AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-2: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 4/6 · 18/10/2026
Moat—
Insufficient evidence for every rubric criterion; no category score is inferred.
structural advantage · — · Realized IP monetization establishes proprietary value, but its competitive materiality is unknown. No durable cost, network, scale or switching advantage is established.
durability · — · Several years of operating success do not establish how long structural protection lasts. IP scope and competitive substitution remain undisclosed.
customer dependency · — · Contracted services and upsell activity indicate continuing demand but do not establish operational dependence or costly migration beyond existing contracts.
erosion resilience · — · Current pricing and demand are positive, but resilience of a structural advantage through refresh cycles, vulnerabilities and technological substitution cannot be established.
Pricing power63
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
realized pricing · 3/4 · Product selling prices increased while unit shipments grew, and product gross margin improved 2.4 percentage points, primarily attributed to pricing actions despite memory-cost pressure. This demonstrates current pricing success; mix effects and limited history constrain durability.
retention · 2/4 · Subscription and support revenue growth, upsell activity and $7.73 billion of remaining obligations support continuing demand indirectly. They do not separate renewals from new customers or establish retention after contracts expire.
margin resilience · 3/4 · Recent pricing offset product cost pressure, service gross margin was nearly unchanged and consolidated gross margin fell only 0.5 percentage points as mix shifted toward products. Multi-year operating results provide additional support, without establishing a moat from margins.
contractual freedom · 2/4 · Implemented pricing actions demonstrate practical ability to change prices on sales. Non-cancelable commitments support agreed revenue, while large-customer negotiating leverage limits terms. Unilateral repricing rights within existing contracts are not disclosed.
Predictability98
Five consecutive annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 100.00
- Revenue growth volatility (pp)
- 7.77
- Positive FCF years (%)
- 100.00
- FCF margin volatility (pp)
- 1.51
Financial strength83
Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, or reported pretax profit plus reported interest expense when operating income is unavailable. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- debtFcfGrade
- 100.00
- netDebtEbitGrade
- 100.00
- interestCoverageGrade
- 100.00
- currentRatioGrade
- 33.77
- Debt / FCF (x)
- 0.45
- Net debt / operating income (x)
- -0.72
- Interest coverage (x)
- 103.72
- Current ratio (x)
- 1.17
Capital allocation—
Missing required inputs: operatingReturn. Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income or, if unavailable, EBIT calculated from reported pretax profit plus reported interest expense; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. Nonpositive invested capital has no defined return and remains unavailable. Does not establish acquisition quality or buyback timing.
- 3-year average dilution (%)
- -1.43
- 3-year average SBC / revenue (%)
- 4.38
- cashConversionGrade
- 100.00
Management63
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Multi-year cash generation, declining weighted-average shares and completed repurchases support discipline. Stock compensation, substantial non-cancelable inventory commitments and an excess-commitment liability temper the assessment. Repurchase valuation and acquisition returns cannot be established.
incentive alignment · 3/4 · Actual 2025 grants included relative-TSR PSUs, the bonus program used revenue, billings and operating income, and earned annual incentives averaged 103% of target. These demonstrate performance linkage. Time-based awards, contractual acceleration benefits and missing ownership and PSU outcome details limit the conclusion.
execution · 3/4 · Revenue, operating income and operating cash flow improved over multiple years; first-half 2026 operating income increased 39%, alongside product shipments and service demand. Execution is assessed from operating outcomes, which do not establish every strategic initiative's success.
governance · 2/4 · Implemented majority voting, board declassification, proxy access and removal of supermajority requirements support accountability. Committee independence has a cybersecurity exception, and existing preferred-stock and meeting-control provisions retain board protections. The evidence is mixed rather than absent.
Evidence
We periodically have discussions with third parties regarding licensing Fortinet’s intellectual property (“IP”) and have sometimes taken legal action against competitors to protect our IP, and as a result third parties have paid us fees in return for licenses or covenants-not-to-sue related to Fortinet IP.
