Core Viewpoint - Fortinet (NASDAQ: FTNT) is maintaining a buy rating despite a significant stock decline of over 25% following the release of its 2Q25 earnings report [1] Company Summary - The stock experienced a sharp decline after the earnings announcement, indicating potential market volatility and investor reaction to the financial results [1] - The company operates within the technology sector, specifically focusing on cybersecurity solutions, which are increasingly relevant in the current market landscape [1] Analyst Background - The analyst has over two decades of experience in the market, particularly in the technology, media, and telecommunications (TMT) sectors, emphasizing risk mitigation strategies during various market cycles [1]

Company Overview - Fortinet, Inc. is a cybersecurity firm with a market capitalization of $58 billion, presenting a potential to double its stock price within the next four to five years due to consistent revenue growth and favorable market conditions [2][5] Revenue Growth Potential - Fortinet's revenue could potentially double in the next four to five years, implying a compound annual growth rate of around 14%, which is conservative compared to its 21% average annual revenue growth over the past three years [5][9] - The company's revenue guidance for the third quarter was slightly below expectations, leading to a 22% drop in stock price, which appears unjustified given the overall growth outlook [3][5] Valuation Insights - If Fortinet maintains a premium valuation of 30 times its free cash flow, its stock could exceed $150 per share, representing a 2x increase from current values [5][6] - Prior to the recent drop, FTNT stock was trading at over 34 times free cash flow, indicating a strong valuation position [5] Industry Trends - The cybersecurity sector is rapidly expanding due to digital transformation, cloud adoption, IoT devices, and hybrid working models, necessitating comprehensive security solutions [9] - Fortinet's "Security Fabric" platform offers an integrated, automated security solution, appealing to clients seeking to streamline security management [9] Competitive Position - Fortinet is a recognized leader in high-growth markets such as Secure Access Service Edge (SASE) and Software-Defined Wide Area Networking (SD-WAN), positioning the company to capture substantial market share as businesses modernize their networks [9] Financial Health - The company has demonstrated consistent revenue growth, expanding margins, and healthy free cash flow, reflecting operational and financial discipline [9] Competitive Landscape - The cybersecurity sector is highly competitive, with Fortinet facing strong competition from companies like Palo Alto Networks, CrowdStrike, and Zscaler, which could impact its market share and profit margins [9] Risks to Growth - The investment thesis is sensitive to valuation multiples, which could compress due to rising interest rates or shifts in market sentiment, potentially negating revenue growth benefits [9] - Macroeconomic challenges may lead organizations to cut IT and security expenditures, affecting Fortinet's growth objectives [9]

Fortinet发布2025年第二季度财报，营收16.3亿美元，较去年同期增长14%。其中，账单收入17.8亿美 元，较去年同期增长15% ；统一SASE和安全运营年度经常性收入（ARR），较去年同期分别增长22% 和35%；GAAP营业利润率达28%，非GAAP营业利润率达33%。此外，二季度账单收入超预期，全年账 单收入指引中间值上调1亿美元。 本文源自：金融界AI电报 ...

PART I—FINANCIAL INFORMATION This section presents Fortinet's unaudited condensed consolidated financial statements and related notes for the interim period [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents Fortinet, Inc.'s unaudited condensed consolidated financial statements for the quarter and six months ended June 30, 2025, including balance sheets, income statements, comprehensive income statements, stockholders' equity statements, and cash flow statements, along with detailed notes on significant accounting policies, revenue recognition, financial instruments, inventory, property and equipment, business combinations, goodwill, net income per share, debt, commitments, equity plans, income taxes, and segment information [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of Fortinet's financial position, detailing assets, liabilities, and stockholders' equity at specific dates **Condensed Consolidated Balance Sheets (in millions):** | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | **ASSETS** | | | | Cash and cash equivalents | $3,368.5 | $2,875.9 | | Total current assets | $6,346.3 | $5,971.5 | | Total assets | $10,641.4 | $9,763.1 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $4,777.1 | $4,060.7 | | Deferred revenue (current & long-term) | $6,567.6 | $6,360.9 | | Total liabilities | $8,581.0 | $8,269.3 | | Total stockholders' equity | $2,060.4 | $1,493.8 | | Total liabilities and stockholders' equity | $10,641.4 | $9,763.1 | - Total assets increased by **$878.3 million (9.0%)** from December 31, 2024, to June 30, 2025, primarily driven by increases in cash and cash equivalents, property and equipment, and deferred tax assets[15](index=15&type=chunk) - Total liabilities increased by **$311.7 million (3.8%)** over the same period, mainly due to an increase in current portion of long-term debt and deferred revenue[15](index=15&type=chunk) [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This section presents Fortinet's financial performance, including revenue, expenses, and net income for the reported periods **Condensed Consolidated Statements of Income (in millions, except per share amounts):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $1,630.0 | $1,434.3 | $3,169.7 | $2,787.6 | | Total cost of revenue | $314.9 | $275.0 | $608.0 | $579.7 | | Total gross profit | $1,315.1 | $1,159.3 | $2,561.7 | $2,207.9 | | Operating income | $458.0 | $437.2 | $911.8 | $758.4 | | Net income | $440.1 | $379.8 | $873.5 | $679.1 | | Basic net income per share | $0.57 | $0.50 | $1.14 | $0.89 | | Diluted net income per share | $0.57 | $0.49 | $1.13 | $0.88 | - Total revenue increased **14%** for both the three and six months ended June 30, 2025, compared to the same periods in the prior year, driven by growth in both product and service revenue[18](index=18&type=chunk) - Net income increased by **15.9%** for the three months and **28.6%** for the six months ended June 30, 2025, year-over-year[18](index=18&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section details Fortinet's net income and other comprehensive income components, leading to total comprehensive income **Condensed Consolidated Statements of Comprehensive Income (in millions):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $440.1 | $379.8 | $873.5 | $679.1 | | Other comprehensive income (loss) | $2.2 | $(4.2) | $5.4 | $(10.1) | | Comprehensive income | $442.3 | $375.6 | $878.9 | $669.0 | - Comprehensive income for the three months ended June 30, 2025, was **$442.3 million**, an increase from $375.6 million in the prior year, primarily due to higher net income and positive foreign currency translation adjustments[20](index=20&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) This section outlines changes in Fortinet's stockholders' equity, including net income, stock-based compensation, and share repurchases **Condensed Consolidated Statements of Stockholders' Equity (Deficit) (in millions):** | Item | Balance Dec 31, 2024 | Balance Jun 30, 2025 | | :-------------------------------- | :------------------- | :------------------- | | Total Stockholders' Equity | $1,493.8 | $2,060.4 | | Net income (6 months) | - | $873.5 | | Stock-based compensation expense (6 months) | - | $135.2 | | Repurchase and retirement of common stock (6 months) | - | $(401.1) | - Total stockholders' equity increased from **$1,493.8 million** as of December 31, 2024, to **$2,060.4 million** as of June 30, 2025, primarily driven by net income and stock-based compensation, partially offset by share repurchases[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports Fortinet's cash inflows and outflows from operating, investing, and financing activities **Condensed Consolidated Statements of Cash Flows (in millions):** | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $1,315.2 | $1,172.4 | | Net cash used in investing activities | $(377.0) | $(320.4) | | Net cash used in financing activities | $(446.9) | $(44.3) | | Net increase in cash and cash equivalents | $492.6 | $805.3 | | Cash and cash equivalents—End of period | $3,368.5 | $2,203.2 | - Net cash provided by operating activities increased by **$142.8 million (12.2%)** to **$1,315.2 million** for the six months ended June 30, 2025, compared to the same period last year[28](index=28&type=chunk) - Net cash used in financing activities significantly increased to **$446.9 million**, primarily due to **$401.1 million** in common stock