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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q  
(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2026
or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  For the transition period from              to             
Commission file number: 001-34511
______________________________________
FORTINET, INC.
(Exact name of registrant as specified in its charter)
______________________________________

Delaware 77-0560389
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)

909 Kifer Road
Sunnyvale , California 94086
(Address of principal executive offices, including zip code)

( 408 ) 235-7700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, $0.001 Par Value FTNT The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes    ☒     No   ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes    ☒   No   ☐  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

Table of Contents

Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ☐      No   ☒
As of May 4, 2026, there were 732,648,391 shares of the registrant’s common stock outstanding.

FORTINET, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2026
Table of Contents
 

    Page

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)
4

Condensed Consolidated Balance Sheets
4

Condensed Consolidated Statements of Income
5

Condensed Consolidated Statements of Comprehensive Income
6

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
7

Condensed Consolidated Statements of Cash Flows
8

Notes to Condensed Consolidated Financial Statements
9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
26

Item 3. Quantitative and Qualitative Disclosures about Market Risk
39

Item 4. Controls and Procedures
40

PART II—OTHER INFORMATION

Item 1. Legal Proceedings
41

Item 1A. Risk Factors
41

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
79

Item 5. Other Information
79

Item 6. Exhibits
81

Exhibit Index
81

Signatures
82

Summary of Risk Factors

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. Some of the principal risks and uncertainties include:

• Our operating results are likely to vary significantly and be unpredictable.

• Adverse economic conditions, such as a possible economic downturn or recession, and possible impacts of inflation or stagflation, tariffs, trade policies or other trade disruptions, geopolitical instability and conflicts, changing interest rates, changes in government spending or regulation or reduced information technology (“IT”) spending, including firewall spending, may adversely impact our business.

• We have been, are currently and may in the future be susceptible to supply chain constraints, supply shortages and disruptions, long or less predictable lead times for components and finished goods and supply changes because some of the key components in our products come from limited sources of supply.

• During prior periods of supply chain disruption, including during the COVID-19 pandemic, we increased our purchase order commitments. Similar conditions could arise in the future, which may require us to accept or pay for components and finished goods regardless of our level of sales in a particular period, which may negatively or unpredictably impact our operating results and financial condition.

• Our billings, revenue and free cash flow growth, including our product and service billings and revenue, may slow, and our operating margins may decline, particularly if our billings and revenue do not improve or grow as anticipated, or if customer demand, renewal rates, pricing, competitive dynamics, implementation timing, cost structure, or macroeconomic conditions adversely affect our business, which could negatively impact our financial condition and results of operations.

• Our real estate assets, including construction, acquisitions, improvements, leasing activity, and ongoing maintenance and management of office buildings, warehouses, data centers and points of presence (“PoPs”), as well as data center operations, expansions or enhancements, could involve significant risks to our business.

• Any weakness in sales strategy, productivity, personnel, hiring and retention, and execution could negatively impact our results of operations.

• We are dependent on the continued services and performance of our senior management, as well as our ability to hire, retain and motivate qualified personnel.

• We rely on third-party channel partners for substantially all of our billings, revenue, and a small number of distributors represent a large percentage of our revenue and accounts receivable.

• Reliance on a concentration of shipments at the end of the quarter or changes in shipping terms could cause our billings and revenue to fall below expected levels.

• We rely significantly on revenue from FortiGuard and other security subscriptions and FortiCare technical support services. Revenue generated from these services may decline or fluctuate in manners that could adversely impact our results of operations.

• We face intense competition in our market, and we may not maintain or improve our competitive position.

• We are susceptible to defects or vulnerabilities, including critical vulnerabilities, in our products or services, as well as reputational harm from the failure or misuse of our products or services, and any actual or perceived defects or vulnerabilities, including critical vulnerabilities, in our products or services, failure of our products or services to detect or prevent a security incident or to cause a disruption to operations, failure of our customers to implement preventative actions such as updates to one of our deployed solutions or failure to help secure our customers, could cause our products or services to allow unauthorized access to our customers’ networks and harm our operational results and reputation more significantly as compared to other companies. Our Product Security Incident Response Team publicly posts on our FortiGuard Labs website
1

known product vulnerabilities, including critical vulnerabilities, and methods for customers to mitigate the risk of vulnerabilities. However, there can be no assurance that such posts will be sufficiently timely, accurate or complete or that those customers will see such posts or take steps to mitigate the risk of vulnerabilities, and certain customers may be negatively impacted.

• If our internal enterprise IT networks, our operational networks, our research and development networks, our back-end labs and cloud stacks hosted in our data centers or PoPs, colocation vendors or public cloud providers are compromised, public perception of our products and services may be harmed, our customers may be breached and harmed, we may become subject to liability, and our business, operating results and stock price may be adversely impacted.

• We have incurred indebtedness and may incur other debt in the future, which may adversely affect our financial condition and future financial results.

• We generate the majority of our billings, revenue and cash flow from sales outside of the United States, which may expose us to risks associated with international operations and may adversely affect our business, financial condition and results of operations.

• Our backlog may fluctuate over quarters. If we experience supply chain shortages and cannot fulfill orders or if customers cancel or delay delivery of orders, our backlog may be affected, which will negatively impact our aggregate backlog to billings conversion and revenue in such quarter. Generally, a reduction to backlog increases our aggregate billings and revenue during the quarter when delivered.

• We may not be successful in executing our strategy to increase our sales to large- and medium-sized end-customers.

• A portion of our revenue is generated by sales to government organizations and other adjacent customers, which are subject to regulatory requirements, their own supply chain constraints and contractual requirements, challenges and risks, including impacts from geopolitical dynamics.

• We order components and finished goods from third-party manufacturers based on our forecasts of future demand and targeted inventory levels, which exposes us to the risk of product shortages, tariffs, may result in lost sales, higher expenses and inventory excesses which may lead to inventory charges and costs related to future purchase commitments, possibly requiring us to sell our products at discounts or offer various other incentives.

• We depend on third parties to provide various components for our products and build our products and are susceptible to manufacturing delays, capacity constraints, cost increases, and changes in the geopolitical environment.

• Our inability to successfully acquire and integrate other businesses, products or technologies, or to successfully invest in and form successful strategic alliances with other businesses, could seriously harm our competitive position and could negatively affect our financial condition and results of operations.

• Investors’, activists’ and regulators’ expectations of our investments and performance relating to operational sustainability factors may impose additional costs and expose us to new risks.

• We are exposed to fluctuations in currency exchange rates, which could negatively affect our financial condition and results of operations.

• Our proprietary rights may be difficult to enforce, and we may be subject to claims by others that we infringe their proprietary technology.

• The trading price of our common stock may be volatile, which volatility may be exacerbated by share repurchases under our Share Repurchase Program (the “Repurchase Program”).

• Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
2

• Global economic uncertainty can weaken and harm our financial position.

• Weakening product demand caused by geopolitical instability, changes in trade agreements, wars and foreign conflicts, such as the war in Ukraine, tensions between China and Taiwan or conflicts in the Middle East, could adversely affect our business and financial performance.
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PART I—FINANCIAL INFORMATION

ITEM 1.     Financial Statements

FORTINET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except per share amounts)

  March 31,
2026 December 31,
2025
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,223.8   $ 2,495.3  
Short-term investments
1,071.1   1,087.2  
Accounts receivable—net 1,486.2   1,691.2  
Inventory 369.6   399.5  
Prepaid expenses and other current assets 181.9   227.0  
Total current assets 5,332.6   5,900.2  
LONG-TERM INVESTMENTS 339.7   339.7  
PROPERTY AND EQUIPMENT—NET 1,691.5   1,619.0  
DEFERRED CONTRACT COSTS 753.7   735.5  
DEFERRED TAX ASSETS 1,304.5   1,314.9  
GOODWILL 257.4   257.4  
OTHER INTANGIBLE ASSETS—NET 87.0   97.3  
OTHER ASSETS 117.1   125.2  
TOTAL ASSETS $ 9,883.5   $ 10,389.2  
LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable $ 238.7   $ 230.8  
Accrued liabilities 366.1   354.6  
Accrued payroll and compensation 292.4   312.9  
Current portion of long-term debt —   499.7  
Deferred revenue 3,726.3   3,636.0  
Total current liabilities 4,623.5   5,034.0  
DEFERRED REVENUE 3,625.2   3,479.8  
LONG-TERM DEBT 496.8   496.6  
OTHER LIABILITIES 148.3   141.3  
Total liabilities 8,893.8   9,151.7  
COMMITMENTS AND CONTINGENCIES (Note 10)

STOCKHOLDERS’ EQUITY:

Common stock, $ 0.001 par value— 1,500.0 shares authorized; 734.0 and 743.0 shares issued and outstanding on March 31, 2026 and December 31, 2025, respectively
0.7   0.7  
Additional paid-in capital 1,798.7   1,770.1  
Accumulated other comprehensive loss ( 27.7 ) ( 25.4 )
Accumulated deficit
( 782.0 ) ( 507.9 )
Total stockholders’ equity
989.7   1,237.5  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 9,883.5   $ 10,389.2  

See notes to condensed consolidated financial statements.
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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except per share amounts)

  Three Months Ended
March 31,
2026 March 31,
2025
REVENUE:
Product $ 645.1   $ 459.1  
Service 1,204.5   1,080.6  
Total revenue 1,849.6   1,539.7  
COST OF REVENUE:
Product 208.3   149.9  
Service 156.2   143.2  
Total cost of revenue 364.5   293.1  
GROSS PROFIT:
Product 436.8   309.2  
Service 1,048.3   937.4  
Total gross profit 1,485.1   1,246.6  
OPERATING EXPENSES:
Research and development 214.0   198.6  
Sales and marketing 636.3   542.7  
General and administrative 56.2   57.8  
Gain on intellectual property matters
( 1.4 ) ( 6.3 )
Total operating expenses 905.1   792.8  
OPERATING INCOME 580.0   453.8  
INTEREST INCOME 32.9   44.3  
INTEREST EXPENSE ( 4.2 ) ( 4.9 )

OTHER INCOME—NET
47.9   26.1  
INCOME BEFORE INCOME TAXES AND GAIN (LOSS) FROM EQUITY METHOD INVESTMENTS
656.6   519.3  
PROVISION FOR INCOME TAXES
122.0   96.5  
GAIN (LOSS) FROM EQUITY METHOD INVESTMENTS
( 0.1 ) 10.6  
NET INCOME
$ 534.5   $ 433.4  
Net income per share (Note 8):

Basic $ 0.72   $ 0.56  
Diluted $ 0.72   $ 0.56  
Weighted-average shares outstanding:

Basic 738.8   768.3  
Diluted 742.8   776.8  

See notes to condensed consolidated financial statements.
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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)

  Three Months Ended
  March 31,
2026 March 31,
2025
Net income
$ 534.5   $ 433.4  
Other comprehensive income (loss):

