Fortinet Inc.
07/30/2026 | Press release | Distributed by Public on 07/30/2026 15:31
Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)
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 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 disruptions to 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;
•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 June 30, 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 June 30, 2026, we held 1,115 U.S. patents and a total of 1,448 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
Security Fabric, FortiOS empowers organizations to unify management and analytics, providing network visibility and control at scale. FortiOS includes advanced encryption, quantum safe tools, 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 brings AI and agentic capabilities to products within the Fortinet Security Fabric. Generative and agentic AI support Network Operations Center ("NOC") and Security Operations Center ("SOC") teams in monitoring, analysis and response activities across enterprise environments, including automating operational workflows and assisting security personnel with analysis and response activities. AI within our firewalls allows for improved defense against evolving, AI-driven and zero-day attacks. AI focused features enable our customers to improve their governance over generative AI ("GenAI") applications by providing visibility into AI application usage and helping organizations govern and control the flow of data across public and private AI applications. Products such as FortiAIGate focus on protecting an organization's AI infrastructure, including large language models ("LLMs") and Application Programming Interface, supporting the secure deployment and operation of enterprise AI and LLM environments while preventing data leakage into and out of LLMs. Fortinet's AI offerings protect 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 cybersecurity 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 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 ethernet or Wi-Fi to become an extension of our customers' security infrastructure through FortiLink and FortiSwitch and FortiAP. 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.
•Unified Secure Access Service Edge (SASE)-With applications in the cloud and employees working from anywhere, organizations need to secure access for users everywhere through a Zero Trust model. Fortinet's Unified SASE offering brings together firewall, SD-WAN, secure web gateway, cloud access security broker, data loss prevention ("DLP"), digital experience monitoring and ZTNA in a single platform for user access across branch, campus, remote, and cloud environments. It provides consistent integration across secure SD-WAN and Security Service Edge, using FortiOS as the common operating system and policy framework. Fortinet's cloud network includes more than 200 PoPs, supporting global access and inspection. The rise of AI use paired with work from anywhere leaves businesses vulnerable to AI tool abuse with sensitive data leakage. AI visibility and control is built into FortiOS, allowing SASE PoPs to give companies control over AI usage and data exfiltration regardless of where the user is. The platform also supports sovereign SASE deployments, allowing organizations to run SASE capabilities in infrastructure they control, including on-premises environments, private data centers, and trusted colocation facilities. This enables local inspection, data residency, and jurisdiction-specific control where required. Fortinet also provides integrated cloud security capabilities for protecting applications and workloads across the application lifecycle, including web application firewalls, virtual and cloud-native firewalls, cloud-native application protection, and code security. These capabilities help organizations secure applications across hybrid and multi-cloud environments through a common platform rather than multiple disconnected tools. Flexible consumption and licensing models support different cloud deployment and procurement models. Fortinet continues to build out core SASE capabilities-including next-generation firewall, Secure SD-WAN, Universal ZTNA, secure web gateway, cloud access security broker, and DLP-within FortiOS. This provides a common operating model across networking and security functions and forms the basis for convergence between firewall, SD-WAN, and SASE services.
•AI-Driven Security Operations (SecOps)-Our AI-Driven Security Operations solutions provide software and services that support the identification, protection, detection, investigation, response, and recovery from cybersecurity threats across the incident lifecycle. These solutions integrate with Fortinet and third-party environments and support deployment across physical, virtual, cloud, and SaaS delivery models. FortiAnalyzer provides integrated security operations capabilities through the unified security data lake for the Fortinet Security Fabric, centralized log management, reporting, and threat intelligence. FortiSIEM provides security information and event management, while FortiSOAR provides security orchestration, automation, and response. FortiSOC brings these core capabilities together in a unified cloud-delivered SaaS offering. The portfolio also includes unified endpoint security with FortiEndpoint; identity security, including workforce and non-human identity management, with FortiAuthenticator and FortiPAM; and email and workspace security with FortiMail. AI-assisted capabilities are embedded across these solutions to support investigations, operational workflows, and analyst productivity. Organizations may also utilize FortiGuard managed security services, including SOC-as-a-Service and Managed Detection and Response, to augment or co-manage security operations based on operational requirements, available resources, and security maturity.