repurchases[28](index=28&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=1%2E%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the basis of presentation for Fortinet's unaudited condensed consolidated financial statements, prepared in accordance with GAAP for interim financial information. It confirms the consolidation of subsidiaries, the use of estimates and assumptions, and states that there have been no material changes to significant accounting policies as of June 30, 2025, compared to the prior fiscal year - The financial statements are prepared in accordance with GAAP for interim financial information and include normal recurring adjustments[31](index=31&type=chunk) - No material changes to significant accounting policies were made as of and for the six months ended June 30, 2025[35](index=35&type=chunk) - The company is evaluating new accounting standards ASU 2023-09 (Income Taxes) and ASU 2024-03/2025-01 (Expense Disaggregation Disclosures) for their potential impact on future disclosures[36](index=36&type=chunk)[37](index=37&type=chunk) [2. REVENUE RECOGNITION](index=13&type=section&id=2%2E%20REVENUE%20RECOGNITION) This note details the disaggregation of revenue by product and service lines, highlighting the significant contribution of security subscriptions and technical support. It also provides information on deferred revenue and the transaction price allocated to remaining performance obligations, indicating future revenue recognition **Revenue Disaggregation (in millions):** | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product | $508.9 | $451.9 | $968.0 | $860.8 | | Security subscription | $644.4 | $558.7 | $1,267.5 | $1,095.6 | | Technical support & other | $476.7 | $423.7 | $934.2 | $831.2 | | Total service revenue | $1,121.1 | $982.4 | $2,201.7 | $1,926.8 | | Total revenue | $1,630.0 | $1,434.3 | $3,169.7 | $2,787.6 | - As of June 30, 2025, the aggregate amount of transaction price allocated to remaining performance obligations was **$6.64 billion**, with approximately **$3.45 billion** expected to be recognized as revenue over the next 12 months[40](index=40&type=chunk) - Amortization of deferred contract costs for the six months ended June 30, 2025, was **$160.0 million**, up from $144.7 million in the prior year[41](index=41&type=chunk) [3. FINANCIAL INSTRUMENTS AND FAIR VALUE](index=14&type=section&id=3%2E%20FINANCIAL%20INSTRUMENTS%20AND%20FAIR%20VALUE) This note provides a breakdown of Fortinet's short-term and long-term investments, primarily available-for-sale investments and marketable equity securities, reported at fair value. It details unrealized gains and losses and the contractual maturities of these investments, along with fair value measurements categorized by Level 1, 2, and 3 inputs **Short-Term and Long-Term Investments (in millions):** | Investment Type | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :-------------------------------- | :----------------------- | :------------------------- | | U.S. government and agency securities | $514.5 | $469.5 | | Commercial paper | $433.1 | $428.7 | | Corporate debt securities | $177.5 | $166.4 | | Certificates of deposit and term deposits | $97.3 | $61.8 | | Marketable equity securities | $84.0 | $64.2 | | Total short-term and long-term investments | $1,306.4 | $1,190.6 | - The company recognized an **$11.3 million gain** on marketable equity securities for the three months ended June 30, 2025, compared to a $0.2 million loss in the prior year[44](index=44&type=chunk) - Contractual maturities of available-for-sale investments due within one year decreased from **$1,126.4 million** (Dec 31, 2024) to **$1,110.4 million** (Jun 30, 2025), while those due within one to three years increased from zero to **$112.0 million**[43](index=43&type=chunk) [4. INVENTORY](index=16&type=section&id=4%2E%20INVENTORY) This note details the composition of Fortinet's inventory, net of reserves, including raw materials, work in process, and finished goods. It also provides information on the excess and obsolete inventory reserve and related write-downs **Inventory, net of reserves (in millions):** | Item | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Raw materials | $72.0 | $90.9 | | Work in process | $4.8 | $4.1 | | Finished goods | $328.4 | $220.5 | | Total Inventory | $405.2 | $315.5 | - Total inventory increased by **$89.7 million (28.4%)** from December 31, 2024, to June 30, 2025, primarily due to a significant increase in finished goods[46](index=46&type=chunk) - Inventory write-downs related to excess and obsolete inventory were immaterial for the three and six months ended June 30, 2025, compared to **$10.7 million** and **$28.8 million** for the same periods in 2024, respectively[46](index=46&type=chunk) [5. PROPERTY AND EQUIPMENT—Net](index=17&type=section&id=5%2E%20PROPERTY%20AND%20EQUIPMENT%E2%80%94Net) This note outlines the composition of Fortinet's property and equipment, net of accumulated depreciation, and details significant real estate acquisitions made during the period for data center and office operations **Property and Equipment—Net (in millions):** | Item | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Land | $560.5 | $500.6 | | Buildings and improvements | $934.0 | $801.4 | | Total property and equipment—net | $1,544.8 | $1,349.5 | - Property and equipment—net increased by **$195.3 million (14.5%)** from December 31, 2024, to June 30, 2025[48](index=48&type=chunk) - Fortinet purchased real estate properties for **$54.5 million** in Germany and **$130.5 million** in Canada, the United States, and the Netherlands during the six months ended June 30, 2025, for data center, office, and warehouse operations[48](index=48&type=chunk)[49](index=49&type=chunk) [6. BUSINESS COMBINATIONS](index=17&type=section&id=6%2E%20BUSINESS%20COMBINATIONS) This note details Fortinet's acquisition activities in 2025 and 2024. In 2025, Fortinet acquired the remaining 49.2% of Linksys Holdings, Inc. for $20.8 million, resulting in a $10.8 million gain from remeasuring its pre-existing equity investment and a $39.9 million gain on bargain purchase. Other acquisitions in Q2 2025 totaled $38.3 million, adding $21.9 million in goodwill. In 2024, Fortinet acquired Perception Point Ltd. for $33.7 million and Next DLP Holdings Limited for $105.0 million, both contributing to goodwill. The acquisition of Lacework Inc. for $152.3 million resulted in a $106.3 million gain on bargain purchase - Acquired remaining **49.2%** of Linksys Holdings, Inc. for **$20.8 million** in cash on January 31, 2025, gaining 100% ownership[51](index=51&type=chunk) - Remeasurement of pre-existing Linksys equity investment resulted in a **$10.8 million gain**, and the acquisition generated a **$39.9 million gain on bargain purchase**, primarily due to deferred tax assets[51](index=51&type=chunk)[52](index=52&type=chunk) - Other acquisitions during Q2 2025 totaled **$38.3 million** in cash, adding **$21.9 million** in goodwill[54](index=54&type=chunk) - In 2024, key acquisitions included Perception Point Ltd. (**$33.7 million**, **$24.5 million** goodwill), Next DLP Holdings Limited (**$105.0 million**, **$82.6 million** goodwill), and Lacework Inc. (**$152.3 million**, **$106.3 million** gain on bargain purchase)[55](index=55&type=chunk)[57](index=57&type=chunk)[59](index=59&type=chunk)[61](index=61&type=chunk) [7. GOODWILL AND OTHER INTANGIBLE ASSETS—Net](index=19&type=section&id=7%2E%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS%E2%80%94Net) This note provides an overview of changes in goodwill and other intangible assets. Goodwill increased by $23.5 million to $258.9 million as of June 30, 2025, primarily due to business combinations. Finite-lived intangible assets, including developed technologies and customer relationships, totaled $123.3 million net, with estimated future amortization expenses detailed **Goodwill (in millions):** | Item | Amount | | :-------------------------- | :----- | | Balance—December 31, 2024 | $235.4 | | Additions due to business combinations | $21.9 | | Foreign currency translation adjustments | $1.6 | | Balance—June 30, 2025 | $258.9 | **Other Intangible Assets—Net (in millions):** | Item | June 30, 2025 Net | December 31, 2024 Net | | :-------------------------- | :---------------- | :-------------------- | | Developed technologies | $74.0 | $68.2 | | Customer relationships | $34.1 | $30.9 | | Trade name | $8.9 | $7.0 | | Backlog | $6.3 | $8.9 | | Total other intangible assets—net | $123.3 | $115.0 | - Amortization expense for other intangible assets was **$25.0 million** for the six months ended June 30, 2025, a significant increase from $6.3 million in the prior year[67](index=67&type=chunk) [8. NET INCOME PER SHARE](index=20&type=section&id=8%2E%20NET%20INCOME%20PER%20SHARE) This