Change in foreign currency translation —   3.4  
Change in unrealized gains (losses) on investments
( 2.9 ) ( 0.3 )
Less: tax benefit related to items of other comprehensive income (loss)
( 0.6 ) ( 0.1 )
Other comprehensive income (loss)
( 2.3 ) 3.2  
Comprehensive income
$ 532.2   $ 436.6  

See notes to condensed consolidated financial statements.
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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(unaudited, in millions)

Three Months Ended March 31, 2026

  Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive Loss Accumulated Deficit
Total Stockholders’ Equity

Shares Amount
BALANCE—December 31, 2025
743.0   $ 0.7   $ 1,770.1   $ ( 25.4 ) $ ( 507.9 ) $ 1,237.5  
Issuance of common stock in connection with equity incentive plans - net of tax withholding 1.6   —  ( 18.6 ) —  —  ( 18.6 )
Repurchase and retirement of common stock
( 10.6 ) —  ( 18.3 ) —  ( 808.6 ) ( 826.9 )
Excise tax on net stock repurchases
—  —  ( 7.0 ) —  —  ( 7.0 )
Stock-based compensation expense —  —  72.5   —  —  72.5  
Net unrealized loss on investments - net of tax
—  —  —  ( 2.3 ) —  ( 2.3 )
Net income —  —  —  —  534.5   534.5  
BALANCE—March 31, 2026
734.0   $ 0.7   $ 1,798.7   $ ( 27.7 ) $ ( 782.0 ) $ 989.7  

Three Months Ended March 31, 2025

  Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive Loss Retained Earnings (Accumulated Deficit)
Total Stockholders’ Equity

Shares Amount
BALANCE—December 31, 2024
767.0   $ 0.8   $ 1,636.2   $ ( 26.1 ) $ ( 117.1 ) $ 1,493.8  
Issuance of common stock in connection with equity incentive plans - net of tax withholding 2.2   —  ( 33.6 ) —  —  ( 33.6 )
Stock-based compensation expense —  —  66.1   —  —  66.1  
Net unrealized loss on investments - net of tax
—  —  —  ( 0.2 ) —  ( 0.2 )
Foreign currency translation adjustment —  —  —  3.4   —  3.4  
Net income
—  —  —  —  433.4   433.4  
BALANCE—March 31, 2025
769.2   $ 0.8   $ 1,668.7   $ ( 22.9 ) $ 316.3   $ 1,962.9  

See notes to condensed consolidated financial statements.
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FORTINET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)

  Three Months Ended
  March 31,
2026 March 31,
2025
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$ 534.5   $ 433.4  
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation 72.5   66.1  
Amortization of deferred contract costs 94.2   78.0  
Depreciation and amortization 39.8   35.8  
Amortization of investment discounts
( 4.8 ) ( 10.3 )
Other ( 44.9 ) ( 35.5 )
Changes in operating assets and liabilities, net of impact of business combinations:

Accounts receivable—net 205.2   303.9  
Inventory 23.6   ( 34.1 )
Prepaid expenses and other current assets 62.8   3.4  
Deferred contract costs ( 112.4 ) ( 91.3 )
Deferred tax assets 11.0   ( 30.0 )
Other assets ( 5.4 ) 1.5  
Accounts payable ( 26.0 ) 24.6  
Accrued liabilities 12.5   63.7  
Accrued payroll and compensation ( 20.6 ) ( 8.2 )
Deferred revenue 235.7   57.0  
Other liabilities ( 0.6 ) 5.3  
Net cash provided by operating activities 1,077.1   863.3  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments ( 350.7 ) ( 503.0 )
Sales of investments
115.9   2.8  
Maturities of investments 299.7   466.9  
Purchases of property and equipment ( 70.6 ) ( 66.5 )
Payments made in connection with business combinations, net of cash acquired
—   ( 11.2 )
Other —   0.2  
Net cash used in investing activities
( 5.7 ) ( 110.8 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase and retirement of common stock
( 823.0 ) —  
Repayment of senior notes
( 500.0 ) —  
Proceeds from issuance of common stock 17.6   20.2  
Taxes paid related to net share settlement of equity awards ( 36.3 ) ( 52.9 )
Other ( 1.2 ) —  
Net cash used in financing activities ( 1,342.9 ) ( 32.7 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
—   0.9  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
( 271.5 ) 720.7  
CASH AND CASH EQUIVALENTS—Beginning of period 2,495.3   2,875.9  
CASH AND CASH EQUIVALENTS—End of period $ 2,223.8   $ 3,596.6  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes—net $ 47.0   $ 26.8  
Operating lease liabilities arising from obtaining right-of-use assets $ 14.0   $ 6.7  
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Transfers of evaluation units and equipment from inventory to property and equipment
$ 6.4   $ 6.2  
Liability for purchase of property and equipment $ 56.0   $ 25.1  
Liability incurred for repurchase of common stock
$ 3.9   $ —  
Excise tax payable on net stock repurchase
$ 25.2   $ —  

See notes to condensed consolidated financial statements.
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Preparation —The unaudited condensed consolidated financial statements of Fortinet, Inc. and its subsidiaries (collectively, “we,” “us” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information, as well as the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2025, contained in our Annual Report on Form 10-K filed with the SEC on February 25, 2026. In the opinion of management, all adjustments, which include normal recurring adjustments, considered necessary for a fair presentation, have been included. The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results to be expected for the full year or for any future periods. The condensed consolidated balance sheet as of December 31, 2025 is derived from the audited consolidated financial statements for the year ended December 31, 2025.

The condensed consolidated financial statements include the accounts of Fortinet, Inc. and its subsidiaries. As of March 31, 2026, the functional currency of our foreign subsidiaries is the U.S. dollar. Effective January 1, 2026, the Company transitioned the functional currency of one of its subsidiaries to the U.S. dollar following its full operational integration. We consolidate all legal entities in which we have an absolute controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

There have been no material changes to our significant accounting policies as of and for the three months ended March 31, 2026, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 filed with the SEC.

Recent Adopted Accounting Standards

Credit Losses

In July 2025, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2025-05—Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”), which provides a practical expedient for estimating expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under Revenue from Contracts with Customers (Topic 606). The amendments are effective for our annual reporting periods beginning with fiscal year 2026 and interim reporting periods within those annual reporting periods on a prospective basis, with early adoption permitted. We adopted ASU 2025-05 on January 1, 2026 and the adoption of this standard did not have a material impact on our condensed consolidated financial statements.

Recent Accounting Standards Not Yet Effective

Expense Disaggregation Disclosures

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which clarified the effective date of ASU 2024-03. ASU 2024-03 enhances the disclosures required for expense disaggregation in our annual and interim consolidated financial statements. The amendments are effective for our annual reporting periods beginning fiscal year 2027 and our interim reporting periods beginning in fiscal year 2028, with early adoption permitted, and can be applied prospectively or retrospectively. We are currently evaluating the ASU to determine its impact on our disclosures.

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Internal-Use Software

In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which amends the cost capitalization criteria for internal-use software development costs by removing all references to prescriptive and sequential software project development stages and providing new guidance on how to evaluate whether the probable-to-complete recognition threshold has been met. The amendments are effective for our annual periods beginning fiscal year 2028 and interim reporting periods within those annual reporting periods and can be applied prospectively, retrospectively, or via a modified prospective transition method, with early adoption permitted. We are currently assessing adoption timing and the method of adoption.

2.      REVENUE RECOGNITION

Disaggregation of Revenue

The following table presents our revenue disaggregated by major product and service lines (in millions):

Three Months Ended
March 31,
2026 March 31,
2025
Product $ 645.1   $ 459.1  
Service:
Security subscription 694.0   623.1  
Technical support and other 510.5   457.5  
Total service revenue 1,204.5   1,080.6  
Total revenue $ 1,849.6   $ 1,539.7  

Deferred Revenue

During the three months ended March 31, 2026 and 2025, we recognized $ 1.09  billion and $ 972.5  million in revenue that was included in the deferred revenue balance as of December 31, 2025 and 2024, respectively.

Transaction Price Allocated to the Remaining Performance Obligations

As of March 31, 2026, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 7.45 billion, which was substantially comprised of deferred security subscription and technical support services revenue as well as unbilled contract revenue from non-cancellable contracts that will be recognized in future periods. We expect to recognize approximately $ 3.76  billion as revenue over the next 12 months, $ 2.94  billion in years two and three, and the remainder thereafter.

Deferred Contract Costs
    
Amortization of deferred contract costs, primarily consisting of sales commissions earned by our sales force, was $ 94.2 million and $ 78.0 million during the three months ended March 31, 2026 and 2025, respectively.
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3.      FINANCIAL INSTRUMENTS AND FAIR VALUE

Short-Term and Long-Term Investments

Our short-term and long-term investments comprised of available-for-sale investments and marketable equity securities. The following tables summarize our short-term and long-term investments (in millions):
 

  March 31, 2026
  Amortized
Cost Unrealized
Gains Unrealized
Losses Fair
Value
U.S. government and agency securities $ 544.4   $ 0.2   $ ( 0.5 ) $ 544.1  
Corporate debt securities 443.9   —   ( 1.0 ) 442.9  
Commercial paper 289.4   —   ( 0.1 ) 289.3  
Certificates of deposit and term deposits 105.1   —   ( 0.1 ) 105.0  

Total available-for-sale investments
1,382.8   0.2   ( 1.7 ) 1,381.3  
Marketable equity securities
29.5  
Total short-term and long-term investments
$ 1,382.8   $ 0.2   $ ( 1.7 ) $ 1,410.8  

  December 31, 2025
  Amortized
Cost Unrealized
Gains Unrealized
Losses Fair
Value
U.S. government and agency securities $ 513.7   $ 0.9   $ —   $ 514.6  
Corporate debt securities 368.5   0.4   ( 0.1 ) 368.8  
Commercial paper 354.8   0.1   —   354.9  
Certificates of deposit and term deposits 90.3   0.1   —   90.4  
Total available-for-sale investments
1,327.3   1.5   ( 0.1 ) 1,328.7  
Marketable equity securities
98.2  
Total short-term and long-term investments
$ 1,327.3   $ 1.5   $ ( 0.1 ) $ 1,426.9  

The following tables show the gross unrealized losses and the related fair values of our available-for-sale investments that have been in a continuous unrealized loss position (in millions):
March 31, 2026
  Less Than 12 Months 12 Months or Greater Total
Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
U.S. government and agency securities $ 544.1   $ ( 0.5 ) $ —   $ —   $ 544.1   $ ( 0.5 )
Corporate debt securities 442.9   ( 1.0 ) —   —   442.9   ( 1.0 )
Commercial paper 289.3   ( 0.1 ) —   —   289.3   ( 0.1 )
Certificates of deposit and term deposits 105.0   ( 0.1 ) —   —   105.0   ( 0.1 )
Total available-for-sale investments
$ 1,381.3   $ ( 1.7 ) $ —   $ —   $ 1,381.3   $ ( 1.7 )

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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2025
  Less Than 12 Months 12 Months or Greater Total
  Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
U.S. government and agency securities $ 514.5   $ —   $ —   $ —   $ 514.5   $ —  
Corporate debt securities 368.9   ( 0.1 ) —   —   368.9   ( 0.1 )
Commercial paper 354.9   —   —   —   354.9   —  
Certificates of deposit and term deposits 90.4   —   —   —   90.4   —  
Total available-for-sale investments
$ 1,328.7   $ ( 0.1 ) $ —   $ —   $ 1,328.7   $ ( 0.1 )

The contractual maturities of our available-for-sale investments were (in millions):

  March 31,
2026 December 31,
2025
Due within one year $ 1,041.6   $ 989.0  
Due within one to three years 339.7   339.7  
Total $ 1,381.3   $ 1,328.7  

Available-for-sale investments are reported at fair value, with unrealized gains and losses and the related tax impact included as a separate component of stockholders’ equity and in comprehensive income. We do not intend to sell any of the securities in an unrealized loss position and it is not more likely than not that we would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity.

