Fortinet's Q2 2026 was another beat-and-raise, with billings up 33%, revenue up 26%, and product revenue up 52% as AI-data-center and OT demand drove FortiGate volumes and ASPs higher. Margins and cash flow were standouts: a record 38% non-GAAP operating margin and free cash flow that more than tripled to $966M, and the company's new 'SASE firewall' category topped $2B in the quarter. Service revenue growth improved to 14% off what management called a Q1 trough, though it still lags product sharply, and the buyback pace slowed as the stock rose. Full-year 2026 guidance was raised again, with the second half managed quarter-by-quarter.
Thank you. Good afternoon. Thank you for joining us on today's conference call to discuss Fortinet's second quarter 2026 financial results. Joining me on today's call are Ken Xie, Fortinet's Founder, Chairman, and CEO, Christiane Ohlgart, our CFO, and John Whittle, our COO. Ken will begin our call today by providing a high-level perspective on our business. Christiane will then review our financial results for the second quarter of 2026 before providing guidance for the third quarter and updating the full year. We will then open the call for questions. During the Q&A session, we will ask that you please limit yourself to one question and one follow-up question to allow others to participate.
Before we begin, I'd like to remind everyone that on today's call, we will be making forward-looking statements. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected. Please refer to our SEC filings, in particular, the risk factors in our most recent Form 10-K and Form 10-Q for more information. All forward-looking statements reflect our opinions only as of the date of this presentation. We undertake no obligation and specifically disclaim any obligation to update forward-looking statements. All references to financial metrics that we make on today's call are non-GAAP unless stated otherwise. Our GAAP results and GAAP to non-GAAP reconciliations are located in our earnings press release and in the presentation that accompany today's remarks, both of which are posted on our investor relations website.
As a reminder, this is a live call that will be available for replay via webcast on our investor relations website. The prepared remarks will also be posted on the quarterly earnings section of our investor relations website following today's call. Lastly, all references to growth are on a year-over-year basis unless noted otherwise. I will now turn the call over to Ken.
Thank you, Anthony, and thank you to everyone for joining our call. We are very pleased with our excellent second quarter result, driven by our differentiated strategy and our innovation, strong execution, and broad-based demand. Billings growth 33%, while total revenue increased 26%, propelled by 52% growth in product revenue. Free cash flow more than tripled year-over-year to nearly $1 billion. Based on this strong momentum, we have raised our 2026 guidance. With AI quickly reshaping the security landscape, I would like to offer another angle on the network security space and its trend by combining our Secure Networking and Unified SASE pillar, which both run on the same FortiOS, to create what we are calling the SASE firewall.
Similar to UTM next-gen firewall replaced the traditional net-based firewall 20 years ago, I believe this new SASE firewall, which address the fast-growing area of SASE, AI, and quantum, represent another massive opportunity for accelerated growth with a much larger total addressable market, as shown on the slides of four to six of the investor presentation. In the second quarter, Fortinet SASE Firewall business growth 34% to over $2 billion, cementing our position as a top player in this space. What make Fortinet SASE Firewall unique compared to other competitors' SASE and firewall solution is that we are the only vendor to develop all key component of a SASE firewall in-house and integrate into a single operation system, FortiOS.
Furthermore, we have developed our FortiASIC technology and invest in our own global infrastructure to accelerate the performance and lower the cost, making adoption and migration seamless for a large global customer base, as shown on the slides 10 and 11. Another key advantage of a SASE firewall is that we are the only vendor offering an easily deployable on-premise Sovereign SASE solution together with the cloud SASE. As we announced yesterday, the new FortiGate 1200G, the next generation SASE firewall that combine local enforcement with cloud-delivered security to meet evolving customer demand for data privacy, performance, and AI infrastructure management. We believe this have driven a strong product growth recently and has an addressable market that is approximately two to three times larger than the cloud-only SASE or competitor offering. We continue to win SASE deal versus all of the top SASE competitors.
We also see strong demand across our other strategic pillar, AI-driven SecOps, which had billings growth of 25%, supported by over 20 AI-enabled solutions on our platform. As customer consolidate vendor and simplify operations, we recently launched FortiSOC, a new cloud-delivered AI SOC platform, and expand our FortiEDR with new capabilities. As organization deploy and using AI tools throughout their operations, they realize they must modernize their security to handle the complex, high-speed threat of AI era.
Fortinet is uniquely positioned here as our FortiOS platform and FortiASIC technology allow enterprise to securely scale their next-generation AI environment with faster and better protection and simplified operation. Looking ahead, we believe the combination of AI-driven security demand, our integrate and accelerate SASE firewall platform solution, and our strong operation model position Fortinet well for long-term balanced growth with strong cash generation, recurring revenue, and a shareholder-focused long-term growth capital allocation strategy, while consistently deliver GAAP profitability. I would like to thank our employees, customers, partners, and suppliers worldwide for their continued support and hard work. I will now turn the call over to Christiane.
