Fortinet FTNT · USD

SEGMENT INFORMATIONOperating segments are determined based on the financial information that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) to allocate resources and assess performance. The Company’s Chief Operating Decision Maker is our Chief Executive Officer, who reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region. We have one operating and reportable segment. Our CODM uses consolidated net income as a measure to monitor actual results versus budget and historical performance of our reportable segment. The measure of the segment assets is reported on the consolidated balance sheets as total consolidated assets.The following table reflects certain financial data for our reportable segment (in millions): Year Ended December 31,202520242023Total revenue$6,799.6 $5,955.8 $5,304.8 Less:Cost of product revenue725.4 652.0 763.6 Cost of service revenue603.5 505.6 473.6 Research and development expenses815.5 716.8 613.8 Adjusted sales and marketing expenses (1)1,900.9 1,654.9 1,635.3 Commission expense446.6 389.9 370.7 General and administrative expenses233.4 237.8 211.3 Provision for income taxes439.1 283.9 143.8 Add: Other segment items (2)218.2 230.3 55.1 Net income $1,853.4 $1,745.2 $1,147.8 (1) Excludes commission expense.(2) The following table presents other segment items (in millions):Year Ended December 31,202520242023Gain on intellectual property matters$10.4 $4.6 $4.6 Interest income162.3 155.2 119.7 Interest expense(20.1)(20.0)(21.0)Other income (expense)—net55.3 119.9 (6.1)Gain (loss) from equity method investments10.3 (29.4)(42.1)Total other segment items$218.2 $230.3 $55.1 The following table presents other segment information (in millions): Year Ended December 31,202520242023Significant non-cash items:Stock‐based compensation expense$279.5 $257.9 $249.0 Depreciation and amortization expense152.0 122.8 113.4 Total assets$10,389.2 $9,763.1 $7,258.9 Purchases of property and equipment$364.8 $378.9 $204.1 Revenue by geographic region is based on the billing address of our customers. The following tables set forth revenue and property and equipment—net by geographic region (in millions): Year Ended December 31,Revenue202520242023Americas:United States$1,929.5 $1,778.9 $1,605.9 Other Americas770.9 663.3 569.3 Total Americas2,700.4 2,442.2 2,175.2 EMEA2,834.3 2,396.2 2,072.9 APAC1,264.9 1,117.4 1,056.7 Total revenue$6,799.6 $5,955.8 $5,304.

REVENUE RECOGNITIONDisaggregation of RevenueThe following table presents our revenue disaggregated by major product and service lines (in millions):Year Ended December 31,202520242023Product$2,218.4 $1,908.7 $1,927.3 Service:Security subscription2,633.2 2,316.7 1,898.1 Technical support and other1,948.0 1,730.4 1,479.4 Total service revenue4,581.2 4,047.1 3,377.5 Total revenue$6,799.6 $5,955.8 $5,304.8 Deferred RevenueDuring 2025 and 2024, we recognized $3.26 billion and $2.84 billion in revenue that was included in the deferred revenue balance as of December 31, 2024 and 2023, respectively.Transaction Price Allocated to the Remaining Performance ObligationsAs of December 31, 2025, the aggregate amount of the transaction price allocated to remaining performance obligations was $7.18 billion, which was substantially comprised of deferred security subscription and technical support services revenue as well as unbilled contract revenue from non-cancellable contracts that will be recognized in future periods. We expect to recognize approximately $3.66 billion as revenue over the next 12 months, $2.80 billion in years two and three, and the remainder thereafter.

