Fortinet Q3 Earnings Call Highlights

Key Points

• Fortinet beat Q3 expectations: Billings rose 29% year over year to $2.34 billion, revenue increased 20% to $2.08 billion, and non-GAAP EPS climbed 23% to $0.91.
• AI, SASE and operational technology security drove demand: SASE Firewall billings grew 31%, OT billings nearly 40%, and deals exceeding $1 million increased 51%.
• Fortinet raised its 2026 outlook: Full-year billings are now expected at $9.568 billion–$9.718 billion and revenue at $8.125 billion–$8.215 billion; the board also authorized an additional $1.2 billion in share repurchases.

Fortinet NASDAQ: FTNT reported third-quarter 2026 results that exceeded the midpoint of its guidance across billings, revenue, operating margin and earnings per share, citing broad-based demand for network security, SASE, operational technology security and AI-related offerings.

Total billings rose 29% year over year to $2.34 billion, while revenue increased 20% to $2.08 billion. Product revenue climbed 37% to $765 million, supported by demand for higher-performance models and higher average selling prices. Service revenue increased 13% to $1.31 billion.

Founder, Chairman and CEO Ken Xie said Fortinet sees network security as a central component of securing AI deployments, as firewalls can serve as inline enforcement points across enterprise, operational technology and hybrid-cloud environments. The company introduced its FortiGuard Inline AI Security Service during the quarter, which Xie said turns FortiGate products into real-time AI enforcement points.

AI, SASE and OT Demand Drive Billings

Fortinet said its SASE Firewall pillar billings grew 31% in the third quarter. Xie said the company’s approach combines SASE, firewall and AI-security components through its FortiOS operating system, alongside its FortiASIC technology and global infrastructure.

Christiane Ohlgart, Fortinet’s CFO, said AI, SASE and network upgrades and expansions were key demand drivers as customers prepare for new threat environments. Deals with total value above $1 million increased 51%, led by an outsized contribution from the company’s U.S. large-enterprise business.

Operational technology billings grew nearly 40%, according to Ohlgart. She said demand reflected the need to protect critical infrastructure and industrial networks as IT and OT environments become increasingly interconnected.

The company cited several large customer wins, including an eight-figure competitive win with a transportation company for OT infrastructure and an eight-figure deal with a U.S. retailer to standardize and secure 1,500 store locations. It also described a seven-figure expansion with an AI company deploying high-end data-center firewalls across five additional data centers.

During the question-and-answer session, Xie said current demand appears stronger than prior cybersecurity investment cycles driven by remote work and earlier major breaches. He said AI is contributing both to infrastructure investment and to increased demand for security as enterprises confront AI-enabled threats and newly identified vulnerabilities.

“Demand is still very strong,” Xie said, adding that Fortinet had not seen signs of a slowdown during the third quarter or early in the fourth quarter.

Services Growth Affected by Activation Timing

While service revenue grew 13%, management said the result was affected by timing related to large enterprise deployments. Ohlgart said some new large customers and expansion customers have ramped service activations, meaning hardware may be deployed before related services are fully activated and recognized as revenue.

Large enterprise agreements also can consolidate existing service arrangements, affecting the timing of revenue recognition, she said. Fortinet reported 26% service billings growth, 19% total deferred revenue growth and 14.5% growth in short-term deferred revenue, which Ohlgart said was the company’s highest rate in five quarters.

Management said it believes the first quarter of 2026 marked a trough in service-revenue growth. However, Ohlgart clarified during the call that Fortinet expects “improved growth rates,” rather than specifically describing 2027 service growth as an acceleration.

The company also said product mix affects service attachment. Sovereign deployments and certain networking components can be more product-heavy than cloud-based offerings, though Fortinet said it sees opportunities to attach additional FortiGuard security subscriptions over time.

Margins, Cash Flow and Repurchases

Fortinet reported non-GAAP gross margin of 79.6% and GAAP gross margin of 79%. The company said margins were affected by the continued high contribution from product demand. Non-GAAP operating margin reached a third-quarter record of 38.2%, up 130 basis points, while GAAP operating margin was 33.9%.

Non-GAAP earnings per share increased 23% to $0.91, and GAAP earnings per share rose 39% to $0.86. Free cash flow grew 52% to $865 million in the quarter and increased 74% year to date to $2.84 billion. Adjusted free cash flow was $912 million, representing a 44% margin.

Fortinet’s board approved an approximately $1.2 billion increase to its share repurchase authorization, leaving the company with $2 billion of remaining authorization.

Guidance Raised for 2026

Fortinet raised its full-year outlook for billings, revenue, operating margin and earnings per share. The company said its updated 2026 guidance represents increases of $1.14 billion for billings and $570 million for revenue compared with its initial February outlook.

• Fourth-quarter billings: $2.775 billion to $2.925 billion, representing 20% growth at the midpoint.
• Fourth-quarter revenue: $2.155 billion to $2.245 billion, representing 15% growth at the midpoint.
• Fourth-quarter non-GAAP EPS: $0.93 to $0.95.
• Full-year billings: $9.568 billion to $9.718 billion, representing 28% growth at the midpoint.
• Full-year revenue: $8.125 billion to $8.215 billion, representing 20% growth at the midpoint.
• Full-year service revenue: $5.15 billion to $5.17 billion, representing 13% growth at the midpoint.
• Full-year non-GAAP EPS: $3.54 to $3.58.

Management said it expects total billings and revenue growth in 2027 to outpace growth in its overall addressable market. Xie also said Fortinet’s pricing increases contributed roughly 10 percentage points to year-over-year billings growth, clarifying that the impact related to billings rather than top-line revenue.

About Fortinet (NASDAQ:FTNT)

Fortinet, Inc develops cybersecurity products and services designed to protect networks, endpoints, applications, cloud environments and operational technology systems. The company's portfolio includes next-generation firewalls, secure networking products, endpoint security, web application security, email security, identity and access solutions, and security information and event management tools.

Its product offerings include FortiGate network security appliances and cloud-based firewalls, along with FortiSwitch, FortiAP and FortiExtender solutions for secure connectivity.

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