FTNT

Zscaler, Inc. ZS reported fourth-quarter fiscal 2026 non-GAAP earnings of $1.19 per share, up 33.7% year over year. The figure beat the Zacks Consensus Estimate by 9.2%. Revenues increased 24.9% year over year to $898.2 million, topping the consensus estimate by 2.4%. Results reflected broad-based geographic growth, rising platform adoption and AI-related demand. Annual recurring revenue (“ARR”) increased 25% to $3.771 billion. Total net new ARR was $246 million in the fiscal fourth quarter, up 24% year over year. Excluding Red Canary, net new ARR was $232 million, rising 17%, while total ARR, excluding the acquisition, increased 20% to $3.63 billion. Red Canary exited the fiscal fourth quarter with $141 million in ARR. Revenue growth was broad-based geographically. The Americas generated 57% of revenues and grew approximately 30% year over year. EMEA contributed 27% and increased about 17%, while the Asia Pacific and Japan represented 16% and grew 23%. Remaining performance obligations rose approximately 27% to $7.4 billion, with about 45% classified as current. Zscaler, Inc. price-consensus-eps-surprise-chart | Zscaler, Inc. Quote Non-seat-based metered usage solutions contributed approximately 30% of new and upsell ACV (annual contract value) in both the quarter and fiscal 2026. ARR tied to these offerings grew more than 100% year over year as the platform expanded across branches, workloads, AI applications and AI agents. Security for AI bookings increased more than 50% sequentially in the fiscal fourth quarter. Z-Flex generated more than $770 million in total contract value, up more than 60% quarter over quarter. Zscaler also exited the fourth quarter with more than 950 Zero Trust Everywhere enterprises, up from above 700 in the third quarter and more than 350 at the end of fiscal 2025. Zscaler ended the fiscal fourth quarter with 785 customers generating more than $1 million in ARR, up 18% year over year. Customers producing more than $100,000 in ARR increased 20% to 4,182, while the number of customers with more than $10 million in ARR nearly doubled from the prior-year period. Large-deal activity also reached a record level, with the highest number of $1-million-plus new ACV deals in a quarter. During the earnings call, management stated that sales productivity increased at a double-digit rate and reached an all-time quarterly high, reflecting improved execution under its account-centric sales model. The non-GAAP gross margin was 80.2% compared with 79.3% in the year-ago quarter. Zscaler noted that the prior-year period included a one-time private-cloud deployment for a government customer that carried a lower-margin hardware component. Non-GAAP operating income increased 37% year over year to $218.4 million. The operating margin expanded 220 basis points to 24.3%. For fiscal 2026, the non-GAAP operating margin was 22.9%, up 120 basis points year over year. Zscaler ended the quarter with $3.5 billion in cash, cash equivalents and short-term investments and $1.7 billion in debt. The operating cash flow was $279.3 million, while the free cash flow totaled $60.8 million, representing 7% of revenues. In fiscal 2026, it generated an operating cash flow and a free cash flow of $1.13 billion and $779.1 million, respectively. Capital expenditure reached $199.8 million in the fourth quarter and $277.3 million in fiscal 2026 as ZS accelerated certain data-center equipment purchases amid higher prices and tighter availability for memory, storage and processors. The company expects capital expenditure to remain elevated in fiscal 2027 and plans a workforce restructuring affecting approximately 3% of employees, with charges of $30-$33 million. For the first quarter of fiscal 2027, Zscaler expects revenues of $935-$939 million, implying 19% year-over-year growth. Non-GAAP earnings are projected at $1.15-$1.16 per share, with non-GAAP operating income of $215-$217 million and an operating margin of 23%. For fiscal 2027, management projects revenues of $3.908-$3.938 billion, suggesting growth of 16.6-17.5%, and ARR of $4.396-$4.426 billion, implying growth of 16.6-17.4%. Non-GAAP earnings are expected at $4.86-$4.90 per share, while the free cash flow margin is forecast at 23-23.5%. Zscaler currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks worth considering in the broader Zacks Security industry are Fortinet FTNT, Qualys QLYS and Palo Alto Networks PANW. Fortinet and Qualys each carry a Zacks Rank #1 (Strong Buy) at present, and Palo Alto Networks has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The Zacks Consensus Estimate for Fortinet’s 2026 earnings is pegged at $3.40 per share, up 8.3% over the past 60 days, indicating a year-over-year rise of 23.2%. Fortinet shares have surged 96.9% YTD. The Zacks Consensus Estimate for Qualys’ 2026 earnings has moved northward by 2.5% to $7.76 per share over the past 30 days and calls for a year-over-year increase of 9.8%. Qualys shares have jumped 31.2% YTD. The Zacks Consensus Estimate for Palo Alto Networks’ fiscal 2027 earnings has been revised upward by 2 cents to $4.11 per share over the past 30 days, implying a year-over-year increase of 7%. Palo Alto Networks shares have risen 80% YTD. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Zscaler, Inc. (ZS) : Free Stock Analysis Report Fortinet, Inc. (FTNT) : Free Stock Analysis Report Palo Alto Networks, Inc. (PANW) : Free Stock Analysis Report Qualys, Inc. (QLYS) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Palo Alto Networks, Inc. PANW delivered strong quarterly results and a solid outlook, reinforcing its competitive edge against peers, including CrowdStrike Holdings, Inc. CRWD and Fortinet, Inc. FTNT. So, let’s take a closer look at the results and the key factors that make PANW stock a buy now. Palo Alto Networks reported $9.1 billion in Next-Generation Security ARR (NGS ARR) in the fiscal fourth quarter of 2026, up 63% year over year, as mentioned in the company’s Sept. 1 press release. Management also revealed that almost $1 billion in net new NGS ARR was added in the fiscal fourth quarter alone. This means the company is not only expanding its existing customer base but also seeing rapid adoption of Palo Alto Networks’ newer security platforms. The strong ARR growth is particularly noteworthy, as it highlights Palo Alto Networks’ potential for sustained revenue generation in the future. Meanwhile, the company’s remaining performance obligations increased by 34% to $21.2 billion in the fiscal fourth quarter, providing the company with substantial forward revenue visibility. Looking ahead, Palo Alto Networks expects NGS ARR of $9.54 billion to $9.56 billion in the fiscal first quarter of 2027, up around 63% year over year. For the fiscal year 2027, the company projects NGS ARR of $11.075 billion to $11.175 billion, representing 22-23% year-over-year growth. This robust guidance suggests that Palo Alto Networks’ growth story extends beyond a strong quarter, with management expecting substantial growth in the artificial intelligence (AI)/cybersecurity opportunity in the years ahead. Given Palo Alto Networks’ scale, its remarkable NGS ARR growth and strong FY2027 support a bullish case for PANW stock, making it a compelling buy now. Importantly, Palo Alto Networks isn’t growing at the expense of profitability. The company’s non-GAAP operating income reached $1 billion in the fiscal fourth quarter, up roughly 30% year over year, while adjusted free cash flow totaled a healthy $1.3 billion. Together, strong growth, recurring revenue, improving profitability, and robust cash generation strengthened Palo Alto Networks’ long-term investment case. Moreover, from a valuation perspective, Palo Alto Networks appears attractive, with its forward price-to-earnings ratio of 88 below the Security industry’s average of 147.47. Image Source: Zacks Investment Research Palo Alto Networks currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Palo Alto Networks, Inc. (PANW) : Free Stock Analysis Report Fortinet, Inc. (FTNT) : Free Stock Analysis Report CrowdStrike (CRWD) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Fortinet stock has delivered very strong returns over the past three years, yet current valuation checks suggest the market price is at a premium to its intrinsic value estimate and to broader peer-based multiples. Fortinet has returned 180.8% over the past three years, which puts extra focus on whether the current share price already reflects high expectations. The recent Cybersecurity Maturity Model Certification Level 2 for Fortinet Federal may support investor confidence in the company’s position in U.S. federal cybersecurity work, while any slowdown in contract wins or delays in expected cash flows could weigh on what investors are willing to pay. The Discounted Cash Flow (DCF) intrinsic value estimate and market multiple checks both point to Fortinet trading above their fair value indications, and the broader valuation score, which finds the stock undervalued in 0 of 6 checks, suggests it does not screen as a clear bargain on these metrics. The issue now is whether Fortinet’s current share price leaves enough room for investors who are considering the stock at today’s valuation levels. Compare Fortinet’s premium pricing with other high growth firms by scanning 45 high quality undervalued stocks, which may offer more room in their valuations. The Discounted Cash Flow (DCF) model values Fortinet based on the cash it is expected to generate for shareholders over time. Fortinet produced about $3.0b in free cash flow over the latest twelve months, and the model uses an assumption that these cash flows continue to grow from current levels rather than contract. Based on these projections, the 2 Stage Free Cash Flow to Equity model points to an intrinsic value of about $142 per share. That figure is below the current share price, which implies the stock is about 20.6% overvalued on this cash flow view. The recent Cybersecurity Maturity Model Certification Level 2 for Fortinet Federal may support sentiment around long-term government-related opportunities, but the DCF indicates that investors are already paying a premium for that potential. On this Discounted Cash Flow view, Fortinet stock currently screens as overvalued relative to its estimated intrinsic value. Our Discounted Cash Flow (DCF) analysis suggests Fortinet may be overvalued by 20.6%. Discover 45 high quality undervalued stocks or create your own screener to find better value opportunities. Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Fortinet. P/E is often a useful check for a profitable software company like Fortinet because it anchors the share price to current earnings. Right now Fortinet trades on a P/E of about 59.1x, which is well above the broader software industry average of 31.7x and also higher than the peer group average of 37.0x. The model based fair P/E ratio for Fortinet is about 36.0x. That is well below the current multiple, which points to the stock pricing in a richer earnings profile than this framework suggests. The gap between the present P/E and the fair ratio means Fortinet screens as expensive on earnings compared with both peers and the tailored benchmark. On the P/E measure, Fortinet stock appears overvalued relative to what the model and peer comparisons indicate as a more moderate earnings multiple. See what the numbers say about this price — find out in our valuation breakdown. Simply Wall St Narratives pick up where Fortinet’s valuation puzzle leaves off. They spell out the growth, margin and earnings paths that would need to hold for Fortinet to be worth materially more or less than today’s price, and they tie a fair value to each specific story about the company’s potential catalysts and risks, so you can track over time which version appears closer to reality. Community views on Fortinet are sharply split, with one side focused on AI driven upside and the other on how much optimism the current price already reflects. Bull case: 22% undervalued Read the full Bull Case to see why Fortinet could be undervalued Bear case: 36% overvalued Read the full Bear Case to see why Fortinet could be overvalued Do you think there's more to the story for Fortinet? Head over to our Community to see what others are saying! For Fortinet, both the Discounted Cash Flow (DCF) intrinsic value estimate and the earnings multiple work in the same direction. They each point to the stock trading on the expensive side rather than offering a clear margin of safety. With the broader valuation checks also weak, the key question now is whether Fortinet’s growth, margins and cash generation can keep matching the rich expectations embedded in today’s price. The crux of the bull versus bear debate is how long investors are willing to support this premium valuation if those expectations are tested. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include FTNT. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

Zscaler, Inc. ZS is scheduled to report fourth-quarter fiscal 2026 results on Sept. 3, after market close. For the fiscal fourth quarter, Zscaler projects total revenues between $875 million and $878 million. The Zacks Consensus Estimate is pegged at $877.1 million, suggesting growth of approximately 22% from the year-ago quarter. Zscaler anticipates non-GAAP earnings per share between $1.08 and $1.09. The consensus mark for non-GAAP earnings has remained unchanged at $1.09 over the past 60 days, which indicates a 22.5% increase from the year-ago quarter’s level. Image Source: Zacks Investment Research Zscaler’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 11.42%. Zscaler, Inc. price-eps-surprise | Zscaler, Inc. Quote Our proven model does not conclusively predict an earnings beat for Zscaler this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. However, that’s not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here. ZS currently carries a Zacks Rank #4 (Sell) and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter. Zscaler’s fourth-quarter results are expected to benefit from its security and networking solutions, given the rising demand for AI security. Momentum in its Zero Trust Everywhere platform is likely to have driven larger platform deals and customer consolidation in the to-be-reported quarter. In the third quarter of fiscal 2026, the number of Zero Trust Everywhere customers surpassed 700, up from 550 in the previous quarter and 210 in the year-ago quarter. Strong momentum with Global 2000 and Fortune 500 customers and $1 million ARR customers, driven by the ongoing digital transformation across organizations and the growing popularity of hybrid work, is likely to have been a key catalyst in the to-be-reported quarter. Zscaler’s growing enterprise penetration may also have been a tailwind in the fourth quarter. Another important growth driver in the to-be-reported quarter may have been its Z-Flex program, which is helping the company secure larger multi-year contracts. Introduced in the third quarter of fiscal 2025, the program generated more than $480 million in total contract value bookings in the third quarter of fiscal 2026, marking a strong 60% sequential increase. Z-Flex allows customers to adopt multiple products gradually under a predictable pricing structure, making long-term platform adoption easier. This strategy not only increases customer stickiness but also improves revenue visibility. Year to date, Zscaler shares have plunged 18.1%, underperforming the Zacks Security industry’s gain of 83.3%. Compared to its peers, ZS stock has also underperformed other cybersecurity solution providers, including Fortinet, Inc. FTNT, Palo Alto Networks, Inc. PANW and CrowdStrike Holdings, Inc. CRWD. Year to date, shares of Fortinet, Palo Alto Networks and CrowdStrike have soared 109.1%, 101.7% and 86.4%, respectively. Image Source: Zacks Investment Research Now, let’s look at the value Salesforce offers investors at the current levels. Zscaler stock is trading at a discount with a forward 12-month P/S of 7.54X compared with the industry’s 18.51X. Image Source: Zacks Investment Research ZS stock also trades at a discount relative to Fortinet, Palo Alto Networks and CrowdStrike. At present, Fortinet, Palo Alto Networks and CrowdStrike have P/S multiples of 13.94, 21.75 and 32.97, respectively. Zscaler is benefiting from rising demand for zero trust security as enterprises expand cloud, hybrid work and AI initiatives. Nonetheless, it faces multiple challenges. The major problem is its slowing growth. The company once routinely delivered revenue growth above 40%. This has now fallen to the mid-20% range, and management expects fiscal 2027 revenue growth of only about 16%, with ARR growth of roughly 17%. At the same time, Zscaler is preparing for higher infrastructure spending. AI workloads require more computing, storage, networking and memory capacity, pushing capital expenditures higher. Management expects fiscal 2026 capital expenditures to reach the high-single-digit percentage of revenues compared with its earlier mid-single-digit expectation. Spending could increase by another 200 basis points in fiscal 2027. Higher investment can be justified when growth is accelerating. However, when revenue growth is expected to slow, rising costs become a bigger concern. Zscaler’s slowing revenue growth remains a major concern despite the demand for zero trust security continuing to grow as enterprises expand cloud, hybrid work and AI initiatives. Rising capital spending requirements due to higher prices for memory, processors, storage and networking equipment are further adding risks to the company’s growth prospects. Given these challenges, it is prudent to exit Zscaler stock for now. Investors can revisit ZS if the company’s fourth-quarter results signal growth stabilization. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Zscaler, Inc. (ZS) : Free Stock Analysis Report Fortinet, Inc. (FTNT) : Free Stock Analysis Report Palo Alto Networks, Inc. (PANW) : Free Stock Analysis Report CrowdStrike (CRWD) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

It has been about a month since the last earnings report for Fortinet (FTNT). Shares have added about 12% in that time frame, outperforming the S&P 500. But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Fortinet due for a pullback? Well, first let's take a quick look at its latest earnings report in order to get a better handle on the recent catalysts for Fortinet, Inc. before we dive into how investors and analysts have reacted as of late. Fortinet reported second-quarter 2026 non-GAAP earnings per share (EPS) of 90 cents, beating the Zacks Consensus Estimate by 20% and rising 40.6% year over year.Total revenues of $2.05 billion beat the consensus mark by 9.1% and increased 25.6% year over year, driven by strong demand across customer segments, industry verticals, and geographies. Growth was fueled by accelerating investment in securing AI infrastructure, the convergence of firewall, SD-WAN and SASE technologies into the company's newly defined SASE Firewall platform, and continued strength in operational technology (OT) security amid rising regulatory and critical infrastructure requirements.Total deferred revenues (current plus long-term portions combined) came in at $7.68 billion, while the current portion was $3.84 billion as of June 30, 2026.Total billings increased 33.4% year over year to $2.37 billion, led by 34% growth in secure networking, more than 55% growth in OT, 35% growth in Unified SASE and 25% growth in AI-driven security operations. Segment-wise, Product revenues increased 51.9% year over year to $773 million, representing 37.7% of total revenues. The acceleration was driven by strong FortiGate unit growth and higher average selling prices as customers shifted toward higher-performing models, along with customer investments to secure AI workloads and support AI data center buildouts.Service revenues of $1.27 billion grew 13.7% year over year, accounting for 62.3% of total revenues, with growth improving from the prior quarter. The first quarter of 2026 marked the trough for service revenue growth, with a positive trajectory expected going forward as accelerating product revenue feeds through to attached services. Service billings accelerated to 26% growth