Realized gains and losses on available-for-sale investments were not material in the periods presented.

Gains and losses on our marketable equity securities are recorded in other income—net on the condensed consolidated statements of income. During the three months ended March 31, 2026, we sold certain marketable equity securities for net proceeds of $ 115.9  million, for which we recognized net gains of $ 50.7  million during the period. We had no sales of marketable equity securities during the three months ended March 31, 2025. During the three months ended March 31, 2026 and 2025, we recognized a $ 3.6  million and $ 14.7  million unrealized loss, respectively, related to the changes in the fair value of our marketable equity securities still held at the reporting date.
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Assets Measured at Fair Value on a Recurring Basis

The following table presents the fair value of our financial assets measured at fair value on a recurring basis (in millions):

  March 31, 2026 December 31, 2025
  Aggregate
Fair
Value Quoted
Prices in
Active
Markets For
Identical
Assets Significant
Other
Observable
Remaining
Inputs Significant
Other
Unobservable
Remaining
Inputs Aggregate
Fair
Value Quoted
Prices in
Active
Markets For
Identical
Assets Significant
Other
Observable
Remaining
Inputs Significant
Other
Unobservable
Remaining
Inputs
    (Level 1) (Level 2) (Level 3)   (Level 1) (Level 2) (Level 3)
Cash equivalents:

Money market funds $ 239.8   $ 239.8   $ —   $ —   $ 174.4   $ 174.4   $ —   $ —  
U.S. government and agency securities 24.0   24.0   —   —   —   —   —   —  
Corporate debt securities 2.7   —   2.7   —   1.1   —   1.1   —  
Commercial paper 21.9   —   21.9   —   38.1   —   38.1   —  
Total cash equivalents
288.4   263.8   24.6   —   213.6   174.4   39.2   —  
Short-term investments:

U.S. government and agency securities 427.9   427.9   —   —   383.5   381.5   2.0   —  
Corporate debt securities 219.4   —   219.4   —   160.2   —   160.2   —  
Commercial paper 289.3   —   289.3   —   354.9   —   354.9   —  
Certificates of deposit and term deposits 105.0   —   105.0   —   90.4   —   90.4   —  
Marketable equity securities 29.5   29.5   —   —   98.2   98.2   —   —  
Total short-term investments
1,071.1   457.4   613.7   —   1,087.2   479.7   607.5   —  
Long-term investments:

U.S. government and agency securities 116.2   103.7   12.5   —   131.1   121.8   9.3   —  
Corporate debt securities 223.5   —   223.5   —   208.6   —   208.6   —  
Total long-term investments
339.7   103.7   236.0   —   339.7   121.8   217.9   —  
Total
$ 1,699.2   $ 824.9   $ 874.3   $ —   $ 1,640.5   $ 775.9   $ 864.6   $ —  

There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2026 and year ended December 31, 2025.

4.      INVENTORY

Inventory, net of reserves, consisted of (in millions):

  March 31,
2026 December 31,
2025
Raw materials $ 62.6   $ 61.9  
Work in process 1.9   3.0  
Finished goods 305.1   334.6  
Inventory $ 369.6   $ 399.5  

The excess and obsolete inventory reserve was $ 125.3  million and $ 137.5  million as of March 31, 2026 and December 31, 2025, respectively. Inventory write-downs related to excess and obsolete inventory were immaterial during the
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

three months ended March 31, 2026 and 2025, respectively. These were recorded in cost of product revenue on the condensed consolidated statements of income.

5.      PROPERTY AND EQUIPMENT—Net

Property and equipment—net consisted of (in millions):
 

  March 31,
2026 December 31,
2025
Land $ 636.3   $ 592.4  
Buildings and improvements 980.8   974.0  
Computer equipment and software 374.5   341.0  
Leasehold improvements 58.3   58.5  
Evaluation units 22.0   24.1  
Furniture and fixtures 38.0   36.3  
Construction-in-progress 84.7   74.6  
Total property and equipment 2,194.6   2,100.9  
Less: accumulated depreciation ( 503.1 ) ( 481.9 )
Property and equipment—net $ 1,691.5   $ 1,619.0  

During the three months ended March 31, 2026, we purchased certain real estate property in the United States totaling $ 47.1  million, to be used for future development to expand our data center and office space. The purchase was accounted for under the asset acquisition method, with $ 45.1  million allocated to land and $ 2.0  million allocated to buildings and improvements, based on their relative fair values.

Depreciation expense was $ 29.5 million and $ 24.0 million during the three months ended March 31, 2026 and 2025, respectively.

6.      BUSINESS COMBINATIONS

2025 Acquisitions

Linksys Holdings, Inc.

In 2021, we invested $ 160.0  million in cash for shares of the Series A Preferred Stock of Linksys for a 50.8 % ownership interest in the outstanding equity of Linksys. On January 31, 2025 ( “ Linksys Acquisition Date ”) , we acquired all of the remaining outstanding Series A Preferred Stock of Linksys for $ 20.8  million in cash and now own 100 % of the outstanding equity of Linksys. Our pre-existing equity method investment in Linksys of 50.8 % ownership interest was remeasured to the fair value of $ 21.5  million at the Linksys Acquisition Date, which resulted in a $ 10.8  million gain recorded in gain (loss) from equity method investments on the condensed consolidated statements of income. Therefore, the aggregate purchase consideration for Linksys’ equity equaling the fair value of the previously owned stock and the purchase price for the remaining stock acquired was $ 42.3  million.

This acquisition was accounted for as a business combination using the acquisition method of accounting. Of the aggregate purchase price, $ 17.5  million was allocated to identifiable intangible assets acquired, and $ 64.7  million was allocated to other net assets acquired which predominantly included deferred tax asset of $ 45.8  million, inventory of $ 21.4  million, and cash of $ 8.8  million, offset by $ 11.3  million of net other assets and liabilities assumed. The excess of the fair values of the net assets acquired over the net purchase consideration was recorded as a gain on bargain purchase of $ 39.9  million within other income — net on the condensed consolidated statements of income. The gain on bargain purchase occurred primarily due to the recognition of the deferred tax assets, which were comprised primarily of pre-acquisition federal net operating loss carryforwards with an indefinite carryforward period. In addition, we had previously recorded a deferred tax asset of $ 30.6  million for an outside basis difference in our investment in Linksys when it was accounted for under the equity method. As a result of the acquisition of the remaining shares, we now account for our investment in Linksys under the consolidation method, and therefore we have derecognized this deferred tax asset. The charge is included in the provision for income taxes on the condensed consolidated statements of income. Acquisition-related costs related to this acquisition were not material and were recorded as general and administrative expenses.
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Other Acquisitions

In 2025 , we completed other acquisitions for total purchase consideration of $ 38.3  million in cash. We have accounted for the transactions as business combinations and recorded goodwill of $ 21.9  million, among which $ 8.6  million of goodwill is expected to be deductible and $ 13.3  million of goodwill is not deductible for income tax purposes. Acquisition-related costs were not material and were recorded as general and administrative expenses.

Additional acquisition-related information

The operating results of the acquired companies are included in our condensed consolidated statements of income from the respective dates of acquisition. Acquisition-related costs related to each acquisition were not material. The operating results of the acquired companies were not material in the period presented. Pro forma information has not been presented, as the impact of these acquisitions, individually and in the aggregate, in each period were not material to our condensed consolidated financial statements.

7.      GOODWILL AND OTHER INTANGIBLE ASSETS—Net

Goodwill

As of March 31, 2026 and December 31, 2025, we had goodwill of $ 257.4 million. There were no impairments to goodwill during the three months ended March 31, 2026 or during prior periods.

Other Intangible Assets—Net

The following tables present other intangible assets—net (in millions, except years):

March 31, 2026
  Weighted-Average Useful Life (in Years) Gross Accumulated Amortization Net
Other intangible assets—net:
Finite-lived intangible assets:
Developed technologies 4.3 $ 159.1   $ 101.0   $ 58.1  
Customer relationships 5.3 66.9   45.6   21.3  
Trade names
4.2 11.3   6.7   4.6  
Backlog 2.5 13.5   10.5   3.0  
Total other intangible assets—net $ 250.8   $ 163.8   $ 87.0  

December 31, 2025
  Weighted-Average Useful Life (in Years) Gross Accumulated Amortization Net
Other intangible assets—net:
Finite-lived intangible assets:
Developed technologies 4.3 $ 159.1   $ 96.0   $ 63.1  
Customer relationships 5.3 66.9   42.4   24.5  
Trade names
4.2 11.3   5.4   5.9  
Backlog 2.5 13.5   9.7   3.8  
Total other intangible assets—net $ 250.8   $ 153.5   $ 97.3  

Amortization expense was $ 10.3 million and $ 11.8 million during the three months ended March 31, 2026 and 2025, respectively.

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The following table summarizes estimated future amortization expense of finite-lived intangible assets—net (in millions):

  Amount
Years:
2026 (the remainder of 2026)
$ 26.9  
2027 27.5  
2028 20.0  
2029 9.3  
2030 1.0  
Thereafter 2.3  
Total $ 87.0  

8.      NET INCOME PER SHARE

Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, plus the dilutive effects of restricted stock units (“RSUs”), stock options and performance stock units (“PSUs”). Dilutive shares of common stock are determined by applying the treasury stock method.

