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01/11 16:21
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong financial performance with optimistic growth guidance, especially in product revenue. The Q&A reveals confidence in product and service adoption, particularly in SD-WAN and OT security, with no significant headwinds. While some responses were unclear, the overall sentiment is positive, driven by growth in strategic areas and integrated solutions. The lack of specific guidance for 2026 does not overshadow the positive outlook for the upcoming quarters.
Billing and Revenue Both grew by 14% year-over-year. This growth was driven by strong execution and broad-based demand across the organization.
Unified SASE Billing Grew by 19% year-over-year, driven by FortiSASE billing growth of over 100%. This growth positions Fortinet as a leader in the SASE space.
Secure Networking Billing Grew by 10% year-over-year, outperforming the overall secure networking market. This growth was attributed to Fortinet's market share gains and leadership in firewall technology.
AI-driven SecOps Billing Grew by 33% year-over-year, making it the fastest-growing pillar in the third quarter. This growth was supported by Fortinet's industry-leading AI patent portfolio and AI-driven solutions.
Operational Technology and Critical Infrastructure Billing Grew by over 30% year-over-year, driven by broad-based demand for both hardware and software solutions.
ARR (Annual Recurring Revenue) Unified SASE increased by 13% to $1.22 billion, and SecOps increased by 25% to $472 million year-over-year. This growth reflects strong customer adoption and expansion.
Total Revenue Grew by 14% to $1.72 billion year-over-year. Growth was led by EMEA, followed by APAC and the Americas.
Product Revenue Increased by 18% to $559 million year-over-year. This was driven by strong performance in multiproduct deals, OT security, and market share gains.
Service Revenue Grew by 13% to $1.17 billion year-over-year. This growth was supported by improved product revenue growth and customer expansions.
Gross Margin Total gross margin was 81.6%, better than expected, driven by strong execution and cost control.
Operating Margin Reached a record 36.9%, up 80 basis points year-over-year. This increase was due to operational efficiencies and strong cost management.
Free Cash Flow Was $568 million, and adjusted free cash flow was $646 million, up $41 million year-over-year. This represented a margin of 37%.
Unified SASE billing: Grew 19%, driven by FortiSASE billing growth of over 100%, making Fortinet one of the fastest-growing SASE leaders at scale.
Secure AI data center solution: Recently launched, specifically designed for AI workloads leveraging ASIC advantage to capture growth opportunities as customers scale AI globally.
AI-driven SecOps: Fastest-growing pillar in Q3 with billing growth of 33%, powered by Fortinet's industry-leading AI patent portfolio of over 500 patents.
Secure networking billing: Grew 10%, outperforming the overall secure networking market and gaining market share.
Operational technology and critical infrastructure solutions: Achieved over 30% billing growth, driven by demand for deep visibility, advanced threat protection, and secure connectivity.
Operational efficiency: Achieved a record third-quarter operating margin of 37% and free cash flow margin of 37%, supported by strong cost management and execution.
Customer expansion: Added approximately 6,600 new organizations to the Unified FortiOS platform, showcasing strong market position.
Market leadership in SASE: Fortinet aims to become the #1 SASE market leader in the next few years, supported by strong customer adoption and recognition in the Gartner Magic Quadrant.
AI-driven solutions: Focus on securing AI workloads and leveraging AI-driven solutions to meet increasing demand, supported by a broad AI patent portfolio.
Market Conditions: Potential risks from economic uncertainties and market conditions that could impact customer spending on cybersecurity solutions.
Competitive Pressures: Intense competition in the cybersecurity market, including challenges from other SASE and firewall providers.
Regulatory Hurdles: Compliance with local data governance requirements, especially in regions with stringent regulations, as highlighted by the Sovereign SASE deployment.
Supply Chain Disruptions: Increased inventory purchases to meet customer demand, indicating potential risks of supply chain disruptions.
Strategic Execution Risks: Challenges in maintaining growth momentum and achieving the Rule of 45 amidst increasing investments in infrastructure and sales capacity.
Economic Uncertainties: Potential risks from fluctuating global economic conditions that could affect customer budgets and spending priorities.
Fourth Quarter 2025 Guidance: Billings expected in the range of $2.185 billion to $2.285 billion, representing 12% growth at the midpoint. Revenue projected between $1.825 billion and $1.885 billion, also reflecting 12% growth at the midpoint. Non-GAAP gross margin anticipated to be 79% to 80%, and non-GAAP operating margin expected to range from 34.5% to 35.5%. Non-GAAP earnings per share forecasted at $0.73 to $0.75. Infrastructure investments estimated between $60 million and $110 million.
Full Year 2025 Guidance: Billings projected in the range of $7.37 billion to $7.47 billion, representing 14% growth at the midpoint. Revenue expected between $6.72 billion and $6.78 billion, reflecting 13% growth at the midpoint. Service revenue anticipated to range from $4.575 billion to $4.595 billion, with 13% growth at the midpoint. Non-GAAP gross margin forecasted at 80.25% to 80.75%, and non-GAAP operating margin expected to range from 34.5% to 35%. Non-GAAP earnings per share estimated at $2.66 to $2.70. Infrastructure investments projected between $380 million and $430 million.
Midterm and Long-term Outlook: Fortinet expects to continue meeting the Rule of 45 and grow faster than the market in all three business pillars. Anticipates strong growth in demand for products driven by increased cybersecurity investments, convergence of networking and security, and vendor consolidation. Plans to invest in cloud delivery infrastructure, strategic partnerships, and sales capacity. Expects AI adoption to further increase demand for solutions, particularly for securing LLMs and data movement. Committed to ongoing innovation and product portfolio development.
Share Repurchase Program: We repurchased 23.3 million shares of our common stock for an aggregate purchase price of $1.83 billion in the third quarter, which reduced our total share count by approximately 3%. In August, our Board of Directors approved a $1 billion increase in the authorized stock repurchase amount and the remaining share buyback authorization as of today is $796 million.
The earnings call highlights strong financial performance with optimistic growth guidance, especially in product revenue. The Q&A reveals confidence in product and service adoption, particularly in SD-WAN and OT security, with no significant headwinds. While some responses were unclear, the overall sentiment is positive, driven by growth in strategic areas and integrated solutions. The lack of specific guidance for 2026 does not overshadow the positive outlook for the upcoming quarters.
The earnings call highlights strong growth in Unified SASE and AI-driven secure operations, positive guidance for revenue and billings, and strategic investments in OT security and AI capabilities. Despite some uncertainties in service revenue growth and management's cautious guidance, the overall sentiment is positive, with promising new product developments and market expansion. The Q&A section further supports optimism with strong future growth drivers like SASE and SecOps, outweighing short-term margin impacts. The lack of market cap data prevents a precise prediction, but the sentiment leans towards a positive stock movement.
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