Fortinet ((FTNT)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Fortinet’s latest earnings call struck an upbeat tone as management showcased powerful growth across billings, revenue and products, all backed by record margins and free cash flow. Executives acknowledged pockets of uncertainty around service revenue conversion, component costs and SASE ARR, but emphasized that broad-based demand in secure networking, OT and AI-driven security is propelling market-share gains and justified a guidance raise.
Strong Billings Growth
Total billings climbed 31% year-over-year to $2.09 billion, signaling robust demand across Fortinet’s secure networking and unified SASE offerings. Management framed this as evidence that customers are consolidating spend on the Fortinet platform, with momentum spanning both traditional network security and newer cloud-delivered models.
Robust Revenue and Product Momentum
Revenue rose 20% from a year earlier to $1.85 billion, while product revenue surged 41% to $645 million. The company said customers are increasingly shifting toward higher-performance appliances tailored for AI and high-throughput workloads, positioning Fortinet as a key beneficiary of ongoing AI infrastructure build-outs.
Services and Deferred Revenue Strength
Service revenue grew 11% to $1.21 billion, but underlying service billings accelerated 27% and deferred revenue increased 15%. Management highlighted strong SecOps annual recurring revenue as a leading indicator, arguing that today’s billings and backlog should translate into faster reported service revenue later in the year.
Outstanding Profitability and Margins
Non-GAAP gross margin reached 81% and GAAP gross margin was 80.3%, underscoring the scalability of Fortinet’s model. Non-GAAP operating margin hit a first-quarter record of 35.8%, up 160 basis points, while GAAP operating margin improved to 31.4%, giving the company ample room to invest while still delivering high returns.
Earnings and Cash Flow Highlights
Non-GAAP earnings per share jumped 41% to $0.82 and GAAP EPS rose 29% to $0.72, beating many investors’ expectations. Free cash flow hit a record $1.01 billion, with adjusted free cash flow of $1.07 billion up 27% and representing a powerful 58% margin, underscoring Fortinet’s cash-generating strength.
Capital Return and Buybacks
Fortinet continued to return capital aggressively, repurchasing 10.6 million shares for $827 million during the quarter. Management noted that an additional 1.9 million shares have already been bought quarter-to-date and roughly $766 million remains authorized, signaling ongoing support for the stock.
AI-Driven and Segment-Specific Wins
Operational technology billings accelerated more than 70%, unified SASE billings grew 31% and AI-driven security operations billings climbed 23%. Large enterprise deals over $1 million and total deal value both grew more than 60%, reflecting Fortinet’s growing penetration into big-ticket AI and infrastructure projects.
Customer Additions and Product Launches
The company added more than 6,600 new organizations to its FortiOS platform in the quarter, extending its installed base. Management also spotlighted new 3500G and 400G series products, designed to deliver higher performance for AI and other high-throughput environments, reinforcing Fortinet’s technology edge.
Raised and Reiterated Guidance
Fortinet raised and reiterated its 2026 targets, now calling for billings of $8.8–$9.1 billion and revenue of $7.71–$7.87 billion, implying solid double-digit growth. Service revenue is expected to reach $5.09–$5.15 billion, with detailed margin and EPS ranges for both Q2 and the full year underscoring confidence in sustained profitability.
Services Revenue Conversion Lag
Despite explosive product growth and reaccelerating service billings, reported service revenue increased a more modest 11%. Management stressed that this reflects timing, as deferred revenue and billings take time to convert into recognized revenue, and they expect this conversion to accelerate in the second half.
Component Cost Pressure and Pricing Impact
Executives flagged rising component and memory costs, noting that recent pricing changes exerted a low single-digit drag on product revenue growth. Guidance now assumes further pricing actions and $350–$550 million of infrastructure investments for the year, suggesting some margin headwinds but also a continued focus on capacity and scale.
Supply-Chain and Pull-Forward Uncertainty
Management acknowledged that supply-chain dynamics remain difficult to time precisely, particularly regarding customer ordering patterns. While they see limited evidence of pull-forward demand in the quarter, they cautioned that the duration of these conditions and inventory behavior could still introduce volatility.
SASE ARR and ARR Deceleration Questions
Analysts pressed the company on signs of deceleration in SASE annual recurring revenue and overall ARR trends. Fortinet pointed to strong unified SASE billings growth and FortiSASE adoption among 18% of large enterprise customers, but some ambiguity remains around how these metrics translate into near-term ARR cadence.
Reliance on AI-Driven Tailwind
Several of Fortinet’s standout wins are tied to AI-driven infrastructure projects, providing a powerful current tailwind. Management acknowledged that while this wave is fueling today’s growth, it also introduces concentration risk if AI spending levels or deployment timing were to shift materially.
Guidance and Outlook
For the second quarter, Fortinet expects billings of $2.09–$2.19 billion and revenue of $1.83–$1.93 billion, with non-GAAP EPS of $0.72–$0.76 and non-GAAP operating margin of 33%–35%. For the full year, the company targets billings of $8.8–$9.1 billion, revenue of $7.71–$7.87 billion and EPS of $3.10–$3.16, while planning significant infrastructure investments and managing the back half of the year cautiously.
Fortinet’s earnings call painted the picture of a cybersecurity vendor firing on multiple cylinders, from double-digit billings growth to record profitability and cash flow. While investors will need to watch service revenue conversion, SASE ARR and AI-related demand closely, the overall message was one of confidence, with raised guidance underscoring management’s belief that momentum can be sustained.