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Fortinet, Inc. (FTNT)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered 14% revenue growth to $1.7249B, product revenue up 18% to $559.3M, and record non-GAAP operating margin of 36.9%, with total gross margin of 81.6% .
  • EPS beat consensus: non-GAAP diluted EPS $0.74 vs ~$0.63 consensus; revenue beat $1.725B vs ~$1.705B; EBITDA came in below consensus ($584M vs ~$600M) (S&P Global).
  • Management introduced Q4 2025 guidance (revenue $1.825–$1.885B; non-GAAP EPS $0.73–$0.75) and raised full-year non-GAAP EPS to $2.66–$2.70 while widening gross margin range; service revenue guidance narrowed down modestly .
  • Strategic catalysts: strong FortiSASE expansion (SaaS billings >100%), sovereign SaaS wins, launch of Secure AI Data Center solution; management expects service revenue growth to reaccelerate in 2H 2026 as product strength rolls through .

What Went Well and What Went Wrong

  • What Went Well
    • FortiSASE/SaaS momentum: “Unified SaaS billings grew 19%, driven by Fortinet SaaS billings growth of over 100%” and 15% of large enterprises now use Fortinet SaaS (+55% YoY) .
    • Profitability: record Q3 non-GAAP operating margin 36.9% and strong FCF ($567.5M; adjusted FCF $646M); total gross margin 81.6% .
    • AI and OT traction: SecOps billings +33%; OT/critical infrastructure billings >30%; launch of Secure AI Data Center solution .
  • What Went Wrong
    • Services growth deceleration persists (13% YoY in Q3) and services billings timing pushed out; management points to 29-month average attach cycle and 2024 product softness as causes .
    • ARR in unified SaaS showed mixed sequential dynamics earlier in the year; CFO noted offsets in the product mix (Q2 commentary) .
    • EBITDA missed consensus despite strong revenue/EPS beats, reflecting investment and mix; management flagged normalization of certain Q3 reserve releases not repeating in Q4 .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$1.540 $1.630 $1.725
GAAP Diluted EPS ($)$0.56 $0.57 $0.62
Non-GAAP Diluted EPS ($)$0.58 $0.64 $0.74
Total Gross Margin %80.96% 81.6% 81.6%
GAAP Operating Margin %29.5% 28.1% 31.7%
Non-GAAP Operating Margin %34.2% 33.1% 36.9%
Cash from Operations ($USD Millions)$863.3 $451.9 $655.2
Free Cash Flow ($USD Millions)$782.8 $284.1 $567.5
Revenue Composition ($USD Millions)Q1 2025Q2 2025Q3 2025
Product Revenue$459.1 $508.9 $559.3
Service Revenue$1,080.6 $1,121.1 $1,165.6
KPIsQ1 2025Q2 2025Q3 2025
Billings ($USD Billions)$1.597 $1.778 $1.808
Unified SASE ARR ($USD Billions)$1.15 $1.15 $1.22
Security Operations ARR ($USD Millions)$434.5 $463 $472
New Customers Added (quarter)—6,900 6,600

Q3 2025 Results vs S&P Global Consensus:

MetricConsensusActualResult
Revenue ($USD Billions)$1.705$1.725Beat
Primary EPS (non-GAAP, $)$0.63$0.74Beat
EBITDA ($USD Millions)$600$584Miss

Values retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($B)Q4 2025—$1.825–$1.885 New
Billings ($B)Q4 2025—$2.185–$2.285 New
Non-GAAP Gross Margin %Q4 2025—79–80% New
Non-GAAP Operating Margin %Q4 2025—34.5–35.5% New
Non-GAAP EPS ($)Q4 2025—$0.73–$0.75 New
Non-GAAP Tax Rate (%)Q4 2025—18% New
Cash Taxes ($M)Q4 2025—$66–$116 New
Infrastructure Investments ($M)Q4 2025—$60–$110 New
Revenue ($B)FY 2025$6.675–$6.825 $6.720–$6.780 Maintained (midpoint $6.75)
Service Revenue ($B)FY 2025$4.550–$4.650 $4.575–$4.595 Lowered (narrowed)
Billings ($B)FY 2025$7.325–$7.475 $7.370–$7.470 Raised (midpoint ↑)
Non-GAAP Gross Margin %FY 202579–81 80.25–80.75 Raised
Non-GAAP Operating Margin %FY 202532–33.5 34.5–35 Raised
Non-GAAP EPS ($)FY 2025$2.47–$2.53 $2.66–$2.70 Raised
Non-GAAP Tax Rate (%)FY 202518 18 Maintained
Infrastructure Investments ($M)FY 2025$380–$430 $380–$430 Maintained

