Fortinet, Inc.

Previous wording

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, among other things, statements concerning our expectations regarding:

Current wording

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, among other things, statements concerning our expectations regarding:

Previous wording

•macroeconomic, geopolitical factors and other disruption on our manufacturing or sales, including tariffs or other trade disruptions, public health issues, wars, natural disasters and economic growth;

Current wording

•macroeconomic, geopolitical factors and other disruptions to our manufacturing or sales, including tariffs or other trade disruptions, public health issues, wars, natural disasters and economic growth;

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 Secure Access Service Edge (“SASE”) and AI-driven security operations (“SecOps”). As of March 31, 2026, 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 March 31, 2026, we held 1,093 U.S. patents and a total of 1,430 global patents.

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 Secure Access Service Edge (“SASE”) and AI-driven security operations (“SecOps”). As of June 30, 2026, 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, 2026, we held 1,115 U.S. patents and a total of 1,448 global patents.

Previous wording

Security Fabric, FortiOS empowers organizations to unify management and analytics, providing network visibility and control at scale. FortiOS includes advanced encryption and other security technologies designed to address evolving cybersecurity threats, including emerging quantum-resistant cryptographic capabilities.

Current wording

Security Fabric, FortiOS empowers organizations to unify management and analytics, providing network visibility and control at scale. FortiOS includes advanced encryption, quantum safe tools, and other security technologies designed to address evolving cybersecurity threats, including emerging quantum-resistant cryptographic capabilities.

Previous wording

•FortiAI—FortiAI provides a dual-layered defense across the Fortinet Security Fabric through the AI for Security and Security for AI framework. Within AI for Security, FortiAI-Assist uses generative and agentic AI to support Network Operations Center (“NOC”) and Security Operations Center (“SOC”) teams in monitoring, analysis and response activities across enterprise environments. Security for AI comprises of FortiAI-Protect and FortiAI-SecureAI. FortiAI-Protect utilizes AI/Machine Learnings (“ML”) to address AI-driven threats and zero-day attacks, and support governance over generative AI (“GenAI”) applications, FortiAI-SecureAI focus on protecting an organization’s AI infrastructure, including large language models (“LLMs”) and Application Programming Interface, and preventing data leakage into and out of LLMs. FortiAI protects the AI ecosystem, infrastructure, models, workloads, data and supply chains, while leveraging unified AI intelligence across the Fortinet Security Fabric to defend against threats.

Current wording

•FortiAI—FortiAI brings AI and agentic capabilities to products within the Fortinet Security Fabric. Generative and agentic AI support Network Operations Center (“NOC”) and Security Operations Center (“SOC”) teams in monitoring, analysis and response activities across enterprise environments, including automating operational workflows and assisting security personnel with analysis and response activities. AI within our firewalls allows for improved defense against evolving, AI-driven and zero-day attacks. AI focused features enable our customers to improve their governance over generative AI (“GenAI”) applications by providing visibility into AI application usage and helping organizations govern and control the flow of data across public and private AI applications. Products such as FortiAIGate focus on protecting an organization’s AI infrastructure, including large language models (“LLMs”) and Application Programming Interface, supporting the secure deployment and operation of enterprise AI and LLM environments while preventing data leakage into and out of LLMs. Fortinet’s AI offerings protect the AI ecosystem, infrastructure, models, workloads, data and supply chains, while leveraging unified AI intelligence across the Fortinet Security Fabric to defend against threats.

Previous wording

These competitive differentiators provide networking and security professionals with a cyber security platform comprised of over 50 products across three solution pillars:

Current wording

These competitive differentiators provide networking and security professionals with a cybersecurity platform comprised of over 50 products across three solution pillars:

Previous wording

•Secure Networking—Our Secure Networking solutions focus on the convergence of networking and security via FortiOS, our networking and security operating system that is the foundation of our Fortinet Security Fabric platform and supports a broad range of functions that can be delivered via a physical, virtual, cloud or SaaS solutions. When delivered through our network firewall appliances, functionality is accelerated through our proprietary ASIC technology. These proprietary ASICs, allow our systems to scale, run multiple applications at higher performance, lower power consumption and perform more processor-intensive operations, such as inspecting encrypted traffic, including streaming video. Our network firewall offerings consist of a FortiGate, which can be deployed at branch, campus, data center, internal segmentation, private and public cloud to enable hybrid mesh firewall solutions, as well as encrypted applications (secure sockets layer inspection, virtual private network and Internet Protocol Security connectivity). Our ability to converge networking and security also enables the ethernet to become an extension of our customers’ security infrastructure through FortiSwitch and FortiLink. FortiExtender secures 5G/LTE and remote ethernet extenders to connect and secure any branch environment. Our Secure Connectivity solution includes FortiSwitch secure ethernet switches, FortiAP wireless local area network access points and FortiExtender 5G connectivity gateways and Network Access Control for securing Internet of Things (“IoT”) devices.