note provides the reconciliation of basic and diluted net income per share, detailing the weighted-average shares outstanding and the dilutive effects of restricted stock units (RSUs), stock options, and performance stock units (PSUs) **Net Income Per Share (in millions, except per share amounts):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $440.1 | $379.8 | $873.5 | $679.1 | | Basic shares outstanding | 765.5 | 763.8 | 766.9 | 763.1 | | Diluted shares outstanding | 772.7 | 769.9 | 774.8 | 770.2 | | Basic net income per share | $0.57 | $0.50 | $1.14 | $0.89 | | Diluted net income per share | $0.57 | $0.49 | $1.13 | $0.88 | - Potentially dilutive securities excluded from diluted EPS computation due to their antidilutive effect totaled **2.7 million shares** for the three months ended June 30, 2025, and **2.0 million shares** for the six months ended June 30, 2025[71](index=71&type=chunk) [9. DEBT](index=21&type=section&id=9%2E%20DEBT) This note details Fortinet's outstanding Senior Notes, including the 2026 Senior Notes (1.0%) and 2031 Senior Notes (2.2%), totaling $1.0 billion in aggregate principal. It outlines their maturity dates, interest rates, and fair value, noting that the 2026 Senior Notes are now classified as current portion of long-term debt **Total Outstanding Debt (in millions):** | Debt Type | Maturity | Coupon Rate | Effective Interest Rate | June 30, 2025 | December 31, 2024 | | :---------------- | :--------- | :---------- | :---------------------- | :------------ | :---------------- | | 2026 Senior Notes | March 2026 | 1.0% | 1.3% | $500.0 | $500.0 | | 2031 Senior Notes | March 2031 | 2.2% | 2.3% | $500.0 | $500.0 | | Total debt | | | | $1,000.0 | $1,000.0 | | Current portion of long-term debt | | | | $499.0 | $0.0 | | Total long-term debt | | | | $496.3 | $994.3 | - The 2026 Senior Notes are now classified as current portion of long-term debt as of June 30, 2025[72](index=72&type=chunk) - Total interest expense related to Senior Notes was **$9.0 million** for the six months ended June 30, 2025, consistent with the prior year[73](index=73&type=chunk) [10. COMMITMENTS AND CONTINGENCIES](index=22&type=section&id=10%2E%20COMMITMENTS%20AND%20CONTINGENCIES) This note details Fortinet's inventory purchase commitments, other contractual commitments, and legal proceedings. As of June 30, 2025, the company had $714.4 million in non-cancelable inventory purchase commitments and $102.7 million in other non-cancelable contractual commitments. The note also discusses ongoing litigation, including an appeal by Alorica Inc., and indemnification provisions **Inventory Purchase Commitments (in millions):** | Item | Total | 2025 | Thereafter | | :-------------------------- | :---- | :--- | :--------- | | Inventory purchase commitments | $714.4 | $537.2 | $177.2 | - Non-cancelable inventory purchase commitments increased by **$123.3 million** to **$714.4 million** as of June 30, 2025, compared to December 31, 2024[76](index=76&type=chunk)[187](index=187&type=chunk) - The liability for inventory purchase commitments was **$41.9 million** as of June 30, 2025, down from $54.0 million as of December 31, 2024[76](index=76&type=chunk)[187](index=187&type=chunk) - Fortinet is involved in litigation, including an appeal by Alorica Inc., but currently believes no existing claims are likely to have a material adverse effect on its financial position[79](index=79&type=chunk)[80](index=80&type=chunk) [11. EQUITY PLANS AND SHARE REPURCHASE PROGRAM](index=23&type=section&id=11%2E%20EQUITY%20PLANS%20AND%20SHARE%20REPURCHASE%20PROGRAM) This note details Fortinet's equity incentive plans, including Restricted Stock Units (RSUs), Market/Performance-Based PSUs, and Employee Stock Options. It provides activity summaries, compensation expense, and the income tax benefit associated with stock-based compensation. Additionally, it outlines the Share Repurchase Program, under which Fortinet repurchased $401.1 million of common stock during the six months ended June 30, 2025 **Stock-Based Compensation Expense (in millions):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total stock-based compensation expense | $69.9 | $64.3 | $136.8 | $127.3 | | Income tax benefit | $15.3 | $14.3 | $30.0 | $28.2 | - As of June 30, 2025, **$574.6 million** of unrecognized compensation expense related to unvested RSUs remains, with a weighted-average remaining vesting period of **2.9 years**[84](index=84&type=chunk) - Fortinet repurchased **4.6 million shares** of common stock for **$401.1 million** during the six months ended June 30, 2025, under its Share Repurchase Program[93](index=93&type=chunk) - Approximately **$1.63 billion** remained available for future share repurchases under the program as of June 30, 2025[93](index=93&type=chunk) [12. INCOME TAXES](index=26&type=section&id=12%2E%20INCOME%20TAXES) This note discusses Fortinet's effective tax rates for the three and six months ended June 30, 2025 and 2024, and the factors influencing them, including U.S. federal and state taxes, foreign taxes, FDII deduction benefits, and excess tax benefits from stock-based compensation. It also addresses unrecognized tax benefits, ongoing tax audits, and the potential impact of recent tax legislation like the One Big Beautiful Bill Act and BEPS Pillar Two **Effective Tax Rates:** | Period | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Three Months Ended | 15% | 16% | | Six Months Ended | 17% | 14% | - The six-month effective tax rate for 2025 included a **$30.6 million** tax provision related to the derecognition of deferred tax assets from the Linksys acquisition[96](index=96&type=chunk) - Unrecognized tax benefits were **$83.0 million** as of June 30, 2025, with **$67.6 million** potentially favorably affecting the effective tax rate if recognized[97](index=97&type=chunk) - Preliminary analysis indicates the One Big Beautiful Bill Act could reduce 2025 cash tax payments by **$100-$150 million** and increase the GAAP effective tax rate by approximately **1 point**[107](index=107&type=chunk) [13. DEFINED CONTRIBUTION PLANS](index=27&type=section&id=13%2E%20DEFINED%20CONTRIBUTION%20PLANS) This note details Fortinet's defined contribution plans, including the 401(k) Plan for U.S. employees and the Group Registered Retirement Savings Plan Program (RRSP) in Canada. The company's matching contributions for these plans are provided **Matching Contributions to Defined Contribution Plans (in millions):** | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Matching contributions | $5.1 | $4.3 | $10.7 | $10.6 | [14. SEGMENT INFORMATION](index=27&type=section&id=14%2E%20SEGMENT%20INFORMATION) This note states that Fortinet operates as a single reportable segment, as its chief operating decision maker reviews financial information on a consolidated basis. It provides disaggregated revenue and property and equipment data by geographic region, and identifies major distributors accounting for significant portions of revenue and accounts receivable - Fortinet has one operating segment and one reportable segment, with the CEO reviewing financial information on a consolidated basis[102](index=102&type=chunk)[103](index=103&type=chunk) **Revenue by Geographic Region (in millions):** | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Americas | $658.8 | $595.3 | $1,288.6 | $1,152.3 | | EMEA | $667.1 | $565.2 | $1,295.5 | $1,104.6 | | APAC | $304.1 | $273.8 | $585.6 | $530.7 | | Total revenue | $1,630.0 | $1,434.3 | $3,169.7 | $2,787.6 | **Major Distributors' Contribution to Revenue and Accounts Receivable:** | Distributor | Q2 2025 Revenue % | Q2 2024 Revenue % | H1 2025 Revenue % | H1 2024 Revenue % | June 30, 2025 AR % | Dec 31, 2024 AR % | | :------------ | :---------------- | :---------------- | :---------------- | :---------------- | :----------------- | :---------------- | | Distributor A | 27% | 30% | 27% | 29% | 27% | 31% | | Distributor B | 15% | 16% | 15% | 15% | 13% | 14% | | Distributor C | 12% | 14% | 12% | 13% | 9% | 10% | [15. SUBSEQUENT EVENTS](index=29&type=section&id=15%2E%20SUBSEQUENT%20EVENTS) This note discloses subsequent events after June 30, 2025, including the enactment of the One Big Beautiful Bill Act, which is expected to reduce 2025 cash tax payments and increase the GAAP effective tax rate. It also reports additional share repurchases made under the Repurchase Program - The One Big Beautiful Bill Act, enacted on July 4, 2025, is expected to reduce 2025 cash tax payments by **$100-$150 million** and increase the GAAP effective tax rate by approximately **1 point**[107](index=107&type=chunk) - Subsequent to June 30, 2025, Fortinet repurchased an additional **1.0 million shares** of common stock for **$71.2 million**[108](index=108&type=chunk) - Approximately **$1.56 billion** remained available for future share repurchases under the program as of the filing date[108](index=108&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Fortinet's financial condition and results of operations for the three and six months ended June 30, 2025. It covers business overview, financial highlights, impact of macroeconomic factors, business model, key financial and non-GAAP metrics, critical accounting policies, detailed results of operations, and liquidity and capital resources [Business Overview](index=33&type=section&id=Business%20Overview) This section describes Fortinet's core business, cybersecurity solutions, integrated platform, and key competitive differentiators - Fortinet is a leader in cybersecurity, focusing on the convergence of networking and security, with a mission to secure people, devices, and data everywhere[111](index=111&type=chunk) - The company's integrated platform, the Fortinet Security Fabric, spans secure networking, unified SASE, and AI-driven security operations (SecOps)[111](index=111&type=chunk) - Key competitive differentiators include FortiOS (operating system), FortiASIC (proprietary ASICs), FortiCloud (global cloud infrastructure), FortiAI (AI-driven security), and FortiEndpoint (converged endpoint protection)[112](index=112&type=chunk)[115](index=115&type=chunk) - FortiGuard Labs provides cybersecurity threat intelligence, and FortiCare offers per-device and advanced technical support services[116](index=116&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) [Financial Highlights](index=35&type=section&id=Financial%20Highlights) This section summarizes Fortinet's key financial performance indicators, including revenue, gross profit, operating income, and cash flows **Financial Highlights (in millions, except percentages):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $1,630.0 (14% YoY) | $1,434.3 | $3,169.7 (14% YoY) | $2,787.6 | | Product revenue | $508.9 (13% YoY) | $451.9 | $968.0 (12% YoY) | $860.8 | | Service revenue | $1,121.1 (14% YoY) | $982.4 | $2,201.7 (14% YoY) | $1,926.8 | | Total gross profit | $1,315.1 (13% YoY) | $1,159.3 | $2,561.7 (16% YoY) | $2,207.9 | | Total gross margin | 80.7% (-0.1 pp) | 80.8% | 80.8% (+1.6 pp) | 79.2% | | Operating income | $458.0 (5% YoY) | $437.2 | $911.8 (20% YoY) | $758.4 | | Operating margin | 28.1% (-2.4 pp) | 30.5% | 28.8% (+1.6 pp) | 27.2% | | Cash, cash equivalents, short-term and long-term investments (as of June 30, 2025) | $4,670.0 | - | $4,670.0 | - | | Deferred revenue (as of June 30, 2025) | $6,570.0 | - | $6,570.0 | - | | Cash flows from operating activities (six months) | $1,320.0 (12% YoY) | - | $1,320.0 | $1,172.4 | - Revenue diversification remains a key strength, with EMEA, Americas, and APAC contributing **41%**, **40%**, and **19%** of total revenue, respectively, for the three months ended June 30, 2025[122](index=122&type=chunk) - Service revenue growth was primarily driven by security subscription revenue, which grew **15%** and **16%** for the three and six months, respectively, benefiting from deferred revenue recognition and growth in unified SASE and SecOps[124](index=124&type=chunk) - Operating margin decreased **2.4 percentage points** for the three months but increased **1.6 percentage points** for the six months, influenced by changes in operating expenses and gross margin[128](index=128&type=chunk) [Impact of Macroeconomic and Geopolitical Developments](index=37&type=section&id=Impact%20of%20Macroeconomic%20and%20Geopolitical%20Developments) This section discusses how global economic and geopolitical factors influence Fortinet's business performance and financial outlook - Fortinet's performance is influenced by global economic and geopolitical conditions, including trade policies, tariffs, GDP growth, geopolitical instability, and foreign exchange rate fluctuations[131](index=131&type=chunk) - Worsening economic conditions may lead to longer sales cycles, delayed purchases, increased supplier commitments, and higher inventory reserves[131](index=131&type=chunk) - The company is monitoring the impact of U.S. tariffs, which could increase product costs and affect customer sentiment, though currently not expected to have a meaningful impact on gross margin[131](index=131&type=chunk) [Business Model](index=37&type=section&id=Business%20Model) This section explains Fortinet's sales channels, customer engagement strategies, and product/service delivery methods - Fortinet primarily sells security solutions through distributors to resellers, service providers, and MSSPs, who then sell to end-customers or use products for hosted solutions[133](index=133&type=chunk) - The company also sells directly to enterprise customers, service providers, systems integrators, and large enterprises[133](index=133&type=chunk) - Products and services are offered hosted in Fortinet's data centers, PoPs, colocations, and major cloud service providers (AWS, Microsoft Azure, Google Cloud)[135](index=135&type=chunk) [Key Metrics](index=37&type=section&id=Key%20Metrics) This section presents Fortinet's crucial financial and operational metrics, including revenue, deferred revenue, billings, and free cash flow **Key Metrics (in millions):** | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Revenue | $1,630.0 | $1,434.3 | | Deferred revenue | $6,567.6 | $5,896.2 | | Billings (non-GAAP) | $1,778.4 | $1,540.6 | | Net cash provided by operating activities | $451.9 | $342.0 | | Free cash flow (non-GAAP) | $284.1 | $318.9 | - Deferred revenue increased by **$206.7 million (3%)** from December 31, 2024, to **$6.57 billion** as of June 30, 2025[137](index=137&type=chunk) - Total billings (non-GAAP) for the three months ended June 30, 2025, were **$1.78 billion**, a **15%** increase year-over-year[138](index=138&type=chunk) - Free cash flow (non-GAAP) decreased to **$284.1 million** for the three months ended June 30, 2025, from $318.9 million in the prior year, primarily due to increased purchases of property and equipment[141](index=141&type=chunk) [Critical Accounting Policies and Estimates](index=39&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no material changes to Fortinet's critical accounting policies and estimates for the interim period - There were no material changes to Fortinet's critical accounting policies and estimates for the six months ended June 30, 2025, compared to those described in the Annual Report on Form 10-K filed on February 21, 2025[143](index=143&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of Fortinet's financial performance for the reported periods, covering revenue, costs, and expenses [Three Months Ended June 30, 2025 and 2024](index=40&type=section&id=Three%20Months%20Ended%20June%2030,%202025%20and%202024) This section analyzes Fortinet's financial performance for the three-month periods, detailing revenue, costs, and operating expenses [Revenue](index=40&type=section&id=Revenue) This section details Fortinet's revenue performance for the three-month periods, disaggregated by product, service, and geographic region **Revenue (Three Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2025 % of Revenue | 2024 Amount | 2024 % of Revenue | Change | % Change | | :---------- | :---------- | :---------------- | :---------- | :---------------- | :----- | :------- | | Product | $508.9 | 31% | $451.9 | 32% | $57.0 | 13% | | Service | $1,121.1 | 69% | $982.4 | 68% | $138.7 | 14% | | Total revenue | $1,630.0 | 100% | $1,434.3 | 100% | $195.7 | 14% | | **Revenue by geography:** | | | | | | | | Americas | $658.8 | 40% | $595.3 | 42% | $63.5 | 11% | | EMEA | $667.1 | 41% | $565.2 | 39% | $101.9 | 18% | | APAC | $304.1 | 19% | $273.8 | 19% | $30.3 | 11% | | Total revenue | $1,630.0 | 100% | $1,434.3 | 100% | $195.7 | 14% | - Service revenue growth was driven by a **15%** increase in security subscription revenue and a **13%** increase in technical support and other services revenue[146](index=146&type=chunk) [Cost of revenue and gross margin](index=41&type=section&id=Cost%20of%20revenue%20and%20gross%20margin) This section analyzes Fortinet's cost of revenue and gross margin trends for the three-month periods, by product and service **Cost of Revenue and Gross Margin (Three Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2024 Amount | Change | % Change | | :-------------------- | :---------- | :---------- | :----- | :------- | | Cost of product revenue | $165.9 | $155.1 | $10.8 | 7% | | Cost of service revenue | $149.0 | $119.9 | $29.1 | 24% | | Total cost of revenue | $314.9 | $275.0 | $39.9 | 15% | | **Gross margin (%):** | | | | | | Product | 67.4% | 65.7% | | | | Service | 86.7% | 87.8% | | | | Total gross margin | 80.7% | 80.8% | | | - Product gross margin increased by **1.7 percentage