Sign in
FI

Fortinet, Inc. (FTNT)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered a clean beat: revenue $1.63B (+14% Y/Y) and non-GAAP EPS $0.64 vs S&P Global consensus ~$0.59; billings $1.78B (+15% Y/Y) exceeded company guidance and drove a raise to full‑year billings midpoint by $100M (now $7.40B midpoint). *
  • Mix and margin: non‑GAAP operating margin of 33.1% (down ~200 bps Y/Y) as Fortinet stepped up sales capacity, absorbed recent M&A costs, and invested in hosted security; total gross margin ran ~81.6% in the quarter, above the guide.
  • Demand drivers: strong large‑enterprise momentum (>$1M deals +29%, total value +51%), EMEA led revenue growth (+18%); Unified SASE/SecOps ARR grew +22%/+35% Y/Y with FortiSASE ARR >100% Y/Y and 13% of large enterprise customers now adopting FortiSASE.
  • Guidance: Q3 revenue $1.67–$1.73B and non‑GAAP EPS $0.62–$0.64 (midpoints roughly in line with consensus); FY25 revenue held while mix shifts $50M from services to product; FY25 non‑GAAP EPS raised to $2.47–$2.53. *
  • Strategic adds: expanded FortiCloud with FortiIdentity, FortiDrive, FortiConnect; management reiterated being ~40–50% through the 2026 firewall refresh cycle and emphasized sovereign SASE as a differentiator.

What Went Well and What Went Wrong

What Went Well

  • Beat and raise: Billings +15% Y/Y to $1.78B, beating guidance; full‑year billings midpoint raised by $100M on stronger demand. “Our strong second quarter performance…enabled us to beat our billings guidance… and raise our full year billings outlook.” — Ken Xie.
  • Enterprise/SASE strength: >$1M deal count +29% and value +51%; FortiSASE ARR >100% Y/Y with 13% penetration in large enterprise; EMEA led revenue growth at +18%.
  • Platform momentum and recognition: “We are the industry leader in network security… and recognized leadership in the 2025 Gartner Magic Quadrant for SASE Platforms.” — Ken Xie.

What Went Wrong

  • Margin compression: Non‑GAAP operating margin fell to 33.1% (from 35.1% a year ago) on higher sales headcount, M&A cost absorption, and FX; service gross margin down 80 bps on hosted security investments.
  • Free cash flow softness Q/Q: FCF fell to $284.1M in Q2 vs $782.8M in Q1 as infrastructure investments rose to ~$168M to support FortiSASE/FortiCloud scale.
  • Services growth deceleration and flat SASE ARR Q/Q: Unified SASE ARR was roughly flat sequentially at ~$1.15B as other products churn offset FortiSASE growth; CFO noted service revenue conversion lags billings and emphasized upsell timing.

Financial Results

Income Statement and Profitability (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Total Revenue ($M)1,660.1 1,539.7 1,630.0
Product Revenue ($M)574.0 459.1 508.9
Service Revenue ($M)1,086.1 1,080.6 1,121.1
GAAP Diluted EPS ($)0.68 0.56 0.57
Non‑GAAP Diluted EPS ($)0.74 0.58 0.64
GAAP Operating Margin (%)34.6% 29.5% 28.1%
Non‑GAAP Operating Margin (%)39.2% 34.2% 33.1%

Cash Flow and Billings (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Billings ($M)2,002.5 1,597.2 1,778.4
Free Cash Flow ($M)380.0 782.8 284.1

KPIs and ARR

KPIQ4 2024Q1 2025Q2 2025
Unified SASE ARR ($M)1,120.0 1,150.0 1,150.0
Security Operations ARR ($M)422.4 434.5 463.0
RPO ($M)Q1 2025Q2 2025
Total RPO6,490.0 6,640.0
Current RPO3,380.0 3,450.0

Consensus vs Actual (Q2 2025)

MetricConsensusActualBeat/(Miss)
Revenue ($M)1,625.9*1,630.0 +4.1
Non‑GAAP EPS ($)0.5911*0.64 +0.0489

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

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($B)FY 20256.650–6.850 6.675–6.825 Maintained range (slight midpoint tweak)
Service Revenue ($B)FY 20254.575–4.725 4.550–4.650 Mix shift to product (lowered services)
Billings ($B)FY 20257.200–7.400 7.325–7.475 Raised (+$100M midpoint)
Non‑GAAP Gross Margin (%)FY 202579–81 79–81 Maintained
Non‑GAAP Op Margin (%)FY 202531.5–33.5 32.0–33.5 Raised low end
Non‑GAAP EPS ($)FY 20252.43–2.49 2.47–2.53 Raised
Revenue ($B)Q3 2025—1.670–1.730 New
Non‑GAAP EPS ($)Q3 2025—0.62–0.64 New
Non‑GAAP Gross Margin (%)Q3 2025—80–81 New
Non‑GAAP Op Margin (%)Q3 2025—32.5–33.5 New
Infrastructure Investments ($M)Q3 2025—110–130 New
Infrastructure Investments ($M)FY 2025380–430 380–430 Maintained

CFO note: FY25 revenue mix shifts ~$50M from services to product while raising billings midpoint.