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net income per share is (in millions, except per share amounts):

  Three Months Ended
  March 31,
2026 March 31,
2025
Numerator:
Net income
$ 534.5   $ 433.4  

Denominator:
Basic shares:
Weighted-average common stock outstanding-basic 738.8   768.3  
Diluted shares:
Weighted-average common stock outstanding-basic 738.8   768.3  
Effect of potentially dilutive securities:
RSUs 1.2   3.3  
Stock options 2.5   4.6  
PSUs 0.3   0.6  
Weighted-average shares used to compute diluted net income per share
742.8   776.8  
Net income per share

Basic $ 0.72   $ 0.56  
Diluted $ 0.72   $ 0.56  

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following weighted-average shares of common stock were excluded from the computation of diluted net income per share for the periods presented, as their effect would have been antidilutive (in millions):

  Three Months Ended
  March 31,
2026 March 31,
2025
RSUs 2.3   0.8  
Stock options 1.3   0.4  
PSUs 0.1   —  
Total 3.7   1.2  

9.      DEBT

2026 and 2031 Senior Notes

On March 5, 2021, we issued $ 1.0  billion aggregate principal amount of senior notes (collectively, the “Senior Notes”), consisting of $ 500.0  million aggregate principal amount of 1.0 % notes due March 15, 2026 (the “2026 Senior Notes”) and $ 500.0  million aggregate principal amount of 2.2 % notes due March 15, 2031 (the “2031 Senior Notes”), in an underwritten registered public offering. The Senior Notes are senior unsecured obligations and rank equally with each other in right of payment and with our other outstanding obligations.

Upon maturity on March 15, 2026, we repaid the full $ 500.0  million aggregate principal amount of the 2026 Senior Notes.

We may redeem the 2031 Senior Notes at any time in whole or in part for cash, at specified redemption prices that include accrued and unpaid interest, if any, and a make-whole premium. However, no make-whole premium will be paid for redemptions of the 2031 Senior Notes on or after December 15, 2030. Interest on the Senior Notes is payable on March 15 and September 15 of each year, beginning on September 15, 2021. The Senior Notes were recorded net of discount and issuance costs, which are amortized to interest expense over the respective contractual terms of these notes using the effective interest method.

The total outstanding debt is summarized below (in millions, except percentages):

  Maturity Coupon Rate Effective Interest Rate March 31,
2026 December 31,
2025
Debt
2026 Senior Notes March 2026 1.0 % 1.3 % $ —   $ 500.0  
2031 Senior Notes March 2031 2.2 % 2.3 % 500.0   500.0  
Total debt 500.0   1,000.0  
Less: Unamortized discount and debt issuance costs 3.2   3.7  
Less: Current portion of long-term debt
—   499.7  
Total long-term debt $ 496.8   $ 496.6  

As of March 31, 2026 and December 31, 2025, we accrued interest payable of $ 0.5 million and $ 4.7  million, respectively, and there are no financial covenants with which we must comply. During the three months ended March 31, 2026 and 2025, we recorded $ 4.2  million and $ 4.5  million of total interest expense in relation to these Senior Notes in each period, respectively. No interest costs were capitalized for the three months ended March 31, 2026 and 2025, as the costs that qualified for capitalization were not material.

The total estimated fair value of the outstanding 2031 Senior Notes was approximately $ 445.2  million, including accrued and unpaid interest, as of March 31, 2026. The fair value was determined based on observable market prices of identical instruments in less active markets. The estimated fair values are based on Level 2 inputs.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10.      COMMITMENTS AND CONTINGENCIES

The following table summarizes our inventory purchase commitments as of March 31, 2026 (in millions):
Total 2026 Thereafter

Inventory purchase commitments $ 1,365.6   $ 1,297.6   $ 68.0  

Inventory Purchase Commitments —We purchase components of our inventory from certain suppliers and use several independent contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that allow them to procure inventory based upon criteria as defined by us or establish the parameters defining our requirements. A significant portion of our reported purchase commitments arising from these agreements consists of firm, non-cancelable and unconditional commitments. Certain of these inventory purchase commitments with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain product components for multi-year periods. In certain instances, these agreements allow us the option to reschedule and adjust our requirements based on our business needs prior to firm orders being placed.

As of March 31, 2026, we had $ 1.37  billion of non-cancelable inventory purchase commitments with our independent contract manufacturers. We recorded a liability for these purchase commitments for quantities in excess of our future estimated demand forecasts, consistent with the valuation of our excess and obsolete inventory. As of March 31, 2026 and December 31, 2025, the liability for these inventory purchase commitments was $ 27.2  million and $ 26.7  million, respectively, and was recorded in accrued liabilities on our condensed consolidated balance sheets. The expense related to such accrued liability for inventory purchase commitments is recorded in cost of product revenue on the condensed consolidated statements of income. The expense related to such accrued liability for inventory purchase commitments was immaterial and a $ 4.5  million benefit during the three months ended March 31, 2026 and 2025, respectively.

Other Contractual Commitments and Open Purchase Orders —In addition to commitments with contract manufacturers, we have open purchase orders and contractual obligations in the ordinary course of business for which we have not received goods or services. A significant portion of our reported purchase commitments consist of non-cancelable commitments. In certain instances, contractual commitments allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to firm orders being placed. As of March 31, 2026, we had $ 127.8  million in other contractual commitments having a remaining term in excess of one year that are non-cancelable.

As of March 31, 2026, we had $ 70.4  million in contractual commitments related to payments for operating leases.

Litigation —We are subject to legal proceedings arising in the ordinary course of business. We record accruals for litigation contingencies when a loss is probable and reasonably estimable, based on management’s assessment of the expected outcome and currently available information. As of March 31, 2026 and December 31, 2025, litigation loss contingency accruals associated with outstanding matters were not material.

On September 22, 2025, a securities class action was filed against us, our chief executive officer, our chief technology officer, our current chief financial officer and our former chief financial officer in the United States District Court, Northern District of California, captioned Oklahoma Firefighters Pension and Retirement System v. Fortinet, Inc., et al., Case No. 3:25-cv-08037. On October 16, 2025, a securities class action was filed against us, our chief executive Officer, our current chief financial officer and our former chief financial officer in the same court, captioned State of Rhode Island Office of the General Treasurer v. Fortinet, Inc., et al., Case No. 3:25-cv-08888. These suits are brought on behalf of an alleged class of stockholders who purchased or acquired shares of our common stock between November 8, 2024 through August 6, 2025. The complaints allege that defendants made false or misleading statements about our business, operations and prospects, including regarding the 2026 firewall refresh cycle, and purport to assert claims under Sections 10(b) and 20(a) of the Exchange Act. The court subsequently consolidated these actions under a new caption, In re Fortinet, Inc. Securities Litigation, Lead Case No. 3:25-cv-08037 (the “Consolidated Securities Class Action”), and appointed a lead plaintiff and lead counsel. A consolidated amended complaint was filed on April 24, 2026, which asserts claims under Section 10(b), 20(a) and 20A of the Exchange Act against our chief executive officer, our chief technology officer, our current chief financial officer, and our former chief financial officer relating to the same events and circumstances alleged in the initial complaints, and adds a Section 10(b) claim against our head of investor relations. The Consolidated Securities Class Action seeks damages, attorneys fees and costs, and other relief that the court may deem appropriate. The time to respond to the consolidated amended complaint has not yet passed. We believe the Consolidated Securities Class Action is without merit and intend to defend the suit vigorously. Based on the preliminary nature of the proceedings in the Consolidated Securities Class Action, the outcome of that matter remains uncertain
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and we cannot estimate the potential impact, if any, on our business or financial statements at this time. Accordingly, no loss accrual was recorded as of March 31, 2026 related to this litigation.

On October 8, 2025, Plaintiff Jack Pittrof filed a stockholder derivative complaint against us as a nominal defendant and certain of our current and former directors and officers in the United States District Court for the Northern District of California, captioned Pittrof v. Xie, et al., Case No. 3:2025-cv-08592 (“Pittrof”). The complaint alleges claims based on events similar to those in the securities class action and asserts causes of action against the individual defendants for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, waste of corporate assets, and for violations of Section 10(b) of the Exchange Act. On November 5, 2025, Plaintiff Michael J. Marrinan filed a stockholder derivative complaint against us as a nominal defendant and certain of our current and former directors and officers in the United States District Court for the Northern District of California, captioned Marrinan v. Xie, et al., Case No. 3:25-cv-09546 (“Marrinan”). The complaint alleges claims based on events similar to those in the securities class action and asserts causes of action against the individual defendants for breach of fiduciary duty, unjust enrichment, insider trading, gross mismanagement, waste of corporate assets, violations of California Corporations Code §§ 24400, 25500, et. seq., and violations of Section 10(b) of the Exchange Act. On November 6, 2025, Plaintiff Bryan Foster filed a stockholder derivative complaint against us as a nominal defendant and certain of our current and former directors and officers in the United States District Court for the Northern District of California, captioned Foster v. Xie, et al., Case No. 3:25-cv-09611 (“Foster”). The complaint alleges claims based on events similar to those in the securities class action and asserts causes of action against the individual defendants for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, for violations of Section 10(b), 14(a), and 20(a) of the Exchange Act, and for contribution under Section 21D of the Exchange Act. On December 2, 2025, Plaintiff LR Trust filed a stockholder derivative complaint against us as a nominal defendant and certain of our current and former directors and officers in the United States District Court for the Northern District of California, captioned LR Trust v. Xie, et al., Case No. 3:25-cv-10350 (“LR Trust,” together with Pittrof, Marrinan, and Foster, the “Derivative Actions”). The complaint alleges claims based on events similar to those in the securities class action and asserts causes of action against the individual defendants for breach of fiduciary duty, unjust enrichment, insider trading, aiding and abetting, violations of Sections 10(b) and 14(a) of the Exchange Act, and for contribution under Section 21D of the Exchange Act. On behalf of the Company, the Derivative Actions seek damages, disgorgement, remedial actions, restitution, and attorneys’ fees and costs. The Derivative Actions have been consolidated under a new caption, In re Fortinet, Inc. Stockholder Derivative Litigation, Lead Case No. 3:2025-cv-08592 (the “Consolidated Derivative Action”). On April 2, 2026, the Court stayed all proceedings in the Consolidated Derivative Action pending the final resolution of the Consolidated Securities Class Action.

On March 21, 2019, we were sued by Alorica Inc. (“Alorica”) in Santa Clara County Superior Court in California. Alorica alleged breach of warranty and misrepresentation claims, which we denied. After trial, a jury returned a verdict fully in favor of us and against Alorica on October 4, 2024. Alorica has filed a notice of appeal. We believe that the ultimate outcome of this matter will not materially impact our financial position, results of operations or cash flows. However, any further legal proceedings, including Alorica’s appeal, would be subject to inherent uncertainties, and a future unfavorable ruling could occur. No loss accrual had been recorded as of March 31, 2026 or December 31, 2025 related to this litigation.

Indemnification and Other Matters —We enter into indemnification provisions in the ordinary course of business with other companies such as partners, customers, and vendors, where we agree to indemnify, hold harmless, and reimburse the indemnified party for certain losses suffered or incurred by the indemnified party as a result of our activities, including defending against third-party claims asserting various allegations such as product defects, breach of representations or covenants, and infringement of certain Intellectual Property (“IP”) rights, which may include patents, copyrights, trademarks or trade secrets, and to pay judgments entered on such claims. In some contracts, our exposure under these indemnification provisions is limited by the terms of the contracts to certain defined limits, such as the total amount paid by our customer under the agreement. However, certain agreements include covenants, penalties and indemnification provisions including and beyond indemnification for third-party claims of IP infringement that could potentially expose us to losses in excess of the amount received under the agreement, and in some instances to potential liability that is not contractually limited. Although from time to time there are indemnification claims asserted against us and currently there are pending indemnification claims, to date there have been no material awards under such indemnification provisions.