and total deferred revenues grew 17%. FortiSASE adoption within the large enterprise installed base rose to 90%, with FortiSASE billings growing more than 100% year over year, benefiting from expansion sales, competitive replacements and new large enterprise wins. Total GAAP gross margin was 80.2%, contracting 50 basis points (bps) year over year. Non-GAAP gross margin came in at 80.9%, contracting 70 bps year over year but exceeding the high end of guidance.GAAP operating margin expanded 560 bps year over year to 33.7% in the second quarter. On a non-GAAP basis, operating margin expanded 490 bps to a second quarter record of 38%, reflecting stronger than expected revenue growth, disciplined cost management and growing efficiencies from internal AI initiatives. Fortinet exited the second quarter of 2026 with cash and cash equivalents and short-term investments of $4.07 billion, up from $3.29 billion reported at the end of the first quarter of 2026. Cash flow from operations was $1.04 billion for the second quarter of 2026, up from $451.9 million in the prior year quarter, an increase of 130.9%. Free cash flow of $965.6 million grew 239.9% year over year from $284.1 million in the prior year quarter, reflecting improved linearity, higher billings and strong working capital discipline, representing a free cash flow margin of 47.2%. Adjusted free cash flow reached $995.9 million, up 132.7% year over year, representing a margin of 48.6%.The company repurchased 1.9 million shares of common stock for $146 million during the second quarter, bringing year-to-date repurchases to 12.5 million shares for $973 million, at an average price of approximately $78 per share. The remaining share repurchase authorization stands at approximately $766 million. Fortinet expects third-quarter revenues in the range of $2.01-$2.10 billion. Billings are estimated in the range of $2.25-$2.35 billion. The non-GAAP gross margin is expected in the range of 79-81%, while the non-GAAP operating margin is anticipated between 35-37%. Non-GAAP EPS is projected in the range of 83-87 cents.For 2026, FTNT raised its outlook and now predicts revenues in the range of $8.02-$8.18 billion (up from prior $7.71-$7.87 billion). Service revenues are projected in the range of $5.18 to $5.22 billion. Billings are expected in the range of $9.35-$9.55 billion (up from prior $8.8 to $9.1 billion). The non-GAAP gross margin is expected in the range of 79-81% and the operating margin is projected in the band of 35-37%. Non-GAAP EPS is anticipated to be between $3.41 and $3.47 (up from prior $3.10-$3.16). In the past month, investors have witnessed a upward trend in estimates revision. The consensus estimate has shifted 13.51% due to these changes. Currently, Fortinet has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock has a score of F on the value side, putting it in the bottom 20% quintile for this investment strategy. Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in. Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Fortinet has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months. Fortinet belongs to the Zacks Security industry. Another stock from the same industry, Varonis Systems (VRNS), has gained 12.2% over the past month. More than a month has passed since the company reported results for the quarter ended June 2026. Varonis reported revenues of $180.02 million in the last reported quarter, representing a year-over-year change of +18.3%. EPS of $0.04 for the same period compares with $0.03 a year ago. For the current quarter, Varonis is expected to post earnings of $0.02 per share, indicating a change of -66.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +4.1% over the last 30 days. The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Varonis. Also, the stock has a VGM Score of D. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Fortinet, Inc. (FTNT) : Free Stock Analysis Report Varonis Systems, Inc. (VRNS) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Cybersecurity stocks surged on Thursday after CrowdStrike CRWD) and Okta OKTA) both topped Q2 expectations yesterday evening and raised their outlooks. CRWD spiked 20%, while OKTA soared nearly 30%, as investors cheered resilient security spending and the growing need to protect AI workloads and identities. Both reports strengthened their respective growth stories, but with valuations becoming even more stretched after Thursday's rallies, investors may want to be selective before chasing either stock. Image Source: Zacks Investment Research CrowdStrike delivered arguably the more impressive growth quarter, with Q2 revenue rising more than 26% year over year to $1.47 billion, topping the Zacks Consensus Estimate of $1.43 billion by 2%. Adjusted earnings increased nearly 35% to $0.31 per share, beating Q2 EPS expectations of $0.29. More importantly, annual recurring revenue climbed 25% to $5.84 billion, while net new ARR surged 51% to a record $333 million. Falcon Flex continues to be a major catalyst, with ARR from Flex customers more than doubling to over $2.29 billion. Notably, Falcon Flex is a flexible subscription and licensing model for CrowdStrike’s cybersecurity platform, allowing organizations to deploy only the security modules they need while adapting to evolving threats and operational requirements. Other highlights included CrowdStrike generating a Q2 record $377 million in free cash flow, reinforcing the scalability of its cloud-based security platform. Furthermore, management raised its outlook and now expects Q3 revenue of $1.523-$1.529 billion and adjusted EPS of roughly $0.31. Full-year revenue is now projected at $5.99-$6.01 billion, with adjusted EPS of $1.25-$1.26. CrowdStrike also significantly raised its net new ARR growth outlook to roughly 34% at the midpoint. Image Source: Zacks Investment Research Okta's growth rate isn't as explosive, but its Q2 report showed an attractive combination of improving demand and expanding profitability. Quarterly revenue increased more than 11% YoY to $805 million and topped Q2 estimates of $792.14 million by over 1%. More impressively, Q2 adjusted EPS climbed 15% to $1.05 and comfortably exceeded expectations of $0.96 per share by 9%. Subscription backlog, or remaining performance obligations (RPO), jumped 17% to $4.86 billion, with current RPO increasing 14% to $2.59 billion. Even more encouraging, Okta's GAAP operating margin expanded to 13% from 6%, while free cash flow reached $227 million, equaling an impressive 28% of revenue. Okta expects Q3 revenue of $813-$817 million and adjusted EPS of $0.92-$0.94. Management also raised its fiscal 2027 outlook to revenue of $3.216-$3.226 billion, adjusted EPS of $3.90-$3.94, and free cash flow of $910-$930 million. Image Source: Zacks Investment Research This is where Okta starts to clearly separate itself. Even before Thursday's post-earnings rallies, CrowdStrike was trading over 150X forward earnings compared with 76X for Okta. Notably, Okta's P/E multiple is much closer to their Zacks Security industry's average of 46X, which includes other noteworthy companies such as Fortinet FTNT), Palo Alto Networks PANW), and Zscaler ZS). Okta also trades at a much more reasonable forward sales multiple of 7X, which is slightly beneath the industry average compared to CrowdStrike’s 32X. Image Source: Zacks Investment Research CrowdStrike produced the stronger Q2 growth report and remains one of cybersecurity's premier long-term growth stories, particularly as enterprises spend more to secure AI workloads, cloud environments, and endpoints. However, after the stock's post-earnings surge, its lofty valuation makes CRWD harder to chase. Okta appears to offer the more attractive risk-to-reward setup, combining improving identity-security demand, expanding margins, robust free cash flow, raised guidance, and a substantially cheaper valuation. Supporting that view, OKTA currently sports a Zacks Rank #2 (Buy), while CRWD lands a Zacks Rank #3 (Hold). Investors seeking exposure to the cybersecurity rally may therefore have more reason to chase Okta's surge than CrowdStrike's at current levels. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Okta, Inc. (OKTA) : Free Stock Analysis Report CrowdStrike (CRWD) : Free Stock Analysis Report Fortinet, Inc. (FTNT) : Free Stock Analysis Report Palo Alto Networks, Inc. (PANW) : Free Stock Analysis Report Zscaler, Inc. (ZS) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Okta surged 18% and CrowdStrike climbed 9% after twin Q2 beats, with CrowdStrike raising its full-year net new ARR growth outlook by 630 basis points. CIBR gained 3% Thursday and is up 31% year to date, with Palo Alto Networks rising 5% on the sector read-through from both reports. Okta's billings dropped 5.4% to $681 million, a bookings softness that could test the AI-agent identity rally in analyst follow-up notes. Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and CrowdStrike didn't make the cut. Grab the names FREE today. Cybersecurity stocks are outrunning the broad market Thursday after twin fiscal Q2 2027 earnings beats from Okta and CrowdStrike reported Wednesday after the close. The First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR) is up 3% to $96.20 in early Thursday trading. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is up 0.3% to $768.17, a fraction of the sector's move. Okta (NASDAQ:OKTA) stock is surging 22% to $163.98 after fiscal Q2 2027 results reframed the identity leader as the security layer for AI agents. Meanwhile, CrowdStrike Holdings (NASDAQ:CRWD) stock is climbing 13% to $213.70 following its own beat-and-raise report. Okta stock was up 55% year to date through Wednesday's close, and CrowdStrike stock was up 61% over the same period. Peers Palo Alto Networks (NASDAQ:PANW) and Fortinet (NASDAQ:FTNT) are riding the read-through as the platform trade in cybersecurity gets fresh validation. Palo Alto Networks stock is up 5% to $356.17, and Fortinet stock is up 1% to $159.51. Both names sit among CIBR's largest disclosed cybersecurity-focused positions alongside CrowdStrike. Okta reported revenue of $805 million, up 11% year over year, and adjusted EPS of $1.05 topped consensus. CEO Todd McKinnon stated, "As AI agents transform every layer of technology, every agent needs a trusted identity and clear controls over what it can access and do." Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and CrowdStrike didn't make the cut. Grab the names FREE today. CrowdStrike posted revenue of $1.47 billion, up 26% year over year, with adjusted EPS of $0.31 clearing estimates. CrowdStrike raised its full-year net new ARR growth outlook by 630 basis points, and CEO George Kurtz declared, "Q2 was the best quarter in CrowdStrike's history. Delivering record Falcon Flex results, record net new ARR, and accelerating growth, the Falcon is soaring." CrowdStrike posted the faster growth and larger guidance raise, yet Okta stock is climbing nearly twice as much Thursday morning. Okta had lagged the group heading into the report, slipping 2% over the trailing month through Wednesday's close, while CrowdStrike stock had gained 5% over that same stretch. That setup created a sharper snapback when the identity thesis received fresh AI-agent fuel. The re-rating reflects growing appreciation for the agentic identity category McKinnon has been building. Speaking with CNBC, McKinnon added, "Network is the biggest cyber category now, but if you look out five or 10 years, with millions of agents running around, it's definitely going to be identity." Okta also closed its purchase of threat detection startup Permiso Security in a deal worth around $200 million. CrowdStrike was already priced for excellence entering the report, carrying a market cap near $188.7 billion versus Okta's $22.9 billion. Wall Street's average price target sits at $210.53 for CrowdStrike and $146.34 for Okta, meaning both stocks are pushing past those consensus levels Thursday morning. That valuation gap helps explain why the same beat-and-raise pattern is producing very different reactions. The blemish worth naming: Okta's billings came in at $681.2 million, down 5.4% year over year, a gap between headline strength and underlying bookings that will draw questions on the call. Okta's raised full-year revenue range still implies growth in the low double digits, well under CrowdStrike's revenue pace and net new ARR trajectory. Investors can watch for whether Okta stock holds Thursday's rally into next week, as the billings soft spot will bump up against the AI-agent narrative in follow-up analyst notes. Traders could look for signs that the read-through extends to Palo Alto Networks and Fortinet as the cybersecurity platform trade absorbs the twin reports. CrowdStrike generated free cash flow of $377.4 million in the quarter, and Okta produced $227 million in free cash flow versus $162 million a year earlier. Both companies are pairing accelerating fundamentals with expanding cash generation, which keeps the cybersecurity platform trade a favored destination for growth capital. The cybersecurity ETF was up 31% year to date through Wednesday's close, well ahead of the SPDR S&P 500 ETF's 12% year-to-date gain. Investors should size their positions with that stretch in mind, since much of the beat-and-raise setup is now reflected in prices. Even the bulls may want to leave room for guidance revisions and follow-on analyst commentary to drive the next leg. Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and CrowdStrike didn't make the cut. Grab the names FREE today. Contact [email protected] for any questions or corrections.

It is not surprising that before an earnings season, every investor looks for stocks that can beat market expectations. This is because investors always try to position themselves ahead of time and look to tap stocks that are high-quality in nature. In this regard, we ran a screener that yielded stocks Centene CNC, Tenet Healthcare THC, Fortinet FTNT, Unity Software U and The Goldman Sachs Group GS as the likely winners on the earnings beat potential. Historically, stocks of companies with solid quarterly earnings (on a nominal basis) tank if they miss or merely meet market expectations. After all, a 20% earnings rise (though apparently looks good) doesn’t tell you if earnings growth has been exhibiting a decelerating trend. Also, seasonal fluctuations sometimes come into play. If a company’s Q1 is seasonally weak and Q4 strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading while judging the true health of a company. On the other hand, after much brainstorming and analysis of companies’ financials and initiatives, Wall Street analysts project earnings of companies. They in fact club their insights and a company’s guidance when deriving an earnings estimate. Thus, outperforming that estimate is almost equivalent to beating the company’s own expectation as well as the market perception. And if the margin of earnings surprise is big, it typically drives the stock higher right after the release. Thus, more than anything else, an earnings surprise can push a stock higher. Now, finding stocks that have the potential to beat on the bottom line may be investors’ dream but not an easy job. One way to do this is to look at the earnings surprise history of the company. An impressive track record in this regard generally acts as a catalyst in sending a stock higher. It indicates the company’s ability to surpass estimates. And investors generally believe that the company will apply the same secret sauce to execute yet another earnings beat in its next release. In order to shortlist stocks that are likely to come up with an earnings surprise, we chose the following as our primary screening parameters. Last EPS Surprise greater than or equal to 10%: Stocks delivering positive surprise in the last quarter tend to surprise again. Average EPS Surprise in the last four quarters greater than 20%: We lifted the bar for outperformance slightly higher by setting the average earnings surprise for the last four quarters at 20%. Average EPS Surprise in the last two quarters greater than 20%: This points to a more consistent surprise history and makes the case for another surprise even stronger. In addition, we place a few other criteria that push up the chance of a positive surprise. Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) rating can get through. Earnings ESP greater than zero: A stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for an earnings beat to happen, as per our proven model. In order to zero in on those that have long-term growth potential and high trading liquidity, we have added the following parameters too: Next 3–5 Years Estimated EPS Growth (Per Year) greater than 10%: Solid expected earnings growth exhibits the stock’s long-term growth prospects. Average 20-day Volume greater than 100,000: High trading volume implies that the stocks have adequate liquidity. A handful of criteria has narrowed down the universe from over 7,700 stocks to only 16. Here are five out of 16 stocks: Centene: The Zacks Rank #1 company has established itself as a national leader in healthcare services. You can see the complete list of today’s Zacks #1 Rank stocks here. The average earnings surprise of CNC for the past four quarters is 151.28%. Tenet Healthcare: The Zacks Rank #1 company is an investor-owned healthcare services company, which owns and operates general hospitals and related healthcare facilities for urban and rural communities in numerous states, and has offices in California and Florida. The average earnings surprise of THC for the past four quarters is 22.70%. Fortinet:The Zacks Rank #1 company is a leader in cybersecurity, driving the convergence of networking and security. The average earnings surprise of FTNT for the past four quarters is 20.34%. Unity Software: The company provides a platform to develop, deploy and grow games and interactive 3D experiences across mobile, PC, console and extended reality. The stock has a Zacks Rank #2. The average earnings surprise of U for the past four quarters is 12.54%. The Goldman Sachs Group: It is a leading global financial holding company providing investment banking, securities, investment management, and consumer banking services to a diversified client base. The stock has a Zacks Rank #1. The average earnings surprise of GS for the past four quarters is 20.42%. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report Tenet Healthcare Corporation (THC) : Free Stock Analysis Report Fortinet, Inc. (FTNT) : Free Stock Analysis Report Centene Corporation (CNC) : Free Stock Analysis Report Unity Software Inc. (U) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Image source: The Motley Fool. Wednesday, July 29, 2026 at 4:30 p.m. ET Vice President of Investor Relations - Anthony Luscri Founder, Chairman and CEO - Ken Xie CFO - Christiane Ohlgart COO - John Whittle Need a quote from a Motley Fool analyst? Email [email protected] Operator: Hello, and welcome to the Fortinet's Second Quarter 2026 Earnings Conference Call. Please be advised that this call is being recorded. I would now like to hand the call over to Anthony Luscri, Vice President of Investor Relations. Please go ahead. Anthony Luscri: Thank you. Good afternoon, and 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 ask that you please limit yourself to one question and one follow-up question to all. Before we begin, I'd like to remind everyone that on today's call, we will be making forward-looking statements, and 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, and we undertake no obligation and specifically disclaim any obligation to update forward-looking statements. Also, 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. Ken Xie: Thank you, Anthony, and thank you to everyone for joining our call. We are very pleased with our excellent second quarter results, driven by our differentiated strategy and our innovation, strong execution and broad-based demand. Billings grew 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 NextGen firewall replaced the traditional net-based firewall 20 years ago, I believe this new SASE Firewall, which addresses 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 4 to 6 of the investor presentation. In the second quarter, Fortinet