Fortinet, Inc.

Previous wording

Fortinet is a leader in cybersecurity, driving the convergence of networking and security. Our mission is to secure people, devices and data everywhere. Our integrated platform, the Fortinet Security Fabric, spans secure networking, unified SASE and AI-driven security operations (“SecOps”). As of June 30, 2025, our end-customers were located in over 100 countries and included enterprises across a wide variety of market verticals, including financial services, retail, healthcare and operational technology (“OT”) market verticals, communication and security service providers, and government organizations. As a global company headquartered in Sunnyvale, California, our research and development is centered in the United States and Canada with a global footprint of support and centers of excellence around the world. As of June 30, 2025, we held 1,067 U.S. patents and 1,401 global patents, including 288 AI-related patents. We have been recognized in over 140 enterprise analyst reports demonstrating both our vision and execution across security and networking products.

Current wording

Fortinet is a leader in cybersecurity, driving the convergence of networking and security. Our mission is to secure people, devices and data everywhere. Our integrated platform, the Fortinet Security Fabric, spans secure networking, unified SASE and AI-driven security operations (“SecOps”). As of September 30, 2025, our end-customers were located in over 100 countries and included enterprises across a wide variety of market verticals, including financial services, retail, healthcare and operational technology (“OT”) market verticals, communication and security service providers, and government organizations. As a global company headquartered in Sunnyvale, California, our research and development is centered in the United States and Canada with a global footprint of support and centers of excellence around the world. As of September 30, 2025, we held 1,027 U.S. patents and 1,360 global patents, including 307 AI-related patents. We have been recognized in over 140 enterprise analyst reports demonstrating both our vision and execution across security and networking products.

Previous wording

•Unified Secure Access Service Edge (SASE)—As applications move to the cloud and hybrid workforce is now the norm, enabling secure access for users with zero trust framework becomes important. The Fortinet Unified SASE solution includes a single-vendor SASE solution that includes firewall, SD-WAN, secure web gateway, cloud access services broker, DLP and zero trust network access to deliver flexible secure access for all users. We are one of the few vendors to deliver consistent convergence and AI-powered security across Secure SD-WAN and SSE to enable a single-vendor SASE framework with a cloud-centric architecture powered by FortiOS. Our global and scalable cloud network includes over 150 PoPs to deliver the seamless secure access experience. Given this, we believe we are well positioned to support customers expanding from SD-WAN to a single-vendor SASE platform. Additionally, we offer a full suite of comprehensive, integrated cloud security solutions that enable customers to secure their applications from code to cloud. Our solutions include application security that includes our web application firewalls, cloud network security with virtualized firewalls and cloud-native firewalls, cloud-native application protection and code security. We deliver a holistic approach to cloud security, offering a single unified platform, consolidating protection across multiple disparate tools, including coding, deploying, and running applications across hybrid and multi-clouds. Additionally, we also offer flexible consumption licensing programs that enable organizations to dynamically optimize their cloud security needs and investments as well as readily meet their cloud minimum spend commitment obligations with Cloud Service Providers.

Current wording

•Unified Secure Access Service Edge (SASE)—As applications move to the cloud and hybrid workforce is now the norm, enabling secure access for users with zero trust framework becomes important. The Fortinet Unified SASE solution includes a single-vendor SASE solution that includes firewall, SD-WAN, secure web gateway, cloud access services broker, DLP and zero trust network access (“ZTNA”) to deliver flexible secure access for all users. We are one of the few vendors to deliver consistent convergence and AI-powered security across Secure SD-WAN and SSE to enable a single-vendor SASE framework with a cloud-centric architecture powered by FortiOS. Our global and scalable cloud network includes over 170 PoPs to deliver the seamless secure access experience. Given this, we believe we are well positioned to support customers expanding from SD-WAN to a single-vendor SASE platform. Additionally, we offer a full suite of comprehensive, integrated cloud security solutions that enable customers to secure their applications from code to cloud. Our solutions include application security that includes our web application firewalls, cloud network security with virtualized firewalls and cloud-native firewalls, cloud-native application protection and code security. We deliver a holistic approach to cloud security, offering a single unified platform, consolidating protection across multiple disparate tools, including coding, deploying, and running applications across hybrid and multi-clouds. Additionally, we also offer flexible consumption licensing programs that enable organizations to dynamically optimize their cloud security needs and investments as well as readily meet their cloud minimum spend commitment obligations with Cloud Service Providers. We continue to develop all the core SASE capabilities in a single operating system, FortiOS, including Next-Gen Firewall, SD-WAN, ZTNA, secure web gateway, cloud access security broker, and DLP. This native integration of our Next-Gen Firewall, SD-WAN, and SASE has become the New-Generation SASE Firewall.