Current wording

•Secure Networking—Our Secure Networking solutions focus on the convergence of networking and security via FortiOS, our networking and security operating system that is the foundation of our Fortinet Security Fabric platform and supports a broad range of functions that can be delivered via physical, virtual, cloud or SaaS solutions. When delivered through our network firewall appliances, functionality is accelerated through our proprietary ASIC technology. These proprietary ASICs allow our systems to scale, run multiple applications at higher performance, lower power consumption and perform more processor-intensive operations, such as inspecting encrypted traffic, including streaming video. Our network firewall offerings consist of a FortiGate, which can be deployed at branch, campus, data center, internal segmentation, private and public cloud to enable hybrid mesh firewall solutions, as well as encrypted applications (secure sockets layer inspection, virtual private network and Internet Protocol Security connectivity). Our ability to converge networking and security also enables ethernet or Wi-Fi to become an extension of our customers’ security infrastructure through FortiLink and FortiSwitch and FortiAP. FortiExtender secures 5G/LTE and remote ethernet extenders to connect and secure any branch environment. Our Secure Connectivity solution includes

Previous wording

FortiGuard Labs is our cybersecurity threat intelligence and research organization comprised of experienced threat hunters, researchers, analysts, engineers and data scientists who develop and utilize ML and AI technologies to provide timely protection updates and actionable threat intelligence for the benefit of our customers. Using millions of global network sensors, FortiGuard Labs monitors the worldwide attack surface and employs AI to mine that data for new threats.

Current wording

FortiGuard Labsis our cybersecurity threat intelligence and research organization comprised of experienced threat hunters, researchers, analysts, engineers and data scientists who develop and utilize Machine Learning (“ML”) and AI technologies to provide timely protection updates and actionable threat intelligence for the benefit of our customers. Using millions of global network sensors, FortiGuard Labs monitors the worldwide attack surface and employs AI to mine that data for new threats.

Previous wording

Additionally, we are committed to addressing the cybersecurity skills shortage through training and certification programs for customers, partners and employees. The Fortinet Training Institute’s ecosystem of public and private partnerships around the world extend to industry, academia, government and nonprofits to ensure we are reaching and increasing access of our cybersecurity certifications and training to all populations. The Fortinet Training Institute has issued approximately two million certifications to date.

Current wording

Additionally, we are committed to addressing the cybersecurity skills shortage through training and certification programs for customers, partners and employees. The Fortinet Training Institute’s ecosystem of public and private partnerships around the world extends to industry, academia, government and nonprofits to ensure we are reaching and increasing access of our cybersecurity certifications and training to all populations. The Fortinet Training Institute has issued approximately two million certifications to date.

Previous wording

•Total gross profit was $1.49 billion during the three months ended March 31, 2026, an increase of 19%, compared to $1.25 billion in the same period last year.

Current wording

•Total gross profit was $1.64 billion and $3.13 billion during the three and six months ended June 30, 2026, an increase of 25% and 22%, respectively, compared to $1.32 billion and $2.56 billion in the same periods last year.

Previous wording

•Total gross margin was 80.3% during the three months ended March 31, 2026, a decrease of 0.7 percentage points, compared to 81.0% in the same period last year.

Current wording

•Total gross margin was 80.2% and 80.3% during the three and six months ended June 30, 2026, a decrease of 0.5 in each period, compared to 80.7% and 80.8% in the same periods last year.

Previous wording

•Cash, cash equivalents, short-term and long-term investments were $3.63 billion as of March 31, 2026.

Current wording

•Cash, cash equivalents, short-term and long-term investments were $4.47 billion as of June 30, 2026.