Thank you, Ken, and good afternoon, everyone. We delivered a strong second quarter, exceeding the high end of our guidance across billings, total revenue, operating margin, and earnings per share. Our continued momentum reflects broad-based demand and strong execution across customer segments, industry verticals, geographies, and our integrated and innovative portfolio of solutions, further validating the strength of our platform strategy. Total billings grew 33% to $2.37 billion, driven by robust demand for physical infrastructure and related attached services across Secure Networking and Unified SASE. We delivered exceptional billings growth across each of our three pillars in the first quarter, followed by an even stronger accelerating growth rate in each of the pillars in the second quarter. Secure Networking billings grew 34%. We saw persistent high FortiGate demand as customers expanded their network security, including operational technology environments, LAN edge, and AI data centers.
OT billings increased over 55%, reflecting continued adoption of our solutions in industrial environments with high contribution to growth. We also saw outstanding strength in Unified SASE, where momentum built throughout the quarter, resulting in 35% billings growth. Adoption of FortiSASE within our installed base increased to 90% of large enterprises. Our success is highlighted by FortiSASE billings growing over 100%, benefiting from expansion sales across our installed base, competitive replacements, and new wins with large enterprises. This momentum was driven by customers recognizing us for our continued investments into flexible deployment strategies for SASE, including our new SASE firewall strategy. The SASE firewall natively converges firewall, SASE, and hybrid mesh capabilities to protect users, applications, and data across the data center, cloud, and remote workforce.
Instead of juggling high-volume east-west traffic up to a cloud pop and back, it inspects and enforces security locally while seamlessly leveraging SASE for outbound traffic. Billings from AI-driven Security Operations grew 25%, driven by strong upsell momentum as our installed base increasingly consolidates point solutions onto our broader platform. Turning to revenue, total revenue grew 26% to $2.05 billion, with product revenue increasing 52% to $773 million. Accelerating product revenue benefited from strong FortiGate unit growth and an increase in ASPs as customers shifted towards higher performing models. Customer investments to secure AI workloads and mitigate AI-related risks drove both new business and upgrade activity across our installed base, supporting growth across hardware, software, and attached services. Service revenue grew 14% to $1.27 billion, with growth improving from the prior quarter. Service billings growth increased 26%, and total deferred revenue increased 17%.
This quarter's improved service revenue, alongside robust product momentum and operational improvements driving revenue conversion, reinforces our confidence in the long-term durability of our service business. We believe the first quarter of 2026 marked a trough for our service revenue growth rate, and we anticipate a positive trajectory in our growth rates going forward. Taking a step back, our results reflect strong ongoing momentum from the durable market themes shaping customer priorities. Today, bad actors are leveraging AI to automate and scale sophisticated attacks, increasing the speed and complexity of threats facing organizations. Consequently, cybersecurity has become an urgent business priority with high visibility at the executive and board levels, driving faster investment decisions. In addition, regulatory activity requires companies to act.
In response, enterprises are increasingly upgrading their network security infrastructure to support the demands of AI-driven workloads and growing data volumes, more complex distributed environments, and the need for stronger network segmentation. Our strong second quarter results and outlook continue to reflect several important market dynamics, including the ongoing convergence of networking and security, increased investments to secure AI infrastructure, accelerating IT and OT convergence, and growing demand for high-performance security solutions that address evolving compliance and sovereignty requirements. This sovereignty theme is especially concentrated in EMEA and across public sector customers globally, playing directly into our strong market position in the region and that customer segment. As we look ahead, we continue to see these market dynamics gaining momentum, supported by ongoing technology upgrades, vendor consolidation, and the continued expansion of enterprise attack services across cloud, AI, OT, and critical infrastructure environments.
AI is becoming a dominant driver of security infrastructure modernization. As organizations move from AI experimentation and early adoption toward broader deployment, they require security platforms capable of protecting AI models and data sets while securing large volumes of east-west traffic and enforcing zero-trust segmentation across distributed AI workloads. To navigate this growing complexity, customers are progressively looking for integrated platforms that provide shared telemetry, improved visibility, and reduced operational overhead. Fortinet addresses these evolving needs with a comprehensive strategy centered on three core areas: securing AI data centers, protecting AI-driven applications, and delivering AI-native security operations. For example, a new cloud provider offering hosted infrastructure for generative AI workloads selected Fortinet to secure AI data centers in an eight-figure win. This builds on a seven-figure deal we secured in the first quarter, further enabling the customer's rapid expansion.