Previous wording

•Total revenue was $1.63 billion and $3.17 billion during the three and six months ended June 30, 2025, an increase of 14% in each period, compared to $1.43 billion and $2.79 billion in the same periods last year. Product revenue was $508.9 million and $968.0 million during the three and six months ended June 30, 2025, an increase of 13% and 12%, respectively, compared to $451.9 million and $860.8 million in the same periods last year. Service revenue was $1.12 billion and $2.20 billion during the three and six months ended June 30, 2025, an increase of 14% in each period, compared to $982.4 million and $1.93 billion in the same periods last year.

Current wording

•Total revenue was $1.72 billion and $4.89 billion during the three and nine months ended September 30, 2025, an increase of 14% in each period, compared to $1.51 billion and $4.30 billion in the same periods last year. Product revenue was $559.3 million and $1.53 billion during the three and nine months ended September 30, 2025, an increase of 18% and 14%, respectively, compared to $473.9 million and $1.33 billion in the same periods last year. Service revenue was $1.17 billion and $3.37 billion during the three and nine months ended September 30, 2025, an increase of 13% and 14%, respectively, compared to $1.03 billion and $2.96 billion in the same periods last year.

Previous wording

•Total gross margin was 80.7% and 80.8% during the three and six months ended June 30, 2025, a decrease of 0.1 percentage points and an increase of 1.6 percentage points, respectively, compared to 80.8% and 79.2% in the same periods last year.

Current wording

•Total gross margin was 80.8% during the three and nine months ended September 30, 2025, a decrease of 1.7 percentage points and an increase of 0.4 percentage points, respectively, compared to 82.5% and 80.4% in the same periods last year.

Previous wording

•Operating margin was 28.1% and 28.8% during the three and six months ended June 30, 2025, a decrease of 2.4 percentage points and an increase of 1.6 percentage points, respectively, compared to 30.5% and 27.2% in the same periods last year.

Current wording

•Operating margin was 31.7% and 29.8% during the three and nine months ended September 30, 2025, an increase of 0.5 percentage points and 1.2 percentage points, respectively, compared to 31.2% and 28.6% in the same periods last year.

Previous wording

•Cash, cash equivalents, short-term and long-term investments were $4.67 billion as of June 30, 2025.

Current wording

•Cash, cash equivalents, short-term and long-term investments were $3.41 billion as of September 30, 2025.

Previous wording

•Deferred revenue was $6.57 billion, including short-term deferred revenue of $3.41 billion, as of June 30, 2025.

Current wording

•Deferred revenue was $6.65 billion, including short-term deferred revenue of $3.46 billion, as of September 30, 2025.

Previous wording

•Cash flows from operating activities were $1.32 billion during the six months ended June 30, 2025, an increase of $142.8 million, or 12%, compared to the same period last year.

Current wording

•Cash flows from operating activities were $1.97 billion during the nine months ended September 30, 2025, an increase of $189.9 million, or 11%, compared to the same period last year.

Previous wording

Revenue continues to be diversified globally, which remains a key strength of our business. During the three months ended June 30, 2025, the EMEA region, the Americas region and the APAC region contributed 41%, 40% and 19% of our total revenue, respectively, and increased 18%, 11% and 11% compared to the same period last year, respectively. During the six months ended June 30, 2025, EMEA, the Americas and APAC regions contributed 41%, 41% and 18% of our total revenue, respectively, and increased by 17%, 12% and 10% compared to the same period last year, respectively.

Current wording

Revenue continues to be diversified globally, which remains a key strength of our business. During the three months ended September 30, 2025, the EMEA region, the Americas region and the APAC region contributed 41%, 40% and 19% of our total revenue, respectively, and revenue grew 19%, 9% and 16% in these regions compared to the same period last year, respectively. During the nine months ended September 30, 2025, EMEA, the Americas and APAC regions contributed 41%, 40% and 19% of our total revenue, respectively, and revenue grew by 18%, 11% and 12% in these regions compared to the same period last year, respectively.

Previous wording

Product revenue increased 13% and 12% during the three and six months ended June 30, 2025, respectively, compared to the same periods last year. We experienced product revenue growth across our hardware products and software licensing, mainly benefited from growth in secure networking hardware products and term licenses. We expect our product revenue to continue to grow for the remainder of 2025.