COMMITMENTS AND CONTINGENCIESThe following table summarizes our inventory purchase commitments as of December 31, 2025 (in millions):Total2026ThereafterInventory purchase commitments$810.6 $720.9 $89.7 Inventory Purchase Commitments—We purchase components of our inventory from certain suppliers and use several independent contract manufacturers to provide manufacturing services for our products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, we enter into agreements with contract manufacturers and suppliers that allow them to procure inventory based upon criteria as defined by us or establish the parameters defining our requirements. A significant portion of our reported purchase commitments arising from these agreements consists of firm, non-cancelable and unconditional commitments. Certain of these inventory purchase commitments with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain product components for multi-year periods. In certain instances, these agreements allow us the option to reschedule and adjust our requirements based on our business needs prior to firm orders being placed. As of December 31, 2025, we had $810.6 million of non-cancelable inventory purchase commitments with our independent contract manufacturers. We recorded a liability for these purchase commitments for quantities in excess of our future estimated demand forecasts, consistent with the valuation of our excess and obsolete inventory. As of December 31, 2025 and December 31, 2024, the liability for these inventory purchase commitments was $26.7 million and $54.0 million, respectively, and was recorded in accrued liabilities on our consolidated balance sheets. The expense related to such accrued liability for inventory purchase commitments were not material for the year ended December 31, 2025 and 2024, respectively, and $85.9 million for the year ended December 31, 2023, and was recorded in cost of product revenue on the consolidated statements of income.Other Contractual Commitments and Open Purchase Orders—In addition to commitments with contract manufacturers, we have open purchase orders and contractual obligations in the ordinary course of business for which we have not received goods or services. A significant portion of our reported purchase commitments consist of non-cancelable commitments.

DEBT2026 and 2031 Senior NotesOn March 5, 2021, we issued $1.0 billion aggregate principal amount of senior notes (collectively, the “Senior Notes”), consisting of $500.0 million aggregate principal amount of 1.0% notes due March 15, 2026 (the “2026 Senior Notes”) and $500.0 million aggregate principal amount of 2.2% notes due March 15, 2031 (the “2031 Senior Notes”), in an underwritten registered public offering. The Senior Notes are senior unsecured obligations and rank equally with each other in right of payment and with our other outstanding obligations. We may redeem the Senior Notes at any time in whole or in part for cash, at specified redemption prices that include accrued and unpaid interest, if any, and a make-whole premium. However, no make-whole premium will be paid for redemptions of the 2026 Senior Notes on or after February 15, 2026, or the 2031 Senior Notes on or after December 15, 2030. Interest on the Senior Notes is payable on March 15 and September 15 of each year, beginning on September 15, 2021. The 2026 Senior Notes were recorded as current portion of long-term debt and the 2031 Senior Notes were recorded as long-term debt as of December 31, 2025 and both of the Senior Notes were recorded as long-term debt as of December 31, 2024, net of discount and issuance costs, which are amortized to interest expense over the respective contractual terms of these notes using the effective interest method.The total outstanding debt is summarized below (in millions, except percentages): MaturityCoupon RateEffective Interest RateDecember 31,2025December 31,2024Debt2026 Senior NotesMarch 20261.0 %1.3 %$500.0 $500.0 2031 Senior NotesMarch 20312.2 %2.3 %500.0 500.0 Total debt1,000.0 1,000.0 Less: Unamortized discount and debt issuance costs3.7 5.7 Less: Current portion of long-term debt$499.7 $— Total long-term debt$496.6 $994.3 As of December 31, 2025 and 2024, we accrued interest payable of $4.7 million, and there are no financial covenants with which we must comply. In 2025, 2024 and 2023 we recorded $18.0 million, $18.0 million and $17.9 million of total interest expense in relation to these Senior Notes and repaid $16.0 million of interest in cash, respectively. No interest costs were capitalized in 2025, 2024 and 2023, as the costs that qualified for capitalization were not material. The total estimated fair value of the outstanding Senior Notes was approximately $950.1 million, including accrued and unpaid interest, as of December 31, 2025.