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 Machine Learning ("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
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 extends 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 $2.05 billion and $3.90 billion during the three and six months ended June 30, 2026, an increase of 26% and 23%, respectively, compared to $1.63 billion and $3.17 billion in the same periods last year. Product revenue was $773.0 million and $1.42 billion during the three and six months ended June 30, 2026, an increase of 52% and 46%, respectively, compared to $508.9 million and $968.0 million in the same periods last year. Service revenue was $1.27 billion and $2.48 billion during the three and six months ended June 30, 2026, an increase of 14% and 13%, respectively, compared to $1.12 billion and $2.20 billion in the same periods last year.
•Total gross profit was $1.64 billion and $3.13 billion during the three and six months ended June 30, 2026, an increase of 25% and 22%, respectively, compared to $1.32 billion and $2.56 billion in the same periods last year.
•Total gross margin was 80.2% and 80.3% during the three and six months ended June 30, 2026, a decrease of 0.5 in each period, compared to 80.7% and 80.8% in the same periods last year.
•Operating income was $689.3 million and $1.27 billion during the three and six months ended June 30, 2026, an increase of 51% and 39%, respectively, compared to $458.0 million and $911.8 million in the same periods last year.
•Operating margin was 33.7% and 32.6% during the three and six months ended June 30, 2026, an increase of 5.6 and 3.8 percentage points, respectively, compared to 28.1% and 28.8% in the same periods last year.
•Cash, cash equivalents, short-term and long-term investments were $4.47 billion as of June 30, 2026.
•Deferred revenue was $7.68 billion, including short-term deferred revenue of $3.84 billion, as of June 30, 2026.
•Cash flows from operating activities were $2.12 billion during the six months ended June 30, 2026, an increase of $805.5 million, or 61%, 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 June 30, 2026, the EMEA region, the Americas region and the APAC region contributed 43%, 39% and 18% of our total revenue, respectively, and revenue grew 31%, 23% and 21% in these regions compared to the same period last year, respectively. During the six months ended June 30, 2026, EMEA, the Americas and APAC regions contributed 42%, 40% and 18% of our total revenue, respectively, and revenue grew by 28%, 20% and 18% in these regions compared to the same period last year, respectively.
Product revenue increased 52% and 46% during the three and six months ended June 30, 2026, respectively, compared to the same periods last year, primarily driven by hardware revenue growth resulting from higher unit shipments year over year and recent pricing actions. 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. We expect our product revenue to continue to grow year over year for the remainder of 2026 compared to the same periods of 2025.
Service revenue increased $153.8 million, or 14% and $277.7 million, or 13%, during the three and six months ended June 30, 2026, respectively, as compared to the same periods last year, primarily driven by the strength of our security subscription revenue, which increased $85.3 million, or 13% and $156.2 million, or 12%, respectively, and our technical support and other services revenue, which increased $68.5 million, or 14% and $121.5 million, or 13%, respectively. The increase was primarily due to the recognition of 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 FortiCare technical support service. We expect our service revenue to continue to grow year over year for the remainder of 2026.
Our billings were diversified on a geographic basis. During the three months ended June 30, 2026, seven 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.
Total gross margin decreased 0.5 percentage points during each of the three and six months ended June 30, 2026, compared to the same periods last year, primarily due to a shift in the revenue mix from service revenue to lower margin product 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. Our product gross margin may decline for the full year 2026 as compared to 2025 primarily due to continued higher hardware component costs. We also expect service gross margin to decline slightly for the full year 2026 as compared to 2025, primarily due to 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 by 6.0 and 4.4 percentage points during the three and six months ended June 30, 2026, respectively, compared to the same periods last year, mainly because our revenue growth outpaced the growth in our personnel costs. Headcount increased to 15,472 employees as of June 30, 2026, a 4% increase compared to 14,898 as of June 30, 2025.
Operating margin increased 5.6 and 3.8 percentage points during the three and six months ended June 30, 2026, respectively, driven by revenue growth exceeding expense growth, resulting in improved operating leverage, partially offset by lower total gross margin. For the full year 2026, we expect our operating margin to increase slightly compared to 2025, benefiting from operating leverage and measured investments. Both total revenue and operating expense are expected to increase in 2026 compared to the prior year. The increase in expense is expected to primarily reflect investments in sales and marketing headcount, product development, and continued investments in data centers and real estate. We expect these and other investments to support long-term revenue growth and market expansion.
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.