Earnings Call Themes & Trends

TopicQ1 2025 (Previous)Q2 2025 (Previous)Q3 2025 (Current)Trend
AI/technology initiativesEmphasis on AI-driven innovation; record margins; ramp in unified SASE & SecOps ARR FortiCloud expanded (FortiIdentity, FortiDrive, FortiConnect); AI add-ons fastest-growing; unified SASE leadership (Gartner) Launched Secure AI Data Center; SecOps billings +33%; >500 AI patents; aim to lead SaaS market Accelerating
Supply chain/tariffs/macro—No macro/tariff headwinds; resilience Q4 guide notes normalized mix; no specific tariff headwinds; reserve releases in Q3 won’t repeat Stable
Product performanceProduct rev +12% YoY; billings +14% Product rev +13%; billings +15%; raised billings outlook Product rev +18%; strong multi-product deals; software licenses +20% Improving
Services trajectoryService rev +14% YoY Services billings strong (enterprise renewals); conversion timing flagged Service rev +13% YoY; growth expected to improve in 2H 2026 Decelerated, inflecting in 2H26
Regional trends—EMEA +18%; Americas/APAC +11% EMEA led, followed by APAC and Americas (no % provided) Mixed but healthy
Sovereign SaaS—Carrier/service provider interest growing; sovereign SASE seen as long-term solution Eight-figure sovereign SaaS/SD-WAN/SD-Branch win; key differentiator Accelerating
Refresh cycle / end-of-service—~40–50% through 2026 upgrade cycle by end Q2; lower contribution than Street expected EOS cohort “not a significant driver” in Q3; focus on new features/performance Less impactful than prior expectations

Management Commentary

  • “Billings and revenue both grew by 14%, with a record third-quarter operating margin of 37%.” — Ken Xie, CEO .
  • “Unified SaaS increased by 13% to $1.22 billion, and SecOps increased by 25% to $472 million.” — CFO Christiane Ohlgart .
  • “The 2026 end-of-support cohort was not a significant driver of product revenue growth in the third quarter.” — CFO .
  • “We recently launched the secure AI data center solution… helping Fortinet capture a massive growth opportunity as customers scale AI globally.” — CEO .
  • “For the fourth quarter, we expect revenue $1.825–$1.885 billion… non-GAAP EPS $0.73–$0.75.” — CFO .

Q&A Highlights

  • Product vs refresh: Management reiterated growth driven by SaaS/SecOps/OT rather than end-of-service cohorts; “normal” product growth rate 10–15% over time .
  • Services trajectory: CFO expects service revenue growth to improve in 2H 2026 due to strong 2025 product attach and rollout timing .
  • Sovereign SaaS: Large police force win was “less SaaS and more SD-WAN/SD-Branch,” with sovereign deployment requirements; sovereign SaaS cited as a unique advantage .
  • Q4 margins/mix: Q3 benefited from reserve releases; Q4 margins reflect normalized product/service mix .
  • Geo perspective: North America variability due to deal timing; no share loss noted .

Estimates Context

  • Q3 2025 vs S&P Global consensus: Revenue $1.725B vs $1.705B; Primary EPS $0.74 vs $0.63; EBITDA $584M vs $600M (beat on revenue/EPS, miss on EBITDA).
  • 36 revenue estimates and 39 EPS estimates underpin the consensus (S&P Global).
  • Implication: Street models likely need to raise non-GAAP EPS and operating margin assumptions for FY 2025; service revenue ramps remain conservative until 2H 2026.

Key Takeaways for Investors

  • Fortinet delivered a clean revenue/EPS beat with record non-GAAP operating margin, supported by strong product growth and disciplined cost control—supportive for near-term sentiment .
  • Structural growth drivers in FortiSASE (including sovereign SaaS) and AI-driven SecOps position the company to grow faster than market across pillars into 2026 .
  • Services growth remains the swing factor; management’s 2H 2026 reacceleration hinges on 2025 product strength and attach timing—keep estimates conservative near term .
  • Full-year guidance was improved on profitability (gross margin range, operating margin, EPS), while service revenue range narrowed—watch mix and conversion dynamics .
  • Cash generation is robust (Q3 CFO $655M; FCF $568M), and buybacks (23.3M shares in Q3) provide support—capital returns are meaningful .
  • Legal overhang exists via ongoing class action announcements in Oct–Nov, but core fundamentals and guidance are intact; monitor headlines’ impact on trading liquidity .
  • Near-term trade: Lean long on execution into Q4 with margin discipline and SaaS momentum; medium-term thesis centers on platform consolidation (FortiOS), sovereign SaaS, and AI data center security .

Additional Press Releases (Q3 2025)

  • Forrester TEI study: Secure LAN Edge realized 308% ROI, 50% higher network ops efficiency—supports LAN-edge consolidation narrative .