Previous wording

•Deferred revenue was $7.35 billion, including short-term deferred revenue of $3.73 billion, as of March 31, 2026.

Current wording

•Deferred revenue was $7.68 billion, including short-term deferred revenue of $3.84 billion, as of June 30, 2026.

Previous wording

•Cash flows from operating activities were $1.08 billion during the three months ended March 31, 2026, an increase of $213.8 million, or 25%, compared to the same period last year.

Current wording

•Cash flows from operating activities were $2.12 billion during the six months ended June 30, 2026, an increase of $805.5 million, or 61%, 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 March 31, 2026, the EMEA region, the Americas region and the APAC region contributed 42%, 40% and 18% of our total revenue, respectively, and revenue grew 25%, 17% and 15% in these regions 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 June 30, 2026, the EMEA region, the Americas region and the APAC region contributed 43%, 39% and 18% of our total revenue, respectively, and revenue grew 31%, 23% and 21% in these regions compared to the same period last year, respectively. During the six months ended June 30, 2026, EMEA, the Americas and APAC regions contributed 42%, 40% and 18% of our total revenue, respectively, and revenue grew by 28%, 20% and 18% in these regions compared to the same period last year, respectively.

Previous wording

Product revenue increased 41% during the three months ended March 31, 2026 compared to the same period 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, including increased demand for higher performance products, deployments related to AI infrastructure, technology upgrades, upsell activity, and expansion into new use cases. Recent pricing changes also contributed a low single digit impact to product revenue growth. We expect our product revenue to continue to grow for the remainder of 2026.

Current wording

Product revenue increased 52% and 46% during the three and six months ended June 30, 2026, respectively, compared to the same periods last year, primarily driven by hardware revenue growth resulting from higher unit shipments year over year and recent pricing actions. 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, including increased demand for higher performance products, deployments related to AI infrastructure, technology upgrades, upsell activity, and expansion into new use cases. We expect our product revenue to continue to grow year over year for the remainder of 2026 compared to the same periods of 2025.

Previous wording

Service revenue growth during the three months ended March 31, 2026 was 11%, as compared to the same period last year, primarily driven by the strength of our security subscription revenue and technical support and other services revenue, which grew 11% and 12%, 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, as well as the recognition of revenue from our growing deferred revenue balance related to FortiCare technical support service. We expect our service revenue to continue to grow for the remainder of 2026.

Current wording

Service revenue increased $153.8 million, or 14% and $277.7 million, or 13%, during the three and six months ended June 30, 2026, respectively, as compared to the same periods last year, primarily driven by the strength of our security subscription revenue, which increased $85.3 million, or 13% and $156.2 million, or 12%, respectively, and our technical support and other services revenue, which increased $68.5 million, or 14% and $121.5 million, or 13%, respectively. The increase was primarily due to the recognition of 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, as well as FortiCare technical support service. We expect our service revenue to continue to grow year over year for the remainder of 2026.

Previous wording

Our billings were diversified on a geographic basis. During the three months ended March 31, 2026, 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.

Current wording

Our billings were diversified on a geographic basis. During the three months ended June 30, 2026, 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.

Previous wording

Total gross margin decreased 0.7 percentage points during the three months ended March 31, 2026 compared to the same period last year, primarily driven by a shift in the revenue mix to lower margin product revenue. Revenue mix shifted by 5.1 percentage points from service revenue to product revenue, as a percentage of total revenue. Our overall gross margin for the full year of 2026 will be impacted by service and product revenue mix and their respective gross margins. While we are implementing price increases to mitigate higher hardware component costs, the impact on our margins will depend on the timing and market acceptance of these adjustments. Our product gross margin may decline if these pricing actions do not fully offset rising input costs. Our service gross margin is expected to remain relatively consistent, for the full year 2026 as compared to 2025, despite continued expansion of 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. However, changes in trade policy, including increases in tariff rates, changes in customs or tariffs classifications, or modifications to tariff exemptions, could adversely affect our gross margin in the future, and we expect any resulting impact would primarily relate to our hardware sales to the U.S. customers.