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 third-party 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 | |||||||||||
| June 30, 2026 | June 30, 2025 | ||||||||||
| (in millions) | |||||||||||
| Revenue | $ | 2,047.9 | $ | 1,630.0 | |||||||
| Deferred revenue | $ | 7,675.7 | $ | 6,567.6 | |||||||
| Billings (non-GAAP) | $ | 2,372.1 | $ | 1,778.4 | |||||||
| Net cash provided by operating activities | $ | 1,043.6 | $ | 451.9 | |||||||
| Free cash flow (non-GAAP) | $ | 965.6 | $ | 284.1 | |||||||
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 $7.68 billion as of June 30, 2026, an increase of $559.9 million, or 8%, from December 31, 2025. Short-term deferred revenue was $3.84 billion as of June 30, 2026, an increase of $205.8 million, or 6%, 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 less any deferred revenue balances acquired from business combinations during 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 $2.37 billion for the three months ended June 30, 2026, an increase of 33% compared to $1.78 billion in the same period last year.
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 | |||||||||||
| June 30, 2026 | June 30, 2025 | ||||||||||
| (in millions) | |||||||||||
| Billings: | |||||||||||
| Revenue | $ | 2,047.9 | $ | 1,630.0 | |||||||
| Add: Change in deferred revenue | 324.2 | 149.2 | |||||||||
|
Less: Deferred revenue balance acquired in business combinations
|
- | (0.8) | |||||||||
| Total billings (non-GAAP) | $ | 2,372.1 | $ | 1,778.4 | |||||||
Free cash flow (non-GAAP). We define free cash flow as net cash provided by operating activities minus purchases of property and equipment. 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, 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 investing activities other than capital expenditures and cash flows from financing activities. Management accounts for this limitation by providing information about 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 | |||||||||||
| June 30, 2026 | June 30, 2025 | ||||||||||
| (in millions) | |||||||||||
| Free Cash Flow: | |||||||||||
| Net cash provided by operating activities | $ | 1,043.6 | $ | 451.9 | |||||||
| Less: Purchases of property and equipment | (78.0) | (167.8) | |||||||||
| Free cash flow (non-GAAP) | $ | 965.6 | $ | 284.1 | |||||||
| Net cash used in investing activities | $ | (184.6) | $ | (266.2) | |||||||
| Net cash used in financing activities | $ | (147.9) | $ | (414.2) | |||||||
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 six months ended June 30, 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.
Results of Operations
Three Months Ended June 30, 2026 and 2025
Revenue
| Three Months Ended | |||||||||||||||||||||||||||||||||||
|
June 30, 2026 |
June 30, 2025 |
||||||||||||||||||||||||||||||||||
| Amount |
% of Revenue |
Amount |
% of Revenue |
Change | % Change | ||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Product | $ | 773.0 | 38 | % | $ | 508.9 | 31 | % | $ | 264.1 | 52 | % | |||||||||||||||||||||||
| Service | 1,274.9 | 62 | 1,121.1 | 69 | 153.8 | 14 | |||||||||||||||||||||||||||||
| Total revenue | $ | 2,047.9 | 100 | % | $ | 1,630.0 | 100 | % | $ | 417.9 | 26 | % | |||||||||||||||||||||||
| Revenue by geography: | |||||||||||||||||||||||||||||||||||
| Americas | $ | 808.2 | 39 | % | $ | 658.8 | 40 | % | $ | 149.4 | 23 | % | |||||||||||||||||||||||
| EMEA | 871.7 | 43 | 667.1 | 41 | 204.6 | 31 | |||||||||||||||||||||||||||||
| APAC | 368.0 | 18 | 304.1 | 19 | 63.9 | 21 | |||||||||||||||||||||||||||||
| Total revenue | $ | 2,047.9 | 100 | % | $ | 1,630.0 | 100 | % | $ | 417.9 | 26 | % | |||||||||||||||||||||||
Total revenue increased $417.9 million, or 26%, during the three months ended June 30, 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 $264.1 million, or 52%, during the three months ended June 30, 2026 compared to the same period last year, primarily driven by hardware revenue growth resulting from higher unit shipments year over year, higher average selling prices resulting from customer demand for higher-performing models and recent pricing actions. 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.
Service revenue increased $153.8 million, or 14%, during the three months ended June 30, 2026 compared to the same period last year. Security subscription revenue increased $85.3 million, or 13%, and technical support and other services revenue increased $68.5 million, or 14%, during the three months ended June 30, 2026 compared to the same period last year. The increase was primarily due to the recognition 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 FortiCare technical support service.
