Keith Jensen
Chief Financial Officer at Fortinet
All right. Thank you, Ken, and good afternoon, everyone. Lets start with an overview of our strong third quarter performance. Revenue of $1.15 billion was another quarterly record for Fortinet, increasing 33% year-over-year and 12% sequentially, our highest third quarter sequential growth rate in 11 years. We continue to deliver better-than-industry average top line growth and generate strong profitability. Our operating margin exceeded guidance is over 28%, driving the adjusted free cash flow margin to 40%. Our history as a public company has revolved around the Rule of 40, measured as the combined total of revenue growth and operating margin. Impressively, the Q3 total came in at over 60. We continue to see success in our strategy for expanding further into the large enterprise segment. The number of deals over $1 million increased over 80% to 153 deals. The total billings value of deals over $1 million more than doubled driven by a record number of deals over $5 million. And G2000 bookings increased over 40%.
Our strong third quarter results reflect solid customer demand across both our core and enhanced platform technologies and the exceptional performance of the team in a challenging supply chain environment. We believe the investments weve made in building our platform and our go-to-market engine enables our customers digital transformation journey. Our platform strategy allows customers to converge networking functionality with security capabilities while consolidating cybersecurity products, providing security across their entire digital infrastructure while lowering their operating costs. Recently, The Forrester Wave: Enterprise Firewalls report acknowledged the success of our investment strategy, placing Fortinet as a leader for the first time in its history. According to Forrester, "Fortinet excels the performance for value and offers a wide array of adjacent services. Long known for its bang-for-the-buck approach to network security, Fortinet has built a flexible and capable platform with its flagship product, the FortiGate Firewall." Taking a closer look at the income statement.
Product revenue grew 39%. Product revenue growth for our core and enhanced technology platform products increased 29% and 51%, respectively. The product revenue growth rate accelerated over four points sequentially, especially impressive given it is our toughest year-over-year comparison in over 10 years. Service revenue was up 28%, accelerating three points sequentially driven by strong product revenue growth and seven consecutive quarters of increasing short-term deferred revenue growth rates. Support and related service revenue was up 28%, accelerating over two points sequentially to $311 million. While security subscription service revenue was up 29%, accelerating four points sequentially to $370 million. Total revenue in the Americas increased 34%. EMEA revenue increased 37% and APAC posted revenue growth of 23%. Total gross margin at 76.2% exceeded the high end of our guidance range. Product gross margin of 61% was up 30 basis points year-over-year. Services gross margin of 86.6% was flat year-over-year, but up 70 basis points sequentially.
Operating margin of 28.3% was up 250 basis points, benefiting from FX and the operating margin leverage that comes with higher revenues. Shifting to billings. Billings of $1.4 billion were up 33%, representing the sixth consecutive quarter of billings growth in excess of 30%. Core platform billings were up 27% and accounted for 67% of total billings. As shown on slide six, we entry-level FortiGates posted very strong growth with the mix shifting 16 points in their favor, driven by demand and as we expected, improved supply. Enhanced platform technology billings were up 45% and accounted for 33% of total billings, a positive mix shift of three points. Average contract term was flat year-over-year at 29 months. Looking at the statement of cash flow summarized on slide seven and eight. Free cash flow was $395 million.
Adjusted free cash flow, which excludes real estate investments, was $464 million, representing a 40% adjusted free cash flow margin. DSOs were down five days sequentially while increasing 12 days year-over-year to 75 days. Cash taxes were $69 million. Capital expenditures were $88 million, including $69 million for real estate investments. We repurchased 10.2 million shares of our common stock for a cost of $500 million, bringing the year-to-date totals to 36 million shares at a total cost of $2 billion. The remaining repurchase authorization totals $530 million. Regarding backlog, the backlog at the end of the third quarter was up slightly from the end of the prior quarter, with FortiGate Firewalls accounting for just 1/3 of total backlog. We expect fourth quarter ending backlog to be relatively consistent with the third quarter backlog as we are seeing early signs of a transition back to more normalized customer buying behaviors. Moving to guidance. Moving to guidance.