SASE Firewall business grew 34% to over $2 billion, cementing our position as a top player in this space. What makes Fortinet SASE Firewall unique compared to other competitors' SASE and firewall solution is that we are the only vendor to develop all key components of SASE Firewall in-house and integrate into a single operating system, FortiOS. Furthermore, we have developed our FortiASIC technology and invested 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 Slides 10 and 11. Another key advantage of our SASE Firewall is that we are the only vendor offering an easily deployable on-premise sovereign SASE solution together with cloud SASE. As we announced yesterday, the new FortiGate 1200G, the next-generation SASE Firewall that combines local enforcement with cloud-delivered security to meet evolving customer demand for data privacy, performance and AI infrastructure management. We believe this has driven our strong product growth recently and has an addressable market that is approximately 2 to 3x larger than the cloud-only SASE our competitors are offering, and 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 security op, which had billing growth of 25%, supported by over 20 AI-enabled solutions on our platform. As customers consolidate vendor and simplify operations, we recently launched FortiSOC, a new cloud-delivered AI SOC platform and expanded our FortiEndpoint with new capabilities. As organizations 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. And 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 integrated and accelerated 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 delivering 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. Christiane Ohlgart: 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 the 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 surfaces 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 3 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 8-figure win. This builds on a 7-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 enabled 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 require SASE technologies. To meet this 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, customers gain visibility across both their OT and IT networks. Consequently, 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. Moreover, 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. Now 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. We are raising our guidance across all top line metrics, including billings, revenue and service revenue as well as operating margin and earnings per share while managing the remainder of the year on a quarter-by-quarter basis. This quarter's improved services revenue growth, along with a strong outlook allows us to raise our service revenue guidance, reflecting a positive trajectory in our service revenue growth rates. For the third quarter, we expect billings in the range of $2.25 billion to $2.35 billion, which at the midpoint represents growth of 27%. Revenue in the range of $2.01 billion to $2.1 billion, which at the midpoint represents growth of 19%. Non-GAAP gross margin of 79% to 81%, non-GAAP operating margin of 35% to 37%. Non-GAAP earnings per share of $0.83 to $0.87, which assumes a share count between 741 million and 745 million. Infrastructure investments of $100 million to $150 million. Non-GAAP tax rate of 18% and cash taxes of $100 million to $130 million. For the full year, we expect billings in the range of $9.35 billion to $9.55 billion, which at the midpoint represents growth of 25%. Revenue in the range of $8.02 billion to $8.18 billion, which at the midpoint represents growth of 19%. Service revenue in the range of $5.18 billion to $5.22 billion, which at the midpoint represents growth of 14%. We continue to expect service revenue growth to pick up in the second half of the year, driven by accelerated product revenue growth, a key leading indicator. Non-GAAP gross margin of 79% to 81%, non-GAAP operating margin of 35% to 37%. Non-GAAP earnings per share of $3.41 to $3.47, which assumes a share count of between 741 million and 745 million. Infrastructure investments of $350 million to $550 million. Non-GAAP tax rate of 18% and cash taxes of $400 million to $450 million. I now hand the call back over to Anthony to begin the Q&A session. Anthony Luscri: Thank you, Christiane. As a reminder, during the Q&A session, we will ask to please limit yourself to one question and one follow-up question to allow others to participate. Operator, please open the line for questions. Saket Kalia: Guys, can you hear me okay? Ken Xie: Yes, all good. Thank you. Saket Kalia: Congrats on another strong quarter. Ken, maybe for you on that point. This is the second quarter in a row of accelerating billings and product growth. And we've all talked about things like AI data center, OT and other trends. But I'm curious, what do you think is driving the accelerating growth here? And just as importantly, how durable do you think it would be? Ken Xie: Yes, Saket, it's a very good question. We also spend a lot of time trying to study whether it's a new market trend or it's a supply or the other things. We do believe the growth actually is a long term for Fortinet. Definitely, you see the AI changed a lot of our security landscape. And also with our kind of like investment like from the ASIC chip, from our own infrastructure, from the R&D innovation, we also positioned much better than any of our other competitors, that's also the reason I kind of tried to call a new term, which I'm not sure will be -- everybody would like that is a SASE Firewall. You can see on the investor Slide #6, I believe. It's kind of -- this new platform, starting to replace the traditional NextGen firewall and also replaced a lot of like a single solution SD-WAN vendor and also competing quite well with all the cloud SASE provider, which Christiane gave the example in like some global company. The cloud-only SASE solution cannot meet the customer requirement, which they need to have a data privacy. They need to process a lot of information locally instead of being sent to the cloud. So that drove the change in the whole landscape. And we do believe it's the growth quite long-term, just like 20 years ago, the UTM NextGen firewall replaced the traditional net-based firewall. Saket Kalia: Christiane, maybe my follow-up for you. Maybe the follow-up for you is, how are you thinking about the impact of price increases on your product growth for Q3 and Q4, right? I think there have been a couple of price increases, of course, to reflect, right, the higher input costs. But curious how you're thinking about the impact here as we go into the second half? Christiane Ohlgart: Yes. We have approximately high single-digit impact built into our billings assumptions for the second half. And it's very dependent on product mix and what is being sold because -- I mean, yes, there were price increases, but they were not for every product and every service. So it really depends on what's going, and this is why also if you look at back at my prepared remarks, we saw really good unit growth, and we saw good ASP growth from moving higher in the various product mixes. So that's a good sign also that the customers are preparing for more network traffic than previously. Ken Xie: Yes. Also, we kind of building the trust with our partner, with our customer. So we just want to maintain the same gross margin. That's where we kind of real time adjust the price based on some component costs like memory, that's where -- so if the price is going down, we also real time dropping the price. So there's -- so that's also we don't see any like excess inventory or pull forward because we told the partner -- customer, there's no need to really take extra inventory. And also, we have a policy where we tend to start charging 90 days after shipment for some kind of service supporting. So that's where there's no incentive to keep an extra inventory. Shaul Eyal: Congrats on the ongoing strong performance. Ken, I was listening to your firewall SASE commentary. Maybe help us understand, and maybe it's building a little bit on Saket's questions or at least your reply, but maybe how AI is propelling the convergence of firewall SASE forward? Ken Xie: AI, definitely, we see generate a lot of additional traffic. There's some study whether a few weeks ago or a few months ago, the machine-to-machine traffic first time passing the human-to-machine or human-to-human traffic on the Internet. So that's definitely the AI agent and a lot of other AI applications drive a lot of traffic. And a lot of the traffic actually within the enterprise, within some kind of data center and also like the new cloud deal we mentioned in the last quarter, which is 8-figure deal last quarter after the 7-figure deal, we do see that kind of drive a lot of enterprise customer, even service provider to have a better visibility, better control management of this kind of traffic. That's also kind of -- I mentioned last quarter, it's also kind of accelerate the convergence of network-network security and especially on top of that, there's a kind of a Zero Trust initiative. So that's where we see, it's kind of a -- I feel it's starting change in the landscape of network security. That I call it as a SASE Firewall. It's more like early days, when Fortinet started like 25, 26 years ago, initially, I call it like an antivirus firewall because that's the first firewall can do the antivirus. And then later, they call UTM or NextGen firewall. That's all fine. But I do believe the SASE, the AI drove a lot of growth, especially within enterprise within service provider. Shaul Eyal: And maybe slightly more of a, I don't know whether philosophical or strategic question to you, Christiane. So broad-based performance across the 3 growth pillars. Do you think customers are viewing Fortinet as a platform provider in a similar way they're looking at, say, the 2 leading platform providers right now like Palo or CrowdStrike. Is that a fair assessment? Christiane Ohlgart: From the customers I talk to, it's definitely a fair assessment because there is a combination