points** due to normalized inventory-related reserves expense compared to elevated levels in Q2 2024[150](index=150&type=chunk) - Service gross margin decreased by **1.1 percentage points**, primarily due to increased cloud service costs from acquisitions and data center investments[151](index=151&type=chunk) [Operating expenses](index=41&type=section&id=Operating%20expenses) This section details Fortinet's operating expenses for the three-month periods, including research and development, sales, marketing, and general and administrative **Operating Expenses (Three Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2025 % of Revenue | 2024 Amount | 2024 % of Revenue | Change | % Change | | :-------------------------- | :---------- | :---------------- | :---------- | :---------------- | :----- | :------- | | Research and development | $209.5 | 13% | $165.4 | 12% | $44.1 | 27% | | Sales and marketing | $592.0 | 36% | $501.3 | 35% | $90.7 | 18% | | General and administrative | $56.9 | 4% | $56.6 | 4% | $0.3 | 1% | | Total operating expenses | $857.1 | 53% | $722.1 | 50% | $135.0 | 19% | - Research and development expense increased by **$44.1 million (27%)**, mainly due to higher personnel-related costs from increased headcount and compensation rates, and recent acquisitions[153](index=153&type=chunk) - Sales and marketing expense increased by **$90.7 million (18%)**, driven by personnel-related costs, marketing programs, and unfavorable foreign currency fluctuations[154](index=154&type=chunk) [Interest income, interest expense and other income (expense)—net](index=42&type=section&id=Interest%20income,%20interest%20expense%20and%20other%20income%20(expense)%E2%80%94net) This section reports Fortinet's interest income, interest expense, and other non-operating income/expense for the three-month periods **Interest and Other Income/Expense (Three Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2024 Amount | Change | % Change | | :-------------------------- | :---------- | :---------- | :----- | :------- | | Interest income | $45.0 | $38.3 | $6.7 | 17% | | Interest expense | $(4.6) | $(5.0) | $0.4 | (8)% | | Other income (expense)—net | $18.9 | $(2.2) | $21.1 | (959)% | - Other income (expense)—net saw a **$21.1 million** positive change, primarily due to an **$11.6 million gain** on marketable equity securities and a **$7.6 million** increase in foreign currency exchange gains[157](index=157&type=chunk) [Provision for income taxes](index=42&type=section&id=Provision%20for%20income%20taxes) This section details Fortinet's income tax provision and effective tax rate for the three-month periods **Provision for Income Taxes (Three Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2024 Amount | Change | % Change | | :-------------------------- | :---------- | :---------- | :----- | :------- | | Provision for income taxes | $77.1 | $76.5 | $0.6 | 1% | | Effective tax rate (%) | 15% | 16% | | | - The effective tax rate for Q2 2025 was **15%**, favorably affected by a **$25.1 million** FDII deduction and **$12.4 million** in excess tax benefits from stock-based compensation[158](index=158&type=chunk)[159](index=159&type=chunk) [Loss from equity method investments](index=43&type=section&id=Loss%20from%20equity%20method%20investments) This section reports the loss or gain from Fortinet's equity method investments for the three-month periods **Loss from Equity Method Investments (Three Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2024 Amount | Change | % Change | | :-------------------------------- | :---------- | :---------- | :----- | :------- | | Loss from equity method investments | $(0.1) | $(12.0) | $11.9 | (99)% | - The decrease in loss was primarily due to an **$8.0 million** other-than-temporary impairment charge and a **$3.8 million** loss from Linksys' financial results in Q2 2024[161](index=161&type=chunk) [Six Months Ended June 30, 2025 and 2024](index=43&type=section&id=Six%20Months%20Ended%20June%2030,%202025%20and%202024) This section analyzes Fortinet's financial performance for the six-month periods, detailing revenue, costs, and operating expenses [Revenue](index=43&type=section&id=Revenue) This section details Fortinet's revenue performance for the six-month periods, disaggregated by product, service, and geographic region **Revenue (Six Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2025 % of Revenue | 2024 Amount | 2024 % of Revenue | Change | % Change | | :---------- | :---------- | :---------------- | :---------- | :---------------- | :----- | :------- | | Product | $968.0 | 31% | $860.8 | 31% | $107.2 | 12% | | Service | $2,201.7 | 69% | $1,926.8 | 69% | $274.9 | 14% | | Total revenue | $3,169.7 | 100% | $2,787.6 | 100% | $382.1 | 14% | | **Revenue by geography:** | | | | | | | | Americas | $1,288.6 | 41% | $1,152.3 | 41% | $136.3 | 12% | | EMEA | $1,295.5 | 41% | $1,104.6 | 40% | $190.9 | 17% | | APAC | $585.6 | 18% | $530.7 | 19% | $54.9 | 10% | | Total revenue | $3,169.7 | 100% | $2,787.6 | 100% | $382.1 | 14% | - Service revenue increased by **$274.9 million (14%)**, with security subscription revenue up **16%** and technical support and other services revenue up **12%**[164](index=164&type=chunk) [Cost of revenue and gross margin](index=44&type=section&id=Cost%20of%20revenue%20and%20gross%20margin) This section analyzes Fortinet's cost of revenue and gross margin trends for the six-month periods, by product and service **Cost of Revenue and Gross Margin (Six Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2024 Amount | Change | % Change | | :-------------------- | :---------- | :---------- | :----- | :------- | | Cost of product revenue | $315.8 | $337.9 | $(22.1) | (7)% | | Cost of service revenue | $292.2 | $241.8 | $50.4 | 21% | | Total cost of revenue | $608.0 | $579.7 | $28.3 | 5% | | **Gross margin (%):** | | | | | | Product | 67.4% | 60.7% | | | | Service | 86.7% | 87.5% | | | | Total gross margin | 80.8% | 79.2% | | | - Product gross margin increased by **6.7 percentage points** due to normalized inventory-related reserves expense compared to the first half of 2024[167](index=167&type=chunk) - Service gross margin decreased by **0.8 percentage points**, primarily due to increased cloud service costs[168](index=168&type=chunk) [Operating expenses](index=45&type=section&id=Operating%20expenses) This section details Fortinet's operating expenses for the six-month periods, including research and development, sales, marketing, and general and administrative **Operating Expenses (Six Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2025 % of Revenue | 2024 Amount | 2024 % of Revenue | Change | % Change | | :-------------------------- | :---------- | :---------------- | :---------- | :---------------- | :----- | :------- | | Research and development | $408.1 | 13% | $338.4 | 12% | $69.7 | 21% | | Sales and marketing | $1,134.7 | 36% | $1,002.4 | 36% | $132.3 | 13% | | General and administrative | $114.7 | 4% | $111.0 | 4% | $3.7 | 3% | | Total operating expenses | $1,649.9 | 52% | $1,449.5 | 52% | $200.4 | 14% | - Research and development expense increased by **$69.7 million (21%)**, driven by personnel-related costs and recent acquisitions[171](index=171&type=chunk) - Sales and marketing expense increased by **$132.3 million (13%)**, primarily due to personnel-related costs and marketing program expenses[172](index=172&type=chunk) [Interest income, interest expense and other income (expense)—net](index=45&type=section&id=Interest%20income,%20interest%20expense%20and%20other%20income%20(expense)%E2%80%94net) This section reports Fortinet's interest income, interest expense, and other non-operating income/expense for the six-month periods **Interest and Other Income/Expense (Six Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2024 Amount | Change | % Change | | :-------------------------- | :---------- | :---------- | :----- | :------- | | Interest income | $89.3 | $70.5 | $18.8 | 27% | | Interest expense | $(9.5) | $(10.1) | $0.6 | (6)% | | Other income (expense)—net | $45.0 | $(5.1) | $50.1 | (982)% | - Other income (expense)—net increased by **$50.1 million**, primarily due to a **$39.9 million gain** on bargain purchase from the Linksys acquisition and a **$12.1 million** increase in foreign currency exchange gains[176](index=176&type=chunk) [Provision for income taxes](index=46&type=section&id=Provision%20for%20income%20taxes) This section details Fortinet's income tax provision and effective tax rate for the six-month periods **Provision for Income Taxes (Six Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2024 Amount | Change | % Change | | :-------------------------- | :---------- | :---------- | :----- | :------- | | Provision for income taxes | $173.6 | $116.0 | $57.6 | 50% | | Effective tax rate (%) | 