The current environment favors a Fortinet style platform that offers integrated solutions and strong security capabilities and an attractive cost of ownership. To enhance our ability to capture our share of the large market opportunity, we plan to continue to invest in innovation across our integrated platform offerings. Now Id like to review our outlook for the fourth quarter, summarized on slide nine, which is subject to disclaimers regarding forward-looking information that Peter provided at the beginning of the call. And to start, as part of the Q4 guidance setting process, we considered several factors, including the greater macro uncertainty today and with it, the increased risk of forecasting the timing of certain larger transactions. The transition to more normalized customers buying behaviors, which means there is less of an emphasis on ordering to get a place online. And for comparison, in the fourth quarter of 2021, when supply was tighter, backlog increased over $120 million and contributed to 49% bookings growth.
And lastly, elevated year early year top line comparisons that include certain onetime items adding a couple of points to service revenue growth and fully cycling the Alaxala acquisition. In response, we have slightly widened our top line guidance ranges. For the fourth quarter, we expect to again reach the Rule of 60. And with that, the key metrics include billings in the range of $1.665 billion to $1.720 billion, which at the midpoint represents growth of 30%. Revenue in the range of $1.275 billion to $1.315 billion, which represents growth of 34%. Non-GAAP gross margin of 75% to 76%, non-GAAP operating margin of 30% to 31%, non-GAAP earnings per share of $0.38 to $0.40, which assumes a share count of between 795 million and 805 million. We expect capital expenditures of $75 million to $85 million. We expect a non-GAAP tax rate of 17%. And for the full year, we expect billings and revenue growth to exceed 30% for the second consecutive year. Billings in the range of $5.540 billion to $5.595 billion, which at the midpoint represents 33%, revenue in the range of $4.410 billion to $4.450 billion, which represents growth of 33%.
Perhaps for context, we should note at the midpoint, these full year billings and revenue growth rates are three points higher than the initial growth rates we provided in early February, despite the start of the war in Ukraine in late February, significant increases in interest rates and increasing uncertainty in the macro environment, and importantly, full year backlog is expected to be above the February estimate of $350 million. Total service revenue in the range of $2.645 billion to $2.655 billion, which represents growth of 27% and implies full year product revenue growth of 42%. The non-GAAP gross margin of 75% to 76%; non-GAAP operating margin of 26% to 27% at the midpoint a year-over-year increase of 30 basis points. And again, for context, at the midpoint, gross and operating margin expectations were 50 and 100 basis points above the February guide, respectively. Non-GAAP earnings per share of $1.13 to $1.15, which assumes a share count of between 800 million and 810 million. We expect full year capital expenditures of $325 million to $335 million. We expect our non-GAAP tax rate to be 17%.
We expect cash taxes to be $265 million. Before wrapping up, Id like to offer some preliminary thoughts on 2023 and our midterm targets on the heels of a very strong set of growth in 2021 -- in 2022. We continue to successfully balance growth and profitability, while investing in longer-term innovation and go-to-market initiatives to fuel future growth. The strength of our business model includes its diversification, margins that provide capacity for future investment and a rich mix of higher-margin recurring service revenues. As we saw in the highs of pandemic, the diversification helps mitigate the risk of economic slowdowns. Specifically, in 2020, we delivered operating margins of nearly 27%, adjusted free cash flow margin of over 38% and top line growth of 20%. And during the past 12 months, we have really exceeded our operating margin targets, while increasing our engineering headcount by about 20% and significantly increasing our future sales capacity by over 25%, including a greater than 50% increase in new nontenured salespeople.
While we will provide more detailed 2023 guidance when we report our fourth quarter results, its worth leaning that service revenue accounts for 60% of total revenue, with gross margins hovering above 85%. We see continued service revenue growth driven by two years of very strong product revenue growth and seven consecutive quarters accelerating short-term deferred revenue growth. With a strong business model and the history of being able to execute, we are confident that our momentum will continue and point to our key growth drivers, including strategic investments, the heightened threat environment, the convergence of networking and security, the cybersecurity consolidation. Cyber securities are not immune to economic slowdowns -- is expected to remain a relatively safe harbor.
As such, we remain on track to achieve all of our medium-term financial targets from our May 2022 Analyst Day, including $10 billion in billings and $8 billion in revenue in 2025, each representing a 22% three year CAGR from the midpoint of our 2022 guidance. The targets also included an average non-GAAP operating margin of at least 25% for the four years from 2022 to 2025. And the 2025 adjusted free cash flow margin in the -- in the mid- to high 30% range. Illustrating our long focus for balancing growth and profitability, our targets remain committed to low-40 or better.
Ill now hand the call back over to Peter to begin the Q&A.