of factors that they like about us. It's the integration of our solutions. It's the one OS, but then it's also the cost benefits that we return to the customer from that, making it much easier to operate. So from that perspective, I think our customers definitely see us as platform providers, and they are constantly asking us to develop more functionality to expand there. Ken Xie: Yes. We are also very focused on the network security. It's different than whether Palo Alto or CrowdStrike. One is more endpoint side. The other probably a little bit everything with endpoint, with secure operation with a lot of acquisition. But for us, it's very focused on the network security with internal R&D and integrate, develop all this function for FortiOS and also a lot of long-term investment like FortiASIC, like our own infrastructure globally. And all this we feel is really the focus, the long-term investment starting to see the benefit compared to other competitors. John Whittle: And we also do see a lot of customers buy across all three pillars. Ken Xie: Yes. John Whittle: We're kind of converging the first two. So you consider two pillars. We see a bunch of deals where customers are buying from the secure networking, the SASE and the security operations pillar. So I think that's indicative of the fact that we are a platform play. We've got a really broad solution out there that customers like because like Ken said, it's integrated well together. It was designed from the ground up to be integrated and work really well together. So I think that's a big competitive differentiator for us. Gray Powell: I just want to make sure. Can you hear me okay? Anthony Luscri: Yes. Ken Xie: Yes. Gray Powell: Congratulations on the strong results. Maybe just to dig into some of the disclosures. It was really great to see the acceleration in both Unified SASE ARR and billings this quarter. Can you -- is the way to -- is there any way to comment on what component within that category contributed the most to the acceleration? Was it on the SD-WAN or the Secure Service Edge side of the portfolio? And then I guess just my follow-up would be, are you seeing SD-WAN or like the access part of SASE become a bigger consideration point in those discussions with customers? Ken Xie: Yes, we see the FortiSASE more than double year-over-year. And the SD-WAN also, we see pretty strong growth because all the other top 5 competitors, all come from acquisition, and they all have a separate approach compared to -- whether the firewall, SD-WAN and SASE. So they have to have a point solution run like 2, 3 different box to do what we can do in a single box, single OS. On the other side, we also -- there's a new market that we call the sovereign SASE, on-premise SASE. Like the example we gave, there's a global pharmaceutical company, we're the only one can meet their requirement, have data processed locally. They have a lot of confidential data, all this medical data. They have to process locally. At the same time, they do have a global footprint and workforce. They also have some kind of global access. That's where the solution we provide can have whether on-premise SASE, sovereign SASE, private SASE compare all -- I mean, plus all the cloud-based, the global Fortinet infrastructure, gave them the best solution, gave them only solution actually they see on the market. So that's actually drive a lot of growth. SD-WAN, we do see more replacing -- taking market share from competitors because I don't see any of them kind of keeping -- invest or develop the technology, which after acquisition is more challenging for them. On the other side, we do see very, very strong growth, whether the SSE part and also the sovereign SASE and plus also AI kind of related security. Christiane Ohlgart: And ARR growth in attached and unattached service -- solutions. Keith Bachman: Can you hear me okay? Ken Xie: Yes. Keith Bachman: On the services, when you indicated that services growth would increase through the year, I was hoping you could give a little bit of color on the distinction between FortiCare and FortiGuard. In other words, the support function should increase because you have more firewall units in the field, and it's been going on for several quarters. So that should increase. But is there any color you can give on the contributing factors to the increase in service growth? Is it both the FortiGuard and FortiCare part? Or is the support sort of more weighted towards the increase in growth? Christiane Ohlgart: It's both. It's attached services, which is FortiCare and FortiGuard as well as also growth coming from SecOps, which is typically more unattached solutions. And yes, we see good growth across both. Ken Xie: Yes. Also with the SASE Firewall, we're also launching some new service like SD-WAN and also some kind of AI-related security service could be part of the FortiGuard solution. So that's where we see there's additional service we can add on top of the traditional firewall and the SASE service, which will drive the new service business. Christiane Ohlgart: And maybe to provide some more color. I mean, when we expand in customer deployments, and that's what I tried to point out in my prepared remarks as well, we really make sure we sell attached services, including respective FortiGuard services. Ken Xie: Yes. Also the bundled service -- yes, the bundled service we launched like a few months ago, see very, very strong growth, which bundled the SD-WAN, the SASE altogether. So that is a very, very good drive for the growth -- service growth. Keith Bachman: Ken, my follow-up is for you. On Slide 17, you depict that OT grew 56%, billings grew 56%. Maybe give a little bit of characterization about what's really driving the acceleration in OT and how durable is that? If it was AI-based, it would seem that, that has long-term durability. But just maybe flesh out a little bit on the why and the durability? Ken Xie: Yes. It's really like 2, 3 factors. One is really we have invested in OT for a very, very long time. And we don't see our competitor really much focus in this area. And also recently, there's a lot of growing in like infrastructure buildup, utility, security and all this. That's also because the not only long-term investment, but also technology like ASIC are fitting the OT security quite well. So that's why we feel we have a huge advantage compared to any other competitors, and we continue to lead actually, in few report, we are the only leader in the space, and we do believe it's -- we're keeping growing going forward. Christiane Ohlgart: And let me add some more color on the OT side. I mean critical infrastructure is being targeted quite a bit more than maybe years ago. And it hasn't had that much security in the past from a cybersecurity perspective, mostly because the critical infrastructure was not integrated into IT networks. So we see a lot of white space, so to speak, from that perspective in this field. If you look at Europe, you have a lot of regulations, whether it's NIS2 or others that actually require critical infrastructure providers to secure their infrastructure and have good reporting, have supply chain validations and so on for cybersecurity there. So there are a lot of drivers that make this a super durable and growth driver for us. Ken Xie: Yes. I think -- Yes, we are probably the only network security vendor talk about OT security the last few years. I have not heard a competitor talk about OT security yet. John Whittle: We've invested... Keith Bachman: Yes, we think there's net new logos there too as well. John Whittle: Yes, we've been growing this for years, and it's ruggedized solutions. So it's also on-prem solutions that are well suited for OT environments, and it's integrated solutions that simplify the management. So for example, our FortiGate integrated with FortiLink and access points and switches really is a solution that a lot of OT providers like a lot. And I think all of this has culminated in this growth and also industry analysts agree that we're #1 in this sector. Meta Marshall: A couple of questions. Just in terms of customers changing traffic patterns with AI. Just wondering like if you could speak to whether some of the increases that you're seeing are due to kind of shortening refresh cycles as they need to kind of upgrade to the newest ASICs to accommodate the traffic or just kind of how you're seeing that refresh behavior from customers? And then maybe a second question, just following up on that OT question that we -- that you just got. Just in terms of sizing, like how to think about for an average data center, how we should think about kind of the OT attach rate, if there's just like a percentage of a data center build that we should think of that is kind of security related, that would be helpful. Ken Xie: Yes. For the -- yes, AI definitely changing some behavior. And I also keep on saying AI actually accelerate the convergence of network-network security. So within enterprise, the customer definitely want to have a better visibility, how this AI agent, all this AI traffic kind of behave and the same thing for the service provider, the data center, all this new cloud provider. Thus, we see a pretty strong, we call the internal -- we call east-west traffic, which is mostly deployed internal inside data center -- inside enterprise. That's actually our ASIC performance advantage is definitely much -- precision for them much better than the competitors. That's actually we see -- you can see both the strong product revenue growth and also the unit growth, which probably -- I think if you compare to 5 -- refresh, you take about 5 years average for the box, but compared to 5 years ago, so our product revenue probably tripled and plus we have this 56% (sic) [ 52% ] product revenue growth. Definitely, this is much bigger than just the refresh or kind of -- so that's why we feel customers starting replacing whether some traditional firewall and SD-WAN, some other one. And the reason I kind of combine the 2 pillars together because they run in the same OS, sometimes customers initially just buy for firewall, SD-WAN, and then they