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    FTNT
    Earnings call· Jun 2025(Q2 FY25)

    Fortinet Q2 FY25 earnings call FTNT

    Aug 6, 2025 Source

    Executive summary

    Fortinet Q2 FY25 — Strong Billings and Operating Margin Beat, Raised Full-Year Outlook

    Fortinet delivered a strong second quarter, exceeding billings and operating margin guidance, driven by robust large enterprise momentum and significant growth in Unified SASE and AI-driven SecOps. The company raised its full-year billings outlook, demonstrating resilience despite macroeconomic uncertainties, while strategically investing in its infrastructure and sales force for long-term growth.

    Highlights

    5

    • Total billings grew by 15% to $1.78 billion, exceeding guidance.

    • Achieved a strong non-GAAP operating margin of 33.1%, 60 basis points above the high end of guidance.

    • Total value of deals over $1 million increased by more than 50%.

    • Unified SASE and AI-driven secure operations billings grew over 20% each, representing a combined 35% of total billings.

    • Raised the midpoint of the full-year billings guidance by $100 million.

    Concerns

    3

    • Operating margin decreased by 200 basis points YoY due to increased sales headcount investments, acquisition costs, and foreign exchange headwinds.

    • Service gross margin decreased by 80 basis points due to increased investments in hosted security solutions.

    • Service revenue growth is decelerating, with the Q3 FY25 midpoint guidance down.

    Guidance & targets

    17
    CategoryTargetConfidence
    Billings
    USD 1.76 billion to USD 1.84 billion
    high materiality
    High
    Revenue
    USD 1.67 billion to USD 1.73 billion
    high materiality
    High
    Non-GAAP Gross Margin
    80% to 81%
    medium materiality
    High
    Non-GAAP Operating Margin
    32.5% to 33.5%
    high materiality
    High
    Non-GAAP Earnings Per Share
    $0.62 to $0.64
    high materiality
    High
    Infrastructure Investments
    $110 million to $130 million
    medium materiality
    High
    Non-GAAP Tax Rate
    18%
    low materiality
    High
    Cash Taxes
    $60 million to $90 million
    low materiality
    High
    Billings
    USD 7.325 billion to USD 7.475 billion
    high materiality
    High
    Revenue
    USD 6.675 billion to USD 6.825 billion
    high materiality
    High
    Service Revenue
    $4.55 billion to $4.65 billion
    medium materiality
    High
    Non-GAAP Gross Margin
    79% to 81%
    medium materiality
    High
    Non-GAAP Operating Margin
    32% to 33.5%
    high materiality
    High
    Non-GAAP Earnings Per Share
    $2.47 to $2.53
    high materiality
    High
    Infrastructure Investments
    $380 million to $430 million
    medium materiality
    High
    Non-GAAP Tax Rate
    18%
    low materiality
    High
    Cash Taxes
    $400 million to $450 million
    low materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    EMEA
    Led total revenue growth.
    		—18%——
    Americas
    		—11%——
    APAC
    		—11%——

    Operational metrics

    16
    Non-GAAP Operating Margin
    33.1%-200 bps YoY
    Q2 FY25

    Reflects increased investments in sales headcount, acquisition costs, and foreign exchange headwinds.

    Product Gross Margin
    67.8%+180 bps YoY
    Q2 FY25

    Due to inventory-related charges normalizing.

    Service Gross Margin
    87.8%-80 bps YoY
    Q2 FY25

    Due to increased investments associated with the expansion of hosted security solutions.

    Infrastructure Investments
    $168M+$145M YoY
    Q2 FY25

    To continue building out infrastructure footprint to support FortiSASE, FortiCloud and other services.

    Share Repurchases
    $401M
    Q2 FY25
    Remaining Share Buyback Authorization
    $1.6B
    As of call date
    Firewall Upgrade Cycle Progress (2026 cohort)
    40%-50%
    As of Q2 FY25

    Based on remaining active units and service contracts, with continued upgrade activity expected over the next 6 quarters.

    Firewall Upgrade Cycle Units (2027 cohort)
    350,000
    FY27

    Less significant than the 2026 cohort in terms of product revenue due to lower price point.

    Software License Revenue Growth
    high teens rate
    Q2 FY25
    Service Billings Growth
    17%
    Q2 FY25

    Highest growth rate in the past 6 quarters, reflecting enterprise agreement renewals.

    FortiSASE Customers (Large Enterprise)
    13%+60% YoY
    Q2 FY25

    Highlighting continued expansion of FortiSASE in the customer base.

    FortiSASE Customers leveraging SD-WAN
    >50%
    Q2 FY25

    Reflects the growing convergence of security and networking.

    Large Enterprise FortiSASE customers started with SD-WAN
    90%
    Q2 FY25

    Reflecting the value of the integrated platform approach.

    Global Infrastructure Investment
    $2B
    Cumulative

    Investment to build and operate a global owned infrastructure.

    Global Infrastructure Footprint
    5M
    Current

    Across data centers, NOCs, SOCs, customer support centers, executive briefing centers, and R&D facilities.