Current wording

Total gross margin decreased 0.5 percentage points during each of the three and six months ended June 30, 2026, compared to the same periods last year, primarily due to a shift in the revenue mix from service revenue to lower margin product revenue. Our overall gross margin for the full year of 2026 will be impacted by service and product revenue mix and their respective gross margins. Our product gross margin may decline for the full year 2026 as compared to 2025 primarily due to continued higher hardware component costs. We also expect service gross margin to decline slightly for the full year 2026 as compared to 2025, primarily due to continued expansion of 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. However, changes in trade policy, including increases in tariff rates, changes in customs or tariffs classifications, or modifications to tariff exemptions, could adversely affect our gross margin in the future, and we expect any resulting impact would primarily relate to our hardware sales to the U.S. customers.

Previous wording

Operating expenses as a percentage of revenue decreased 2.6 percentage points during the three months ended March 31, 2026, compared to the same period last year, mainly because our revenue growth outpaced our personnel costs growth. Headcount increased to 15,311 employees as of March 31, 2026, a 5% increase compared to 14,556 as of March 31, 2025.

Current wording

Operating expenses as a percentage of revenue decreased by 6.0 and 4.4 percentage points during the three and six months ended June 30, 2026, respectively, compared to the same periods last year, mainly because our revenue growth outpaced the growth in our personnel costs. Headcount increased to 15,472 employees as of June 30, 2026, a 4% increase compared to 14,898 as of June 30, 2025.

Previous wording

Operating margin increased 1.9 percentage points during the three months ended March 31, 2026, driven by revenue growth exceeding expense growth, resulting in improved operating leverage. For the full year 2026, we expect our operating margin to decrease compared to 2025 as we continue to make strategic investments. Total revenue is expected to increase in 2026 compared to the prior year; however, our expenses are expected to outpace revenue growth, primarily reflecting investments in sales and marketing headcount, product development and the continued capital expenditures in data centers and real estate. While these strategic investments are intended to drive long-term revenue growth and market expansion, we anticipate they may result in near-term compression of our operating margins. In addition, we may experience higher operating expenses driven in part by the weakening of the U.S. dollar relative 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 5.6 and 3.8 percentage points during the three and six months ended June 30, 2026, respectively, driven by revenue growth exceeding expense growth, resulting in improved operating leverage, partially offset by lower total gross margin. For the full year 2026, we expect our operating margin to increase slightly compared to 2025, benefiting from operating leverage and measured investments. Both total revenue and operating expense are expected to increase in 2026 compared to the prior year. The increase in expense is expected to primarily reflect investments in sales and marketing headcount, product development, and continued investments in data centers and real estate. We expect these and other investments to support long-term revenue growth and market expansion.

Previous wording

We typically sell our security solutions to distributors that sell to networking security focused resellers and to certain service providers and managed security service providers (“MSSPs”), who, in turn, sell to end-customers or use our products and services to provide hosted solutions to other enterprises. At times, we also sell directly to enterprise customers, service providers, systems integrators and large enterprises. We also sell our software licenses and cloud delivered services via different cloud service provider platforms, both directly and through our channel partners. Our end-customers are located in over 100 countries and include small, medium and large enterprises and government organizations across a wide range of industries, including financial services, government, healthcare, manufacturing, retail, technology and telecommunications. An end-customer deployment may involve as few as one or as many as thousands of secure networking, unified SASE and security operations technology products or users, depending on the end-customer’s size and security requirements.

Current wording

We typically sell our security solutions to distributors that sell to networking security focused resellers and to certain service providers and managed security service providers (“MSSPs”), who, in turn, sell to end-customers or use our products and services to provide hosted solutions to other enterprises. At times, we also sell directly to enterprise customers, service providers, systems integrators and large enterprises. We also sell our software licenses and cloud delivered services via third-party cloud service provider platforms, both directly and through our channel partners. Our end-customers are located in over 100 countries and include small, medium and large enterprises and government organizations across a wide range of industries, including financial services, government, healthcare, manufacturing, retail, technology and telecommunications. An end-customer deployment may involve as few as one or as many as thousands of secure networking, unified SASE and security operations technology products or users, depending on the end-customer’s size and security requirements.

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 $7.35 billion as of March 31, 2026, an increase of $235.7 million, or 3%, from December 31, 2025. Short-term deferred revenue was $3.73 billion as of March 31, 2026, an increase of $90.3 million, or 2%, from December 31, 2025.

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 $7.68 billion as of June 30, 2026, an increase of $559.9 million, or 8%, from December 31, 2025. Short-term deferred revenue was $3.84 billion as of June 30, 2026, an increase of $205.8 million, or 6%, from December 31, 2025.