Of the service revenue recognized during the three months ended June 30, 2026 and 2025, 90% was included in the deferred revenue balance as of March 31, 2026 and 2025, respectively.
Cost of revenue and gross margin
| Three Months Ended | |||||||||||||||||||||||
|
June 30, 2026 |
June 30, 2025 |
Change | % Change | ||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Product | $ | 233.8 | $ | 165.9 | $ | 67.9 | 41 | % | |||||||||||||||
| Service | 170.9 | 149.0 | 21.9 | 15 | |||||||||||||||||||
| Total cost of revenue | $ | 404.7 | $ | 314.9 | $ | 89.8 | 29 | % | |||||||||||||||
| Gross margin (%): | |||||||||||||||||||||||
| Product | 69.8 | % | 67.4 | % | |||||||||||||||||||
| Service | 86.6 | 86.7 | |||||||||||||||||||||
| Total gross margin | 80.2 | % | 80.7 | % | |||||||||||||||||||
Total gross margin decreased 0.5 percentage points during the three months ended June 30, 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 6.5 percentage points from service revenue to product revenue, as a percentage of total revenue.
Product gross margin increased 2.4 percentage points during the three months ended June 30, 2026 compared to the same period last year, primarily driven by recent pricing actions, partially offset by a shift in revenue mix to hardware and increased costs of memory chips. Cost of product revenue was comprised primarily of third-party contract manufacturers' costs and costs of materials used in production.
Service gross margin decreased 0.1 percentage points during the three months ended June 30, 2026 compared to the same period last year, primarily driven by increased costs related to the continued expansion of our data center and cloud services, partially offset by service revenue growth outpacing increases in labor costs. 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 | |||||||||||||||||||||||||||||||||
|
June 30, 2026 |
June 30, 2025 |
||||||||||||||||||||||||||||||||||
| Amount |
% of Revenue |
Amount |
% of Revenue |
||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Research and development | $ | 225.0 | 11 | % | $ | 209.5 | 13 | % | $ | 15.5 | 7 | % | |||||||||||||||||||||||
| Sales and marketing | 669.1 | 33 | 592.0 | 36 | 77.1 | 13 | |||||||||||||||||||||||||||||
| General and administrative | 61.1 | 3 | 56.9 | 4 | 4.2 | 7 | |||||||||||||||||||||||||||||
|
Gain on intellectual property matters
|
(1.3) | - | (1.3) | - | - | - | |||||||||||||||||||||||||||||
| Total operating expenses | $ | 953.9 | 47 | % | $ | 857.1 | 53 | % | $ | 96.8 | 11 | % | |||||||||||||||||||||||
Research and development
Research and development expenses increased $15.5 million, or 7%, during the three months ended June 30, 2026 compared to the same period last year, primarily due to an increase of $13.5 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 year over year during the remainder of 2026 as we invest to drive continued innovation in our products and services.
Sales and marketing
Sales and marketing expenses increased $77.1 million, or 13%, during the three months ended June 30, 2026 compared to the same period last year, primarily due to an increase of $73.4 million in personnel-related costs. We expect our sales and marketing expenses to increase in absolute dollars year over year during the remainder of 2026 as we continue to invest in our global sales and marketing organization to capture additional market share.
General and administrative
General and administrative expenses increased $4.2 million, or 7%, during the three months ended June 30, 2026 compared to the same period last year, primarily due to an increase of $2.1 million in legal related fees and other professional services fees and an increase of $1.5 million in personnel-related costs. We expect our general and administrative expenses to increase in absolute dollars year over year during the remainder of 2026, primarily to support our growing operations while continuing to leverage scale and efficiencies.
Operating income and margin
We generated operating income of $689.3 million during the three months ended June 30, 2026, an increase of $231.3 million, or 51%, compared to $458.0 million in the same period last year. Operating margin was 33.7% during the three months ended June 30, 2026, compared to 28.1% in the same period last year. The improvement in operating margin was primarily driven by operating leverage, as revenue growth outpaced the increase in operating expenses, partially offset by lower total gross margin. The 5.6 percentage point increase in operating margin was primarily due to 3.6, 1.9 and 0.6 percentage points decreases in sales and marketing expenses, research and development expenses and general and administrative expenses, as a percentage of revenue, respectively, partially offset by a 0.5 percentage point decrease in gross margin as a percentage of revenue.