gradually enable SD-WAN and SASE. That's actually kind of difficult to categorize whether it's a SASE deal or it's kind of a secure networking deal. So that's why I feel using the SASE Firewall, which addresses much better compared if your secure networking growth still kind of single digit, but we grow like 34%. On the -- the second question... Christiane Ohlgart: Well, the sizing of IT versus OT, it really depends on the industry. In some industries, the OT side could be much bigger, and on the other industries, the IT side is much bigger. Ken Xie: Yes. And also, especially when building the AI infrastructure, they're probably more starting from building the utility, all this kind of the basic OT side. And then eventually, what -- kind of get a higher layer of this kind of like a server and then the model application. So that's where do see the initial strong OT growth to -- in the early stage of AI infrastructure build-out. Fatima Boolani: Ken, I wanted to ask you a high-level strategic question. Fortinet has done a remarkable job navigating through the supply chain environment, not only in recent memory, but also during COVID. And so I wanted to talk to you and ask you about the collaboration with Intel, what the next phase of the network and security process look like in collaboration with Intel? And how do you think that brings to you a more advantageous position as you think about the future iterations of ASICs and how you can deliver them profitably and continue to kind of navigate the current environment where cost inflationary pressures are extremely high. And then I have a follow-up for either John or Christiane? Ken Xie: Yes, it's a great question. I think the reason from day 1, 26 years ago, when we started Fortinet, we want to build ASIC chip, as the network security needed much more computing power compared to networking and some other kind of security. That's where if we depend on the general purpose CPU, which we're also using together with own ASIC, we feel it's not enough, cannot process the data quick enough or cannot add enough function to meet the customer need. So that's where from day 1, we're started investing in the ASIC chip, it's one of our strategy. Sometimes the payback may take 10 years, but we feel after 10 years, we have a huge advantage. I believe so far, we are still the only cybersecurity company develop on ASIC chip. And the partnership with Intel also very, very significant because Intel is probably the only manufacturer in the U.S. probably do all this kind of chip manufacturing. And we have a great partnership. And we do believe combining the two company technology, innovation, we can really bring the network security to the new level and also even can be expanding into the new space. On the other side, yes, we also feel network security will continue to expand beyond the traditional enterprise, can be eventually go to like now with SASE can support remote, work from home, eventually can be in the consumer, in some lot of broad area and the convergence of network-network security will keep in driving the space grow faster than the other area. At the same time, the AI, we also see as a huge boost for the network security need, especially with a lot of new vulnerability discovery in all the software and network security definitely gives them another layer of protection and other layer of visibility control. So that's what we see is -- I believe it's very, very important strategy to keep investing in this kind of long-term ASIC chip on the infrastructure, that's what drive the long-term performance and lower the cost and eventually pass all this benefit to customers. Fatima Boolani: I appreciate that detail. Either for John or Christiane. Christiane, you mentioned in your prepared remarks that the source of the operating leverage and the margin outperformance was tied to the revenue beat cost controls and rigor and also some AI efficiencies. I wanted to take a step back and ask you, over the course of the last 6 to 12 months, what have you done operationally at the company to allow for these types of efficiencies to become more prominent in your profitability profile? And specifically from a go-to-market sales management, sales rigor perspective, could you talk to anything that you've been doing differently, whereby your forecasting and your planning accuracy has increased because the trend of results in the recent quarters has been consistently up into the right and certainly since you've come into the role. So I wanted to get more deeper, maybe granular perspectives on internally -- I mean, the external market opportunity is very strong, but internally, how have you prepared with any metrics that you can share in very nimbly responding to the very strong market and demand forces. Christiane Ohlgart: Yes. I think it's a team effort across all functions where we are leveraging technology, where we are leveraging also our internal AI build-out to develop additional solutions that help us with cost-effective processes and insights. So that's what we're going to continue to do. We started that years ago in the support organization, and we've seen good success there with our significantly slower headcount growth or not even having to backfill certain roles in support. And we are doing it across many functions to make sure that we are on top of technology trends, deploy them internally and also mine our own data for better insights to make the right business decisions. John Whittle: Yes. And I think we also have a culture of being very disciplined and also not really getting complacent when things are going well and really buckling down. And I think Ken spreads this culture throughout the organization. And like Christiane said, it's a team effort to reinforce that. And so I think we -- when things are going well, we buckle down and we don't want to get complacent on the sales and growth side, but also on the cost side. And AI helps us there and other efficiencies and economies of scale can help there as well. Gabriela Borges: Ken, I wanted to follow up on your comments on how it's -- this product growth that you're seeing today is unlikely to be a function of pull forward. And I wanted to ask you and Christiane to comment a little bit on the visibility of the pipeline into 2027. I know we're still 6 months away from any sort of formal 2027 guidance. We sort of have to dial in our model this evening on these 50% plus product revenue growth comps and last quarter of course, north of 40%. So I guess give us a little bit of direction here. How should we be thinking about product revenue growth? It's a little bit similar to Saket's durability question into 1H '27 next year. What is the pipeline telling you? I know in the past, you've talked about that 10% plus industry growth rate and taking share on top of that. So whatever you can tell us early reads into how we should be modeling next year? Ken Xie: It's pretty tough to predict the future, but it's -- maybe I try from two angles. One is really replacing some of the old infrastructure. The other is really the new growing area. Definitely, we see the traditional UTM NextGen firewall and like the single point -- I mean, SD-WAN solution and even like the cloud SASE has their limitation. So we do see we kind of quickly gaining market share there from the few case we win there. That's definitely -- we feel pretty confident. Our product solution is much better. The customer partner will benefit a lot. And on the other side, there's a new area whether related to some kind of AI security and the new infrastructure build-out, the OT, that's also we see kind of -- we positioned well. It's a good kind of opportunity. We kind of closely engage with -- even for SASE like 3 years ago, we only focused on SASE for service provider. Now we see they're all starting to come back with all this sovereign SASE, private SASE and on-premise solution is huge. That's the reason I say it's 2 to 3x larger than the cloud-only based SASE. And -- but on other side, we do see it's a kind of -- as long as the new trend keeps growing, we do see we're kind of keeping -- growing in this new space also quite well. But it's probably a little bit too early to give any number on the 2027. Maybe Christiane have better visibility. Christiane Ohlgart: I think we are focused on the durability of our growth. And the themes that we're seeing, whether it's AI, whether it's SASE, whether it's OT, they will continue into next year. And then the regulatory activity in some parts of the world will continue as well. I think the question is how much share can we capture from others and how much can we grow in our own customer base, and we will get you those numbers in January or February. Junaid Siddiqui: Ken, you've talked about the sovereign SASE opportunity ultimately could be much larger than the cloud-delivered SASE around 2 to 3x, as you just mentioned. Much of that sovereign SASE opportunity seems tied to service providers deploying and monetizing their own SASE infrastructure. What are you seeing in the field that suggests providers are prepared to invest behind that strategy? And what are some of the big factors that could potentially slow adoption relative to your expectations? Ken Xie: Yes. I do believe a lot of service provider they need to change their security service go beyond the traditional like some firewall VPN service. And that's definitely some of the SASE services actually are quite important for their customer. That's also -- they do have an infrastructure advantage if they can leverage their infrastructure, deliver SASE will be more like give kind of a better data privacy, better performance, leverage their local infrastructure and at the same time, kind of a win-win situation for them and for customer, for us. But on the other side, a few years ago, they are kind of a little bit slow, but now we see things accelerate. But on the other side, we also see the enterprise also starting demanding this sovereign SASE, like the case we gave out this global pharmaceutical company they do want to have a SASE deployed within their enterprise, within their data center. That's where the