Similar to other security companies and companies in other industries, we have experienced and may experience in the future, cybersecurity threats, malicious activity directed against our information technology infrastructure or unauthorized attempts to gain access to our and our customers’ sensitive information and systems. We currently are unaware of any claims or proceedings related to these types of matters that we believe are likely to have a material adverse effect on our financial position, results of operations or cash flows.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

11.      EQUITY PLANS AND SHARE REPURCHASE PROGRAM

Stock-Based Compensation Plans

We maintain the Amended and Restated Fortinet, Inc. 2009 Equity Incentive Plan (the “Amended Plan”) pursuant to which we have granted RSUs, stock options and PSUs. As of March 31, 2026, there were a total of 45.5 million shares of common stock available for grant under the Amended Plan.

Restricted Stock Units and Market/Performance-Based PSUs

The following table summarizes the activity and related information for RSUs for the periods presented below (in millions, except per share amounts):

  RSUs Outstanding

  Number of Shares Weighted-Average Grant Date Fair Value per Share
Balance—December 31, 2025
7.6   $ 81.51  
Granted 2.6   80.00  
Forfeited ( 0.2 ) 78.87  
Vested ( 1.1 ) 82.49  
Balance—March 31, 2026
8.9   $ 81.02  

We grant RSUs under the Amended Plan to employees and non-employees. Subject to certain exceptions, RSUs vest generally over four years subject to continued service.

We grant market/performance-based PSUs under the Amended Plan to certain of our executives. Based on the achievement of the market/performance-based vesting conditions during the applicable performance period for such PSUs, the final settlement of the PSUs will range between 0 % and 200 % of the target shares underlying the PSUs based on the percentile ranking of our total stockholder return over one -, two -, three - and four-year periods among companies included in the S&P 500 Index. 20 %, 20 %, 20 % and 40 % of the PSUs vest over one -, two -, three - and four-year service periods, respectively.

During each of the three months ended March 31, 2026 and 2025, we granted approximately 0.1 million shares of PSU awards to certain of our executives, with a weighted-average grant date fair value of $ 103.01 and $ 168.93 per share, respectively. The grant date fair value of these awards was determined using a Monte Carlo simulation pricing model. The following table summarizes the weighted-average assumptions relating to our PSUs:

  Three Months Ended
  March 31,
2026 March 31,
2025
Expected term in years 2.8 2.7
Volatility 42.4   % 41.5   %
Risk-free interest rate 3.5   % 4.2   %
Dividend rate —   % —   %

Approximately 0.1  million and 0.2  million shares of PSUs vested during the three months ended March 31, 2026 and 2025, respectively. Less than 0.1  million shares of PSUs were forfeited during the three months ended March 31, 2026 and none of the PSUs were forfeited during the three months ended March 31, 2025.

Stock compensation expense is recognized on a straight-line basis over the vesting period of each RSU while compensation expense for PSUs is recognized on a graded vesting method. As of March 31, 2026, total compensation expense related to unvested RSUs and PSUs that were granted to employees, non-employees and certain executives, but not yet recognized, was $ 665.7 million, with a weighted-average vesting period of 2.9 years and $ 29.8  million, with a weighted-average vesting period of 2.3 years, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

RSUs and PSUs settle into shares of common stock upon vesting. Upon the vesting of the RSUs and PSUs, we net-settle the RSUs and PSUs and withhold a portion of the shares to satisfy employee withholding tax requirements. The payment of the withheld taxes to the tax authorities is reflected as a financing activity within the condensed consolidated statements of cash flows.

The following summarizes the number and value of the shares withheld for employee taxes (in millions):

Three Months Ended
March 31,
2026 March 31,
2025
Shares withheld for taxes 0.4   0.5  
Amount withheld for taxes $ 36.5   $ 53.8  

Employee Stock Options

The following table summarizes the weighted-average assumptions relating to our employee stock options:  

  Three Months Ended
  March 31,
2026 March 31,
2025
Expected term in years 4.6 4.5
Volatility 43.6   % 41.6   %
Risk-free interest rate 3.6   % 4.2   %
Dividend rate —   % —   %

The following table summarizes the stock option activity and related information for the periods presented below (in millions, except exercise prices and contractual life):

  Options Outstanding
  Number
of Shares Weighted-
Average
Exercise
Price Weighted-
Average
Remaining
Contractual
Life (Years) Aggregate
Intrinsic
Value
Balance—December 31, 2025
7.4   $ 49.39   3.0 $ 241.7  
Granted 0.6   80.00  
Forfeited —   90.29  
Exercised ( 0.8 ) 22.24  
Balance—March 31, 2026
7.2   $ 54.66  
Options vested and expected to vest—March 31, 2026
7.2   $ 54.66   3.3 $ 210.2  
Options exercisable—March 31, 2026
5.2   $ 44.89   2.4 $ 197.3  

The aggregate intrinsic value represents the difference between the exercise price of stock options and the quoted market price of our common stock at the date of the balance sheet for all in-the-money stock options. Stock compensation expense is recognized on a straight-line basis over the vesting period of each stock option. As of March 31, 2026, total compensation expense related to unvested stock options granted to employees but not yet recognized was $ 61.6 million, with a weighted-average remaining vesting period of 2.9 years.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Additional information related to our stock options is summarized below (in millions, except per share amounts):

Three Months Ended
March 31,
2026 March 31,
2025
Weighted-average fair value per share granted $ 32.91   $ 44.34  
Intrinsic value of options exercised $ 47.8   $ 102.3  
Fair value of options vested $ 10.9   $ 9.5  

Stock-Based Compensation Expense

Stock-based compensation expense, including stock-based compensation expense related to awards classified as liabilities, is included in costs and expenses (in millions):

  Three Months Ended
  March 31,
2026 March 31,
2025
Cost of product revenue $ 0.6   $ 0.5  
Cost of service revenue 7.1   6.5  
Research and development 25.1   23.0  
Sales and marketing 31.9   26.5  
General and administrative 8.5   10.4  
Total stock-based compensation expense $ 73.2   $ 66.9  

The following table summarizes stock-based compensation expense, including stock-based compensation expense related to awards classified as liabilities, by award type (in millions):

  Three Months Ended
  March 31,
2026 March 31,
2025
RSUs $ 63.1   $ 56.3  
Stock options 6.6   6.6  
PSUs 3.5   4.0  
Total stock-based compensation expense $ 73.2   $ 66.9  

Total income tax benefit associated with stock-based compensation that is recognized in the condensed consolidated statements of income is (in millions):

Three Months Ended
March 31,
2026 March 31,
2025
Income tax benefit associated with stock-based compensation $ 16.0   $ 14.7  

Share Repurchase Program

In January 2026, our board of directors approved a $ 1.0  billion increase in the authorized stock repurchase amount under the Repurchase Program, bringing the aggregate amount authorized for repurchases to $ 10.25  billion of our outstanding common stock through February 28, 2027. Share repurchases may be made by us from time to time in privately negotiated transactions or in open-market transactions. The Repurchase Program does not require us to purchase a minimum number of shares, and may be suspended, modified or discontinued at any time without prior notice.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the three months ended March 31, 2026, we repurchased 10.6  million shares of our common stock under the Repurchase Program in open-market transactions, at a weighted-average price of $ 77.69 per share, for an aggregate purchase price of $ 826.9  million, which excludes a $ 7.0  million accrual related to the 1% excise tax imposed by the Inflation Reduction Act of 2022. As of March 31, 2026, approximately $ 911.7  million remained available for future share repurchases under the Repurchase Program.

12.     INCOME TAXES

Our effective tax rate was 19 % for the three months ended March 31, 2026, compared to an effective tax rate of  19 % for the same period last year. The tax rates for the three months ended March 31, 2026 and 2025 were comprised of U.S. federal and state taxes, withholding taxes and foreign taxes that amounted to $ 166.6  million and $ 128.5  million, respectively. The tax rate for the three months ended March 31, 2026 included a tax benefit of $ 35.2  million from the Foreign-Derived Deduction Eligible Income (“FDDEI”) deduction, and excess tax benefits from stock-based compensation expense of $ 9.4  million. The tax rate for the three months ended March 31, 2025 included 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.

On July 4, 2025, H.R. 1, an Act to Provide for Reconciliation Pursuant to Title II of House Concurrent Resolution 14 (the “Act”) commonly referred to as the One Big Beautiful Bill Act, was enacted. The Act makes permanent certain elements of the Tax Cuts and Jobs Act, including immediate expensing of U.S. research and development expenditures, immediate expensing of certain eligible assets, and various modifications to the international tax framework. The income tax effects of the Act have been recognized in our provision for income taxes as of March 31, 2026.

As of March 31, 2026 and December 31, 2025, unrecognized tax benefits were $ 91.7  million and $ 90.4 million, respectively. If recognized, $ 74.9  million of the unrecognized tax benefits as of March 31, 2026 would favorably affect our effective tax rate. It is our policy to include accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2026 and December 31, 2025, accrued interest and penalties were $ 13.3  million and $ 12.5 million, respectively.

We file income tax returns in the U.S. federal jurisdiction and in various U.S. state and foreign jurisdictions. Generally, we are no longer subject to examination by U.S federal income tax authorities for tax years prior to 2020 and by U.S. state and foreign tax authorities in our significant jurisdictions for tax years prior to 2016. We currently have ongoing tax audits in the United Kingdom, Canada, Germany and several other foreign jurisdictions. The focus of these audits is the inter-company profit allocation.

On January 4, 2022, the U.S. Treasury published another tranche of final regulations regarding the foreign tax credit. These final regulations impose new requirements that a foreign tax must meet in order to be creditable against U.S. income taxes, and generally apply to tax years beginning on or after December 28, 2021. On July 26, 2022, the U.S. Treasury released corrections to the final regulations. On July 21, 2023, the Internal Revenue Service (“IRS”) released a notice that suspended the application of significant portions of the final regulations regarding the foreign tax credit for tax years 2022 and 2023. The notice released in July 2023 favorably impacted our ability to claim foreign tax credits in the United States for certain taxes imposed by certain foreign jurisdictions. On December 11, 2023, the IRS released a notice that extended the suspension of significant portions of the final regulations beyond December 31, 2023, until further guidance is issued.

In December 2021, the Organisation for Economic Co-operation and Development (the “OECD”) enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), and various governments around the world have enacted, or are in the process of enacting, legislation on this. In January 2026, the OECD released additional guidance related to the global minimum tax framework, including new safe harbors and potential exemptions for certain U.S.-based multinational companies, and continues to release additional guidance on these rules. Based on the enacted laws, BEPS Pillar Two has no impact to our effective tax rate or cash flows for the three months ended March 31, 2026. We will continue to evaluate the impact of these tax law changes on future reporting periods.