Interest income, interest expense and other income-net
| Three Months Ended | |||||||||||||||||||||||
|
June 30, 2026 |
June 30, 2025 |
Change | % Change | ||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Interest income | $ | 33.2 | $ | 45.0 | $ | (11.8) | (26) | % | |||||||||||||||
| Interest expense | $ | (3.2) | $ | (4.6) | $ | 1.4 | (30) | % | |||||||||||||||
|
Other income-net
|
$ | 0.9 | $ | 18.9 | $ | (18.0) | (95) | % | |||||||||||||||
Interest income decreased $11.8 million during the three months ended June 30, 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 $1.4 million during the three months ended June 30, 2026 compared to the same period last year, primarily due to the repayment of our 2026 Senior Notes at maturity in March 2026. Other income-net decreased $18.0 million during the three months ended June 30, 2026 compared to the same period last year, primarily due to a $10.1 million increase in foreign currency exchange losses and a $6.3 million decrease in net gains on marketable equity securities.
Provision for income taxes
| Three Months Ended | Change | % Change | |||||||||||||||||||||
|
June 30, 2026 |
June 30, 2025 |
||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
|
Provision for income taxes
|
$ | 115.0 | $ | 77.1 | $ | 37.9 | 49 | % | |||||||||||||||
| Effective tax rate (%) | 16 | % | 15 | % | |||||||||||||||||||
Our effective tax rate was 16% for the three months ended June 30, 2026, compared to an effective tax rate of 15% for the same period last year. The provision for income taxes for the three months ended June 30, 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 $33.9 million from the FDDEI deduction and excess tax benefits from stock-based compensation expense of $17.7 million.
The provision for income taxes for the three months ended June 30, 2025 was primarily comprised of U.S. federal and state taxes, withholding taxes, and foreign taxes totaling $114.6 million, which was favorably affected by a tax benefit of $25.1 million from the FDDEI deduction and excess tax benefits from stock-based compensation expense of $12.4 million.
Six Months Ended June 30, 2026 and 2025
Revenue
| Six Months Ended | |||||||||||||||||||||||||||||||||||
|
June 30, 2026 |
June 30, 2025 |
||||||||||||||||||||||||||||||||||
| Amount |
% of Revenue |
Amount |
% of Revenue |
Change | % Change | ||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Product | $ | 1,418.1 | 36 | % | $ | 968.0 | 31 | % | $ | 450.1 | 46 | % | |||||||||||||||||||||||
| Service | 2,479.4 | 64 | 2,201.7 | 69 | 277.7 | 13 | |||||||||||||||||||||||||||||
| Total revenue | $ | 3,897.5 | 100 | % | $ | 3,169.7 | 100 | % | $ | 727.8 | 23 | % | |||||||||||||||||||||||
| Revenue by geography: | |||||||||||||||||||||||||||||||||||
| Americas | $ | 1,548.0 | 40 | % | $ | 1,288.6 | 41 | % | $ | 259.4 | 20 | % | |||||||||||||||||||||||
| EMEA | 1,656.5 | 42 | 1,295.5 | 41 | 361.0 | 28 | |||||||||||||||||||||||||||||
| APAC | 693.0 | 18 | 585.6 | 18 | 107.4 | 18 | |||||||||||||||||||||||||||||
| Total revenue | $ | 3,897.5 | 100 | % | $ | 3,169.7 | 100 | % | $ | 727.8 | 23 | % | |||||||||||||||||||||||
Total revenue increased $727.8 million, or 23%, during the six months ended June 30, 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 $450.1 million, or 46%, during the six months ended June 30, 2026 compared to the same period last year, primarily driven by hardware revenue growth resulting from higher unit shipments year over year and recent pricing actions. 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.
Service revenue increased $277.7 million, or 13%, during the six months ended June 30, 2026 compared to the same period last year. Security subscription revenue increased $156.2 million, or 12%, and technical support and other services revenue increased $121.5 million, or 13%, during the six months ended June 30, 2026 compared to the same period last year. The increase was primarily due to the recognition 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 FortiCare technical support service.
Of the service revenue recognized during the six months ended June 30, 2026 and 2025, 84% was included in the deferred revenue balance as of December 31, 2025 and 2024, respectively.