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. We consider billings to be a useful metric for management and investors because billings drive current and future revenue as well as cash flows. There are a number of limitations related to the use of billings instead of GAAP revenue. First, billings are impacted by the term of security subscription and support agreements and do not provide an indication as to the timing of revenue being recognized from these service contracts. 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 $2.09 billion for the three months ended March 31, 2026, an increase of 31% compared to $1.60 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 as well as cash flows. There are a number of limitations related to the use of billings instead of GAAP revenue. First, billings are impacted by the term of security subscription and support agreements and do not provide an indication as to the timing of revenue being recognized from these service contracts. 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 $2.37 billion for the three months ended June 30, 2026, an increase of 33% compared to $1.78 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. 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 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 three months ended March 31, 2026, as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K filed with the SEC on February 25, 2026 (the “Form 10-K”).

Current wording

There were no material changes to our critical accounting policies and estimates as of and for the six months ended June 30, 2026, as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K filed with the SEC on February 25, 2026 (the “Form 10-K”).

Previous wording

Total revenue increased $309.9 million, or 20%, during the three months ended March 31, 2026 compared to the same period last year. We continued to experience geographically diversified revenue, as well as diversification 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 $417.9 million, or 26%, during the three months ended June 30, 2026 compared to the same period last year. We continued to experience geographically diversified revenue, as well as diversification 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 $123.9 million, or 11%, during the three months ended March 31, 2026 compared to the same period last year. Security subscription revenue increased $70.9 million, or 11%, and technical support and other services revenue increased $53.0 million, or 12%, during the three months ended March 31, 2026 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, as well asthe recognition of revenue from our growing deferred revenue balance related to FortiCare technical support service.

Current wording

Service revenue increased $153.8 million, or 14%, during the three months ended June 30, 2026 compared to the same period last year. Security subscription revenue increased $85.3 million, or 13%, and technical support and other services revenue increased $68.5 million, or 14%, during the three months ended June 30, 2026 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, as well as FortiCare technical support service.

Previous wording

Total gross margin decreased 0.7 percentage points during the three months ended March 31, 2026 compared to the same period last year, primarily driven by a shift in the revenue mix to lower margin product revenue. Revenue mix shifted by 5.1 percentage points from service revenue to product revenue, as a percentage of total revenue.

Current wording

Total gross margin decreased 0.5 percentage points during the three months ended June 30, 2026 compared to the same period last year, primarily driven by a shift in the revenue mix to lower margin product revenue. Revenue mix shifted by 6.5 percentage points from service revenue to product revenue, as a percentage of total revenue.

Previous wording

Product gross margin increased 0.4 percentage points during the three months ended March 31, 2026 compared to the same period last year, primarily driven by a favorable shift in the product mix to higher margin products, partially offset by reduced benefit from net release of inventory related reserves and increased memory chips costs. 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 2.4 percentage points during the three months ended June 30, 2026 compared to the same period last year, primarily driven by recent pricing actions, partially offset by a shift in revenue mix to hardware and increased costs of memory chips. 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 increased 0.3 percentage points during the three months ended March 31, 2026 compared to the same period last year, primarily driven by service revenue growth outpacing labor costs increase, partially offset by increased costs related to the continued expansion of our data center and cloud services. 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.

Current wording

Service gross margin decreased 0.1 percentage points during the three months ended June 30, 2026 compared to the same period last year, primarily driven by increased costs related to the continued expansion of our data center and cloud services, partially offset by service revenue growth outpacing increases in labor costs. 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.

Previous wording

Research and development expenses increased $15.4 million, or 8%, during the three months ended March 31, 2026 compared to the same period last year, primarily due to an increase of $16.2 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. We expect research and development expenses to increase in absolute dollars during the remainder of 2026 as we continue to invest in our technology and talent to continue to innovate our products and services.

Current wording

Research and development expenses increased $15.5 million, or 7%, during the three months ended June 30, 2026 compared to the same period last year, primarily due to an increase of $13.5 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. We expect research and development expenses to increase in absolute dollars year over year during the remainder of 2026 as we invest to drive continued innovation in our products and services.