Intellectual property protection and realized licensing payments · Filed 26/02/2024
CONSOLIDATED STATEMENTS OF INCOME (in millions, except per share amounts) Year Ended December 31, 2025 2024 2023 REVENUE: Product $ 2,218.4 $ 1,908.7 $ 1,927.3 Service 4,581.2 4,047.1 3,377.5 Total revenue 6,799.6 5,955.8 5,304.8 COST OF REVENUE: Product 725.4 652.0 763.6 Service 603.5 505.6 473.6 Total cost of revenue 1,328.9 1,157.6 1,237.2 GROSS PROFIT: Product 1,493.0 1,256.7 1,163.7 Service 3,977.7 3,541.5 2,903.9 Total gross profit 5,470.7 4,798.2 4,067.6 OPERATING EXPENSES: Research and development 815.5 716.8 613.8 Sales and marketing 2,347.5 2,044.8 2,006.0 General and administrative 233.4 237.8 211.3 Gain on intellectual property matters (10.4) (4.6) (4.6) Total operating expenses 3,386.0 2,994.8 2,826.5 OPERATING INCOME 2,084.7 1,803.4 1,241.1 INTEREST INCOME 162.3 155.2 119.7 INTEREST EXPENSE (20.1) (20.0) (21.0) OTHER INCOME (EXPENSE)—NET 55.3 119.9 (6.1) INCOME BEFORE INCOME TAXES AND GAIN (LOSS) FROM EQUITY METHOD INVESTMENTS 2,282.2 2,058.5 1,333.7 PROVISION FOR INCOME TAXES 439.1 283.9 143.8 GAIN (LOSS) FROM EQUITY METHOD INVESTMENTS 10.3 (29.4) (42.1) NET INCOME $ 1,853.4 $ 1,745.2 $ 1,147.8 Net income per share (Note 8): Basic $ 2.45 $ 2.28 $ 1.47 Diluted $ 2.42 $ 2.26 $ 1.46 Weighted-average shares used to compute net income per share: Basic 758.0 764.4 778.6 Diluted 764.6 771.9 788.2 See notes to consolidated financial statements.
Consolidated statements of income, 2023–2025 · Filed 25/02/2026
We cannot ensure that we will be successful in developing and introducing new offerings with enhanced functionality on a timely basis, or that our product and service offerings, if introduced, will enable us to maintain our prices, gross profits and operating margin at levels that will allow us to maintain profitability.
Risk factors: new offerings and maintenance of prices and profitability · Filed 30/07/2026
As our customers refresh the security products bought in prior years, they may seek to consolidate vendors, which may result in current customers choosing to purchase products from our competitors on an ongoing basis.
Risk factors: customer vendor changes during refresh cycles · Filed 30/07/2026
Team publicly posts on our FortiGuard Labs website known product vulnerabilities, including critical vulnerabilities, and methods for customers to mitigate the risk of vulnerabilities.
Product security: publication of known critical vulnerabilities · Filed 21/02/2025
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.
MD&A: realized product revenue, shipments and average selling prices · Filed 30/07/2026
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.
MD&A: product margin improvement from recent pricing actions · Filed 30/07/2026
Transaction Price Allocated to the Remaining Performance Obligations As of June 30, 2026, the aggregate amount of the transaction price allocated to remaining performance obligations was $7.73 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.
Revenue note: remaining performance obligations at June 30, 2026 · Filed 30/07/2026
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.
MD&A: subscription and technical support revenue growth · Filed 30/07/2026
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.
MD&A: upgrades, upsell activity and new use cases · Filed 30/07/2026
35 Table of Contents 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.
MD&A: product, service and consolidated gross margins · Filed 30/07/2026
These risks include: •increased competition from competitors that traditionally target large- and medium-sized businesses, service providers and government organizations and that may already have purchase commitments from those end-customers; •increased purchasing power and leverage held by large end-customers in negotiating contractual arrangements; •unanticipated changes in the capital resources or purchasing behavior of large end-customers, including changes in the volume and frequency of their purchases and changes in the mix of products and services, willingness to change to cloud delivery model and related payment terms; •more stringent support requirements in our support service contracts, including stricter support response times, more complex requirements and increased penalties for any failure to meet support requirements; •longer sales cycles and the associated risk that deals are delayed and that substantial time and resources may be spent on a potential end-customer that elects not to purchase our products and services; •increased requirements from these customers that we have certain third-party security or other certifications, which we may not have, the lack of which may adversely affect our ability to successfully sell to such customers; •uncertainty as to timing to close large deals and any delays in closing those deals; and •longer ramp-up periods for enterprise sales personnel as compared to other sales personnel.
Risk factors: large-customer negotiating leverage and contractual requirements · Filed 25/02/2026
Liquidity and Capital Resources As of December 31, 2025 2024 2023 (in millions) Cash and cash equivalents $ 2,495.3 $ 2,875.9 $ 1,397.9 Short-term investments 1,087.2 1,190.6 1,042.5 Long-term investments 339.7 — — Total cash, cash equivalents and investments $ 3,922.2 $ 4,066.5 $ 2,440.4 Working capital $ 866.2 $ 1,910.8 $ 709.3 Year Ended December 31, 2025 2024 2023 (in millions) Net cash provided by operating activities $ 2,590.6 $ 2,258.1 $ 1,935.5 Net cash used in investing activities (599.1) (727.4) (649.3) Net cash used in financing activities (2,371.5) (50.1) (1,570.4) Effect of exchange rate changes on cash and cash equivalents (0.6) (2.6) (0.8) Net increase (decrease) in cash and cash equivalents $ (380.6) $ 1,478.0 $ (285.0) 71 Table of Contents Liquidity and capital resources are primarily impacted by our operating activities, as well as repurchases of our common stock, 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.