Cost of revenue and gross margin
| Six Months Ended | |||||||||||||||||||||||
|
June 30, 2026 |
June 30, 2025 |
Change | % Change | ||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Product | $ | 442.1 | $ | 315.8 | $ | 126.3 | 40 | % | |||||||||||||||
| Service | 327.1 | 292.2 | 34.9 | 12 | |||||||||||||||||||
| Total cost of revenue | $ | 769.2 | $ | 608.0 | $ | 161.2 | 27 | % | |||||||||||||||
| Gross margin (%): | |||||||||||||||||||||||
| Product | 68.8 | % | 67.4 | % | |||||||||||||||||||
| Service | 86.8 | 86.7 | |||||||||||||||||||||
| Total gross margin | 80.3 | % | 80.8 | % | |||||||||||||||||||
Total gross margin decreased 0.5 percentage points during the six months ended June 30, 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 5.9 percentage points from service revenue to product revenue, as a percentage of total revenue.
Product gross margin increased 1.4 percentage points during the six months ended June 30, 2026 compared to the same period last year, primarily driven by recent pricing actions, partially offset by a shift in revenue mix to hardware and increased costs of memory chips. Cost of product revenue was comprised primarily of third-party contract manufacturers' costs and costs of materials used in production.
Service gross margin remained flat during the six months ended June 30, 2026 compared to the same period last year. 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
| Six Months Ended | Change | % Change | |||||||||||||||||||||||||||||||||
|
June 30, 2026 |
June 30, 2025 |
||||||||||||||||||||||||||||||||||
| Amount |
% of Revenue |
Amount |
% of Revenue |
||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Research and development | $ | 439.0 | 11 | % | $ | 408.1 | 13 | % | $ | 30.9 | 8 | % | |||||||||||||||||||||||
| Sales and marketing | 1,305.4 | 34 | 1,134.7 | 36 | 170.7 | 15 | |||||||||||||||||||||||||||||
| General and administrative | 117.3 | 3 | 114.7 | 4 | 2.6 | 2 | |||||||||||||||||||||||||||||
|
Gain on intellectual property matters
|
(2.7) | - | (7.6) | - | 4.9 | (64) | |||||||||||||||||||||||||||||
| Total operating expenses | $ | 1,859.0 | 48 | % | $ | 1,649.9 | 52 | % | $ | 209.1 | 13 | % | |||||||||||||||||||||||
| Percentages have been rounded for presentation purposes and may differ from unrounded results. | |||||||||||||||||||||||||||||||||||
Research and development
Research and development expenses increased $30.9 million, or 8%, during the six months ended June 30, 2026 compared to the same period last year, primarily due to an increase of $29.7 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.
Sales and marketing
Sales and marketing expenses increased $170.7 million, or 15%, during the six months ended June 30, 2026 compared to the same period last year, primarily due to an increase of $146.5 million in personnel-related costs and an increase of $11.6 million in marketing program and related expenses.
General and administrative
General and administrative expenses increased $2.6 million, or 2%, during the six months ended June 30, 2026 compared to the same period last year, primarily due to an increase of $1.3 million in provision for expected credit losses and $0.9 million in legal related fees and other professional services fees.
Operating income and margin
We generated operating income of $1.27 billion during the six months ended June 30, 2026, an increase of $357.5 million, or 39%, compared to $911.8 million in the same period last year. Operating margin was 32.6% during the six months ended June 30, 2026, compared to 28.8% in the same period last year. The improvement in operating margin was primarily driven by operating leverage, as revenue growth outpaced the increase in operating expenses, partially offset by lower total gross margin. The 3.8 percentage point increase in operating margin was primarily due to 2.3, 1.6 and 0.6 percentage points decrease in sales and marketing expenses, research and development expenses and general and administrative expenses as a percentage of revenue, respectively, partially offset by a 0.5 percentage point decrease in gross margin and 0.2 percentage point decrease in gain on intellectual property matters as a percentage of revenue.
Interest income, interest expense and other income-net
| Six Months Ended | |||||||||||||||||||||||
|
June 30, 2026 |
June 30, 2025 |
Change | % Change | ||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Interest income | $ | 66.1 | $ | 89.3 | $ | (23.2) | (26) | % | |||||||||||||||
| Interest expense | $ | (7.4) | $ | (9.5) | $ | 2.1 | (22) | % | |||||||||||||||
|
Other income-net
|
$ | 48.8 | $ | 45.0 | $ | 3.8 | 8 | % | |||||||||||||||
Interest income decreased $23.2 million during the six months ended June 30, 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 $2.1 million during the six months ended June 30, 2026 compared to the same period last year, primarily due to the repayment of our 2026 Senior Notes at maturity in March 2026. Other income-net increased $3.8 million during the six months ended June 30, 2026 compared to the same period last year, primarily due to a net change of $55.6 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 and an $11.0 million increase in foreign currency exchange loss.
