Fortinet, Inc. Q1 FY2025 earnings call

Key Remarks from Ken Xie

• Strong first quarter performance with 14% revenue growth, record 34% operating margin, $783 million record free cash flow.
• Unified SASE growth at 18% (accounting for 25% of business) and secure operations growth at 29%.
• Fortinet is number one deployed firewall vendor globally, market leader in SD-WAN and OT security, with strong SASE strategy.
• Announced FortiGate 700G series, a high-performance firewall powered by FortiASIC technology.

From Keith Jensen

• Total revenue grew 14% to $1.54 billion, operating margin 34%, record free cash flow of $783 million.
• Product revenue grew 12%, service revenue grew 14%.
• Share buyback authorization remaining at approximately $1.6 billion.

From Christiane Ohlgart

• Highlighted significant wins in the first quarter, including deals with international government, education provider, manufacturing company, and Fortune-500 company.
• Discussed business conditions, second quarter guidance, and full-year outlook, noting FX headwinds but raising midpoint of full-year operating margin guidance.

Fortinet achieved strong performance in the first quarter with total revenue growing 14%. Product revenue grew 12%, driven by hardware and software solutions. Unified SASE building grew 18% and accounts for 25% of the business. AI-driven secure operations building grew 29% and accounts for 10% of the business. FortiGate hardware revenue grew in the mid-teens, outpacing total product revenue growth. Service revenue was $1.08 billion, growing 14% and accounting for 70% of total revenue.

Second Quarter Guidance

• Billings expected in the range of $1.685 billion to $1.765 billion (midpoint 12% growth).
• Revenue expected in the range of $1.59 billion to $1.65 billion (midpoint 13% growth).
• Non-GAAP gross margins 80%-81%, operating margins 31.5%-32.5%, EPS $0.58-$0.60.

Full-Year Guidance

• Billings expected in the range of $7.2 billion to $7.4 billion (midpoint 12% growth).
• Revenue expected in the range of $6.65 billion to $6.85 billion (midpoint 13% growth).
• Service revenue expected in the range of $4.575 billion to $4.725 billion (midpoint 15% growth).
• Non-GAAP gross margins 79%-81%, operating margins 31.5%-33.5%, EPS $2.43-$2.49.

• Geopolitical uncertainties that could impact customer investment decisions.
• Potential impact of tariffs on hardware sales to U.S. customers, though currently minimal.
• Forward-looking statements subject to risks and uncertainties causing actual results to differ from projections.

Q: Brian Essex asked about maintenance and services revenue dynamics.

A: Christiane Ohlgart responded that Q1 service revenue slight decline was affected by Q4 having 2 more days, and confidence in future growth due to strong current RPO. Ken Xie added FortiGate growth will drive future service revenue.

Q: Tal Liani inquired about lightness in guidance.

A: Ken Xie mentioned no plan to change prices due to tariffs, but uncertainty causing cautious guidance. Christiane Ohlgart noted good close rates in April but sales hesitant due to macro uncertainties.

Q: Gabriela Borges asked about sales hesitancy and customer conversations.

A: Christiane Ohlgart said good channel activity and feedback, but sales hesitant due to macro news. Ken Xie emphasized Fortinet's market share gains in secure networking, unified SASE, and secure operations.

Q: Shrenik Kothari asked about new logos and growth drivers.

A: Christiane Ohlgart stated majority of new customers are smaller, starting with FortiGate. Ken Xie discussed Fortinet's differentiation in SASE with single OS platform and sovereign SASE offerings.