13.      SEGMENT INFORMATION

Operating segments are determined based on the financial information that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) to allocate resources and assess performance. The Company’s CODM is our Chief Executive Officer, who reviews financial information presented on a consolidated basis, accompanied by information about
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FORTINET, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

revenue by geographic region for purposes of allocating resources and evaluating financial performance. We have one operating and reportable segment.

The following table reflects certain financial data for our reportable segment (in millions):

  Three Months Ended
March 31, 2026 March 31, 2025
Total revenue $ 1,849.6   $ 1,539.7  
Less:

Cost of product revenue 208.3   149.9  
Cost of service revenue 156.2   143.2  
Research and development expenses
214.0   198.6  
Adjusted sales and marketing expenses (1)
514.8   439.7  
Commission expense 121.5   103.0  
General and administrative expenses
56.2   57.8  
Provision for income taxes 122.0   96.5  
Add: Other segment items (2)
77.9   82.4  
Net income
$ 534.5   $ 433.4  

(1) Excludes commission expense.
(2) Includes gain on intellectual property matters, interest income, interest expense, other income—net and gain (loss) from equity method investments.

Revenue by geographic region is based on the billing address of our customers. The following tables set forth revenue and property and equipment—net by geographic region (in millions):

Three Months Ended
Revenue March 31,
2026 March 31,
2025
Americas:
United States $ 526.5   $ 455.4  
Other Americas 213.3   174.4  
Total Americas 739.8   629.8  
Europe, Middle East and Africa (“EMEA”) 784.8   628.4  
Asia Pacific (“APAC”) 325.0   281.5  
Total revenue $ 1,849.6   $ 1,539.7  

Property and Equipment — net
March 31,
2026 December 31,
2025
Americas:
United States $ 1,072.1   $ 1,000.8  
Canada 330.9   329.2  
Latin America 4.4   4.9  
Total Americas 1,407.4   1,334.9  
EMEA 211.4   211.3  
APAC 72.7   72.8  
Total property and equipment—net $ 1,691.5   $ 1,619.0  

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The following distributor customers accounted for 10% or more of our revenue:

  Three Months Ended
March 31,
2026 March 31,
2025
Distributor A 28   % 28   %
Distributor B 15   % 14   %
Distributor C 12   % 12   %

The following distributor customers accounted for 10% or more of net accounts receivable:

March 31,
2026 December 31, 2025
Distributor A 28   % 32   %
Distributor B 12   % 12   %
Distributor C 11   % *

* Represents less than 10%

14.      SUBSEQUENT EVENT

Share Repurchase Program

Subsequent to March 31, 2026 and through the filing of this Quarterly Report on Form 10-Q, we repurchased 1.9 million shares of our common stock at an average price of $ 77.95 per share, for an aggregate purchase price of $ 145.9  million, under the Repurchase Program. As of the filing of this Quarterly Report on Form 10-Q, approximately $ 765.8  million remained available for future share repurchases through February 28, 2027 under the Repurchase Program.
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ITEM 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

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:

• continued growth and market share gains;

• variability in sales in certain product and service categories from year to year and between quarters;

• expected impact of sales from certain products and services;

• increasing or decreasing inflation or stagflation, and changing interest rates in many geographies and changes in currency exchange rates and currency regulations;

• competition in our markets;

• 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;

• government regulation and other policies;

• drivers of long-term growth and operating leverage, such as pricing of our products and services, sales productivity, pipeline and capacity, functionality, value and technology improvements in our product and service offerings;

• growing our solution sales through channel partners to businesses, service providers and government organizations, our ability to execute these sales and the complexity of providing solutions to all segments (including the increased competition and unpredictability of timing associated with sales to larger enterprises), the impact of sales to these organizations on our long-term growth, expansion and operating results, and the effectiveness of our sales organization;

• our ability to successfully anticipate market changes, including those related to cloud-based and Artificial Intelligence (“AI”) solutions and to sell, support and meet service level agreements related to cloud-based solutions;

• growth expectations for the secure networking market;

• supply chain constraints (including constraints on the availability of memory chips), component availability and other factors affecting our manufacturing capacity, delivery, cost and inventory management;

• forecasts of future demand and targeted inventory levels, including changing market drivers and demands;

• the effect of backlog from current or prior quarters, including its effect on growth of in-quarter billings and revenue;

• our ability to hire properly qualified and effective sales, support and engineering employees;

• risks and expectations related to acquisitions and equity interests in private and public companies, including integration issues related to go-to-market plans, product plans, employees of such companies, controls and processes and the acquired technology, and risks of negative impact by such acquisitions and equity investments on our financial results;

• trends in revenue, cost of revenue and gross margin, including product revenue, service revenue and inventory related charges;
 
• trends in our operating expenses, including sales and marketing expenses, research and development expenses, general and administrative expenses;
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• expected impact of plans and strategy for the acceleration of our data center footprint and our PoP deployment;

• our gross margins and operating margins for 2026;

• expectations that proceeds from the exercise of stock options in future years will be adversely impacted by the increased mix of restricted stock units and performance stock units versus stock options granted or a decline in our stock price;

• uncertain tax benefits and our effective domestic and global tax rates, the impact of interpretations of or changes to tax law, and the timing of tax payments;

• spending related to real estate assets, acquisitions and development, including data centers and points of presence, office building and warehouse investments, as well as other capital expenditures and to the impact on free cash flow and expenses;

• estimates of a range of 2026 spending on capital expenditures;

• expansions, development, improvements, operating, subleasing and other real property holdings activities;

• expected outcomes and liabilities in litigation;

• our intentions regarding share repurchases and the sufficiency of our existing cash, cash equivalents and investments to meet our cash needs, including our debt servicing requirements, for at least the next 12 months;

• our expectation to have sufficient liquidity to meet our operating requirements for at least the next 12 months and thereafter for the foreseeable future;

• other statements regarding our future operations, financial condition and prospects and business strategies; and

• adoption and impact of new accounting standards.

These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q and, in particular, the risks discussed under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and those discussed in other documents we file with the SEC. We undertake no obligation, and specifically disclaim any obligation, to revise or publicly release the results of any revision to these and any other forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Business Overview

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.

Our competitive differentiation lies in our core technologies, which together provide performance, security, flexibility and integration across diverse environments.

• FortiOS —Our unified operating system enables the convergence of networking and AI-powered security to enforce consistent policies across all form factors and edges. As the foundational engine of the Fortinet
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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.

• FortiASIC —Our Application-Specific Integrated Circuit (“ASIC”)-based Security Processing Units (“SPUs”) 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.

• FortiCloud —Our organically built global cloud infrastructure provides customers with global reach, flexible connectivity and cost savings. FortiCloud is our private cloud software as a service (“SaaS”) platform, powered by FortiStack, which is our secure SaaS platform operating as a private cloud service provider, and leveraging software and hardware to optimize and secure all layers.

• 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.

• FortiEndpoint —FortiEndpoint converges secure connectivity, endpoint protection and advanced capabilities like endpoint detection and response and universal Zero Trust Network Access (“ZTNA”), into a unified agent and management console. It simplifies management and enhances visibility while reducing costs and complexity. The solution gives IT teams the visibility and control they need, while security teams benefit from automated threat detection and response. This minimizes the need for manual intervention and provides faster remediation of threats across environments.

• OT Security —The Fortinet Security Fabric enables security for OT systems and Cyber-Physical Systems (“CPS”), including converged IT/OT architectures. Our OT Security Platform is purpose-built to protect the engineered systems that underpin critical infrastructure and supply chains around the world. This includes securing energy and utilities systems, manufacturing environments, and transportation, utilizing FortiGuard OT Security Services. These offerings include security capabilities for CPS assets and tools that support centralized NOC and SOC functions.

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

• 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.

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• Unified Secure Access Service Edge (SASE) —As applications move to the cloud and hybrid workforce is now the norm, enabling secure access for users with zero trust framework becomes important. The Fortinet Unified SASE solution includes a single-vendor SASE solution that includes firewall, SD-WAN, secure web gateway, cloud access services broker, Data Loss Prevention (“DLP”), Digital Experience Monitoring and ZTNA to deliver flexible secure access for all users. We are one of the few vendors to deliver consistent convergence and AI-powered security across Secure SD-WAN and SSE to enable a single-vendor SASE framework with a cloud-centric architecture powered by FortiOS. Our global and scalable cloud network includes over 200 PoPs to deliver a seamless secure access experience. Leveraging this global infrastructure, we believe we are well positioned to support customers expanding from SD-WAN to a single-vendor SASE platform. We also allow our customers to deploy our FortiSASE as Sovereign SASE, which provides control over the technology elements needed for a SASE solution. FortiSASE Sovereign delivers full SASE capabilities within infrastructure environments that organizations control, including on-premises, in private data centers or trusted colocation environments. Additionally, we offer a full suite of integrated cloud security solutions that enable customers to secure their applications from code to cloud. Our solutions include application security that includes web application firewalls, cloud network security with virtualized firewalls and cloud-native firewalls, cloud-native application protection and code security. We deliver a holistic approach to cloud security, offering a single unified platform, consolidating protection across multiple disparate tools, including coding, deploying, and running applications across hybrid and multi-clouds. Additionally, we also offer flexible consumption licensing programs that enable organizations to dynamically optimize their cloud security needs and investments as well as readily meet their cloud minimum spend commitment obligations with Cloud Service Providers. We continue to develop all the core SASE capabilities in a single operating system, FortiOS, including Next-Gen Firewall, SD-WAN, ZTNA, secure web gateway, cloud access security broker and DLP. This native integration of our Next-Gen Firewall, SD-WAN and SASE has become the New-Generation SASE Firewall.

• AI-Driven Security Operations (SecOps) —Our AI-Driven SecOps portfolio provides a suite of cybersecurity solutions that identify, protect, detect, respond and recover from threats, all integrated within the Fortinet Security Fabric. At the core is FortiAnalyzer, which serves as the central SOC platform with its unified data lake that provides built-in Security information and event management (“SIEM”), Security, orchestration, automation, and response (“SOAR”), Extended Detection and Response and threat intelligence, enabling centralized visibility, analytics and automation with complete control. FortiSIEM delivers security information and event management for more advanced SOC requirements, while FortiSOAR enables automated orchestration and playbook-driven response. This solution set also includes FortiEndpoint, FortiNDR, FortiSandbox, FortiDeceptor, FortiDLP and FortiRecon, helping organizations achieve defense in depth, ensuring attackers face multiple layers of detection and mitigation across endpoints, networks, and applications. To bolster their security posture, organizations contending with staff shortages can tap into FortiGuard services, including SOC-as-a-Service, Managed detection and response, Security Posture Assessment and Incident Response. Finally, FortiAI GenAI assistance streamlines operations, helping security teams stay ahead of an ever-evolving threat landscape.