Provision for income taxes
| Six Months Ended | Change | % Change | |||||||||||||||||||||
|
June 30, 2026 |
June 30, 2025 |
||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
|
Provision for income taxes
|
$ | 237.0 | $ | 173.6 | $ | 63.4 | 37 | % | |||||||||||||||
| Effective tax rate (%) | 17 | % | 17 | % | |||||||||||||||||||
Our effective tax rate was 17% for each of the six months ended June 30, 2026 and 2025. The provision for income taxes for the six months ended June 30, 2026 was primarily comprised of U.S. federal and state taxes, withholding taxes and foreign taxes totaling $332.0 million, which was favorably affected by a tax benefit of $68.0 million from the FDDEI deduction and excess tax benefits from stock-based compensation expense of $27.1 million.
The provision for income taxes for the six months ended June 30, 2025 was primarily comprised of U.S. federal and state taxes, withholding taxes and foreign taxes totaling $243.2 million as well as a tax provision of $30.6 million related to the derecognition of deferred tax assets from the business combination with Linksys. This provision for income taxes was favorably affected by a tax benefit of $50.9 million from the FDDEI deduction and excess tax benefits from stock-based compensation expense of $49.3 million.
Liquidity and Capital Resources
| As of | |||||||||||
|
June 30, 2026 |
December 31, 2025 |
||||||||||
| (in millions) | |||||||||||
| Cash and cash equivalents | $ | 2,934.9 | $ | 2,495.3 | |||||||
|
Short-term investments
|
1,134.7 | 1,087.2 | |||||||||
|
Long-term investments
|
399.1 | 339.7 | |||||||||
|
Total cash, cash equivalents and investments
|
$ | 4,468.7 | $ | 3,922.2 | |||||||
|
Working capital
|
$ | 1,367.5 | $ | 866.2 | |||||||
| Six Months Ended | |||||||||||
|
June 30, 2026 |
June 30, 2025 |
||||||||||
| (in millions) | |||||||||||
| Net cash provided by operating activities | $ | 2,120.7 | $ | 1,315.2 | |||||||
| Net cash used in investing activities | (190.3) | (377.0) | |||||||||
| Net cash used in financing activities | (1,490.8) | (446.9) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | - | 1.3 | |||||||||
| Net increase in cash and cash equivalents | $ | 439.6 | $ | 492.6 | |||||||
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. In July 2026, Moody's upgraded certain of our credit ratings to A3 from Baa1 and changed the outlook to Stable from Positive. Our S&P ratings remain BBB+ with a Stable outlook. We believe our investment grade credit ratings support our continued financial flexibility and access to the capital markets. 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.
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 six months ended June 30, 2026, we repurchased 12.5 million shares of common stock under the Repurchase Program for an aggregate purchase price of $972.8 million. As of June 30, 2026, approximately $765.8 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 incorporate these properties into the environmental goals we have established. We estimate the full year capital expenditures to be between approximately $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. In the first quarter of 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 June 30, 2026, the long-term debt totaled $496.9 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 June 30, 2026 totaled $1.67 billion, an increase of $856.5 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 June 30, 2026 and December 31, 2025, the liability for these inventory purchase commitments was $24.0 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 June 30, 2026, we had $110.9 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 June 30, 2026, our cash, cash equivalents and short-term and long-term investments of $4.47 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 $278.7 million as of June 30, 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 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 June 30, 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 six months ended June 30, 2026 provided cash flows of $2.12 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 working capital movements, as well as an increase of $354.1 million in the non-current portion of deferred revenue, and an increase of $240.5 million in deferred contract costs which primarily consisted of sales commissions during the six months ended June 30, 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 six months ended June 30, 2026, cash used in investing activities was $190.3 million, primarily driven by $148.6 million used for the purchases of property and equipment and $50.1 million spent for purchases of investments, net of maturities and sales 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 six months ended June 30, 2026, cash used in financing activities was $1.49 billion, primarily driven by $972.8 million used to repurchase shares of our common stock, $500.0 million used to repay our 2026 Senior Notes, partially offset by $3.2 million proceeds from the issuance of common stock, net of tax withholding related to net share settlement of equity awards.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in our market risk during the six months ended June 30, 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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