Previous wording

Sales and marketing expenses increased $93.6 million, or 17%, during the three months ended March 31, 2026 compared to the same period last year, primarily due to an increase of $73.1 million in personnel-related costs, an increase of $14.7 million in marketing program and related expenses and unfavorable impact of foreign currency fluctuations. We expect our sales and marketing expenses to increase in absolute dollars during the remainder of 2026 as we continue to invest in our global sales and marketing organization to capture additional market share, and we anticipate that these growth investments may drive sales and marketing expenses to increase at a rate faster than revenue.

Current wording

Sales and marketing expenses increased $77.1 million, or 13%, during the three months ended June 30, 2026 compared to the same period last year, primarily due to an increase of $73.4 million in personnel-related costs. We expect our sales and marketing expenses to increase in absolute dollars year over year during the remainder of 2026 as we continue to invest in our global sales and marketing organization to capture additional market share.

Previous wording

General and administrative expenses decreased $1.6 million, or 3%, during the three months ended March 31, 2026 compared to the same period last year, primarily due to a decrease of $2.7 million in personnel-related costs. We expect our general and administrative expenses to increase in absolute dollars during the remainder of 2026, as we need to support our growing operations while continuing to leverage scale and efficiencies.

Current wording

General and administrative expenses increased $4.2 million, or 7%, during the three months ended June 30, 2026 compared to the same period last year, primarily due to an increase of $2.1 million in legal related fees and other professional services fees and an increase of $1.5 million in personnel-related costs. We expect our general and administrative expenses to increase in absolute dollars year over year during the remainder of 2026, primarily to support our growing operations while continuing to leverage scale and efficiencies.

Previous wording

We generated operating income of $580.0 million during the three months ended March 31, 2026, an increase of $126.2 million, or 28%, compared to $453.8 million in the same period last year. Operating margin was 31.4% during the three months ended March 31, 2026, compared to 29.5% in the same period last year. The 1.9 percentage points increase in operating margin was primarily due to 1.3, 0.8 and 0.8 percentage points decreases in research and development expense, sales and marketing expense and general and administrative expense, as a percentage of revenue, respectively, partially offset by 0.7 percentage points decrease in gross margin and 0.3 percentage points decrease in gain on intellectual property matters as a percentage of revenue.

Current wording

We generated operating income of $689.3 million during the three months ended June 30, 2026, an increase of $231.3 million, or 51%, compared to $458.0 million in the same period last year. Operating margin was 33.7% during the three months ended June 30, 2026, compared to 28.1% in the same period last year. The improvement in operating margin was primarily driven by operating leverage, as revenue growth outpaced the increase in operating expenses, partially offset by lower total gross margin. The 5.6 percentage point increase in operating margin was primarily due to 3.6, 1.9 and 0.6 percentage points decreases in sales and marketing expenses, research and development expenses and general and administrative expenses, as a percentage of revenue, respectively, partially offset by a 0.5 percentage point decrease in gross margin as a percentage of revenue.

Previous wording

Product revenue increased $186.0 million, or 41%, during the three months ended March 31, 2026 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, including increased demand for higher performance products, deployments related to AI infrastructure, technology upgrades, upsell activity, and expansion into new use cases. Recent pricing changes also contributed a low single digit impact to product revenue growth.

Current wording

Product revenue increased $450.1 million, or 46%, during the six months ended June 30, 2026 compared to the same period last year, primarily driven by hardware revenue growth resulting from higher unit shipments year over year and recent pricing actions. We experienced product revenue growth across our hardware products and software licensing, mainly driven by growth in secure networking hardware products and term licenses, including increased demand for higher performance products, deployments related to AI infrastructure, technology upgrades, upsell activity, and expansion into new use cases.

Previous wording

Interest income decreased $11.4 million during the three months ended March 31, 2026 compared to the same period last year, primarily due to lower average interest rates and lower average cash and cash equivalents balances as a result of share repurchases and debt repayment. Interest income varies depending on our average cash, cash equivalents and short-term and long-term investments balances during the period, types and mix of deposits and investments, and interest rates. Interest expense decreased $0.7 million during the three months ended March 31, 2026 compared to the same period last year. Other income—net increased $21.8 million during the three months ended March 31, 2026 compared to the same period last year, primarily due to a net change of $61.9 million from net losses to netgains on marketable equity securities, partially offset by a change of $39.9 million ingain on bargain purchase related to our acquisition of Linksys recognized only in the three months ended March 31, 2025.

