FTNT Q2 2025: SASE Upsell Backed by Half of 2026 Firewall Refresh
- Strong Momentum in Product and SASE Growth: The executives highlighted that the new SASE firewall and integrated platform approach will drive significant upsell and cross-sell opportunities, positioning the company for continued product revenue acceleration beyond refresh cycles.
- Robust Firewall Refresh Cycle with Upside Potential: With approximately 40% to 50% of the 2026 upgrade cycle completed, the ongoing refresh not only sustains current revenue but also opens up additional upsell opportunities as customers upgrade to newer, more capable solutions.
- Diversification into High-Growth Segments: The discussion emphasized growth in OT security (over 20%), cloud services, and enhanced service revenue from integrated solutions—all of which broaden Fortinet’s revenue base and support long-term growth.
- Underlying Firewall Demand Concern: Several questions highlighted that excluding refresh activity, underlying firewall and product revenue growth appears flat or weak, suggesting potential softness in core demand.
- Service Revenue Deceleration: There were concerns that service revenues are decelerating due to recognition of large deferred revenues from the COVID period, which may not be sustainable going forward.
- Reliance on Refresh Cycles: The reliance on a forcing refresh cycle (notably the large 2026 cohort) may only provide temporary momentum, raising doubts about the robustness of longer-term organic growth as legacy products comprise a small percentage of total business.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Billings ($USD) | Q3 2025 | no prior guidance | $1,760,000,000 to $1,840,000,000 (growth of 14% at midpoint) | no prior guidance |
Revenue ($USD) | Q3 2025 | no prior guidance | $1,670,000,000 to $1,730,000,000 (growth of 13% at midpoint) | no prior guidance |
Non-GAAP Gross Margins (%) | Q3 2025 | no prior guidance | 80% to 81% | no prior guidance |
Non-GAAP Operating Margin (%) | Q3 2025 | no prior guidance | 32.5% to 33.5% | no prior guidance |
Non-GAAP EPS ($USD) | Q3 2025 | no prior guidance | $0.62 to $0.64 (share count: 772,000,000 to 776,000,000) | no prior guidance |
Infrastructure Investments ($USD) | Q3 2025 | no prior guidance | $110,000,000 to $130,000,000 | no prior guidance |
Non-GAAP Tax Rate (%) | Q3 2025 | no prior guidance | 18% | no prior guidance |
Cash Taxes ($USD) | Q3 2025 | no prior guidance | $60,000,000 to $90,000,000 | no prior guidance |
Billings ($USD) | FY 2025 | no prior guidance | $7,325,000,000 to $7,475,000,000 (growth of 13% at midpoint) | no prior guidance |
Revenue ($USD) | FY 2025 | no prior guidance | $6,675,000,000 to $6,825,000,000 (growth of 30% at midpoint) | no prior guidance |
Service Revenue ($USD) | FY 2025 | no prior guidance | $4,550,000,000 to $4,650,000,000 (growth of 14% at midpoint) | no prior guidance |
Non-GAAP Gross Margins (%) | FY 2025 | no prior guidance | 79% to 81% | no prior guidance |
Non-GAAP Operating Margin (%) | FY 2025 | no prior guidance | 32% to 33.5% | no prior guidance |
Non-GAAP EPS ($USD) | FY 2025 | no prior guidance | $2.47 to $2.53 (share count: 773,000,000 to 777,000,000) | no prior guidance |
Infrastructure Investments ($USD) | FY 2025 | no prior guidance | $380,000,000 to $430,000,000 | no prior guidance |
Non-GAAP Tax Rate (%) | FY 2025 | no prior guidance | 18% | no prior guidance |
Cash Taxes ($USD) | FY 2025 | no prior guidance | $400,000,000 to $450,000,000 (reduced by $125,000,000 due to new tax law changes) | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
SASE and Unified Security Platform Growth | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: | Consistent strong growth with enhanced customer adoption and tighter integration |
Firewall Refresh Cycle Dynamics | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: | Steady focus with more precise upgrade cycle forecasts that drive upsell opportunities |
Upsell Opportunities | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: | Ongoing emphasis as new product integrations reinforce multi-product adoption |
Revenue Attribution Ambiguity | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: | Persistent challenge with some improvements in transparency and guidance clarity |