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.

FortiGuard and Other Security Services are a suite of AI-powered security capabilities that are natively integrated as part of the Fortinet Security Fabric to deliver coordinated detection and enforcement across the entire attack surface. The portfolio consists of FortiGuard application security services, content security services, device security services, NOC/SOC security services and web security services.

FortiCare Technical Support Service is a technical support service, which provides customers access to experts to ensure efficient and effective operations and maintenance of their Fortinet solution. Global technical support is offered 24x7 with flexible add-ons, including enhanced service-level agreements and priority hardware replacement through in-country and local depots. Organizations have the flexibility to procure different levels of service for different solutions based on their availability needs. We offer three support options tailored to the needs of our enterprise customers: FortiCare Elite, FortiCare Premium and FortiCare Essential. The FortiCare Elite service aims to provide a 15-minute response time for key product families.

In addition to FortiCare solution based services, Advanced Support service options are available per account. These services are available for regional account support in three options: Core, Pro and Pro Plus, and can be available or provided on
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a global basis at the Pro and Pro Plus levels. Advanced Support brings support directly to each account, helping account holders to make their operations more effective and to plan and manage their solution lifecycle.

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.

Financial Highlights

• Total revenue was $1.85 billion during the three months ended March 31, 2026, an increase of 20%, compared to $1.54 billion in the same period last year. Product revenue was $645.1 million during the three months ended March 31, 2026, an increase of 41%, compared to $459.1 million in the same period last year. Service revenue was $1.20 billion during the three months ended March 31, 2026, an increase of 11%, compared to $1.08 billion in the same period last year.

• 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.

• 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.

• Operating income was $580.0 million during the three months ended March 31, 2026, an increase of 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, an increase of 1.9 percentage points, compared to 29.5% in the same period last year.

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

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

• 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.

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.

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.

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.

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.

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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.

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.

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.

Impact of Macroeconomic and Geopolitical and Supply Chain Developments

Our overall performance depends in part on worldwide economic and geopolitical conditions, such as trade policies and tariffs, GDP growth or contraction (both domestically and internationally), geopolitical instability and uncertainty, the war in Ukraine, tensions between China and Taiwan or conflicts in the Middle East, and their impact on customer behavior. Worsening economic conditions, including tariffs, inflation, changing interest rates and other trade disruptions, slower growth, any recession, fluctuations in foreign exchange rates and other changes in economic conditions, may result in decreased sales productivity, lower growth and adversely affect our results of operations and financial performance. We have seen, and could continue to see, certain impacts on our business, results of operations, financial condition, cash flows, liquidity and capital and financial resources such as longer sales cycles, delayed purchases and increased commitments with certain suppliers and increased inventory and inventory purchase commitment reserves. Tariffs imposed by the United States, as well as any new or additional retaliatory tariffs that could be imposed by other countries in response, could have a material adverse impact on global trade, supply chains and other worldwide economic and geopolitical conditions, which could increase our product costs and also affect customer sentiment in deciding whether to purchase our products. We continue to monitor the impact of tariffs on our business. In addition, as a result of the rapid global build-out of AI infrastructure, there is currently a global shortage of memory chips, which are a component in certain of our products. As a result, we are currently experiencing, and may continue to experience, constraints on the availability of memory chips, which may lead to delays in the production and delivery of our products and increased costs to source available memory chips, any of which could harm our business, financial condition and results of operations. To mitigate increased hardware costs resulting from these shortages, we are implementing price increases, which may negatively impact demand for our products and may not be sufficient or timely to offset rising input costs, potentially resulting in margin compression and adversely affecting our business, financial condition and results of operations.

Worsening economic, geopolitical and supply chain developments may have a material negative impact on our results in future periods and may negatively impact our billings, revenue and costs, and may decrease growth and profitability. The extent of the impact of such conditions on our operational and financial performance will depend on ongoing developments, including those discussed above and others identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. Given the dynamic nature of these circumstances, the full impact of worsening economic, geopolitical and supply chain developments on our business and operations, results of operations, financial condition, cash flows, liquidity and capital and financial resources cannot be reasonably estimated at this time.

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Business Model

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.

Our customers purchase our hardware products, software licenses, SaaS subscriptions and cloud-delivered solutions, including our FortiGuard security subscriptions and FortiCare technical support services. Depending on the solution, these may be sold in a bundle or standalone as part of a solution sale. We generally invoice at the time of our sale for the total price of the products and services. Standard payment terms are generally no more than 60 days, though we may offer extended payment terms to certain distributors or large enterprises.

We offer our products hosted in our own data centers, PoPs, and through colocations and major cloud service providers, including Amazon Web Services, Microsoft Azure and Google Cloud.

Key Metrics

We monitor several key metrics, including the key financial metrics set forth below, in order to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The following table summarizes revenue, deferred revenue, billings (non-GAAP), net cash provided by operating activities, and free cash flow (non-GAAP). We discuss revenue below under “Results of Operations,” and we discuss net cash provided by operating activities below under “—Liquidity and Capital Resources.” Deferred revenue, billings (non-GAAP), and free cash flow (non-GAAP) are discussed immediately below the following table:

  Three Months Ended Or As Of
March 31, 2026 March 31, 2025
(in millions)
Revenue $ 1,849.6  $ 1,539.7 
Deferred revenue $ 7,351.5  $ 6,418.4 
Billings (non-GAAP) $ 2,085.3  $ 1,597.2 
Net cash provided by operating activities $ 1,077.1  $ 863.3 
Free cash flow (non-GAAP) $ 1,006.5  $ 782.8 

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.

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.

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A reconciliation of revenue, the most directly comparable financial measure calculated and presented in accordance with GAAP, to billings is provided below:

  Three Months Ended
March 31, 2026 March 31, 2025
(in millions)
Billings:
Revenue $ 1,849.6  $ 1,539.7 
Add: Change in deferred revenue 235.7  57.5 

Total billings (non-GAAP) $ 2,085.3  $ 1,597.2 

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:

  Three Months Ended
March 31, 2026 March 31, 2025
(in millions)
Free Cash Flow:
Net cash provided by operating activities $ 1,077.1  $ 863.3 
Less: Purchases of property and equipment (70.6) (66.5)
Less: Proceeds from IP matter —  (14.0)
Free cash flow (non-GAAP) $ 1,006.5  $ 782.8 
Net cash used in investing activities $ (5.7) $ (110.8)
Net cash used in financing activities $ (1,342.9) $ (32.7)

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, cost of revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

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”).

See Note 1 of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding recent accounting pronouncements.
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Results of Operations

Three Months Ended March 31, 2026 and 2025

Revenue

  Three Months Ended    
March 31,
2026 March 31,
2025    
Amount % of
Revenue Amount % of
Revenue Change % Change
(in millions, except percentages)
Revenue:
Product $ 645.1  35  % $ 459.1  30  % $ 186.0  41  %
Service 1,204.5  65  1,080.6  70  123.9  11 
Total revenue $ 1,849.6  100  % $ 1,539.7  100  % $ 309.9  20  %
Revenue by geography:
Americas $ 739.8  40  % $ 629.8  41  % $ 110.0  17  %
EMEA 784.8  42  628.4  41  156.4  25 
APAC 325.0  18  281.5  18  43.5  15 
Total revenue $ 1,849.6  100  % $ 1,539.7  100  % $ 309.9  20  %

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.

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.

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 t o th e 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 the recognition of revenue from our growing deferred revenue balance related to FortiCare technical support service .

Of the service revenue recognized during the three months ended March 31, 2026 and 2025, 90% was included in the deferred revenue balance as of December 31, 2025 and 2024, respectively.

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Cost of revenue and gross margin

  Three Months Ended    
March 31,
2026 March 31,
2025 Change % Change
(in millions, except percentages)
Cost of revenue:
Product $ 208.3  $ 149.9  $ 58.4  39  %
Service 156.2  143.2  13.0  9 
Total cost of revenue $ 364.5  $ 293.1  $ 71.4  24  %
Gross margin (%):
Product 67.7  % 67.3  %
Service 87.0  86.7 
Total gross margin 80.3  % 81.0  %

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.

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.

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.

Operating expenses

  Three Months Ended Change % Change
March 31,
2026 March 31,
2025
Amount % of
Revenue Amount % of
Revenue
(in millions, except percentages)
Operating expenses:
Research and development $ 214.0  12  % $ 198.6  13  % $ 15.4  8  %
Sales and marketing 636.3  34  542.7  35  93.6  17 
General and administrative 56.2  3  57.8  4  (1.6) (3)
Gain on intellectual property matters
(1.4) —  (6.3) —  4.9  (78)
Total operating expenses $ 905.1  49  % $ 792.8  51  % $ 112.3  14  %

Research and development

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.

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Sales and marketing

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.

General and administrative

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.

Operating income and margin

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.

Interest income, interest expense and other income — net

  Three Months Ended    
March 31,
2026 March 31,
2025 Change % Change
(in millions, except percentages)
Interest income $ 32.9  $ 44.3  $ (11.4) (26) %
Interest expense $ (4.2) $ (4.9) $ 0.7  (14) %

Other income—net
$ 47.9  $ 26.1  $ 21.8  84  %

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 net gains on marketable equity securities, partially offset by a change of $39.9 million in gain on bargain purchase related to our acquisition of Linksys recognized only in the three months ended March 31, 2025.

Provision for income taxes

  Three Months Ended Change % Change
March 31,
2026 March 31,
2025
(in millions, except percentages)
Provision for income taxes
$ 122.0  $ 96.5  $ 25.5  26  %
Effective tax rate (%) 19  % 19  %

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.
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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.

Gain (loss) from equity method investments

  Three Months Ended Change % Change
March 31,
2026 March 31,
2025

(in millions, except percentages)
Gain (loss) from equity method investments
$ (0.1) $ 10.6  $ (10.7) (101) %

The $10.7 million change in g ain (loss) from equity method investments during the three months ended March 31, 2026 compared to the same period last year was primarily driven by a change of $10.8 million in gain related to our acquisition of Linksys recognized only in the three months ended March 31, 2025.

Liquidity and Capital Resources

  As of
  March 31,
2026 December 31,
2025
  (in millions)
Cash and cash equivalents $ 2,223.8  $ 2,495.3 
Short-term investments
1,071.1  1,087.2 
Long-term investments
339.7  339.7 
Total cash, cash equivalents and investments
$ 3,634.6  $ 3,922.2 
Working capital
$ 709.1  $ 866.2 

  Three Months Ended
  March 31,
2026 March 31,
2025
  (in millions)
Net cash provided by operating activities $ 1,077.1  $ 863.3 
Net cash used in investing activities (5.7) (110.8)
Net cash used in financing activities (1,342.9) (32.7)
Effect of exchange rate changes on cash and cash equivalents —  0.9 
Net increase (decrease) in cash and cash equivalents
$ (271.5) $ 720.7 

Liquidity and capital resources are primarily impacted by our operating activities, as well as repurchases of our common stock, repayment of senior notes, real estate purchases and other capital expenditures, investment grade debt balance, payments of taxes in connection with the net settlement of equity awards, proceeds from the issuance of common stock and business combinations.

