Fortinet (NasdaqGS:FTNT) Q3 2025 Earnings Call November 05, 2025 04:30 PM ET Company ParticipantsFatima Boolani - Managing DirectorShrenik Kothari - Sector Head DirectorShaul Eyal - Managing Director of Equity ResearchJohn Whittle - COORob Owens - Head of Technology ResearchGray Powell - Managing DirectorBrian Essex - Executive DirectorKen Xie - Founder, Chairman, and CEOBrad Zelnick - Managing DirectorChristiane Ohlgart - CFOIttai Kidron - Managing DirectorAnthony Luscri - VP of Investor RelationsConferenc ...

Fortinet (NasdaqGS:FTNT) Q3 2025 Earnings Call November 05, 2025 04:30 PM ET Company ParticipantsFatima Boolani - Managing DirectorShrenik Kothari - Sector Head DirectorShaul Eyal - Managing Director of Equity ResearchJohn Whittle - COORob Owens - Head of Technology ResearchGray Powell - Managing DirectorBrian Essex - Executive DirectorKen Xie - Founder, Chairman, and CEOBrad Zelnick - Managing DirectorChristiane Ohlgart - CFOIttai Kidron - Managing DirectorAnthony Luscri - VP of Investor RelationsConferenc ...

Fortinet (NasdaqGS:FTNT) Q3 2025 Earnings Call November 05, 2025 04:30 PM ET Speaker3Hello, and welcome to Fortinet's third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will conduct a question-and-answer session. Please be advised that this call is being recorded. I would now like to hand the call over to Anthony Luscri, Vice President of Investor Relations. Please go ahead.Speaker2Thank you. Good afternoon, and thank y ...

Core Insights - 87% of cybersecurity professionals believe AI will enhance their roles, providing efficiency and relief amid ongoing skill shortages [3][4] - The 2025 Global Cybersecurity Skills Gap Report highlights a critical shortage of over 4.7 million skilled professionals, leading to unfilled security roles and increased breach rates [2][4] - Organizations are increasingly adopting AI-enabled cybersecurity solutions, with 97% either using or planning to implement such technologies [4][5] Cybersecurity Skills Gap - The report indicates that 86% of organizations experienced at least one cyber breach in 2024, a rise from 80% in 2021, with 28% reporting five or more breaches [4] - More than 50% of respondents cited a lack of IT security skills and training as a leading cause of breaches [4] - Financial impacts of breaches are significant, with 52% of organizations reporting costs exceeding $1 million in 2024, up from 38% in 2021 [4] AI in Cybersecurity - While AI can alleviate pressure on security teams, nearly half (48%) of IT decision-makers identify a lack of staff with sufficient AI expertise as a major challenge [4][5] - 80% of surveyed professionals believe AI is making their teams more effective, but 76% of organizations that faced nine or more cyberattacks in 2024 had AI tools in place, indicating that mere adoption is insufficient without expertise [4][5] Board-Level Focus - Cybersecurity is increasingly recognized as a board-level priority, with 76% of boards increasing their focus on the issue in 2024 [9] - However, fewer than half (49%) of board members fully understand the risks associated with AI, highlighting a gap in awareness [9] Upskilling and Training - The report emphasizes the need for organizations to invest in training and upskilling to close the cybersecurity skills gap [5][6] - Fortinet aims to train 1 million people in cybersecurity globally by the end of 2026, reflecting a commitment to addressing the skills shortage [7]

Core Insights - Fortinet (FTNT) is focusing on two rapidly growing areas in cybersecurity: Secure Access Service Edge (SASE) and Security Operations (SecOps) to strengthen its position in integrated network security [1][12] Business Strategy - In late 2025, Fortinet advanced its unified SASE platform and AI-driven SecOps capabilities, being recognized as a Leader in the 2025 Gartner Magic Quadrant for SASE Platforms, with increased momentum from multi-product enterprise deals [2] - Fortinet expanded its partnership with Armis to enhance asset visibility and AI-led threat detection, emphasizing automation, scalability, and long-term growth in intelligent security solutions [3] - The company’s unified FortiOS architecture integrates all core SASE elements, simplifying deployment and improving operational efficiency for global customers [5] Financial Performance - Fortinet raised its full-year 2025 billing guidance by $100 million to $7.44 billion, indicating a 14% year-over-year growth driven by strong demand for FortiSASE and SecOps offerings [6][12] - In Q2 2025, SASE and SecOps billings increased by 21% and 31% year-over-year, respectively, showcasing accelerating enterprise adoption [7] Competitive Landscape - Fortinet's main competitor, Palo Alto Networks (PANW), utilizes advanced next-generation firewalls and AI-driven platforms, although its premium pricing may deter cost-sensitive organizations [8][9] - Cisco Systems (CSCO) competes by integrating security across its networking ecosystem, leveraging its scale and infrastructure, though it is less specialized in niche security domains compared to Fortinet [10] Valuation and Earnings Estimates - Fortinet's shares have declined by 8.6% year-to-date, underperforming the Zacks Security industry's 21% growth and the broader Computer and Technology sector's 22.7% increase [13] - The company appears overvalued with a forward 12-month price-to-sales ratio of 8.98, higher than the sector average of 6.94 [15] - The Zacks Consensus Estimate for Fortinet's earnings is $2.52 per share for 2025 and $2.78 per share for 2026, indicating year-over-year earnings growth of 6.33% for 2025 and 10.18% for 2026 [18]