17% | 14% | | | - The effective tax rate for H1 2025 was **17%**, impacted by a **$30.6 million** tax provision from the Linksys acquisition's deferred tax asset derecognition, offset by **$50.9 million** FDII deduction and **$49.3 million** in excess stock-based compensation tax benefits[177](index=177&type=chunk) [Gain (loss) from equity method investments](index=46&type=section&id=Gain%20(loss)%20from%20equity%20method%20investments) This section reports the gain or loss from Fortinet's equity method investments for the six-month periods **Gain (Loss) from Equity Method Investments (Six Months Ended June 30, in millions, except percentages):** | Item | 2025 Amount | 2024 Amount | Change | % Change | | :-------------------------------- | :---------- | :---------- | :----- | :------- | | Gain (loss) from equity method investments | $10.5 | $(18.6) | $29.1 | (156)% | - The **$29.1 million** positive change was primarily due to a **$10.8 million gain** from the Linksys acquisition and a **$10.2 million loss** from Linksys' financial results in H1 2024[179](index=179&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Fortinet's cash position, sources of liquidity, capital allocation, and future capital expenditure plans **Liquidity and Capital Resources (in millions):** | Item | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------------- | :------------------ | :---------------------- | | Cash and cash equivalents | $3,368.5 | $2,875.9 | | Short-term investments | $1,194.4 | $1,190.6 | | Long-term investments | $112.0 | - | | Total cash, cash equivalents and investments | $4,674.9 | $4,066.5 | | Working capital | $1,569.2 | $1,910.8 | | **Cash Flows (Six Months Ended June 30):** | | | | Net cash provided by operating activities | $1,315.2 | $1,172.4 | | Net cash used in investing activities | $(377.0) | $(320.4) | | Net cash used in financing activities | $(446.9) | $(44.3) | | Net increase in cash and cash equivalents | $492.6 | $805.3 | - Fortinet's primary sources of liquidity are operating activities, real estate purchases, capital expenditures, business acquisitions, and common stock repurchases[180](index=180&type=chunk) - The company expects capital expenditures to be between **$146 million** and **$196 million** in the second half of 2025 to support growth and expansion of data centers, PoPs, offices, and warehouses[183](index=183&type=chunk) - As of June 30, 2025, **$1.63 billion** remained available for future share repurchases under the Repurchase Program[182](index=182&type=chunk) [Operating Activities](index=48&type=section&id=Operating%20Activities) This section details cash flows generated from Fortinet's core business operations - Cash flows from operating activities provided **$1.32 billion** for the six months ended June 30, 2025, driven by business growth, improved profitability, and working capital management[195](index=195&type=chunk) - Key changes in operating assets and liabilities included a **$262.7 million** decrease in accounts receivable, a **$204.8 million** increase in deferred revenue, and a **$202.5 million** increase in deferred contract costs[196](index=196&type=chunk) [Investing Activities](index=49&type=section&id=Investing%20Activities) This section details cash flows related to Fortinet's investments in property, equipment, and business acquisitions - Cash used in investing activities totaled **$377.0 million** for the six months ended June 30, 2025[198](index=198&type=chunk) - Major uses of cash included **$234.3 million** for property and equipment purchases, **$101.2 million** for net investment purchases, and **$41.6 million** for business combinations[198](index=198&type=chunk) [Financing Activities](index=49&type=section&id=Financing%20Activities) This section details cash flows related to Fortinet's debt, equity, and share repurchase activities - Cash used in financing activities was **$446.9 million** for the six months ended June 30, 2025[200](index=200&type=chunk) - This was primarily driven by **$401.1 million** for common stock repurchases and **$45.7 million** for tax withholding related to equity awards[200](index=200&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that there were no material changes in Fortinet's market risk during the six months ended June 30, 2025, compared to the disclosures in its Annual Report on Form 10-K - No material changes in market risk were reported for the six months ended June 30, 2025[201](index=201&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that Fortinet's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of June 30, 2025, and concluded they were effective. It also states that there were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[203](index=203&type=chunk)[204](index=204&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[205](index=205&type=chunk) PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and other miscellaneous information [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) This section states that Fortinet is involved in various legal actions and accrues for contingencies when a loss is probable and estimable. While the outcome of certain matters is unpredictable, the company is currently unaware of any existing claims likely to have a material adverse effect on its financial position - Fortinet accrues for contingencies when a loss is probable and reasonably estimable[207](index=207&type=chunk) - The company is unaware of any existing claims or proceedings likely to have a material adverse effect on its financial position, results of operations, or cash flows[207](index=207&type=chunk) [Item 1A. Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) This section outlines numerous risks and uncertainties that could materially affect Fortinet's business, financial condition, and results of operations. These risks are categorized into several areas, including those related to business and financial position, sales and end-customers, products and services, systems and technology, intellectual property, finance, accounting, tax matters, and ownership of common stock [Risks Related to Our Business and Financial Position](index=51&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Financial%20Position) This section outlines risks impacting Fortinet's operations, financial stability, and overall business environment - Operating results are likely to vary significantly and be unpredictable due to adverse economic conditions, supply chain constraints, sales strategy, and intense competition[11](index=11&type=chunk)[209](index=209&type=chunk) - Adverse economic conditions, including inflation, tariffs, and reduced IT spending, may negatively impact business, growth, and profitability[11](index=11&type=chunk)[215](index=215&type=chunk) - The company is susceptible to supply chain constraints, shortages, and disruptions, which can lead to unpredictable operating results and financial conditions[11](index=11&type=chunk) - Real estate investments, including data center expansions, involve significant risks such as construction delays, budget changes, and environmental issues[11](index=11&type=chunk)[222](index=222&type=chunk) - Dependence on senior management and the ability to hire and retain qualified personnel are critical for future success[11](index=11&type=chunk)[228](index=228&type=chunk) - Reliance on third-party channel partners for substantially all revenue, with a small number of distributors accounting for a large percentage of revenue and accounts receivable, poses significant risks[11](index=11&type=chunk)[229](index=229&type=chunk) - Indebtedness may adversely affect financial condition by increasing vulnerability to downturns and reducing cash available for other purposes[12](index=12&type=chunk)[244](index=244&type=chunk) [Risks Related to Our Sales and End-Customers](index=64&type=section&id=Risks%20Related%20to%20Our%20Sales%20and%20End-Customers) This section details risks associated with Fortinet's sales strategies, customer base, and international market exposure - A majority of revenue is generated from sales outside the United States, exposing the company to risks such as foreign currency fluctuations, political instability, and compliance with diverse foreign regulations[12](index=12&type=chunk)[249](index=249&type=chunk) - Failure to successfully increase sales to large- and medium-sized end-customers, service providers, and government organizations could harm results due to longer sales cycles, increased competition, and stringent requirements[12](index=12&type=chunk)[256](index=256&type=chunk) - Ineffectiveness in the sales organization, including challenges in hiring, training, and retaining personnel, or aligning sales capacity with market demand, could adversely affect business