Current wording

Product revenue increased 18% and 14% during the three and nine months ended September 30, 2025, respectively, compared to the same periods last year. We experienced product revenue growth across our hardware products and software licensing, which mainly benefited from growth in secure networking hardware products and term licenses. We expect our product revenue to continue to grow for the remainder of 2025.

Previous wording

Service revenue growth during the three and six months ended June 30, 2025 was 14% in each period, as compared to the same periods last year, primarily driven by the strength of our security subscription revenue, which grew 15% and 16%, respectively. The increase was primarily due to the recognition of service revenue from our growing deferred revenue balance related to FortiGuard and other security subscriptions delivered to on-premise and cloud-based environments and strength in unified SASE and SecOps. We expect our service revenue to continue to grow for the remainder of 2025, with growth opportunities that include unified SASE and SecOps offerings as well as the year over year increase in current deferred revenue.

Current wording

Service revenue growth during the three and nine months ended September 30, 2025 was 13% and 14%, respectively, as compared to the same periods last year, primarily driven by the strength of our security subscription revenue, which grew 13% and 15%, respectively. The increase was primarily due to the recognition of service revenue from our growing deferred revenue balance related to FortiGuard and other security subscriptions delivered to on-premise and cloud-based environments and strength in unified SASE and SecOps. We expect our service revenue to continue to grow for the remainder of 2025.

Previous wording

Our billings were diversified on a geographic basis. During the three months ended June 30, 2025, seven countries represented approximately 50% of our billings and the remaining approximately 50% in the aggregate were from over 100 countries that each individually contributed less than 3% of our billings.

Current wording

Our billings were diversified on a geographic basis. During the three months ended September 30, 2025, six countries represented approximately 50% of our billings and the remaining approximately 50% in the aggregate were from over 100 countries that each individually contributed less than 3% of our billings.

Previous wording

Total gross margin decreased 0.1 percentage points during the three months ended June 30, 2025 compared to the same period last year, primarily driven by increased cloud service costs, partially offset by the benefit from normalized inventory related reserves expense in comparison to elevated levels we saw in the same period in 2024. Total gross margin increased 1.6 percentage points during the six months ended June 30, 2025 compared to the same period last year, primarily driven by increased product gross margin benefiting from lower impact of inventory reserves expense in comparison to the first half of 2024. Our overall gross margin for the full year of 2025 will be impacted by service and product revenue mix and their respective gross margins. We do not expect our product gross margin to significantly change for the full year 2025 as compared to 2024. We expect our service gross margin to decrease for the full year of 2025 compared to 2024, as we expand our data center footprint and colocation and cloud hosting capacity to support the growth in our unified SASE and SecOps offerings. We currently do not expect the U.S. tariffs to have a meaningful impact on our gross margin. If tariffs increase in the future, we expect any resulting impact on our gross margin to mostly be on our hardware sales to U.S. customers.

Current wording

Total gross margin decreased 1.7 percentage points during the three months ended September 30, 2025 compared to the same period last year, primarily driven by reduced benefit from net release of inventory related reserves and increased cloud service costs. Total gross margin increased 0.4 percentage points during the nine months ended September 30, 2025 compared to the same period last year, primarily driven by increased product gross margin benefiting from lower impact of inventory reserves in comparison to the nine months ended September 30, 2024. Our overall gross margin for the full year of 2025 will be impacted by service and product revenue mix and their respective gross margins. We do not expect our product gross margin to significantly change for the full year 2025 as compared to 2024. We expect our service gross margin to decrease for the full year of 2025 compared to 2024, as we expand our data center footprint and colocation and cloud hosting capacity to support the growth in our unified SASE and SecOps offerings. We currently do not expect the U.S. tariffs to have a meaningful impact on our gross margin. If tariffs increase in the future, we expect any resulting impact on our gross margin to mostly be on our hardware sales to U.S. customers.

Previous wording

Operating expenses as a percentage of revenue increased 2.3 and 0.1 percentage points during the three and six months ended June 30, 2025, respectively, compared to the same periods last year, mainly driven by an increase in personnel-related costs in research and development and sales and marketing. Headcount increased to 14,898 employees as of June 30, 2025, a 10% increase compared to 13,527 as of June 30, 2024.

Current wording

Operating expenses as a percentage of revenue decreased 2.3 and 0.8 percentage points during the three and nine months ended September 30, 2025, respectively, compared to the same periods last year, mainly because our revenue growth outpaced our personnel costs growth. Headcount increased to 15,015 employees as of September 30, 2025, a 7% increase compared to 13,986 as of September 30, 2024.

