Summary
Fortinet closed its fiscal 2026 second quarter with broad top-line momentum. Revenue rose 25.6% to $2.05 billion. Billings, a non-GAAP metric, grew 33% to $2.37 billion. Deferred revenue on the current portion of the balance sheet was $3.84 billion, up 12.6% from the prior-year quarter, while remaining performance obligations were $7.73 billion, up 16.4%. Operating cash flow reached $1.04 billion, up 130.9%, and capital expenditures were $78.0 million, down 53.5%. Free cash flow, a non-GAAP measure, was $966 million. The company ended the quarter with a larger deferred revenue balance and a rising RPO figure, which points to a solid pipeline of contracted work.
Profitability improved faster than revenue. Gross profit was $1.64 billion, up 24.9%, while gross margin was 80.2%, down 0.4 percentage points. Operating income rose 50.5% to $689.3 million, and operating margin expanded 5.6 percentage points to 33.7%. Net income was $606.3 million, up 37.8%, and diluted earnings per share were $0.82, up 43.9%. On a non-GAAP basis, operating margin was 38%, and non-GAAP diluted earnings per share were $0.90, up 41%. The gap between GAAP and non-GAAP results reflects stock-based compensation, amortization of acquired intangible assets, and a tax adjustment, all of which the company itemized in its reconciliation.
Year-to-date results tell a similar story. Revenue for the six months ended June 30, 2026 was $3.90 billion, up 23.0%. Operating income rose 39.2% to $1.27 billion, net income rose 30.6% to $1.14 billion, and diluted earnings per share rose 36.3% to $1.54. Operating cash flow for the year-to-date period was $2.12 billion, up 61.2%, while capital expenditures were $148.6 million, down 36.6%. Product revenue did the heavy lifting in the quarter, up 52% on higher unit shipments and pricing actions, while service revenue grew 14% on subscription and support demand. EMEA was the fastest-growing region, up 31%, ahead of the Americas at 23% and APAC at 21%.
Fortinet used the quarter to push its platform story further. It announced a strategic collaboration with Intel to develop its Security Processor 6, launched the FortiGate 1200G series with FortiSASE Outpost, introduced FortiSOC, and expanded FortiEndpoint. The company also partnered with Anthropic on Project Glasswing, OpenAI on Project Daybreak, and NVIDIA as a founding member of the Open Secure AI Alliance. Moody's upgraded Fortinet's senior unsecured notes rating to A3 from Baa1, the highest rating of any public cybersecurity company. For the third quarter of 2026, guidance includes billings of $2.250 billion to $2.350 billion, non-GAAP gross margin of 79.0% to 81.0%, non-GAAP operating margin of 35.0% to 37.0%, and diluted non-GAAP net income per share of $0.83 to $0.87. For the full fiscal year 2026, the company guided billings to $9.350 billion to $9.550 billion, with non-GAAP gross margin of 79.0% to 81.0%, non-GAAP operating margin of 35.0% to 37.0%, and diluted non-GAAP net income per share of $3.41 to $3.47. Those targets assume a non-GAAP effective tax rate of 18% and a diluted share count of 741 million to 745 million. Management did not reconcile the non-GAAP guidance to the corresponding GAAP measures.
The quarter's margin profile came with caveats. Gross margin slipped as revenue mix shifted toward lower-margin product revenue, and management said product gross margin may decline for the full year 2026 because of higher hardware component costs. A global shortage of memory chips is constraining availability, delaying product deliveries, and raising sourcing costs. Fortinet is implementing price increases to offset those costs, but management cautioned that the moves may hurt demand and may not be sufficient or timely, potentially causing margin compression. Tariffs and trade policy remain another risk, though the company currently does not expect U.S. tariffs to have a meaningful impact on gross margin. Longer sales cycles, delayed purchases, competition, and supply chain commitments also feature among the risks. The company noted that its service gross margin may decline slightly for the full year 2026 as it expands data center and cloud capacity. Headcount increased to 15,472 employees as of June 30, 2026, a 4% increase from 14,898 a year earlier. These pressures are worth watching against the strong revenue and operating leverage reported in the quarter.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2026 | Q1 FY2026 | QoQ | Q2 FY2025 | YoY |
|---|---|---|---|---|---|
| Revenue | $2.05B | $1.85B | +10.7% | $1.63B | +25.6% |
| Gross profit | $1.64B | $1.49B | +10.6% | $1.32B | +24.9% |
| Gross margin | 80.2% | 80.3% | -0.1 pp | 80.7% | -0.4 pp |
| Research & development | $225.0M | $214.0M | +5.1% | $209.5M | +7.4% |
| Sales & marketing | $669.1M | $636.3M | +5.2% | $592.0M | +13.0% |
| General & administrative | $61.1M | $56.2M | +8.7% | $56.9M | +7.4% |
| Total operating expenses | $953.9M | $905.1M | +5.4% | $857.1M | +11.3% |
| Operating income (loss) | $689.3M | $580.0M | +18.8% | $458.0M | +50.5% |
| Operating margin | 33.7% | 31.4% | +2.3 pp | 28.1% | +5.6 pp |
| Net income (loss) | $606.3M | $534.5M | +13.4% | $440.1M | +37.8% |
| Net margin | 29.6% | 28.9% | +0.7 pp | 27.0% | +2.6 pp |
| Diluted EPS | $0.82 | $0.72 | +$0.10 | $0.57 | +$0.25 |
Risks
MD&A states a global shortage of memory chips, driven by the rapid build-out of AI infrastructure, is causing constraints on availability, potential production and delivery delays, and increased costs to source memory chips. Fortinet is implementing price increases that may not be sufficient or timely to offset rising input costs, potentially causing margin compression.