They chose Fortinet for our strong price for performance advantage and our ability to deliver scalable, high throughput security. This enables the customer to accelerate deployment of new capacity while maintaining consistent security and operational efficiency as demand for accelerated computing continues to grow. This expansion reflects a broader theme we saw in the quarter, with many AI data center wins from customers scaling their AI infrastructure. AI is creating demand for high-performance security solutions that serve as the foundation for secure, compliant infrastructure. As organizations gain greater awareness of AI-enabled attack technologies, security teams are accelerating investments to ensure their infrastructure can deliver the performance and protection required for the next generation of threats, which also requires SASE technologies.
To meet these critical need for high-performance security, Fortinet supports complex customer requirements through cloud-based, hybrid, on-premises, and Sovereign SASE offerings, enabling organizations to deploy SASE in the environments that best meet their operational and regulatory needs. Customer demand continues to grow with our flexible deployment approach, representing a meaningful differentiator. In a competitive displacement win, a global pharmaceutical company signed a 7-figure FortiSASE deal to secure over 45,000 users, replacing its incumbent SSE-only provider. The customer chose Fortinet for our unified architecture and integrated platform approach across SD-WAN, next-generation firewall, and switching, which reduces complexity and it delivers significant cost savings versus managing multiple point solutions. A key differentiator in this SASE win was our ability to extend security processing to the edge through our on-premises appliances, providing greater control, improved performance, and deeper visibility compared to a cloud-only architecture.
This deal validates our strategic rollout of FortiSASE Outpost, which is specifically engineered to bring local SASE enforcement closer to users and applications. This win also highlights our platform advantage, as we were the only vendor able to meet the customer's full set of technical requirements while enabling centralized management, simplified operation, and enhanced end-user experience. Beyond AI and SASE, OT security remains a critical business and board-level risk priority. The threat landscape has expanded beyond traditional OT environments into critical infrastructure, supply chains, and manufacturing operations. With Fortinet's integrated platform approach, customer gain visibility across both their OT and IT networks. We continue to see strong demand across our OT portfolio and related services, driven by the combination of increasing cyber threats, AI adoption, and geopolitical uncertainty.
In a 7-figure deal, a major utility organization selected Fortinet to support a large-scale communications modernization OT initiative, spanning thousands of distributed field locations. The deployment leverages our integrated FortiOS platform to enable reliable, secure connectivity for operational environments while simplifying management and reducing infrastructure complexity. This engagement demonstrates Fortinet's ability to support mission-critical infrastructure initiatives. Our strong results highlight our continued execution against the durable market themes shaping the cybersecurity industry. This is reflected in our services acceleration in the second quarter and our improved services outlook for the year, reinforcing the compounding strength and high margin predictability of our recurring revenue model. As organizations navigate AI adoption, expanding attack surfaces, evolving regulatory requirements, and complex infrastructure environments, we believe Fortinet's integrated platform approach positions us well to capture share, deliver sustained growth, and create long-term shareholder value. Turning to margins and cash flow.
Non-GAAP gross margin of 80.9% exceeded the high end of guidance, while GAAP gross margin was also strong at 80.2%. Non-GAAP operating margin of 38% was a second quarter record, up 490 basis points. This performance exceeded the high end of our guidance, driven by stronger than expected revenue growth, disciplined cost management, and growing efficiencies from our AI initiatives. Our GAAP operating margin of 33.7% continues to be one of the highest in the industry. The strong operating performance translated to the bottom line. Non-GAAP earnings per share increased 41% to $0.90, while GAAP earnings per share grew 44% to $0.82, significantly outpacing our top-line growth, reflecting high-quality earnings supported by disciplined stock-based compensation and continued capital return over the past year. Free cash flow more than tripled year-over-year to $966 million, benefiting from improved linearity, higher billings, and strong working capital discipline.
Adjusted free cash flow was $996 million, representing an exceptional margin of 49%. We repurchased $1.9 million shares of common stock for $146 million during the second quarter, and $12.5 million shares for $973 million year to date, which represents an average price for repurchases this year of around $78 per share. The remaining share repurchase authorization as of today is approximately $766 million. Moving on to guidance. As a reminder, our third quarter and full-year outlooks, which are summarized on slides 23 and 24, are subject to the disclaimers regarding forward-looking information that was provided at the beginning of the call. Consistent with our disciplined and prudent approach to guidance, our strong first half of the year supports a higher full-year outlook.
Thank you, Christiane. As a reminder, during the Q&A session, we will ask that you please limit yourself to one question and one follow-up question to allow others to participate. Operator, please open the line for questions.