Q3 2025 Guidance vs Consensus

MetricGuidance RangeMidpointConsensusMidpt vs Cons
Revenue ($M)1,670–1,730 1,7001,704.8*−4.8
Non‑GAAP EPS ($)0.62–0.64 0.630.6330*−0.0030

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

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24, Q1’25)Current Period (Q2’25)Trend
AI & Technology InitiativesEmphasized AI‑powered services (FortiAI Ops; AI savings in services GM); acquisitions (Lacework, Perception Point) to broaden platform. Launched FortiIdentity (IAM), FortiDrive (secure storage), FortiConnect (collab) on FortiCloud; >500 issued/pending AI patents. Expanding platform scope
Supply ChainNormalized inventory charges boosted GM in Q4. No supply chain issues flagged; investment in hosted security weighed on service GM. Stable; investment phase
Tariffs/MacroCautioned on tariff/macro uncertainty, particularly LatAm/Canada and US Fed exposure. “Despite ongoing uncertainty…we have not experienced a negative impact.” Improved resilience
Product PerformanceQ4 product +18% Y/Y; services +17%. Q2 product +13% Y/Y; services +14%; EMEA +18% led growth. Sustained growth
Regional TrendsEMEA strength and emerging markets momentum in Q4. EMEA +18% Y/Y; Americas/APAC +11% each. EMEA leading
Refresh CycleEarly enterprise upgrade movement; ramp expected into 2H’25. ~40–50% through 2026 cohort; focus on upsell to “new‑gen SASE firewall.” Progressing

Management Commentary

  • “Our strong second quarter performance and consistent track record of growth are a direct result of our continued innovation and customer‑first strategy…we beat our billings guidance…and raise our full year billings outlook.” — Ken Xie.
  • “Unified SASE increased by 22% to $1.15B and SecOps increased by 35% to $463M…FortiSASE ARR growth of over 100%…13% of our large enterprise customers have purchased FortiSASE.” — CFO Christiane Ohlgart.
  • “We estimate we are approximately 40% to 50% of the way through the 2026 upgrade cycle…we expect continued upgrade activity over the next six quarters.” — CFO Christiane Ohlgart.
  • “We are the only vendor…to develop all core SASE capability in a single operating system, FortiOS…this has become the new generation SASE firewall.” — Ken Xie.

Q&A Highlights

  • SASE vs firewall cannibalization: Management sees SASE as expansion, not replacement; the “SASE firewall” augments the core control point; win‑loss shows minimal cloud migration cannibalization.
  • Services deceleration/ARR flat Q/Q: Services revenue conversion lags billings; unified SASE ARR was sequentially flat due to offsetting churn in other products; upsell timing drives variability.
  • Refresh cadence and magnitude: ~40–50% through 2026 cohort; activity skewing to large enterprises; 2027 cohort smaller revenue impact (lower‑end devices) but creates upsell touchpoints.
  • Mix shift and margins: FY revenue mix shifts ~$50M from services to product, while maintaining GM range and slightly increasing op‑margin midpoint; Q2 service GM down 80 bps on hosted security investments.
  • Sovereign SASE differentiation: Telco partnerships and locally deployable single‑OS solution underpin a strong sovereign SASE value proposition; management sees sovereign SASE potentially taking ~half of SASE market over time.

Estimates Context

  • Q2 2025 delivered beats: revenue $1,630M vs ~$1,625.9M consensus; non‑GAAP EPS $0.64 vs ~$0.591. Estimate count: 38 (revenue), 39 (EPS). *
  • Q3 2025 guidance (midpoint) is roughly in line with consensus: revenue midpoint ~$1,700M vs ~$1,704.8M; EPS midpoint $0.63 vs ~$0.633. *
  • Implication: modest upward revisions likely for FY billings; revenue/EPS tweaks may be limited given in‑line Q3, but mix shift (more product) and margin performance could drive small EPS upward bias if execution on GM holds. *

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

Key Takeaways for Investors

  • Fortinet posted a clean beat/raise quarter on billings and EPS, with full‑year billings midpoint raised $100M — a key stock driver in platform transition stories.
  • Enterprise momentum and SASE flywheel are tangible: >$1M deal velocity, FortiSASE ARR >100% Y/Y, and 13% penetration in large enterprise support multi‑pillar expansion.
  • Watch margins: non‑GAAP operating margin dipped Y/Y on investments and hosted security, but gross margin execution stayed above guide; sustained 80–81% GM guardrails remain credible.
  • Mix shift to product near‑term (services guide trimmed) could pressure near‑term services growth optics while seeding future services revenue; monitor ARR and RPO trajectory to gauge conversion.
  • Refresh cycle is progressing (40–50% through 2026 cohort) but management frames it more as an upsell catalyst than a standalone revenue spike; sovereign SASE and FortiCloud expansion are the longer‑term growth vectors.
  • Near‑term trading setup: EPS/billings beats and a billings raise support positive sentiment; in‑line Q3 guide tempers expectations — focus on deal momentum, EMEA leadership, and SASE attach in Q3 updates.
  • Medium‑term thesis: Fortinet’s single‑OS platform (FortiOS), sovereign SASE capability, and expanding FortiCloud services position it to compound through convergence, with operating leverage potential as hosted security investments scale.

Footnotes:

  • Values marked with asterisks (*) under Estimates/Consensus are retrieved from S&P Global.