growth[260](index=260&type=chunk)[261](index=261&type=chunk) - Sales to government organizations are subject to unique regulatory requirements, budgetary constraints, and geopolitical factors, which can impact demand and contract awards[12](index=12&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk) [Risks Related to Our Products and Services, Industry and Customers](index=69&type=section&id=Risks%20Related%20to%20Our%20Products%20and%20Services,%20Industry%20and%20Customers) This section covers risks concerning product quality, security vulnerabilities, market competition, and supply chain dependencies - Defects, errors, or vulnerabilities in products or services, or their failure to prevent security incidents, could harm operational results and reputation, leading to potential liability[11](index=11&type=chunk)[269](index=269&type=chunk) - Compromise of internal IT networks, operational networks, or cloud stacks could harm public perception, lead to customer breaches, and result in liability[12](index=12&type=chunk)[275](index=275&type=chunk) - Managing inventory and product components is complex, with risks of shortages, lost sales, higher expenses, and excess inventory due to demand forecasts and supply chain disruptions[12](index=12&type=chunk)[281](index=281&type=chunk) - Failure of new products, services, or enhancements to achieve sufficient market acceptance could impair competitive position and diminish revenue[285](index=285&type=chunk)[286](index=286&type=chunk) - The rapidly evolving network security market requires accurate prediction and prompt response to technological developments, changing customer needs, and expanding regulatory requirements[287](index=287&type=chunk)[289](index=289&type=chunk) - Reliance on third-party manufacturers for products exposes the company to manufacturing delays, capacity constraints, cost increases, and geopolitical risks, particularly concerning Taiwan[12](index=12&type=chunk)[294](index=294&type=chunk) - Dependence on limited sources of supply for key components creates risks of shortages, long lead times, and increased costs[11](index=11&type=chunk)[299](index=299&type=chunk) [Risks Related to our Systems and Technology](index=80&type=section&id=Risks%20Related%20to%20our%20Systems%20and%20Technology) This section addresses risks associated with managing growth, maintaining internal systems, and developing artificial intelligence initiatives - Failure to appropriately manage future growth, including real estate expansion, or inability to improve systems, processes, and controls, could negatively affect operating results[312](index=312&type=chunk)[313](index=313&type=chunk) - Difficulties in maintaining and expanding internal business management systems (ERP, CRM) could adversely affect sales, order processing, and financial reporting[317](index=317&type=chunk) - Unsuccessful artificial intelligence initiatives could adversely affect business, reputation, or financial results due to evolving regulatory landscape, competition, and ethical concerns[318](index=318&type=chunk)[319](index=319&type=chunk) [Risks Related to our Intellectual Property](index=82&type=section&id=Risks%20Related%20to%20our%20Intellectual%20Property) This section outlines risks concerning intellectual property enforcement, infringement claims, and reliance on third-party licenses - Proprietary rights may be difficult to enforce, and the company may face claims of infringement by others, leading to substantial costs and diversion of resources[12](index=12&type=chunk)[320](index=320&type=chunk)[321](index=321&type=chunk) - Use of third-party open-source software components carries risks, including potential IP infringement claims and requirements to release proprietary source code under certain licenses[322](index=322&type=chunk)[323](index=323&type=chunk) - Reliance on the availability of third-party licenses means that inability to obtain or renew licenses on acceptable terms could delay product releases or incur significant fees[329](index=329&type=chunk)[330](index=330&type=chunk) [Other Risks Related to Our Business and Financial Position](index=84&type=section&id=Other%20Risks%20Related%20to%20Our%20Business%20and%20Financial%20Position) This section covers risks related to acquisitions, regulatory compliance, and corporate responsibility expectations - Inability to successfully acquire and integrate other businesses, products, or technologies, or form strategic alliances, could harm competitive position and financial results[12](index=12&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk) - Failure to comply with laws and regulations (e.g., GDPR, CCPA, export controls, environmental laws) could lead to fines, penalties, loss of customers, or restrictions on sales[333](index=333&type=chunk)[334](index=334&type=chunk)[340](index=340&type=chunk)[343](index=343&type=chunk) - Investors' expectations regarding corporate responsibility and sustainability factors may impose additional costs and expose the company to new risks, including reputational damage[12](index=12&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk) [Risks Related to Finance, Accounting and Tax Matters](index=89&type=section&id=Risks%20Related%20to%20Finance,%20Accounting%20and%20Tax%20Matters) This section details risks associated with accounting estimates, currency fluctuations, and changes in tax laws - If estimates or judgments related to critical accounting policies prove incorrect, operating results could fall below expectations, leading to a decline in stock price[351](index=351&type=chunk) - Exposure to fluctuations in currency exchange rates, particularly the Euro, Japanese yen, Canadian dollar, and British pound, could negatively affect financial condition and results of operations[12](index=12&type=chunk)[353](index=353&type=chunk) - Changes in tax rates, new tax legislation, exposure to additional tax liabilities, or impacts from the timing of tax payments could adversely affect the provision for income taxes[354](index=354&type=chunk) - Forecasting the estimated annual effective tax rate is complex and subject to uncertainty, with potential material differences between forecasted and actual rates[360](index=360&type=chunk) [Risks Related to Ownership of Our Common Stock](index=93&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) This section outlines risks affecting the company's stock price, investor relations, and anti-takeover provisions - As a public company, compliance initiatives (e.g., Sarbanes-Oxley, Dodd-Frank) require substantial management time and result in increased costs[363](index=363&type=chunk) - If equity research or industry analysts stop publishing research, issue unfavorable commentary, or downgrade shares, the stock price and trading volume could decline[364](index=364&type=chunk)[365](index=365&type=chunk) - The trading price of common stock may be volatile, exacerbated by share repurchases, and could lead to securities class action litigation[12](index=12&type=chunk)[366](index=366&type=chunk)[368](index=368&type=chunk)[369](index=369&type=chunk) - Anti-takeover provisions in corporate documents and Delaware law could impair takeover attempts, potentially limiting stockholders' opportunity to receive a premium for their shares[12](index=12&type=chunk)[370](index=370&type=chunk)[374](index=374&type=chunk) [General Risks](index=95&type=section&id=General%20Risks) This section covers broad risks such as global economic uncertainty, geopolitical instability, natural disasters, and changes in accounting standards - Global economic uncertainty, including economic downturns, recessions, inflation, and changing interest rates, can weaken financial position and adversely affect business performance[12](index=12&type=chunk)[376](index=376&type=chunk) - Political instability, changes in trade policies, and conflicts (e.g., war in Ukraine, tensions between China and Taiwan) could adversely affect business and financial performance by weakening product demand[12](index=12&type=chunk)[377](index=377&type=chunk) - The business is subject to risks from natural disasters, health-related challenges, cyber events, and manmade problems, which could disrupt operations and impact financial results[379](index=379&type=chunk) - Changes in financial accounting standards and varying interpretations could significantly affect reported financial results or business operations, requiring substantial costs for adoption and compliance[380](index=380&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=84&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section provides information on Fortinet's share repurchase activities under its Repurchase Program. During the three months ended June 30, 2025, the company repurchased 4.6 million shares of common stock for an aggregate purchase price of $401.1 million **Share Repurchase Program Activity (Three Months Ended June 30, 2025, in millions, except average price):** | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans | | :----------------------- | :------------------------------- | :--------------------------- | :---------------------------------------------------------------- | :------------------------------------------------------------------------- | | April 1 - April 30, 2025 | 4.6 | $87.89 | 4.6 | $1,627.3 | | May 1 - May 31, 2025 | - | - | - | $1,627.3 | | June 1 - June 30, 2025 | - | - | - | $1,627.3 | | Total | 4.6 | $87.89 | 4.6 | | - As of June 30, 2025, approximately **$1.63 billion** remained available for future share repurchases under the program[382](index=382&type=chunk) [Item 5. Other Information](index=84&type=section&id=Item%205.%20Other%20Information) This section discloses two other items: an agreement with former CFO Keith Jensen to join the