INCOME TAXES Income before income taxes and loss from equity method investments consisted of (in millions):Year Ended December 31, 202520242023Domestic$2,106.8 $1,929.2 $1,195.0 Foreign175.4 129.3 138.7 Total income before income taxes and loss from equity method investments$2,282.2 $2,058.5 $1,333.7 The provision for (benefit from) income taxes consisted of (in millions):Year Ended December 31, 202520242023Current:Federal$294.6 $444.2 $398.5 State21.9 25.8 27.7 Foreign54.3 36.8 24.3 Total current$370.8 $506.8 $450.5 Deferred:Federal$56.8 $(210.7)$(281.1)State11.9 (12.4)(18.9)Foreign(0.4)0.2 (6.7)Total deferred68.3 (222.9)(306.7)Provision for income taxes$439.1 $283.9 $143.8 The foreign tax provision included the tax impacts from U.S. GAAP to local tax return book to tax differences that create a permanent addback including but not limited to stock compensation, meals and entertainment, and settlement of prior year tax audits with foreign jurisdiction adjustments.We adopted ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” on a prospective basis beginning with the year ended December 31, 2025. The following table reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended December 31, 2025 (in millions, except percentages): Year Ended December 31, 2025Amount%U.S. Federal Statutory Tax Rate$479.3 21.0 %State and Local Income Taxes, Net of Federal Income Tax Effect (1)26.4 1.2 %Foreign Tax Effects (2)82.0 3.6 %Effect of Changes in Tax Laws or Rates Enacted in the Current Period— — %Effect of Cross-Border Tax LawsForeign-Derived Intangible Income deduction(84.3)(3.7)%Branch income37.8 1.7 %Other 1.5 0.1 %Tax CreditsForeign tax credit(101.8)(4.5)%Other(15.4)(0.7)%Changes in Valuation Allowances— — %Nontaxable or Nondeductible ItemsStock-based compensation expense32.5 1.4 %Excess tax benefit from stock-based compensation(60.9)(2.7)%Other(4.4)(0.2)%Changes in Unrecognized Tax Benefits16.5 0.7 %Other AdjustmentsAcquisition-related effects31.2 1.4 %Other(1.3)(0.1)%Effective Tax Rate$439.1 19.2 %(1) In 2025, State and local income taxes in California, Illinois, New Jersey, New York and Pennsylvania made up the majority (greater than 50%) of the tax effect in this category.(2) Presented on an aggregated basis as no individual foreign jurisdiction and no individual reconciling item by nature within any jurisdiction met the disaggregation threshold.

LEASESWe have operating leases for offices, research and development facilities and data centers. Our leases have remaining terms that range from less than one year to approximately four years, some of which include one or more options to renew, with renewal terms of up to six years. Unless and until we are reasonably certain we will exercise these renewal options, we do not include renewal options in our lease terms for calculating our lease liability, as the renewal options allow us to maintain operational flexibility. Our finance leases were not material to our consolidated financial statements.The components of lease expense were (in millions):Year Ended December 31,202520242023Operating lease expense$51.7 $44.5 $43.0 Variable lease expense (1)7.0 7.4 5.8 Short-term lease expense13.7 10.2 9.3 Total lease expense$72.4 $62.1 $58.1 (1) Variable lease expense for the years ended December 31, 2025, 2024 and 2023 predominantly included common area maintenance charges, real estate taxes, certain parking expense, utilities based on actual usage and insurance costs.Supplemental balance sheet information related to our operating leases was (in millions, except lease term and discount rate): ClassificationDecember 31,2025December 31,2024Operating lease ROU assets – non-currentOther assets$64.4 $72.2 Operating lease liabilities – currentAccrued liabilities$36.1 $32.7 Operating lease liabilities – non-currentOther liabilities29.4 46.4 Total operating lease liabilities$65.5 $79.1 Weighted average remaining lease term in years – operating leases2.13.0Weighted average discount rate – operating leases4.1 %4.2 %Supplemental cash flow information related to leases was (in millions): Year Ended December 31, 202520242023Cash paid for amounts included in the measurement of lease liabilitiesOperating cash flows used for operating leases$51.3 $38.6 $40.0 Maturities of operating lease liabilities as of December 31, 2025 were (in millions):Year Ending December 31,Amount2026$37.6 202721.3 20287.9 20291.2 20300.1 Thereafter— Total lease payments$68.1 Less imputed interest(2.6)Total$65.5 As of December 31, 2025, our operating leases that had been signed but had not yet commenced were not material.