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.

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In January 2026, our board of directors approved a $1.0 billion increase in the authorized stock repurchase amount under the Repurchase Program, bringing the aggregate amount authorized for repurchases to $10.25 billion of our outstanding common stock through February 28, 2027. During the three months ended March 31, 2026, we repurchased 10.6 million shares of common stock under the Repurchase Program for an aggregate purchase price of $826.9 million. As of March 31, 2026, approximately $911.7 million remained available for future share repurchases. Refer to Note 11. Equity Plans and Share Repurchase Program.

We expect to continue to increase our data center, PoP, office and warehouse capacity to support growth and the expansion of existing services or introduction of new services. As we purchase new properties, we will work to incorpo rate these properties into the environmental goals we have established. We estimate capital expenditures to be between approximatel y $350 million and $550 million in 2026.

We believe that our cash provided by operating activities, together with our existing cash, cash equivalents and investments will be sufficient to meet our anticipated cash needs and do not currently intend to retire our Senior Notes early. Refer to Note 9. Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the Senior Notes. During the three months ended March 31, 2026, we repaid the full $500.0 million aggregate principal amount of the 2026 Senior Notes upon their maturity on March 15, 2026. As of March 31, 2026, the long-term debt totaled $496.8 million and consisted of the 2031 Senior Notes, net of unamortized discount and debt issuance costs.

We purchase components of our inventory from certain suppliers and use several independent contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that allow them to procure inventory based upon criteria as defined by us or that establish the parameters defining our requirements. A significant portion of our reported purchase commitments arising from these agreements consists of firm, non-cancelable and unconditional commitments. Certain of these inventory purchase commitments with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain product components for multi-year periods. In certain instances, these agreements allow us the option to reschedule and adjust our requirements based on our business needs prior to firm orders being placed.

These inventory purchase commitments as of March 31, 2026 totaled $1.37 billion, an increase of $555.0 million compared to $810.6 million as of December 31, 2025, as we continued to work with contract manufacturers and suppliers to optimize our inventory and purchase commitments position based on growth trends in customer demand, product lead times and increasing components cost. We record a liability for inventory purchase commitments in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory. As of March 31, 2026 and December 31, 2025, the liability for these inventory purchase commitments was $27.2 million and $26.7 million, respectively, and was recorded in accrued liabilities on our condensed consolidated balance sheets.

Inventory and supply chain management remain areas of focus as we balance the need to maintain supply chain flexibility to help ensure competitive lead times with the risk of inventory obsolescence because of supply constraints, rapidly changing technology, and customer requirements. We believe the amount of our inventory and purchase commitments is appropriate for our current and expected customer demand and revenue levels.

We also have open purchase orders and contractual obligations in the ordinary course of business for which we have not received goods or services. As of March 31, 2026, we had $127.8 million in other contractual commitments having a remaining term in excess of one year that are non-cancelable.

There have been no significant changes to our leases as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.

As of March 31, 2026, our cash, cash equivalents and short-term and long-term investments of $3.63 billion were invested primarily in deposit accounts, commercial paper, corporate debt securities, U.S. government and agency securities, certificates of deposit and term deposits, money market funds and marketable equity securities. It is our investment policy to invest excess cash in a manner that preserves capital, provides liquidity, and generates return without significantly increasing risk. Based on current projections, we expect to have sufficient liquidity to meet our operating requirements for at least the next 12 months and thereafter for the foreseeable future, including our foreseeable future supply obligations, capital expenditures and share repurchases.

The amount of cash, cash equivalents and investments held by our international subsidiaries was $255.3 million as of March 31, 2026 and $266.9 million as of December 31, 2025.

We believe that our existing cash and cash equivalents and cash flow from operations will be sufficient for at least the next 12 months to meet our requirements and plans for cash, including meeting our working capital requirements and capital expenditure requirements. In the long term, our ability to support our requirements and plans for cash, including our working
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capital and capital expenditure requirements will depend on many factors, including our growth rate, the timing and amount of our share repurchases and debt retirement, the expansion of sales and marketing activities, pricing actions, the introduction of new and enhanced products and services offerings, the continuing market acceptance of our products, the timing and extent of spending to support development efforts, our investments in purchasing, developing or leasing real estate, cash paid for taxes and macroeconomic impacts such as rising inflation and changing interest rates, changes in tariffs and other trade restrictions, impacts of international conflicts, including the war in Ukraine, tensions between China and Taiwan or conflicts in the Middle East. Historically, we have required capital principally to fund our working capital needs, share repurchases, capital expenditures and acquisition activities. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all.

As of March 31, 2026, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Operating Activities

Cash generated by operating activities is our primary source of liquidity. It is primarily comprised of net income, as adjusted for non-cash items and changes in operating assets and liabilities. Non-cash adjustments consist primarily of amortization of deferred contract costs, stock-based compensation and depreciation and amortization. Changes in operating assets and liabilities consist primarily of changes in various working capital components, as well as deferred contract costs, other assets, non-current portion of deferred revenue and other liabilities.

Our operating activities during the three months ended March 31, 2026 provided cash flows of $1.08 billion as a result of the continued growth of our business, improved profitability and our ability to successfully manage our working capital. Changes in operating assets and liabilities were primarily driven by a net decrease in various working capital components of $346.4 million, an increase of $145.4 million in the non-current portion of deferred revenue, and an increase of $112.4 million in deferred contract costs which primarily consisted of sales commissions during three months ended March 31, 2026.

Investing Activities

The changes in cash flows from investing activities primarily relate to timing of purchases, maturities and sales of investments, purchases of property and equipment, investments in equity securities and business combinations. Historically, we have elected to own a facility if we believe that purchasing or developing buildings rather than leasing is more closely aligned with our long-term strategy. We expect to make similar decisions in the future. We may also make cash payments in connection with future business combinations.

During the three months ended March 31, 2026, cash used in investing activities was $5.7 million, primarily driven by $70.6 million used for the purchases of property and equipment, partially offset by $64.9 million of maturities and sales of investments, net of purchases of investments.

Financing Activities

The changes in cash flows from financing activities primarily relate to repurchase and retirement of common stock, repayment of senior notes, and taxes paid related to net share settlement of equity awards, net of proceeds from the issuance of common stock under the Amended Plan.

During the three months ended March 31, 2026, cash used in financing activities was $1.34 billion, driven by $823.0 million used to repurchase shares of our common stock, $500.0 million used to repay our 2026 Senior Notes and $18.7 million used to pay tax withholding related to net share settlement of equity awards, net of proceeds from the issuance of common stock.

ITEM 3.     Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in our market risk during the three months ended March 31, 2026 compared to the disclosures in Part II, Item 7A of the Form 10-K filed with the SEC on February 25, 2026.

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ITEM 4.     Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act as of March 31, 2026. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2026 to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1.     Legal Proceedings

We are subject to various claims, complaints and legal actions that arise from time to time. We accrue for contingencies when we believe that a loss is probable and that we can reasonably estimate the amount of any such loss. There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows. Refer to Note 10. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

ITEM 1A.     Risk Factors

Investing in our common stock involves a high degree of risk. Investors should carefully consider the following risks and all other information contained in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize, our business, financial condition and results of operations could be materially harmed. In that case, the trading price of our common stock could decline substantially, and investors may lose some or all of their investment. We have summarized risks immediately below and encourage investors to carefully read the entirety of this Risk Factors section.

Risks Related to Our Business and Financial Position

Our operating results are likely to vary significantly and be unpredictable.
 
Our operating results have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control or may be difficult to predict, including:
 
• adverse economic conditions, including macroeconomic and regional economic challenges resulting, for example, from a recession, tariffs, disruptions of global supply chains or other economic downturn, increased inflation or possible stagflation in certain geographies, changing interest rates, the war in Ukraine, tensions between China and Taiwan, conflicts in the Middle East or other factors;

• policy changes and uncertainty with respect to immigration laws, trade policy and tariffs, including increased tariffs applicable to countries where we manufacture our products, foreign imports and tax laws related to international commerce;

• sales strategy, productivity, hiring and retention, and execution, and our ability to attract and retain new end-customers or sell additional products and services to our existing end-customers, including customer demand for platform solutions like ours versus point solutions;

• our ability to successfully anticipate market changes related to cloud-based solutions and to sell, support and meet service level agreements related to cloud-based solutions;

• component shortages, including chips and other components, and product inventory shortages, including those caused by factors outside of our control, such as international trade disputes or tariffs, labor or supply chain disruptions, inflation and other cost increases, international conflicts, terrorism, wars, such as the war in Ukraine, tensions between China and Taiwan, conflicts in the Middle East, critical infrastructure attacks, natural disasters, health emergencies, epidemics and pandemics, power outages and civil unrest;

• inventory management, including future inventory purchase commitments;

• the level of demand for our products and services, which may render forecasts inaccurate, increase backlog or future inventory purchase commitments and lead to price decreases;

• supplier or regulatory cost increases and any lack of market acceptance of our price increases designed to help offset any supplier or regulatory cost increases;

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• the timing of channel partner and end-customer orders and our reliance on a concentration of shipments at the end of each quarter or changes in shipping terms;

• the impact to our business, the global economy, disruption of global supply chains and creation of significant volatility and disruption of the financial markets due to factors such as tariffs and policy disputes, increased inflation or possible stagflation in certain geographies, changing interest rates, the war in Ukraine, tensions between China and Taiwan, conflicts in the Middle East and other factors;

• defects or vulnerabilities, including critical vulnerabilities, in our products or services, as well as reputational harm from the failure or misuse of our products or services, and any actual or perceived defects or vulnerabilities, including critical vulnerabilities, in our products or services, failure of our products or services to detect or prevent a security incident or to cause a disruption to operations, failure of our customers to implement preventative actions such as updates to one of our deployed solutions or failure to help secure our customers;

• compromising of our internal enterprise IT networks, our operational networks, our research and development networks, our back-end labs and cloud stacks hosted in our data centers or PoPs, colocation vendors or public cloud providers, and resulting harm to public perception of our products and services;
 
• the timing of shipments, which may depend on factors such as inventory levels, logistics, manufacturing or shipping delays, our ability to ship products on schedule and our ability to accurately forecast inventory requirements and our suppliers’ ability to deliver components and finished goods;

• increased expenses, unforeseen liabilities or write-downs and any negative impact on results of operations from any acquisition or equity investment, as well as integration risks related to product plans and products and risks of negative impact by such acquisitions and equity investments on our financial results;

• investors’ expectations of our operational performance relating to our sustainability commitments;

• certain customer agreements which contain service-level agreements, under which we guarantee specified availability of our platform and solutions;

• inconsistent and evolving data and other security requirements and enforcement across certain jurisdictions;