Current wording

Interest income decreased $23.2 million during the six months ended June 30, 2026 compared to the same period last year, primarily due to lower average interest rates and lower average cash and cash equivalents balances as a result of share repurchases and debt repayment. Interest income varies depending on our average cash, cash equivalents and short-term and long-term investments balances during the period, types and mix of deposits and investments, and interest rates. Interest expense decreased $2.1 million during the six months ended June 30, 2026 compared to the same period last year, primarily due to the repayment of our 2026 Senior Notes at maturity in March 2026. Other income—net increased $3.8 million during the six months ended June 30, 2026 compared to the same period last year, primarily due to a net change of $55.6 million from net losses to net gains on marketable equity securities, partially offset bya change of $39.9 million ingain on bargain purchase related to our acquisition of Linksys recognized only in the three months ended March 31, 2025 and an $11.0 million increase in foreign currency exchange loss.

Previous wording

Our effective tax rate was 19% for the three months ended March 31, 2026 and 2025. The provision for income taxes for the three months ended March 31, 2026 was primarily comprised of U.S. federal and state taxes, withholding taxes and foreign taxes totaling $166.6 million, which was favorably affected by a tax benefit of $35.2 million from the FDDEI deduction and excess tax benefits from stock-based compensation expense of $9.4 million.

Current wording

Our effective tax rate was 17% for each of the six months ended June 30, 2026 and 2025. The provision for income taxes for the six months ended June 30, 2026 was primarily comprised of U.S. federal and state taxes, withholding taxes and foreign taxes totaling $332.0 million, which was favorably affected by a tax benefit of $68.0 million from the FDDEI deduction and excess tax benefits from stock-based compensation expense of $27.1 million.

Previous wording

The provision for income taxes for the three months ended March 31, 2025 was comprised of U.S. federal and state taxes, withholding taxes, and foreign taxes totaling $128.5 million, which includes a tax provision of $30.6 million related to the derecognition of deferred tax assets from the business combination with Linksys, a tax benefit of $25.8 million from the FDDEI deduction and excess tax benefits from stock-based compensation expense of $36.8 million.

Current wording

The provision for income taxes for the six months ended June 30, 2025 was primarily comprised of U.S. federal and state taxes, withholding taxes and foreign taxes totaling $243.2 million as well as a tax provision of $30.6 million related to the derecognition of deferred tax assets from the business combination with Linksys. This provision for income taxes was favorably affected by a tax benefit of $50.9 million from the FDDEI deduction and excess tax benefits from stock-based compensation expense of $49.3 million.

Previous wording

In recent years, we have received significant capital resources from our billings to customers, issuance of investment grade debt and, to some extent, from the exercise of stock options by our employees. Additional increases in billings may depend on a number of factors, including demand for and availability of our products and services, competition, pricing actions, market or industry changes, macroeconomic events such as rising inflation and changing interest rates, economic strength, supply chain capacity and disruptions, tariffs and other trade restrictions, international conflicts, including the war in Ukraine, tensions between China and Taiwan or conflicts in the Middle East, an increase in installment billings, and our ability to execute. We expect proceeds from the exercise of stock options in future years to continue to be impacted by the increased mix of restricted stock units and performance stock units versus stock options granted to our employees and to vary based on our stock price.

Current wording

In recent years, we have received significant capital resources from our billings to customers, issuance of investment grade debt and, to some extent, from the exercise of stock options by our employees. Additional increases in billings may depend on a number of factors, including demand for and availability of our products and services, competition, pricing actions, market or industry changes, macroeconomic events such as rising inflation and changing interest rates, economic strength, supply chain capacity and disruptions, tariffs and other trade restrictions, international conflicts, including the war in Ukraine, tensions between China and Taiwan or conflicts in the Middle East, an increase in installment billings, and our ability to execute. In July 2026, Moody’s upgraded certain of our credit ratings to A3 from Baa1 and changed the outlook to Stable from Positive. Our S&P ratings remain BBB+ with a Stable outlook. We believe our investment grade credit ratings support our continued financial flexibility and access to the capital markets. We expect proceeds from the exercise of stock options in future years to continue to be impacted by the increased mix of restricted stock units and performance stock units versus stock options granted to our employees and to vary based on our stock price.