Previous wording

Operating margin decreased 2.4 percentage points during the three months ended June 30, 2025, as a result of increase in operating expenses as a percentage of revenue and decreased gross margin. Operating margin increased 1.6 percentage points during the six months ended June 30, 2025, as a result of improvement in gross margin. We expect our operating margin to decrease for the full year of 2025 compared to 2024 as we grow our sales and marketing and research and development workforce organically and through acquisitions, increase our product development investments, and expand our data center footprint and our colocation and cloud hosting capacity to support business growth. In addition, we expect higher operating expenses driven in part by the weakening of the U.S. dollar compared to foreign currencies, as a portion of our expenses are incurred and paid in currencies other than the U.S. dollar.

Current wording

Operating margin increased 0.5 and 1.2 percentage points during the three and nine months ended September 30, 2025, respectively, driven by revenue growth exceeding expense growth, resulting in improved operating leverage. For the full year 2025, we expect operating margin to be relatively consistent to 2024. Total revenue is expected to be higher in 2025 compared to the prior year, while our expenses have also increased due to headcount investments in sales and marketing, product development and the continued investments in data centers and real estate. In addition, our operating expenses have increased compared to 2024 and we expect that trend to continue in part due to a weaker U.S. dollar compared to many foreign currencies, as a portion of our expenses are incurred and paid in currencies other than the U.S. dollar.

Previous wording

Deferred revenue. Our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue. The majority of our deferred revenue balance consists of the unrecognized portion of service revenue from FortiGuard and other security subscriptions and FortiCare technical support service contracts, which is recognized as revenue ratably over the service term. We monitor our deferred revenue balance, short-term and total deferred revenue growth and the mix of short-term and long-term deferred revenue because deferred revenue represents a significant portion of free cash flow and of revenue to be recognized in future periods. Deferred revenue was $6.57 billion as of June 30, 2025, an increase of $206.7 million, or 3%, from December 31, 2024. Short-term deferred revenue was $3.41 billion as of June 30, 2025, an increase of $136.3 million, or 4%, from December 31, 2024.

Current wording

Deferred revenue. Our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue. The majority of our deferred revenue balance consists of the unrecognized portion of service revenue from FortiGuard and other security subscriptions and FortiCare technical support service contracts, which is recognized as revenue ratably over the service term. We monitor our deferred revenue balance, short-term and total deferred revenue growth and the mix of short-term and long-term deferred revenue because deferred revenue represents a significant portion of free cash flow and of revenue to be recognized in future periods. Deferred revenue was $6.65 billion as of September 30, 2025, an increase of $289.5 million, or 5%, from December 31, 2024. Short-term deferred revenue was $3.46 billion as of September 30, 2025, an increase of $184.3 million, or 6%, from December 31, 2024.

Previous wording

Billings (non-GAAP). We define billings as revenue recognized in accordance with GAAP plus the change in deferred revenue from the beginning to the end of the period less any deferred revenue balances acquired from business combination(s) during the period. We consider billings to be a useful metric for management and investors because billings drive current and future revenue, which is an important indicator of the health and viability of our business and cash flows. There are a number of limitations related to the use of billings instead of GAAP revenue. First, billings include amounts that have not yet been recognized as revenue and are impacted by the term of security and support agreements. Second, we may calculate billings in a manner that is different from peer companies that report similar financial measures. Management accounts for these limitations by providing specific information regarding GAAP revenue and evaluating billings together with GAAP revenue. Total billings were $1.78 billion for the three months ended June 30, 2025, an increase of 15% compared to $1.54 billion in the same period last year.

Current wording

Billings (non-GAAP). We define billings as revenue recognized in accordance with GAAP plus the change in deferred revenue from the beginning to the end of the period less any deferred revenue balances acquired from business combinations during the period. We consider billings to be a useful metric for management and investors because billings drive current and future revenue, which is an important indicator of the health and viability of our business and cash flows. There are a number of limitations related to the use of billings instead of GAAP revenue. First, billings include amounts that have not yet been recognized as revenue and are impacted by the term of security subscription and support agreements. Second, we may calculate billings in a manner that is different from peer companies that report similar financial measures. Management accounts for these limitations by providing specific information regarding GAAP revenue and evaluating billings together with GAAP revenue. Total billings were $1.81 billion for the three months ended September 30, 2025, an increase of 14% compared to $1.58 billion in the same period last year.