OT Security Expansion and Diversification | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: | Strong, consistent focus reaffirming market leadership in high-growth segments |
Service Revenue Deceleration and Sustainability Challenges | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: | Concerns persist but current period focuses on alignment with billings and plans for acceleration |
Underlying Firewall Demand and Core Product Performance | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: | Reaffirmed strong underlying demand and robust performance despite ongoing refresh cycles |
Macroeconomic Uncertainty and Customer Hesitancy | Q1 2025: ; Q4 2024: ; Q3 2024: (related customer financing comments) | Q2 2025: | Diminished emphasis as resilient pipeline and robust demand offset earlier caution |
Sustainability of Long-Term Product Revenue Growth | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: | Ongoing confidence fueled by innovative products and integrated offerings |
Strategic Acquisitions Impact and Expansion into New Markets | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: N/A | No current mention, indicating a temporary shift away from acquisition focus |
SMB Segment Growth and ASIC Technology Advantages | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: | SMB growth remains positive while emphasis on ASIC advantages is less pronounced this period |
SD-WAN Replacement Opportunity and Competitive Differentiation | Q1 2025: ; Q4 2024: ; Q3 2024: | Q2 2025: | Continued focus on integrated solutions with strong competitive differentiation in SD-WAN space |
Declining Emphasis on Tariff-Related External Headwinds | Q1 2025: ; Q4 2024: ; Q3 2024: N/A | Q2 2025: | Further de-emphasized as negative impacts are minimal and well managed |
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Refresh Impact
Q: How are refresh cycles influencing revenue?
A: Management explained that roughly 40%–50% of the 2026 upgrade cycle is complete and that these forced refreshes drive customer upgrades to the new SASE firewall, adding value without displacing core appliance sales. -
Margin Outlook
Q: What margins can we expect from SASE?
A: They noted that significant investments in the new SASE infrastructure, combined with cost efficiencies from the integrated FortiOS, promise a healthy long‐term margin profile. -
Services Revenue
Q: Why is services revenue growth slowing?
A: Management attributed the flat sequential services revenue to a normalization after deferred COVID revenues, with current results aligning more closely with new product and subscription mix improvements. -
Cannibalization Risk
Q: Are SASE sales replacing core firewalls?
A: Leaders confirmed that SASE complements, not cannibalizes, the core firewall business—over 90% of customers are existing firewall users expanding into integrated solutions. -
SASE Customer Profile
Q: Do SASE customers mainly come from competitors?
A: They clarified that their SASE adoption comes both from existing customers transitioning from firewalls and from new customers switching from competitors, reinforcing overall market momentum. -
OT Opportunity
Q: How is OT growth performing?
A: Management highlighted that OT is growing at over 20%, with especially strong performance in EMEA, indicating a substantial and consistent market opportunity. -
Sovereign SaaS
Q: How is the sovereign SaaS solution tracking?
A: The CEO stressed strong momentum for their sovereign SaaS, emphasizing its advantage through local deployments and integrated capabilities that secure data sovereignty. -
Channel Incentives
Q: How are incentives boosting platform sales?
A: They reported that channel incentives are now firmly aligned to promote multiproduct, integrated solutions with higher rebates for cross-selling, enhancing overall platform adoption. -
Underlying Firewall Demand
Q: Why isn’t basic firewall demand stronger?
A: Management observed that while refresh activity is robust, its size is relatively small compared to the overall business, ensuring steady underlying firewall sales remain intact. -
Sales Hesitancy
Q: Has macro uncertainty affected sales discussions?
A: The CFO reassured investors that, despite previous hesitancy, sales confidence and a strong pipeline now prevail, demonstrating resilience against macroeconomic concerns.
Research analysts covering Fortinet.