• Operating Margin: Record operating margin of 39%.
• Total Revenue Growth: 17% increase, with product revenue growth of 18%.
• Unified SASE Growth: 13% growth, accounting for 23% of the business.
• Total Billings: Grew 7% to $2 billion.
• RPO Growth: 12% increase to $6.4 billion.
• ARR Growth: 32% increase, with Unified SASE growing at 28%.
• Gross Margin: Increased 340 basis points to 81.9%.
• Product Gross Margin: 69.3%, increased 920 basis points.
• Service Gross Margin: 88.6%, increased 50 basis points.
• Free Cash Flow: $380 million, with a margin of 23%.
• Adjusted Free Cash Flow: $549 million, with a margin of 28%.
• Full-Year Revenue Growth: 12% increase to $5.96 billion.
• Full-Year Service Revenue Growth: 20% increase to $4.05 billion.
• Full-Year Operating Margin: 35%, resulting in operating income of $2.1 billion.
• Earnings Per Share: Increased 45% to $2.37.

• Warning! GuruFocus has detected 4 Warning Sign with FTNT.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Fortinet Inc (NASDAQ:FTNT) reported a record operating margin of 39% for the fourth quarter of 2024.
• Total revenue grew by 17%, with product revenue increasing by 18%, marking the highest growth rate in six quarters.
• Unified SASE growth was strong at 13%, accounting for 23% of the business, driven by an 85% increase in security service age building.
• The company added a record 6,900 new logos, indicating strong market penetration and alignment with channel partners.
• Fortinet Inc (NASDAQ:FTNT) was recognized on Forbes' most trusted company list, ranked number 7 overall and the only cybersecurity company in the top 50, highlighting its transparency and commitment to customers.

Negative Points

• Billings growth for the first quarter of 2025 is projected to be weaker, with a midpoint growth of only 11%.
• The guidance for product revenue in the next quarter does not reflect the strong performance seen in the fourth quarter, indicating potential volatility.
• There is uncertainty regarding the impact of tariffs on demand and supply chain, particularly affecting Latin America, Canada, and US government sales.
• The average contract term decreased by one month year over year, which could indicate shorter customer commitments.
• The financial impact from recent acquisitions, including Lacework and Perception Point, is expected to decrease operating margin by 50 basis points for the full year 2025.

Q & A Highlights

Q: As Oracle and other hyperscalers build new data centers, how is Fortinet involved in securing these? A: Kenneth Xie, CEO: Fortinet is uniquely positioned with our secure ASIC processor, which significantly enhances secure computing power compared to general-purpose CPUs. This advantage drives our growth in internal segmentation within data centers and hyperscalers. We see substantial opportunities in AI security, securing infrastructure, data, and access, leveraging our FortiASIC technology.

Q: Why is there a discrepancy between strong product revenue performance this quarter and weaker billing guidance for the next quarter? A: Keith Jensen, CFO: The fourth quarter saw unexpected upside from deals between $5 million and $10 million, contributing to strong product revenue. For the first quarter, we're exercising caution due to recent tariff announcements and potential disruptions in markets like Latin America and Canada, as well as the US government sector.

Q: What are the implications of the hardware refresh opportunity for subscription revenue? A: Christiane Ohlgart, CAO: To grow subscription revenue, we need to upsell more subscriptions or services with existing hardware. New hardware offers more capacity for additional functions and better performance, enabling new services like Unified SASE and AI-based functions, which can drive subscription growth.

Q: How are tariffs impacting Fortinet's demand and supply chain? A: Keith Jensen, CFO: The tariffs create uncertainty, particularly affecting our sales in Latin America, Mexico, and Canada. We're monitoring potential disruptions in these economies and the US government sector. On the supply chain side, our US business, which is about 25-27% of total business, could be impacted, but we expect to maintain our pricing advantage.

Q: How is Fortinet's SMB segment performing compared to other vendors? A: Keith Jensen, CFO: Fortinet's mature channel program and targeted incentives have driven strong performance in the SMB segment. Our technology advantage, with a single OS and integrated functions, provides significant benefits to SMB customers, contributing to our success in this area.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.