Core Insights - Fortinet is participating in the World Economic Forum (WEF) Annual Meeting on Cybersecurity in Dubai from October 14-16, marking its fifth consecutive year at the event [1][2] - The company emphasizes the importance of public-private partnerships in enhancing global cyber resilience and addressing the evolving threat landscape influenced by AI [2][7] - Fortinet is actively involved in initiatives such as the Partnership Against Cybercrime and the Cybercrime Atlas, contributing to the development of frameworks for collaboration and intelligence sharing [3][10] Company Initiatives - Fortinet's Chief Security Strategist, Derek Manky, will participate in a panel discussion titled "Scaling Disruption: The Next Chapter in Cybercrime Collaboration," focusing on leveraging private sector expertise to combat cybercrime [2][6] - The Cybercrime Atlas, launched in 2024, aims to coordinate efforts across sectors to map and disrupt cybercriminal activities, with contributors sharing over 10,000 actionable data points in its first year [3][12] - Fortinet is a founding partner of the WEF Centre for Cybersecurity and has contributed to the Strategic Cybersecurity Talent Framework and AI and Cyber Initiative [2][3] Industry Context - According to the WEF's Global Cybersecurity Outlook 2025 report, over 70% of global leaders perceive rising cybersecurity risks, highlighting the need for collaboration and interdisciplinary approaches to strengthen defenses [7][8] - The Annual Meeting on Cybersecurity is being held alongside the Annual Meeting of the Global Future Councils 2025, aiming to leverage insights from various stakeholders to address cybersecurity challenges [8]

Fortinet Conference Summary Company Overview - **Company**: Fortinet (NasdaqGS:FTNT) - **Date of Conference**: September 11, 2025 Key Industry Insights - **AI and Network Security**: The discussion highlighted the increasing CapEx buildouts for AI and the critical role of network security in this context, particularly with major players like Oracle and Microsoft expanding their data centers for AI applications [3][4] - **AI-Related Security Business**: Fortinet categorizes its AI-related security offerings into three segments: AI Assist, AI Protect, and AI Secure AI, with AI Assist contributing approximately 11% of the business and growing at 35% [4][6] - **Market Dynamics**: The shift from training to inference workloads in AI is expected to change security needs, as enterprise adoption increases [7][8] Financial Performance and Growth Drivers - **Revenue Growth**: Fortinet's secure networking segment is projected to grow at a CAGR of 8% over the next five years, while unified SASE is expected to grow around 20% [29][30] - **Product Revenue Outlook**: Despite potential short-term fluctuations, the company anticipates product revenue growth of around 10% in a normal market environment, driven by new functions and technology upgrades [32][33] - **Enterprise Engagement**: Fortinet is seeing increased engagement from enterprise customers, particularly in optimizing networks for AI and addressing new security risks [25][35] Strategic Initiatives - **SASE Development**: Fortinet has shifted its strategy to develop its own SASE infrastructure, which has shown rapid growth and shorter sales cycles compared to competitors [44] - **OT Security Market**: The company is focusing on the operational technology (OT) security market, which is expected to grow significantly as more devices connect and require protection [40][41] - **Sales Strategy**: Fortinet is enhancing its sales force to improve cross-selling opportunities, particularly in the enterprise segment, where different buying centers exist [42][43] Technology and Innovation - **ASIC Development**: Fortinet has developed its own ASIC chips, which provide superior computing power for security applications, enhancing the performance of its products [5][15] - **Integration of Functions**: The company is integrating multiple security functions into its FortiOS platform, which is expected to drive growth in network security [13][14] Market Position and Competitive Landscape - **Leadership in Cybersecurity**: Fortinet claims to have more AI-related patents than any other cybersecurity company, positioning itself as a leader in the AI security space [6] - **SASE vs. Traditional Firewalls**: The company believes that while SASE will not replace network security, it will evolve the role of firewalls, necessitating the integration of SASE functions into firewall products [20][21] Financial Management - **Share Buyback Program**: Fortinet has authorized an additional $1 billion for share repurchases, reflecting confidence in its long-term growth and market position [51][52] Conclusion - Fortinet is strategically positioned to capitalize on the growing demand for AI-related security solutions and the integration of network security functions. The company is focused on innovation, market expansion, and enhancing customer engagement to drive future growth.