Total gross margin decreased 0.4 percentage points in the quarter and 0.6 percentage points year to date ended June 30, 2026 compared to the same periods last year, driven by a revenue mix shift to lower margin product revenue. MD&A expects product gross margin to decline for full year 2026 due to higher hardware component costs and service gross margin to decline slightly due to data center and cloud expansion.
A small number of distributors represents a large percentage of revenue and receivables. One distributor accounted for 26% of total net accounts receivable as of June 30, 2026, and six distributor customers accounted for 64% in the aggregate. Financial difficulties or liquidity issues at these partners could harm collections and sales.
Risk factors state AI companies may compete more with Fortinet, and competitors such as CrowdStrike and Zscaler focus on delivering security services from the cloud. Larger competitors may bundle products or leverage broader offerings, and customers refreshing security products may consolidate vendors, potentially leading to price reductions and loss of market share.
International sales are a majority of total revenue. Risk factors cite political instability, trade disputes, tariffs, export controls, and reports that the Chinese government may have instructed domestic companies in certain industries not to use cybersecurity products from U.S. or Israeli companies, including Fortinet.
Growth strategy depends on increasing sales to large and medium-sized businesses, service providers, and government organizations, which involve longer sales cycles, more complex deals, and uneven traction. Service providers and MSSPs are the largest industry vertical, and consolidation or changed buying behavior could negatively impact business.
MD&A states U.S. tariffs and any retaliatory tariffs could increase product costs, disrupt operations, or require price increases that may lead to customer loss. While Fortinet currently does not expect a meaningful gross margin impact, changes in trade policy could adversely affect gross margin, primarily for hardware sales to U.S. customers.
Inventory purchase commitments totaled $1.67 billion as of June 30, 2026, an increase of $856.5 million compared to $810.6 million as of December 31, 2025, as Fortinet works to optimize inventory and purchase commitments. If demand forecasts decline, the company may face excess and obsolete inventory charges or cancellation risks.
Fortinet expects to increase data center, PoP, office, and warehouse capacity, with full year 2026 capital expenditures estimated between $350 million and $550 million. Construction projects expose it to delays, budget changes, power access issues, and failure to meet customer service level agreements.
Future performance depends on senior management, particularly co-founders Ken Xie and Michael Xie, and on attracting and retaining skilled sales, support, and engineering personnel. Competition is intense in the San Francisco Bay Area and Vancouver, Canada, and changes in immigration laws may harm hiring.
Fortinet has ongoing tax audits in the United Kingdom, Canada, Germany, and several other foreign jurisdictions focused on allocation of profits among legal entities. OECD tax changes and transfer pricing challenges could increase its worldwide effective tax rate.
Adverse economic conditions, including possible recession, inflation or stagflation, tariffs, changing interest rates, and reduced IT spending, may result in longer sales cycles, lower prices, increased component costs, and slower growth. MD&A notes these conditions could decrease sales productivity and negatively affect results.
Fortinet historically receives a substantial portion of each quarter's sales orders and billings in the last two weeks of the quarter. Delays in logistics, system issues, or lost deals near quarter-end could cause billings and revenue to fall below expectations.
SaaS KPIs
All quarters →Billings
Free Cash Flow
Non-GAAP Operating Margin
Adjusted Free Cash Flow
Adjusted Free Cash Flow Margin
Free Cash Flow Margin
Summary, forecast, risks and KPIs are extracted from Fortinet, Inc.'s SEC filings for Q2 FY2026 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.