Previous wording

Free cash flow (non-GAAP). We define free cash flow as net cash provided by operating activities minus purchases of property and equipment and excluding any significant non-recurring items, such as proceeds from IP matters. We believe free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after capital expenditures and net of proceeds from IP matters, can be used for strategic opportunities, including repurchasing outstanding common stock, investing in our business, making strategic acquisitions and strengthening the balance sheet. A limitation of using free cash flow rather than the GAAP measures of cash provided by or used in operating activities, investing activities, and financing activities is that free cash flow does not represent the total increase or decrease in the cash and cash equivalents balance for the period because it excludes cash flows from significant non-recurring items, such as proceeds from IP matters, investing activities other than capital expenditures and cash flows from financing activities. Management accounts for this limitation by providing information about our proceeds from IP matters, our capital expenditures and other investing and financing activities on the condensed consolidated statements of cash flows and under “—Liquidity and Capital Resources” and by presenting cash flows from investing and financing activities in our reconciliation of free cash flow. In addition, it is important to note that other companies, including companies in our industry, may not use free cash flow, may calculate free cash flow in a different manner than we do or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a comparative measure. A reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP, to free cash flow is provided below:

Current wording

Free cash flow (non-GAAP). We define free cash flow as net cash provided by operating activities minus purchases of property and equipment and excluding any significant non-recurring items. We believe free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after capital expenditures, can be used for strategic opportunities, including repurchasing outstanding common stock, investing in our business, making strategic acquisitions and strengthening the balance sheet. A limitation of using free cash flow rather than the GAAP measures of cash provided by or used in operating activities, investing activities, and financing activities is that free cash flow does not represent the total increase or decrease in the cash and cash equivalents balance for the period because it excludes cash flows from significant non-recurring items, investing activities other than capital expenditures and cash flows from financing activities. Management accounts for this limitation by providing information about our capital expenditures and other investing and financing activities on the condensed consolidated statements of cash flows and under “Liquidity and Capital Resources” and by presenting cash flows from investing and financing activities in our reconciliation of free cash flow. In addition, it is important to note that other companies, including companies in our industry, may not use free cash flow, may calculate free cash flow in a different manner than we do or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a comparative measure. A reconciliation of net cash provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with GAAP, to free cash flow is provided below:

Previous wording

There were no material changes to our critical accounting policies and estimates as of and for the six months ended June 30, 2025, as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K filed with the SEC on February 21, 2025 (the “Form 10-K”).

Current wording

There were no material changes to our critical accounting policies and estimates as of and for the nine months ended September 30, 2025, as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K filed with the SEC on February 21, 2025 (the “Form 10-K”).

Previous wording

Total revenue increased $195.7 million, or 14%, during the three months ended June 30, 2025 compared to the same period last year. We continued to experience diversification of revenue geographically, and across customer and industry verticals. Revenue from all regions grew, with EMEA contributing the largest portion of the increase on an absolute dollar basis and on a percentage basis.

Current wording

Total revenue increased $216.8 million, or 14%, during the three months ended September 30, 2025 compared to the same period last year. We continued to experience diversification of revenue geographically, and across customer and industry verticals. Revenue from all regions grew, with EMEA contributing the largest portion of the increase on an absolute dollar basis and on a percentage basis.

Previous wording

Product revenue increased $57.0 million, or 13%, during the three months ended June 30, 2025 compared to the same period last year. We experienced product revenue growth across our hardware products and software licensing, mainly driven by growth in secure networking hardware products and term licenses.

Current wording

Product revenue increased $85.4 million, or 18%, during the three months ended September 30, 2025 compared to the same period last year. We experienced product revenue growth across our hardware products and software licensing, mainly driven by growth in secure networking hardware products and term licenses.

Previous wording

Service revenue increased $138.7 million, or 14%, during the three months ended June 30, 2025 compared to the same period last year. Security subscription revenue increased $85.7 million, or 15%, and technical support and other services revenue increased $53.0 million, or 13%, during the three months ended June 30, 2025 compared to the same period last year. The increase was primarily due to the reco gnition of revenue from our growing deferred revenue balance related to FortiGuard and other security subscriptions delivered to on-premise and cloud-based environments and growth in SaaS solutions, including unified SASE and SecOps.

Current wording

Service revenue increased $131.4 million, or 13%, during the three months ended September 30, 2025 compared to the same period last year. Security subscription revenue increased $76.2 million, or 13%, and technical support and other services revenue increased $55.2 million, or 13%, during the three months ended September 30, 2025 compared to the same period last year. The increase was primarily due to the reco gnition of revenue from our growing deferred revenue balance related to FortiGuard and other security subscriptions delivered to on-premise and cloud-based environments and growth in SaaS solutions, including unified SASE and SecOps.

Previous wording

Of the service revenue recognized during the three months ended June 30, 2025, 90% was included in the deferred revenue balance as of March 31, 2025. Of the service revenue recognized during thethree months ended June 30, 2024, 90% was included in the deferred revenue balance as of March 31, 2024.

Current wording

Of the service revenue recognized during the three months ended September 30, 2025, 90% was included in the deferred revenue balance as of June 30, 2025. Of the service revenue recognized during thethree months ended September 30, 2024, 88% was included in the deferred revenue balance as of June 30, 2024.

Previous wording

Product gross margin increased 6.7 percentage points during the six months ended June 30, 2025 compared to the same period last year, as inventory related reserves expense normalized from the elevated levels we saw in the first half of 2024. Cost of product revenue was comprised primarily of third-party contract manufacturers’ costs and costs of materials used in production.

Current wording

Product gross margin decreased 3.6 percentage points during the three months ended September 30, 2025 compared to the same period last year, primarily due to reduced benefit from net release of inventory related reserves. Cost of product revenue was comprised primarily of third-party contract manufacturers’ costs, and costs of materials used in production.

Previous wording

Service gross margin decreased 1.1 percentage points during the three months ended June 30, 2025 compared to the same period last year, primarily driven by an increase in cloud service costs as a result of our acquisitions and investment in data centers, partially offset by service revenue growth outpacing labor, replacement, and repair costs increase. Cost of service revenue was comprised primarily of personnel-related costs, replacement and repair costs, cloud services costs from data centers, colocation provider and cloud providers, infrastructure, software and delivery costs, and facility-related costs.

Current wording

Service gross margin decreased 0.7 percentage points during the three months ended September 30, 2025 compared to the same period last year, primarily driven by an increase in cloud service costs as a result of our acquisitions and investment in data centers and related infrastructure, partially offset by service revenue growth outpacing labor, replacement, and repair costs increase. Cost of service revenue was comprised primarily of personnel-related costs, replacement and repair costs, cloud service costs from owned data centers, colocation providers and cloud service providers, infrastructure depreciation and related operating costs, software and delivery costs, and facility-related costs.

Previous wording

Research and development expense increased $44.1 million, or 27%, during the three months ended June 30, 2025 compared to the same period last year, primarily due to an increase of $31.3 million in personnel-related costs as a result of increased headcount and compensation rates to support the development of new products and continued enhancements to our existing products and the impact of the recent acquisitions. In addition, non-personnel-related product development costs increased $12.1 million. We currently intend to continue investing in our research and development organization, and expect research and development expense to increase in absolute dollars year over year during the remainder of 2025.

Current wording

Research and development expense increased $15.1 million, or 8%, during the three months ended September 30, 2025 compared to the same period last year, primarily due to an increase of $12.1 million in personnel-related costs as a result of increased headcount and compensation rates to support the development of new products and continued enhancements to our existing products and the impact of the recent acquisitions. In addition, non-personnel-related product development costs increased $4.0 million. We currently intend to continue investing in our research and development organization, and expect research and development expense to increase in absolute dollars year over year during the remainder of 2025.

Previous wording

Sales and marketing expense increased $90.7 million, or 18%, during the three months ended June 30, 2025 compared to the same period last year, primarily due to an increase of $71.8 million in personnel-related costs, an increase of $7.0 million in marketing program and related expenses and unfavorable impact of foreign currency fluctuations. We currently intend to continue to make investments in sales and marketing resources, which are critical to support our future growth, and expect our sales and marketing expense to increase in absolute dollars year over year during the remainder of 2025.

Current wording

Sales and marketing expense increased $67.6 million, or 13%, during the three months ended September 30, 2025 compared to the same period last year, primarily due to an increase of $53.6 million in personnel-related costs, an increase of $5.6 million in marketing program and related expenses, an increase of $4.1 million in amortization expense of certain intangible assets and unfavorable impact of foreign currency fluctuations. We currently intend to continue to make investments in sales and marketing resources, which are critical to support our future growth, and expect our sales and marketing expense to increase in absolute dollars year over year during the remainder of 2025.

Previous wording

We generated operating income of $911.8 million during the six months ended June 30, 2025, an increase of $153.4 million, or 20%, compared to $758.4 million in the same period last year. Operating margin was 28.8% during the six months ended June 30, 2025, compared to 27.2% in the same period last year. The 1.6 percentage points increase in operating margin was primarily due to 1.6 percentage points increase in gross margin.