BUSINESS COMBINATIONS2025 AcquisitionsLinksys Holdings, Inc.In 2021, we invested $160.0 million in cash for shares of the Series A Preferred Stock of Linksys for a 50.8% ownership interest in the outstanding equity of Linksys. On January 31, 2025 (“Linksys Acquisition Date”), we acquired all of the remaining outstanding Series A Preferred Stock of Linksys for $20.8 million in cash and now own 100% of the outstanding equity of Linksys. Our pre-existing equity method investment in Linksys of 50.8% ownership interest was remeasured to the fair value of $21.5 million at the Linksys Acquisition Date, which resulted in a $10.8 million gain recorded in gain (loss) from equity method investments on the consolidated statements of income. Therefore, the aggregate purchase consideration for Linksys’ equity equaling the fair value of the previously owned stock and the purchase price for the remaining stock acquired was $42.3 million.This acquisition was accounted for as a business combination using the acquisition method of accounting. Of the aggregate purchase price, $17.5 million was allocated to identifiable intangible assets acquired and $64.7 million was allocated to other net assets acquired which predominantly included deferred tax asset of $45.8 million, inventory of $21.4 million and cash of $8.8 million, offset by $11.3 million of net other assets and liabilities assumed. The excess of the fair values of the net assets acquired over the net purchase consideration was recorded as a gain on bargain purchase of $39.9 million within other income (expense)—net on the consolidated statements of income. The gain on bargain purchase occurred primarily due to the recognition of the deferred tax assets, which were comprised primarily of pre-acquisition federal net operating loss carryforwards with an indefinite carryforward period. In addition, we had previously recorded a deferred tax asset of $30.6 million for an outside basis difference in our investment in Linksys when it was accounted for under the equity method. As a result of the acquisition of the remaining shares, we now account for our investment in Linksys under the consolidation method, and therefore we have derecognized this deferred tax asset. The charge is included in the provision for income taxes on the consolidated statements of income. Acquisition-related costs related to this acquisition were not material and were recorded as general and administrative expenses.

Risk Management and StrategyAs one of the critical elements of our overall ERM approach, our cybersecurity program is focused on the following key areas: Governance: As discussed in more detail above under the heading, “Governance,” our board of directors’ oversight of cybersecurity risk management is supported by the Cybersecurity Committee, which regularly interacts with executives with responsibility for cybersecurity, our Chief Executive Officer, Chief Technology Officer and President, Chief Financial Officer, Chief Operating Officer/General Counsel, our CISO, and other members of management. Our CISO is primarily responsible for our cybersecurity risk management program and partners with our legal team on data privacy matters at the management level. Our CISO, Dr. Carl Windsor, has over 26 years of experience in various technology and cybersecurity leadership positions, including over 19 years at our company driving product security and strategy and reports to the board Cybersecurity Committee. The CISO’s leadership team members are all seasoned information security professionals, covering a wide range of security disciplines, who have worked at some of the largest well-known brand names and are experts in their fields. Our CISO monitors, and participates in, our various cybersecurity policies and procedures, and our cybersecurity team regularly updates our CISO on the current status.Management is promptly updated regarding any significant security events and the Cybersecurity Committee regularly reviews updates from our CISO, information security and product security leaders about cyber threat response preparedness, security controls and procedures, security program maturity milestones, risk and approaches to risk mitigation and the current and emerging threat landscape. In addition, all members of our board of directors receive management’s cybersecurity updates to the Cybersecurity Committee as part of their regular attendance at meetings of our board of directors.Collaborative Approach: We have implemented a broad, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner.