Summary
Fortinet closed the third quarter of fiscal 2025 with $1.72 billion in revenue, up 14.4% from the prior-year quarter. Product revenue did the heavier lifting, rising 18% to $559.3 million, while service revenue grew 13% to $1.17 billion. Services now account for 68% of total revenue, a mix that matters because subscription and support revenue carries a much richer margin than hardware. EMEA was the strongest region with revenue up 19%, ahead of APAC at 16% and the Americas at 9%. Billings, a non-GAAP measure, rose 14% to $1.81 billion.
Gross profit increased 11.9% to $1.39 billion, but gross margin slipped to 80.8% from 82.5%. Product gross margin fell 3.6 percentage points, which management tied to a smaller benefit from net releases of inventory reserves and higher cloud service costs. Operating income rose 16.2% to $547.3 million, and operating margin improved to 31.7% from 31.2%. The operating leverage came from expense discipline rather than gross margin: general and administrative expense fell 14% to $61.4 million, and total operating expenses grew 9%, well below the revenue growth rate.
Net income moved the other way. GAAP net income fell 12.2% to $473.9 million, and diluted EPS dropped to $0.62 from $0.70. The prior-year quarter carried a $106.3 million gain on bargain purchase tied to the Lacework acquisition, which flattered that period's other income. Strip out the non-GAAP adjustments and the picture reverses: non-GAAP net income was $561.0 million and non-GAAP diluted EPS was $0.74, both above the year-ago figures.
Cash generation stayed solid. Operating cash flow was $655.2 million for the quarter, up 7.7%, and $1.97 billion for the nine months, up 10.7%. Capital expenditures jumped 141.6% to $87.7 million in the quarter as the company keeps building out data centers and points of presence. Free cash flow, a non-GAAP measure, was $567.5 million versus $571.8 million a year earlier. Deferred revenue, current portion, reached $3.46 billion, up 12.3%, and remaining performance obligations were $6.72 billion, up 10.5%. Both point to a healthy backlog of work not yet recognized as revenue.
Guidance for the fourth quarter of 2025 calls for billings of $2.185 billion to $2.285 billion. Non-GAAP gross margin is guided to 79.0% to 80.0% and non-GAAP operating margin to 34.5% to 35.5%, with diluted non-GAAP EPS of $0.73 to $0.75. For the full fiscal year 2025, management expects billings of $7.370 billion to $7.470 billion. Full-year non-GAAP operating margin is guided to 34.5% to 35.0% and full-year diluted non-GAAP EPS to $2.66 to $2.70.
FortiSASE was the standout product story, with third quarter billings up more than 100% year over year as existing SD-WAN customers migrate. Headcount reached 15,015, up 7%. The company repurchased 27.9 million shares for $2.23 billion during the first nine months and had $795.9 million left under its authorization, with cash, cash equivalents and investments of $3.41 billion at quarter end.
The risks are familiar and mostly external. Tariffs and trade disputes could raise product costs for U.S. hardware sales, longer sales cycles persist for large enterprise and government deals, and competition in the security market remains intense. Management also flagged that a weaker U.S. dollar and continued data center and real estate investment will keep expenses rising, and guided fourth quarter capital expenditures to $60 million to $110 million.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2025 | Q2 FY2025 | QoQ | Q3 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.72B | $1.63B | +5.8% | $1.51B | +14.4% |
| Gross profit | $1.39B | $1.32B | +5.9% | $1.24B | +11.9% |
| Gross margin | 80.8% | 80.7% | +0.1 pp | 82.5% | -1.8 pp |
| Research & development | $202.4M | $209.5M | -3.4% | $187.3M | +8.1% |
| Sales & marketing | $583.5M | $592.0M | -1.4% | $515.9M | +13.1% |
| General & administrative | $61.4M | $56.9M | +7.9% | $71.7M | -14.4% |
| Total operating expenses | $845.9M | $857.1M | -1.3% | $773.8M | +9.3% |
| Operating income (loss) | $547.3M | $458.0M | +19.5% | $470.9M | +16.2% |
| Operating margin | 31.7% | 28.1% | +3.6 pp | 31.2% | +0.5 pp |
| Net income (loss) | $473.9M | $440.1M | +7.7% | $539.9M | -12.2% |
| Net margin | 27.5% | 27.0% | +0.5 pp | 35.8% | -8.3 pp |
| Diluted EPS | $0.62 | $0.57 | +$0.05 | $0.70 | -$0.08 |
Risks
MD&A highlights tariff and trade policy uncertainty; U.S. tariffs and retaliatory measures could increase product costs, disrupt supply chains, and affect customer sentiment. Worsening conditions such as inflation, changing interest rates, or recession may result in longer sales cycles and delayed purchases.
Risk factors and MD&A note longer sales cycles and delayed purchases, especially for larger enterprise and service provider deals. This can add unpredictability to the timing of large deals and impact revenue growth.
A small number of distributors represent a large percentage of revenue and receivables. One distributor accounted for 25% of total net accounts receivable as of September 30, 2025, and six distributor customers accounted for 63% in aggregate, so financial difficulties or consolidation among these partners could harm billings and collections.
Risk factors cite intense competition from CrowdStrike, Zscaler, Palo Alto Networks, Cisco, Microsoft, and others, including competitors focusing on cloud-delivered security. Fortinet must anticipate cloud-based and AI solution changes and sell, support, and meet service level agreements for those offerings.
Current quarter total gross margin was down 1.8 percentage points compared to the prior-year quarter, driven by decreased product and service gross margins. Reduced benefit from inventory reserve releases and higher cloud service costs pressured margins.
The company plans to expand data center, point of presence, office, and warehouse capacity. Capital expenditures were $87.7 million in the current quarter, up 141.6% compared to the prior-year quarter, and construction delays, equipment availability, power access, and cost overruns could harm results.
Tax risks include changes in tax rates, new legislation such as the One Big Beautiful Bill Act, and ongoing audits in the UK, Canada, Germany, and other foreign jurisdictions focused on profit allocation. These could increase the global effective tax rate or lead to additional tax liabilities.
Future performance depends on senior management, including Ken Xie and Michael Xie, and on hiring and retaining skilled sales, support, and engineering personnel. The CFO announced retirement in February 2025, and competition for talent is intense in the San Francisco Bay Area and Vancouver.
Inventory purchase commitments totaled $732.5 million as of September 30, 2025, up $141.4 million from December 31, 2024, as the company secures supply and pricing. Component shortages, tariffs, or demand changes could lead to excess inventory, write-downs, or inability to fulfill orders.
SaaS KPIs
All quarters →Billings
Free Cash Flow
Non-GAAP Operating Margin
Deferred Revenue
Short-Term Deferred Revenue
Summary, forecast, risks and KPIs are extracted from Fortinet, Inc.'s SEC filings for Q3 FY2025 (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.