    OT Security Billings Growth
    >20%
    Q2 FY25

    Industry KPIs

    10
    MetricValueDetails
    Capacity CAPEX$168MUSD
    Revenue growth$1.63BUSD
    Arr net new arr$1.15BUSD
    Rpo current rpo$6.64BUSD
    Bookings billings$1.78BUSD
    Customer account count6,900new organizations
    Large deal new logo metrics>50%%
    Multi product platform attach13%%
    Operating FCF margin rule of 4033.1%%
    Ai product adoption monetizationFastest growing part of our business

    Orderbook & backlog

    5
    Total RPO$6.64BQ2 FY25

    +12% YoY

    Current RPO$3.45BQ2 FY25

    +15% YoY

    Unified SASE ARR$1.15BQ2 FY25

    +22% YoY

    SecOps ARR$463MQ2 FY25

    +35% YoY

    FortiSASE ARR>100% growthQ2 FY25

    Product announcements

    1
    ProductTypeDetails
    FortiCloud (FortiIdentity, FortiDrive, FortiConnect)expansion

    Capital programs

    1
    Global Infrastructure Build-outunderway$2B
    Period spend: $168M

    Benefit: 5 million square feet across data centers, NOCs, SOCs, customer support centers, executive briefing centers, and R&D facilities

    Cumulative investment to build and operate a global owned infrastructure to deliver FortiSASE, FortiCloud, and other cloud services. Q2 FY25 spend was $168 million, up $145 million YoY.

    Risks & headwinds

    3
    Operating margin declineQ2 FY25

    -200 bps YoY

    Mitigation: Increased investments in sales headcount, absorption of costs from recent acquisitions, and foreign exchange headwinds from a weaker U.S. dollar.

    Service gross margin declineQ2 FY25

    -80 bps YoY

    Mitigation: Increased investments associated with the expansion of hosted security solutions.

    Macroeconomic uncertainty

    Ongoing uncertainty

    Mitigation: Despite ongoing uncertainty surrounding tariffs and the global economic outlook, Fortinet has not experienced a negative impact on its business, with strong and resilient demand for its solutions.

    What to watch in Q3 FY25

    5

    Firewall Upgrade Cycle Progress (2026 cohort)

    Next 6 quarters
    Current40%-50% complete
    TargetContinued upgrade activity for remaining devices

    Why it matters

    Indicates continued product revenue tailwinds and opportunities for upsell/cross-sell to new SASE firewalls, impacting overall growth.

    We estimate that we are approximately 40% to 50% of the way through the 2026 upgrade cycle at the end of the second quarter based on the remaining active units and service contracts, and we expect continued upgrade activity for the remaining devices over the next 6 quarters.

    Q&A highlights

    6

    Does FortiSASE sales cannibalize the traditional firewall business, or are both segments growing?

    Management stated that SASE expands beyond traditional firewalls, which remain important control points. They view SASE as enhancing, not replacing, firewalls, evolving into 'SASE firewall.' Win-loss analysis shows little cannibalization, and both markets are growing, with Fortinet gaining market share.

    “We don't see SASE replacing the firewall. We just see is keeping enhancing. That's what we call the SASE firewall.”

    asked by Shaul Eyal · answered by Ken Xie

    2 min read6 chapters

    Detailed Narrative

    01

    Unified SASE and AI-driven SecOps Momentum

    Fortinet's Unified SASE and AI-driven secure operations are significant growth drivers, with billings for both growing over 20% and collectively accounting for 35% of total billings. The company was named a leader in the 2025 Gartner Magic Quadrant for SASE platforms and ranks #1 in a Secure Branch Network Monetization case, leveraging its unified FortiOS for all core SASE capabilities. This integrated approach, including New-Gen Firewall, SD-WAN, ZTNA, Secure Web Gateway, CASB, and DLP, simplifies adoption and reduces operational costs for customers.

    02

    Strategic Infrastructure Investment

    Fortinet has invested approximately $2 billion to build and operate a global infrastructure spanning 5 million square feet across data centers, NOCs, SOCs, customer support centers, executive briefing centers, and R&D facilities. This owned infrastructure provides a competitive advantage in delivering FortiSASE, FortiCloud, and other cloud services by ensuring better customer experience, cost efficiency, strong data sovereignty, and high performance and scale. The company also leverages its Fortistack technology for enhanced security and management across SaaS services.

    03

    AI Innovation and Growth

    The company has invested in AI for over 15 years, holding more than 500 issued and pending AI patents. Recent innovations include FortiAI-Protect for advanced threat detection, FortiAI-Assist for automating security tasks, and FortiAI-SecureAI for protecting AI infrastructure. As a result of these investments and innovations, AI add-on solutions are currently the fastest-growing part of Fortinet's business, demonstrating successful monetization of its long-term AI strategy.

    04

    Firewall Upgrade Cycle Progress

    Fortinet is 40% to 50% through the 2026 firewall upgrade cycle, which involves approximately 650,000 units reaching end of service by the end of 2026. A subsequent cohort of 350,000 lower-end units will reach end of service in 2027, though this is less significant in terms of product revenue. This refresh cycle provides valuable opportunities to engage with customers and channel partners, showcasing ongoing innovation in FortiOS and promoting upgrades to new generation SASE firewalls for enhanced security capabilities.

    05

    New FortiCloud Services

    Fortinet expanded its FortiCloud offering with three new services: FortiIdentity, FortiDrive, and FortiConnect. These services are designed to natively integrate into the Fortinet Security Fabric, providing centralized visibility, consistent policy enforcement, and real-time threat protection across users, devices, applications, data, and AI agents. This expansion aims to enhance the comprehensive security ecosystem for customers.

    06

    OT Security Leadership

    Fortinet achieved over 20% billing growth in OT security and was recently named the overall leader in the Westland Advisor IT and OT Network Protection Platform Navigator 2025 report for the third consecutive time. The company earned the highest ranking in both strategic direction and technical capability, highlighting its strong position and continued investment in the specialized OT security market.

    AI-generated summary of the company’s earnings call. Not investment advice.