Consensus vs Actual (Q1 2025)

Metric	Consensus Estimate	Actual
Revenue ($USD Billions)	$1.541*	$1.540
Non-GAAP EPS ($)	$0.532*	$0.58

Values with asterisks (*) retrieved from S&P Global.

Context: EBITDA consensus $507M* vs actual $483M*; total gross margin and non-GAAP op margin exceeded guidance high-end on inventory charge normalization and cost efficiencies . Values with asterisks (*) retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD Billions)	Q2 2025	—	$1.590–$1.650	New
Billings ($USD Billions)	Q2 2025	—	$1.685–$1.765	New
Non-GAAP Gross Margin (%)	Q2 2025	—	80.0–81.0	New
Non-GAAP Operating Margin (%)	Q2 2025	—	31.5–32.5	New
Non-GAAP Diluted EPS ($)	Q2 2025	—	$0.58–$0.60; non-GAAP tax rate 18%; diluted shares 773–777M	New
Revenue ($USD Billions)	FY 2025	$6.650–$6.850	$6.650–$6.850	Maintained
Service Revenue ($USD Billions)	FY 2025	$4.575–$4.725	$4.575–$4.725	Maintained
Billings ($USD Billions)	FY 2025	$7.200–$7.400	$7.200–$7.400	Maintained
Non-GAAP Gross Margin (%)	FY 2025	79.0–81.0	79.0–81.0	Maintained
Non-GAAP Operating Margin (%)	FY 2025	31.0–33.0	31.5–33.5	Raised midpoint
Non-GAAP Diluted EPS ($)	FY 2025	$2.41–$2.47	$2.43–$2.49	Raised midpoint
Non-GAAP Effective Tax Rate (%)	FY/Q2 2025	18%	18%	Maintained

Management noted FX headwinds (~120 bps in Q2; ~90 bps FY) embedded in margin outlook; cautious top-line ranges given macro/geopolitical uncertainty; still confident in H2 firewall upgrade cycle .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2024, Q4 2024)	Current Period (Q1 2025)	Trend
SASE strategy & scale	Strong SASE/ARR growth; raised 2024 revenue and margin guidance; leadership in single OS SASE	Unified SASE ARR $1.15B (+25.7% YoY); billings +18%; penetration among large enterprises rose to 11% (+~10% QoQ)	Accelerating adoption
Secure Networking & FortiGate upgrades	Product returned to growth; record margins; expect firewall cycle	FortiGate hardware revenue up mid-teens; upgrade cycle expected to gain momentum H2 2025	Upcycle building
AI initiatives	Ongoing AI-driven innovation highlighted	FortiAI Assist/Protect/Secure AI; 500+ AI patents; AI integrated across products	Expanding AI footprint
Macro/tariffs	Heightened geopolitical risks cited	Limited near-term tariff impact; no pull-forward; cautious guide; FX headwinds to margins	Manageable near term
Regional trends	Notable emerging markets momentum	EMEA best geography; international emerging mid-teens growth; government/FS >20%	Broad-based strength
CNAPP/Lacework	Acquisition completed; bargain purchase	Market disruption (Wiz-Google) creates opportunity; need to refine sales motion	Early-stage integration
R&D/Platform	Continued investment; record operating margins	New FortiGate 700G with ASICs, FortiOS enhancements (post-quantum readiness, AI risk)	Product cadence intact
Regulatory/legal	Risk factors reiterated	Standard forward-looking statements; no material changes	Stable disclosures

Management Commentary

Ken Xie (CEO): “We… record first quarter non-GAAP operating margin of 34%… billings grew 14%… investing in Unified SASE and Security Operations while strengthening leadership in Secure Networking” .
Keith Jensen (CFO): “Product gross margin… increased 1,200 basis points as inventory-related charges normalize… added ~400 bps to total gross margin” .
Christiane Ohlgart (incoming CFO): “We are maintaining our full-year billings and revenue guidance ranges to account for potential top line risks… we expect the firewall upgrade cycle to gain momentum in the second half of 2025” .
Product: FortiGate 700G “delivers up to 7x higher firewall throughput… and 7x lower power consumption than competitor offerings” with FortiAI-Protect and post-quantum cryptography readiness .

Q&A Highlights

Service revenue dynamics: Sequential dip driven by fewer calendar days in Q1 vs Q4 and time needed to ramp acquired entities; current RPO strong and FortiGate growth supports future services .
Tariffs and channel: Minimal near-term tariff impact; no evidence of deal pull-forward; any tariff effects would appear first in cash flow rather than P&L .
Demand and guidance: Sales teams are cautious amid headline risk despite good close rates and channel feedback; management chose prudent guidance ranges .
Large transactions: SD-WAN deployments and fabric expansion are key drivers; three 8-figure deals closed; pipeline included these deals and closed as expected .
Refresh cycle and mix: SMB buying more units; enterprise strategies vary (consolidation vs like-for-like); new models (e.g., 700G) timed to upgrades .

Estimates Context

Q1 2025 vs S&P Global consensus: EPS beat ($0.58 vs $0.53*), revenue essentially in line ($1.540B vs $1.541B*) .
Margins surprised positively vs guidance high-end; management raised FY operating margin midpoint despite FX headwinds, suggesting estimates may need to adjust higher on margins while revenue remains within cautious ranges .
Values with asterisks (*) retrieved from S&P Global.

Key Takeaways for Investors

Fortinet delivered an EPS beat and margin surprise, with total gross margin at ~82% and non-GAAP operating margin 34.2%, aided by normalization of inventory charges and operating efficiencies .
SASE and SecOps are scaling rapidly (ARR +26–30%), supporting durable growth diversification beyond firewalls; watch penetration growth and ARR trajectory for re-rating potential .
Guidance is prudently set amid macro/FX; FY operating margin midpoint raised, implying upward bias to profitability assumptions even as revenue ranges hold .
Near-term tariff risk appears limited; no pull-forward behavior detected; FX is the larger variable impacting margins in Q2/FY .
H2 firewall upgrade cycle remains the key catalyst; enterprise FortiGate growth and new 700G series could accelerate product and service revenue in 2H, supporting billings and RPO conversion .
Monitoring points: service revenue re-acceleration (calendar effect removed), FX trajectory, large-deal linearity, CNAPP/Lacework sales motion maturation, and continued SASE penetration in large enterprises .
Trading: Short-term, the margin beat and cautious-but-intact FY ranges support a constructive stance; medium-term thesis hinges on H2 upgrade cycle and platform wins driving sustained ARR and billings growth.

Fortinet, Inc. (FTNT)·Q1 2025 Earnings Summary