Core Insights - Fortinet has been recognized as a Leader in the 2025 Gartner Magic Quadrant for Hybrid Mesh Firewall, achieving the highest position for Ability to Execute [1][2][3] Company Overview - Fortinet is a global leader in cybersecurity, focusing on the convergence of networking and security, and has been acknowledged in 12 different Gartner Magic Quadrant reports [2][12] - The company offers a comprehensive cybersecurity portfolio with over 50 enterprise-grade products, serving more than half a million customers [12] Product and Technology Highlights - Fortinet's solutions are powered by custom-built ASICs for enhanced performance and utilize FortiOS, a unified operating system for both hardware and virtual deployments [2][3] - The Fortinet Security Fabric integrates FortiOS, FortiGuard Labs intelligence, and AI-driven security, reducing complexity and operational overhead while enhancing threat detection and response [6] - Innovations such as FortiAI-Assist leverage AI technologies to improve network operations and response times, while early adoption of post-quantum cryptography ensures future-proof data protection [6] Strategic Vision - Fortinet's recognition in both the Gartner Magic Quadrant for Hybrid Mesh Firewalls and SASE Platforms reflects its vision for a new-generation SASE firewall that simplifies operations and reduces costs [4] - The company aims to provide consistent, hybrid secure access across various environments, including data centers, cloud, and remote edges, to keep pace with evolving network complexities [4] Licensing and Flexibility - The FortiFlex licensing model offers usage-based security licensing, allowing customers to transition seamlessly between hardware, virtual, and cloud firewall options, optimizing costs and accelerating time to value [6]

Core Insights - Fortinet reported strong financial results for Q2 2025, with revenue growth of 14% year-over-year to $1.63 billion and billings growth of 15% year-over-year to $1.78 billion, leading to an increase in full-year billings guidance by $100 million [5][6][3] Financial Performance - Revenue for Q2 2025 was $1.63 billion, up from $1.43 billion in Q2 2024 [20] - Billings for Q2 2025 reached $1.78 billion, compared to $1.54 billion in Q2 2024 [27] - Non-GAAP operating margin was 33% for Q2 2025, while GAAP operating margin was 28% [5][24] - Net income for Q2 2025 was $440.1 million, an increase from $379.8 million in Q2 2024 [21] Market Leadership - Fortinet was recognized as a leader in the 2025 Gartner Magic Quadrant for SASE Platforms and ranked 1 in the Critical Capabilities for SASE Platforms report for Secure Branch Network Modernization [6] - The company has over 1,400 issued patents worldwide, including more than 500 related to AI, reflecting significant R&D investment [6] Guidance - For Q3 2025, Fortinet expects revenue in the range of $1.67 billion to $1.73 billion and billings between $1.76 billion and $1.84 billion [5] - For the full fiscal year 2025, revenue is projected to be between $6.675 billion and $6.825 billion, with service revenue expected to be between $4.55 billion and $4.65 billion [5] Annual Recurring Revenue (ARR) - Unified SASE ARR increased by 22% year-over-year, while Security Operations ARR grew by 35% year-over-year [5]

Core Viewpoint - Fortinet has introduced enhanced features in its FortiOS operating system to protect organizations from quantum computing threats, enabling them to transition to post-quantum security without performance impact [1][4]. Group 1: Fortinet's Innovations - Fortinet's latest FortiOS capabilities include quantum-safe encryption algorithms and key distribution methods that can withstand quantum attacks, allowing organizations to secure highly sensitive data [1][3]. - The new features are available at no additional cost for FortiGate NGFW and Fortinet Secure SD-WAN customers, including NIST-approved algorithms like ML-KEM and emerging algorithms such as BIKE, HQC, and Frodo [4][7]. - Fortinet's approach integrates quantum key distribution (QKD) to ensure secure key exchange and detect eavesdropping attempts, enhancing network security [7]. Group 2: Industry Context - Quantum computers can break current encryption standards, posing a significant threat to industries handling sensitive data, such as telecommunications, financial services, government, and healthcare [3]. - Cybercriminals are already storing encrypted traffic to decrypt later, highlighting the urgency for organizations to adopt quantum-safe encryption now [3]. Group 3: Future-Proofing Security - Fortinet's unified operating system allows for the deployment of cutting-edge updates, including quantum-safe innovations, helping customers future-proof their security postures [5]. - The introduction of a hybrid mode facilitates a gradual transition to post-quantum security, enabling seamless integration of traditional public-key cryptography and QKD [7].