Liquidity and capital resources: cash generation and liquidity, 2023–2025 · Filed 25/02/2026
During the six months ended June 30, 2026, we repurchased 12.5 million shares of our common stock under the Repurchase Program in open-market transactions, at a weighted-average price of $77.73 per share, for an aggregate purchase price of $972.8 million, which excludes a $6.7 million accrual related to the 1% excise tax imposed by the Inflation Reduction Act of 2022.
Equity note: completed first-half 2026 share repurchases · Filed 30/07/2026
As of June 30, 2026, we had $1.67 billion of non-cancelable inventory purchase commitments with our independent contract manufacturers.
Commitments note: non-cancelable inventory purchase commitments · Filed 30/07/2026
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.
Commitments note: liability for excess inventory purchase commitments · Filed 30/07/2026
Based on our growth and profitability for the year, and after accounting for individual performance during the year, our executives earned 103% of their target annual incentives, on average.
Executive compensation: actual 2025 annual incentive achievement · Filed 29/04/2026
• Continued to Emphasize Performance-Based Long-Term Incentives: In 2025, our NEOs were granted long-term incentive awards in a mix of time-based restricted stock units (“RSUs”) and performance-based awards (“PSUs”) that are eligible to be earned based on our relative total stockholder return (“TSR”) as compared to the S&P 500.
Executive compensation: granted 2025 RSUs and relative-TSR PSUs · Filed 29/04/2026
Whittle 90 % 90 % 2025 Bonus Program In 2025, the Human Resources Committee based the Bonus Program funding on achievement of revenue, billings, and operating income targets, as set forth in more detail below, with 35% of the bonus pool funding based on revenue achievement, 35% of the bonus pool funding based on billings achievement, and 30% of the bonus pool funding based on operating income achievement.
Executive compensation: adopted 2025 bonus performance weights · Filed 29/04/2026
Also pursuant to each Change of Control Agreement, if an NEO is terminated without Cause or if an NEO terminates the NEO’s employment for Good Reason within the 12-month period following a Change of Control (or, in the case of the CEO only, within the period commencing three months prior and ending 12-months following a Change of Control), each such period, as applicable, the “Change in Control Period,” the NEO 49 Table of Contents will be entitled to: (i) continuing base salary for 12 months following termination (at the greater of the base salary in effect immediately prior to (A) the Change of Control and (B) the NEO’s termination date); (ii) an additional severance payment equal to the NEO’s annual target bonus for the year in which the termination occurs, payable in a lump sum; (iii) acceleration of 100% of the unvested equity awards subject to time-based and performance-based vesting then held by the NEO (with performance deemed achieved at target, unless otherwise set forth in the applicable award agreement); and (iv) 12 months of medical, dental and/or vision COBRA premiums for the NEO and/or the NEO’s eligible dependents.
Executive compensation: contractual termination and change-of-control benefits · Filed 29/04/2026
20 Table of Contents As part of our engagement with stockholders, we regularly evaluate our corporate governance structure and practices, and have implemented the following measures, among others: adopted a majority voting standard for uncontested elections of directors; removed supermajority voting requirements in our certificate of incorporation and bylaws; allowed stockholders to call special meetings of our stockholders; declassified our Board of Directors; implemented proxy access; and implemented stock ownership guidelines with respect to our non-employee directors.
Corporate governance: implemented shareholder rights and board reforms · Filed 29/04/2026
• All committees of the Board of Directors are composed of independent directors, with the exception of the Cybersecurity Committee.
Corporate governance: committee independence · Filed 29/04/2026
Our corporate governance documents include provisions: •authorizing “blank check” preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock; •limiting the liability of, and providing indemnification to, our directors and officers; •requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors; •providing that certain litigation matters may only be brought against us in state or federal courts in the State of Delaware; •controlling the procedures for the conduct and scheduling of board and stockholder meetings; and •providing the board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings.
Risk factors: existing governance provisions and board powers · Filed 30/07/2026
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.
MD&A: first-half 2026 operating income growth · Filed 30/07/2026
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.
MD&A: second-quarter operating cash flow and capital expenditure reconciliation · Filed 30/07/2026
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) 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 Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 Cost of product revenue $ 0.6 $ 0.5 $ 1.2 $ 1.0 Cost of service revenue 8.1 7.0 15.2 13.5 Research and development 26.9 25.1 52.0 48.1 Sales and marketing 36.7 29.7 68.6 56.2 General and administrative 8.5 7.6 17.0 18.0 Total stock-based compensation expense $ 80.8 $ 69.9 $ 154.0 $ 136.8 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 Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 RSUs $ 70.2 $ 60.8 $ 133.3 $ 117.1 Stock options 6.5 6.8 13.1 13.4 PSUs 4.1 2.3 7.6 6.3 Total stock-based compensation expense $ 80.8 $ 69.9 $ 154.0 $ 136.8 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 Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 Income tax benefit associated with stock-based compensation $ 17.7 $ 15.3 $ 33.7 $ 30.0 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.
Equity note: realized stock-based compensation expense · Filed 30/07/2026
