FortinetFTNT

01Fortinet possesses pricing power in its hardware business, demonstrated by its ability to raise prices amid component cost inflation while simultaneously accelerating unit volume growth and expanding product gross margins. This suggests customers value the performance differentiation enough to absorb price increases rather than switch to alternatives, indicating the FortiASIC-powered appliances command a premium that competitors cannot easily replicate.

02Deferred revenue was $7.68 billion as of June 30, 2026, an increase of $559.9 million, or 8%, from December 31, 2025. 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. Service revenue increased 14% during the three months ended June 30, 2026 compared to the same period last year, primarily driven by the strength of our security subscription revenue and our technical support and other services revenue. The increase was primarily due to the recognition of revenue from our growing deferred revenue balance related to FortiGuard and other security subscriptions.

03Our FortiASIC Application-Specific Integrated Circuit-based Security Processing Units increase the speed, scale, efficiency and value of our solutions while reducing footprint and power requirements. From branch and campus to data center solutions, SPU-powered Fortinet appliances deliver superior Security Compute Ratings versus industry alternatives. 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. As of June 30, 2026, we held 1,115 U.S. patents and a total of 1,448 global patents.

04Operating margin was 33.7% during the three months ended June 30, 2026, compared to 28.1% in the same period last year. Operating expenses as a percentage of revenue decreased by 6.0 percentage points during the three months ended June 30, 2026, compared to the same period 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. Operating activities during the six months ended June 30, 2026 provided cash flows of $2.12 billion. Free cash flow was calculated as net cash provided by operating activities minus purchases of property and equipment.