Fortinet, Inc. Q4 FY2024 earnings call

• Ken Xie highlighted strong Q4 performance with a record operating margin of 39%, total revenue growth of 17%, and product revenue growth of 18%. He mentioned acquisitions like Perception Point, which strengthens end-to-end cybersecurity. Fortinet's AI-powered security and single agent approach provides consistent protection across locations and devices. - Keith Jensen reviewed financial and operating results, noting billings grew 7% to $2 billion, RPO grew 12% to $6.4 billion, and ARR growth for SecOps and Unified SaaS. He discussed the expansion journey of Forty SASE, with large enterprise penetration rate increasing to 10%, and highlighted significant wins in various customer segments and geographies.

In the fourth quarter of 2024, Fortinet's total revenue grew 17% to $1.66 billion. Product revenue increased 18% to $574 million, which was the highest growth rate in six quarters, driven by hardware revenue growth of 19%. Service revenue was $1.09 billion, growing 17% to account for 65% of total revenue. Unified SaaS and SecOps showed strong growth: Unified SaaS ARR grew 28%, SecOps ARR grew 32%. SSE within Unified SaaS had an ARR growth of 96%. SMB was the top-performing customer segment with over 30% growth, and EMEA was the best-performing geography.

For the first quarter of 2025: Billings are expected to be in the range of $1.52 billion to $1.6 billion (11% growth), revenue in the range of $1.5 billion to $1.56 billion (13% growth), non-GAAP gross margin 80-81%, non-GAAP operating margin 30-31%, and non-GAAP EPS $0.52 - $0.54. For the full year 2025: Billings are expected to be in the range of $7.2 billion to $7.4 billion (12% growth), revenue in the range of $6.65 billion to $6.85 billion (13% growth), service revenue in the range of $4.575 billion to $4.725 billion (15% growth), non-GAAP gross margin 79-81%, non-GAAP operating margin 31-33%, and non-GAAP EPS $2.41 - $2.47.

Tariff impacts on US business and international markets, with dynamic tariff policies and potential retaliatory measures posing uncertainties. Supply chain uncertainties also present risks that could impact operations and financial results.

Q: Hamza Fodderwala asked about Fortinet's involvement with hyperscalers like Oracle.

A: Ken Xie responded that Fortinet's unique secure ASIC processor provides opportunities in securing hyperscalers' data centers and AI infrastructure.

Q: Tal Liani asked about billings and product revenue guidance.

A: Keith Jensen and Ken Xie discussed that fourth quarter billings were better than expected due to overperformance in certain deals, and first quarter guidance is more cautious due to tariff impacts and US government disruptions.

Q: Gabriela Borges asked about the implications of the refresh opportunity for subscription revenue.

A: Christian Agard and Ken Xie explained that existing hardware has subscriptions, and upselling and selling more services are key to growing subscription revenue, with new hardware enabling additional services.

Q: Brian Essex asked about assumptions behind billings guidance.

A: Christian Agard stated product revenue growth assumption is around 10%, and billings growth is currently more moderate.

Q: Fatima Boolani asked about tariff impacts on demand and supply chain.

A: Keith Jensen discussed the dynamic nature of tariffs, impact on demand in Latin America and US government, and that US business is a smaller portion of total business.

Q: Rob Owens asked about the Linksys partnership.

A: Ken Xie explained that Linksys provides a leading brand and large user base, enabling growth in consumer and SMB markets with Fortinet's technology.

Q: Eric Heath asked about inventory levels and refresh opportunity.

A: Keith Jensen and Christian Agard discussed inventory turns and the gradual nature of the refresh opportunity in the second half of 2025.

Q: Saket Kalia asked about LATAM/Canada percentage of billings and organic vs inorganic growth.

A: Christian Agard said LATAM and Canada are about 15% of total business, and organic growth is expected to be around 11% with 1% inorganic.

Q: Adam Borg asked about SaaS and SecOps new logos.

A: Ken Xie explained that most new Unified Sassy comes from existing customers, but there are opportunities with new customers due to Fortinet's unique technology advantages.

Q: Jun Zhang asked about SMB demand.

A: Keith Jensen and Ken Xie discussed strong collaboration with channel partners and targeted incentive programs driving SMB growth, and Fortinet's unique product with single OS and many integrated functions as a key advantage.

Q: Joseph Gallo asked about average deal size in refresh.

A: Keith Jensen and Christian Agard explained that large customers have ongoing purchasing habits for replacement devices during enterprise agreements, and deal sizes are negotiated based on upgrade schedules.

Q: Ittai Kidron asked about upgrade cycle contribution and Sassy adoption.

A: Keith Jensen discussed the importance of working with resellers for data gathering, and Ken Xie explained that Sassy adoption includes brownfield displacement of existing solutions.