Fortinet — Financial Results

Revenue Grew 14% to $6.8 Billion, with Strong Momentum Across Both Business Lines

Billings (total invoices sent to customers, a leading indicator of future revenue) grew 16% to $7.55 billion, outpacing revenue growth and signaling continued strong demand. Hardware and software product sales rebounded, while the larger services business grew steadily, driven by security subscriptions and newer cloud-based offerings like unified SASE and SecOps.

A $7.1 Billion Deferred Revenue Balance Provides Exceptional Revenue Visibility

Deferred revenue — money already collected from customers for services not yet delivered — grew 12% to $7.12 billion. Of all service revenue recognized in 2025, 71% had already been sitting in that deferred revenue bucket at the start of the year. This essentially means Fortinet enters each year with the majority of its service revenue already locked in, giving it unusually strong predictability compared to businesses that must win every dollar of revenue fresh each period.

Profitability Is Strong and Improving, Though Management Warns of a Step-Back in 2026

Operating margin (the share of revenue left after running the business, before taxes) ticked up 0.4 percentage points to 30.7%, as revenue grew faster than expenses. However, management explicitly flagged that 2026 operating margin is expected to decline, as the company plans to hire aggressively in sales and marketing and increase spending on data centers — investments intended to fuel longer-term growth but which will weigh on near-term profitability.

Free Cash Flow Reached $2.2 Billion, Funding a Major Share Buyback Program

Free cash flow (operating cash after capital spending — the cash the business actually generates for shareholders) grew 18% to $2.21 billion. Fortinet put that cash to work aggressively: in 2025, it spent $2.29 billion buying back its own shares, and has since raised its total share repurchase authorization to $10.25 billion. Share buybacks reduce the number of shares outstanding, which increases each remaining share's claim on future earnings.

Memory Chip Shortage and Tariffs Introduce Cost and Supply Uncertainty

Fortinet flagged a global shortage of memory chips — a key component in its hardware products — stemming from surging AI infrastructure buildouts. This is already causing delivery delays and pushing up input costs, prompting the company to raise prices on some hardware. While management currently does not expect U.S. tariffs to have a meaningful near-term gross margin impact, it acknowledged that tariff escalation or supply shortages could squeeze product gross margin (currently 67.3%) if price increases don't keep pace with rising costs.

Tax Rate Jumped Significantly, Dampening Net Income Growth

Despite operating income growing 16%, net income grew only 6% — from $1.75 billion to $1.85 billion — largely because the effective tax rate rose from 14% to 19%. The jump was driven by a lower FDII deduction (a U.S. tax benefit for income from serving foreign customers) and higher underlying taxable income. New U.S. tax legislation did partially offset this, reducing Fortinet's 2025 tax bill by $120 million, but the overall tax burden was still meaningfully higher year-over-year.