on-premise solution also quite important. That's also the product we announced yesterday, the FortiGate 1200G, we do put some -- like a big percent of content emphasize how this outpost SASE deployment is important for a lot of customers because you can process all this data locally on the FortiGate and at the same time, can also leverage some cloud management to really force some policy globally. That's the solution we see also well adopt for the enterprise. When they see this solution, they feel it is much better than the cloud only, which they have forward a lot of their data traffic to cloud to process. And so we do see it's a kind of huge market, both for the enterprise and for the service provider. But we also kind of working well with a lot of service provider, which we see they have an acceleration of this kind of sovereign SASE deployment now. Joseph Gallo: Margin guidance is really, really impressive. Can you just kind of talk about visibility into that? And do you envision any more price increases as it stands today? Ken Xie: Actually, like I said, we want to maintain the same gross margin. The memory price kind of stabilized in the last few weeks or even last few months. We do like a monthly adjustment based on the cost, but we want to maintain the same gross margin that's the policy. So that's we feel -- but like I said, it's still single-digit impact of the business. We do believe that the strong -- the bigger driver is really the new SASE Firewall approach, which give a customer a much better solution, better local control of their AI, their data and at the same time, the new growing area like OT, like all this AI related, we do see that's a much bigger driver for the growth. And yes, we see that the SASE Firewall could be the new trend to drive the growth in the next 5 to 10 years. Joseph Gallo: And just as a quick follow-up, product growth was very, very strong. Just any sense of the different components of that networking versus firewalls, how growth profiles were for each of those? Ken Xie: FortiGate, probably the... Christiane Ohlgart: Fastest growing... Ken Xie: Yes, the fastest growth among that. But that's also -- because FortiGate run the same FortiOS for both the traditional network firewall security function, at the same time for like SD-WAN for SASE. That's where sometimes a little bit difficult to categorize whether it belongs to unified SASE or secure networking because sometimes they may deploy as a secure networking first, but quickly ramp up to enable SD-WAN SASE. That's why I would like to call it a SASE Firewall because it's the same operating system. Yes, but FortiGate see the strongest growth. Anthony Luscri: Thank you. I'd like to thank everyone for joining today's call. We will be attending investor conferences hosted by Rosenblatt, Stifel, Deutsche Bank, Goldman Sachs, and Kepler Cheuvreux during the third quarter. 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Interested in Climb Global Solutions, Inc.? Here are five stocks we like better. Q2 growth remained solid: Gross billings rose 17% year over year to $587.3 million, while net sales increased 9% to $174.2 million and gross profit climbed 15% to $30.2 million, helped by organic growth and the InterWorks acquisition. Profitability declined amid higher costs: Net income fell to $5.5 million from $6 million, and adjusted EBITDA edged down to $11.3 million as Climb absorbed acquisition-related expenses, higher legal and professional fees, technology investments, and a higher tax rate. Expansion initiatives are accelerating: Fortinet billings surged sequentially after customer restrictions ended, while Climb added Ivanti and Checkmk, developed a cloud platform, and evaluated larger European acquisitions that could require debt financing. Climb Global Solutions (NASDAQ:CLMB) reported second-quarter results marked by higher gross billings, sales and gross profit, while net income and adjusted EBITDA declined as the company absorbed acquisition-related costs and increased investments in technology infrastructure. For the quarter ended June 30, 2026, gross billings rose 17% year over year to $587.3 million. Distribution segment gross billings increased 8% to $562.9 million, while solutions segment billings rose 4% to $24.4 million. Net sales increased 9% to $174.2 million, supported by double-digit organic growth from new and existing vendors as well as a contribution from the February acquisition of InterWorks. → Why SK hynix Could Be the Best AI Chip Stock to Buy Now Gross profit increased 15% to $30.2 million, driven by organic growth across North America and Europe and the InterWorks contribution. However, selling, general and administrative expenses climbed to $20.7 million from $16.4 million a year earlier. CFO Matthew Sullivan said the higher expense base reflected InterWorks-related SG&A, variable sales compensation tied to gross-profit growth, higher legal and professional fees, and investments in IT infrastructure. SG&A represented 3.5% of gross billings, compared with 3.3% in the year-earlier period. → 3 Value ETFs to Consider as Growth Stocks Lag Behind Net income declined to $5.5 million, or $0.30 per diluted share, from $6 million, or $0.33 per diluted share, a year earlier. Adjusted net income was also $5.5 million, or $0.30 per diluted share, compared with $6.4 million, or $0.35 per diluted share, in the prior-year quarter. Adjusted EBITDA was $11.3 million, compared with $11.4 million in the second quarter of 2025. Effective margin, defined by the company as adjusted EBITDA divided by gross profit, declined to 37.5% from 43.3%. → 5 AI Stocks Are Pulling Back—Which Growth Catalysts Still Look Strongest? Sullivan said quarterly income results were affected by a higher effective tax rate. The prior-year quarter benefited more substantially from a discrete tax item related to restricted stock vesting, he said. The company had approximately $500,000 of nonrecurring legal, professional and IT-related expenses in the latest quarter, according to Sullivan. CEO Dale Foster said 19 of Climb’s top 20 vendors posted growth during the quarter. The company evaluated 34 new brands and signed distribution agreements with two: Ivanti, an enterprise IT and security software provider, and Checkmk, a provider of IT infrastructure monitoring and observability software. Climb also broadened its LogicMonitor relationship from selected customers to all of North America and added Quantum to its primary line card. Foster said Darktrace became a top-20 vendor within 12 months of joining Climb’s platform and was the largest growth driver among its newer vendor relationships in the quarter. Fortinet’s gross billings increased by a factor of 10 sequentially from the first quarter, Foster said. Restrictions preventing Climb from serving Fortinet’s top 50 customers ended May 4. Foster said the company is expanding its internal capabilities, conducting joint events and pursuing opportunities with technology partners shared by Fortinet and Climb. He said he expects Fortinet could become one of Climb’s top five vendors within roughly a year, though the relationship remains in development. Foster characterized Ivanti as a potential top-20 vendor over time. He also said Climb has broadened its vendor base: 84 vendors accounted for about 90% of adjusted gross billings, compared with 48 vendors in 2022. The company now has 45 vendors generating more than $10 million in sales, compared with 22 in 2022. Climb is developing a cloud platform intended to streamline purchases, management and renewals of cloud-based software for customers and partners. The company hired a platform architect during the quarter to develop the initial structure and technical blueprint. Adobe is expected to be among the first vendors prioritized for integration, and Foster said certain platform work is expected to be completed in the fourth quarter. The company is also integrating InterWorks, while seeking to preserve its local expertise and customer relationships. Foster said Climb expects to begin adding vendors to the platform used by InterWorks and sees opportunities to coordinate European operations, including around their Microsoft agreements. On the macroeconomic environment in Europe, Foster said Climb has not experienced a material impact from geopolitical conditions. He noted the company remains relatively small in its markets and does not operate in hardware distribution, reducing exposure to logistics disruptions. Climb ended the quarter with $56.6 million in cash and cash equivalents, up from $36.6 million at year-end. The company had no debt and no borrowings under its $50 million revolving credit facility. Sullivan said the cash increase was primarily related to the timing of receivables collections and payables. Management said Europe remains a key focus for acquisition activity. Foster told analysts that Climb has accelerated its review of targets and is evaluating larger opportunities that may require debt financing rather than cash alone. The company reiterated a goal presented at its investor day of more than doubling fiscal 2025 adjusted EBITDA by 2030 through organic growth, deeper vendor and partner relationships, operating leverage and strategic acquisitions. Looking into the second half, Foster said July was expected to be strong and that Climb historically generates a stronger second half than first half. He cited Fortinet and Adobe’s buying season as potential contributors to momentum in the third and fourth quarters. Climb Global Solutions Inc operates as a value-added information technology (IT) distribution and solutions company in the United States, Canada, Europe, the United Kingdom, and internationally. It operates in two segments, Distribution and Solutions. The company distributes technical software to corporate and value-added resellers, consultants, and systems integrators under the name Climb Channel Solutions; and provides cloud solutions and resells software, hardware, and services under the name Grey Matter. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Climb Global Solutions Q2 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for July 2026.