Current wording

We generated operating income of $547.3 million during the three months ended September 30, 2025, an increase of $76.4 million, or 16%, compared to $470.9 million in the same period last year. Operating margin was 31.7% during the three months ended September 30, 2025, compared to 31.2% in the same period last year. The 0.5 percentage points increase in operating margin was primarily due to 1.2, 0.6 and 0.4 percentage points decreases in general and administrative expense, research and development expense and sales and marketing expense as a percentage of revenue, respectively, partially offset by 1.7 percentage points decrease in gross margin.

Previous wording

Interest income, interest expense and other income (expense)—net

Current wording

Interest income, interest expense and other income—net

Previous wording

Interest income increased $6.7 million during the three months ended June 30, 2025 compared to the same period last year, primarily as a result of higher investment balances. Interest income varies depending on our average investment balances during the period, types and mix of investments, and interest rates. Interest expense remained comparatively flat during the three months ended June 30, 2025 compared to the same period last year. The $21.1 million change in other income (expense)—net during the three months ended June 30, 2025 compared to the same period last year, was primarily due to a $11.6 million gain on marketable equity securities and a $7.6 million increase in foreign currency exchange gains.

Current wording

Interest income and interest expense remained comparatively flat during the three months ended September 30, 2025 compared to the same period last year. Other income—net decreased $105.1 million during the three months ended September 30, 2025 compared to the same period last year, primarily due to a gain on bargain purchase of $106.3 million during the three months ended September 30, 2024 related to our acquisition of Lacework.

Previous wording

Our effective tax rate was 15% for the three months ended June 30, 2025 compared to an effective tax rate of 16% for the same period last year. The provision for income taxes for the three months ended June 30, 2025 was primarily comprised of U.S. federal and state taxes, withholding taxes and foreign taxes totaling $114.6 million, which was favorably affected by a tax benefit of $25.1 million from the foreign-derived intangible income deduction (the “FDII deduction”) and excess tax benefits from stock-based compensation expense of $12.4 million.

Current wording

Our effective tax rate was 20% for the three months ended September 30, 2025 compared to an effective tax rate of 13% for the same period last year. The provision for income taxes for the three months ended September 30, 2025 was primarily comprised of U.S. federal and state taxes, withholding taxes and foreign taxes totaling $141.0 million, which was favorably affected by a tax benefit of $11.1 million from the foreign-derived intangible income deduction (the “FDII deduction”) and excess tax benefits from stock-based compensation expense of $9.2 million.

Previous wording

The provision for income taxes for the three months ended June 30, 2024 was comprised of U.S. federal and state taxes, withholding taxes, and foreign taxes totaling $109.9 million, which were favorably affected by a tax benefit of $27.2 million from the FDII deduction and excess tax benefits from stock-based compensation expense of $6.2 million.

Current wording

The provision for income taxes for the three months ended September 30, 2024 was comprised of U.S. federal and state taxes, withholding taxes, and foreign taxes totaling $123.6 million, which were favorably affected by a tax benefit of $33.1 million from the FDII deduction and excess tax benefits from stock-based compensation expense of $9.3 million.

Previous wording

On July 4, 2025, H.R. 1, the Act, commonly referred to as the One Big Beautiful Bill Act, was enacted. The Act makes permanent certain elements of the Tax Cuts and Jobs Act, including immediate expensing of U.S. research and development expenditures, immediate expensing of certain eligible assets, and various modifications to the international tax framework. We are evaluating the impact of the Act on our consolidated financial statements, but our preliminary analysis indicates that our cash tax payments for 2025 could be reduced by approximately $100 million to $150 million and our GAAP effective tax rate for 2025 could increase by approximately 1 point as a result of the provisions of the Act.

Current wording

On July 4, 2025, H.R. 1, the Act commonly referred to as the One Big Beautiful Bill Act, was enacted. The Act makes permanent certain elements of the Tax Cuts and Jobs Act, including immediate expensing of U.S. research and development expenditures, immediate expensing of certain eligible assets, and various modifications to the international tax framework. The income tax effects of the Act have been recognized in our provision for income taxes as of September 30, 2025. As a result of the Act, our cash paid for income taxes in 2025 could reduce by approximately $100 million to $150 million, while our GAAP effective tax rate for 2025 could increase by approximately one percentage point.