Core Viewpoint - Fortinet Inc (NASDAQ:FTNT) experienced a significant decline of 25.9%, trading at $71.61, following a disappointing fiscal third-quarter outlook despite a second-quarter earnings win and matched revenue forecasts [1] Company Performance - Fortinet's second-quarter earnings were positive, but the negative guidance for the third quarter is impacting its stock performance [1] - Morgan Stanley downgraded Fortinet from "overweight" to "equal-weight" and reduced its price target from $110 to $78 [2] - If the current losses persist, Fortinet could face its worst one-day decline ever and may end up in negative territory for the year [2] Stock Trends - Fortinet shares are trading at their lowest in nearly 12 months and have fallen below a critical support level of $95 [2] - Crowdstrike Holdings Inc (NASDAQ:CRWD) is down 6.1% to $423.97, influenced by Alphabet's divestment of its stake in the company, although it still shows a 23.4% year-to-date gain [3] - SentinelOne Inc (NYSE:S) is down 5.2% to $16.42, with a 41.5% deficit over the past nine months, approaching its first close below $17 since April 22 [3] Options Activity - Fortinet is experiencing unusual options activity with 10 times the usual intraday average volume, particularly in the weekly 8/8 70-strike put [4] - Crowdstrike is also seeing increased options activity, with double the usual put volume, led by the September 420 put [4]

Core Insights - Fortinet Inc. (FTNT) reported strong second-quarter 2025 results, with both earnings and revenues surpassing estimates and showing year-over-year improvement [1][9]. Financial Performance - Non-GAAP earnings per share (EPS) for Q2 2025 were 64 cents, exceeding the Zacks Consensus Estimate by 8.47% and growing 12.3% from 57 cents in the same quarter last year [1][9]. - Total revenues reached $1.63 billion, beating the consensus mark by 0.65% and improving 13.6% year over year, driven by an 18% increase in EMEA and 11% growth in both the Americas and APAC [2][9]. - Remaining performance obligations (RPO) rose 12% year over year to $6.64 billion, with current RPO increasing 15% to $3.45 billion [2]. - Total billings increased 15% year over year to $1.78 billion, led by a 21% growth in Unified SASE and a 31% surge in SecOps [2]. Segment Performance - Product revenues increased 12.6% year over year to $508.9 million, accounting for 31.2% of total revenues, driven by upgrade buying and strong growth in operational technology [3]. - Service revenues grew 14.1% year over year to $1.12 billion, representing 68.8% of total revenues, with security subscription revenues rising 15.3% and support services increasing 12.5% [4]. - Service billings grew 17%, marking the highest growth rate in the past six quarters [4]. Margins and Costs - Total gross margin increased by 10 basis points to 81.6%, exceeding the high end of the guided range by 60 basis points due to strong execution and cost control [6]. - Product gross margin rose 180 basis points to 67.8%, while service gross margin declined 80 basis points year over year to 87.8% due to increased investments in hosted security solutions [6]. - Operating margin decreased 200 basis points year over year to 33.1%, but remained 60 basis points above the high end of guidance, impacted by increased investments in sales headcount and foreign exchange headwinds [7]. Cash Flow and Balance Sheet - Fortinet ended Q2 2025 with cash and cash equivalents and short-term investments of $4.56 billion, down from $4.78 billion at the end of Q1 2025 [10]. - Cash flow from operations was $451.9 million for Q2 2025, a decrease from $863.3 million in the previous quarter, while free cash flow was $284.1 million, down from $782.8 million [10]. Guidance - For Q3 2025, Fortinet estimates revenues between $1.67 billion and $1.73 billion, with billings expected in the range of $1.76 billion to $1.84 billion [11]. - For the full year 2025, revenues are projected between $6.675 billion and $6.825 billion, with services revenues expected between $4.55 billion and $4.65 billion [12].

Core Viewpoint - Fortinet's stock experienced a significant decline of 17% in after-hours trading despite an earnings report that exceeded analyst expectations, attributed to lower-than-expected third-quarter revenue guidance, raising questions about its current valuation and potential as a buying opportunity [2][3] Group 1: Financial Performance - Fortinet's revenue for the latest quarter rose 14% to $1.63 billion from $1.43 billion a year earlier, significantly outperforming the S&P 500's 4.2% increase [8] - The company has achieved an average revenue growth rate of 19.9% over the last three years, compared to 5.2% for the S&P 500 [8] - Fortinet's operating income over the last four quarters was $1.9 billion, with an operating margin of 31.5%, compared to 18.4% for the S&P 500 [15] - The net income for Fortinet reached $1.9 billion, indicating a net income margin of 30.6%, significantly higher than the S&P 500's 12.2% [15] Group 2: Valuation Metrics - Fortinet's price-to-sales (P/S) ratio stands at 9.6, while the S&P 500's is 3.0, indicating a premium valuation [8] - The price-to-free cash flow (P/FCF) ratio for Fortinet is 28.5 compared to 20.5 for the S&P 500 [8] - Fortinet's price-to-earnings (P/E) ratio is 31.3, in contrast to the S&P 500's 22.5 [8] Group 3: Financial Stability - Fortinet's balance sheet is described as very robust, with total assets of $10.6 billion, including cash and cash equivalents of $4.6 billion, resulting in a cash-to-assets ratio of 45.9% compared to 6.7% for the S&P 500 [15] - The company's debt stood at $995 million, leading to a low debt-to-equity ratio of 1.7% compared to 23.6% for the S&P 500 [15] Group 4: Market Resilience - FTNT stock has shown more resilience compared to the S&P 500 during recent downturns, with a peak-to-trough drop of 38.3% from July 2023 to November 2023, compared to a 25.4% decline for the S&P 500 [16] - The stock fully rebounded to its pre-crisis peak by October 2024 and has since risen to a peak of $114.57 in February 2025 [16] Group 5: Investment Outlook - The recent decline in Fortinet's stock is viewed as a compelling opportunity for long-term investors, despite concerns over slowing revenue growth [13] - The company's strong fundamentals and operational performance suggest potential for significant gains over a three- to five-year investment horizon [13]

网络安全概念公司飞塔信息(FTNT.US)盘前大幅跌近19%。消息上，飞塔信息截至6月30日的第二季度实 现营收16.3亿美元，同比增长14%，符合市场预期，经调整后每股收益达0.64美元，显著超越市场普遍 预期的0.59美元。调整后运营利润率33.1%，也优于预期的32.3%。尽管该公司第二季度业绩表现稳健， 但保守的业绩指引引发投资者对其增长动能减弱的担忧，导致市场信心受挫。(格隆汇) | FTNT 飞塔信息 | | | | --- | --- | --- | | 96,580 + +0.370 +0.38% | | 收盘价 08/06 16:00 美东 | | 78.300 ↓ -18.280 -18.93% | | 盘前价 08/07 05:08 美东 | | 三 7 24 华 S 9 日 ♥ 白 ♥ 白 ♥ 白 ♥ 白 | | ● 快捷交易 | | 最高价 97.589 | 开盘价 96.990 | 成交量 876.57万 | | 最低价 96.300 | 昨收价 96.210 | 成交额 8.31亿 | | 平均价 94.800 | 市盈率TM 39.74 | 总市值 739.24亿 (…) | ...

然而，公司对第三季度的展望显示：预计营收16.7-17.3亿美元，调整后每股收益0.62-0.64美元。虽然每 股收益预期中值高于分析师预测的0.62美元，但营收中值略低于市场预期的17.1亿美元。 全年指引方面，公司维持相对乐观的展望，营收预期66.75-68.25亿美元，每股收益2.47-2.53美元，基本 与市场预期的67.6亿美元营收和2.49美元每股收益持平。全年账单收入预期则更为强劲，73.3-74.8亿美 元的预测区间中值74.5亿美元，明显高于73.4亿美元的市场预估。 本季度公司账单金额同比增长15%至17.8亿美元，超出分析师预估的17.3亿美元，细分来看，统一安全 服务边缘解决方案(Unified SASE)年度经常性收入增长22%，安全运维(SecOps)年度经常性收入同比大增 35%。期末未履约合同金额达66.42亿美元，同比增长12%，其中Unified SASE未履约合同增长17%至 14.88亿美元，SecOps未履约合同激增22%至6.6亿美元。 飞塔信息创始人兼首席执行官Ken Xie表示："第二季度的强劲表现和持续增长态势，直接体现了我们坚 持创新和客户至上战略的成效。这 ...

Fortinet (FTNT) came out with quarterly earnings of $0.64 per share, beating the Zacks Consensus Estimate of $0.59 per share. This compares to earnings of $0.57 per share a year ago. These figures are adjusted for non- recurring items. While Fortinet has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock? There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings ou ...