Previous wording

Loss from equity method investments decreased $11.9 million during the three months ended June 30, 2025 compared to the same period last year was primarily driven by an $8.0 million other-than-temporary impairment (“OTTI”) charge and a $3.8 million loss due to our proportionate share of Linksys’ financial results including our share of the amortization of the basis differences during the three months ended June 30, 2024.

Current wording

Loss from equity method investments decreased $5.1 million during the three months ended September 30, 2025 compared to the same period last year which included a $5.2 million loss due to our proportionate share of Linksys’ financial results including our share of the amortization of the basis differences during the three months ended September 30, 2024.

Previous wording

Total revenue increased $382.1 million, or 14%, during the six months ended June 30, 2025 compared to the same period last year. We continued to experience diversification of revenue geographically, and across customer and industry verticals. Revenue from all regions grew, with EMEA contributing the largest portion of the increase on an absolute dollar basis and on a percentage basis.

Current wording

Total revenue increased $598.9 million, or 14%, during the nine months ended September 30, 2025 compared to the same period last year. We continued to experience diversification of revenue geographically, and across customer and industry verticals. Revenue from all regions grew, with EMEA contributing the largest portion of the increase on an absolute dollar basis and on a percentage basis.

Previous wording

Service revenue increased $274.9 million, or 14%, during the six months ended June 30, 2025 compared to the same period last year. Security subscription revenue increased $171.9 million, or 16%, and technical support and other services revenue increased $103.0 million, or 12%, during the six months ended June 30, 2025 compared to the same period last year. The increase was primarily due to the recognition of revenue from our growing deferred revenue balance related to FortiGuard and other security subscriptions delivered toon-premise and cloud-based environments and growth in SaaS solutions, including unified SASE and SecOps.

Current wording

Service revenue increased $406.3 million, or 14%, during the nine months ended September 30, 2025 compared to the same period last year. Security subscription revenue increased $248.1 million, or 15%, and technical support and other services revenue increased $158.2 million, or 12%, during the nine months ended September 30, 2025 compared to the same period last year. The increase was primarily due to the recognition of revenue from our growing deferred revenue balance related to FortiGuard and other security subscriptions delivered toon-premise and cloud-based environments and growth in SaaS solutions, including unified SASE and SecOps.

Previous wording

Of the service revenue recognized during the six months ended June 30, 2025, 84% was included in the deferred revenue balance as of December 31, 2024. Of the service revenue recognized during the six months ended June 30, 2024, 84% was included in the deferred revenue balance as of December 31, 2023.

Current wording

Of the service revenue recognized during the nine months ended September 30, 2025 and 2024, 77% was included in the deferred revenue balance as of December 31, 2024 and 2023 in each period.

Previous wording

Total gross margin decreased 0.1 percentage points during the three months ended June 30, 2025 compared to the same period last year, primarily driven by decreased service gross margin, partially offset by increased product gross margin.

Current wording

Total gross margin increased 0.4 percentage points during the nine months ended September 30, 2025 compared to the same period last year, driven by increased product gross margin, partially offset by decreased service gross margin.

Previous wording

Product gross margin increased 1.7 percentage points during the three months ended June 30, 2025 compared to the same period last year, as inventory related reserves expense normalized from the elevated levels we saw in the first half of 2024. Cost of product revenue was comprised primarily of third-party contract manufacturers’ costs, and costs of materials used in production.

Current wording

Product gross margin increased 3.0 percentage points during the nine months ended September 30, 2025 compared to the same period last year, as inventory related reserves expense decreased and normalized as compared to the elevated levels we saw in the nine months ended September 30, 2024. Cost of product revenue was comprised primarily of third-party contract manufacturers’ costs and costs of materials used in production.

Previous wording

Service gross margin decreased 0.8 percentage points during the six months ended June 30, 2025 compared to the same period last year, primarily due to an increase in cloud service costs, partially offset by service revenue growth outpacing labor, replacement, and repair costs increase. Cost of service revenue was comprised primarily of personnel-related costs, replacement and repair costs, cloud services costs from data centers, colocation provider and cloud providers, infrastructure, software and delivery costs, and facility-related costs.

Current wording

Service gross margin decreased 0.7 percentage points during the nine months ended September 30, 2025 compared to the same period last year, primarily due to an increase in cloud service costs, partially offset by service revenue growth outpacing labor, replacement, and repair costs increase. Cost of service revenue was comprised primarily of personnel-related costs, replacement and repair costs, cloud services costs from owned data centers, colocation providers and cloud service providers, infrastructure depreciation and related operating costs, software and delivery costs, and facility-related costs.