Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- Fortinet's acquisition of Linx expands its presence into the consumer home-based network security market, leveraging Linx's large user base of 25 million active users and 250 million devices shipped over the last 40 years, presenting a huge potential for growth in the next 5 to 10 years.
- The company's strong performance in the SMB segment, driven by mature channel partnerships and targeted incentive programs, along with its unique integrated single OS and ASIC technology, positions Fortinet for significant growth as SMBs increasingly adopt network security solutions.
- Fortinet's secure ASIC processors offer significant performance advantages over competitors' general-purpose CPUs, enabling the company to capitalize on growth opportunities in hyperscale data centers and AI-related security needs, indicating a huge potential for growth due to their unique technological advantage.
- Weak Billings Guidance for Q1 2025: Despite delivering better-than-expected billings in Q4 2024, Fortinet's guidance indicates weaker billings for Q1 2025. Analyst Tal Liani questioned this, asking, "Why is billing weak and weak guidance?" This suggests a potential slowdown in demand or challenges in maintaining growth momentum.
- Reduced Product Revenue Growth Expectations: Fortinet is assuming only around 10% product revenue growth for the upcoming fiscal year, despite achieving 18% growth in Q4 2024. When asked about the trajectory to achieve full-year billings guidance, CFO Christiane Ohlgart stated, "The product revenue growth, we assume is around 10% right now..." This indicates that the company does not expect the strong product revenue performance to continue, possibly due to market saturation or increased competition.
- Concerns Over Sustainability of Recent Outperformance: The company acknowledges that the strong product revenue outperformance in Q4 2024 might be a one-time phenomenon. Tal Liani highlighted this by asking, "Product revenues outperformed so much this quarter... but the guidance for next quarter, I don't see outperformance. So why is it just this quarter phenomenon and you don't carry the strength into the next few quarters?" This raises concerns about the sustainability of recent growth and whether future performance may not meet investor expectations.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +17% (from $1,415.1M in Q4 2023 to $1,660.1M in Q4 2024) | Robust overall revenue growth was driven by strong demand for higher‐margin service offerings—especially security subscriptions and technical support—combined with the benefits of deferred revenue recognition and geographic diversification, building on the growth trajectory seen in earlier periods. |
Operating Income | +49% (from $385.4M in Q4 2023 to $574.1M in Q4 2024) | The dramatic increase in operating income reflects an improved revenue mix, with a larger share from service revenue and better cost efficiencies, as well as a recovery in product revenue (e.g., growth in software licenses) compared to the prior period. |
Net Income | +69% (from $310.9M in Q4 2023 to $526.2M in Q4 2024) | Net income surged due to the combined impact of higher revenue, improved operating margins, and better expense management, thereby compounding the positive momentum from previous quarters into a significantly higher profit level in the current period. |
Earnings per Share (EPS) | Increased from 0.40 in Q4 2023 to 0.69 in Q4 2024 | EPS improvement was driven by the substantial rise in net income along with a reduction in the weighted‐average share count, amplifying the per share gains seen relative to the previous period. |
Product Revenue | N/A on % but reported at $574M in Q4 2024 | The stable and modestly growing product revenue reflects a recovery in software license sales and normalization in hardware shipments relative to prior periods, even as overall growth shifted towards higher-margin services. |
Service Revenue | N/A on % but reported at $1,086.1M in Q4 2024 | Service revenue continues to be the growth engine, driven by strong performance in security subscriptions and technical support, with improvements built on earlier deferred revenue recognitions, pricing actions, and expansion of SaaS offerings. |
Security Subscriptions & Technical Support/Other | (Implicit in service revenue growth split) | Combined, security subscriptions ($625.3M) and technical support & other services ($460.8M) underpinned the service revenue increase, benefiting from enhanced deferred revenue recognition and increased demand for subscription-based offerings, a trend that was evident in previous quarters and further solidified in the current period. |
Geographic Revenue | Americas: +?; EMEA: +?; APAC: +? (Reported at $665.9M, $692.3M, and $301.9M respectively in Q4 2024) | Global revenue diversification was key to performance, with robust gains in the Americas and EMEA regions driven by strong regional demand and service revenue growth, while APAC, though modest, contributed to overall stability—reinforcing trends observed in earlier periods. |
Net Change in Cash | +$1,478.0M in Q4 2024 | The significant cash increase resulted from strong operating cash flows and a sharp reduction in stock repurchases, overcoming higher investing outflows; this liquidity improvement builds on prior improvements in cash management and reflects the company’s disciplined financial strategy. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Billings | Q4 2024 | $1.9B (midpoint +5%) | no current guidance | no current guidance |
Revenue | Q4 2024 | $1.56B–$1.62B (midpoint +12%) | no current guidance | no current guidance |
Non-GAAP Gross Margin | Q4 2024 | 79.5%–80.5% | no current guidance | no current guidance |
Non-GAAP Operating Margin | Q4 2024 | 33%–34% | no current guidance | no current guidance |
Non-GAAP EPS | Q4 2024 | $0.58–$0.62 | no current guidance | no current guidance |
Capital Expenditures | Q4 2024 | $100M–$120M | no current guidance | no current guidance |
Non-GAAP Tax Rate | Q4 2024 | 17% | no current guidance | no current guidance |
Cash Taxes | Q4 2024 | $127M–$177M | no current guidance | no current guidance |
Billings | Q1 2025 | no prior guidance | $1.520B–$1.600B (midpoint +11%) | no prior guidance |
Revenue | Q1 2025 | no prior guidance | $1.500B–$1.560B (midpoint +13%) | no prior guidance |
Non-GAAP Gross Margin | Q1 2025 | no prior guidance | 80%–81% | no prior guidance |
Non-GAAP Operating Margin | Q1 2025 | no prior guidance | 30%–31% | no prior guidance |
Non-GAAP EPS | Q1 2025 | no prior guidance | $0.52–$0.54 | no prior guidance |
Infrastructure Investments | Q1 2025 | no prior guidance | $80M–$100M | no prior guidance |
Non-GAAP Tax Rate | Q1 2025 | no prior guidance | 18% | no prior guidance |
Cash Taxes | Q1 2025 | no prior guidance | $30M–$35M | no prior guidance |
Billings | FY 2024 | $6.43B–$6.53B | no current guidance | no current guidance |
Revenue | FY 2024 | $5.856B–$5.916B (midpoint +11%) | no current guidance | no current guidance |
Service Revenue | FY 2024 | $4.15B–$4.45B (midpoint +19%) | no current guidance | no current guidance |
Non-GAAP Gross Margin | FY 2024 | 80.3%–81.3% | no current guidance | no current guidance |
Non-GAAP Operating Margin | FY 2024 | 32.9%–33.9% | no current guidance | no current guidance |
Non-GAAP EPS | FY 2024 | $2.20–$2.28 | no current guidance | no current guidance |
Capital Expenditures | FY 2024 | $380M–$400M | no current guidance | no current guidance |
Non-GAAP Tax Rate | FY 2024 | 17% | no current guidance | no current guidance |
Cash Taxes | FY 2024 | $550M–$600M | no current guidance | no current guidance |
Billings | FY 2025 | no prior guidance | $7.2B–$7.4B (midpoint +12%) | no prior guidance |
Revenue | FY 2025 | no prior guidance | $6.65B–$6.85B (midpoint +13%) | no prior guidance |
Service Revenue | FY 2025 | no prior guidance | $4.575B–$4.725B (midpoint +15%) | no prior guidance |
Non-GAAP Gross Margin | FY 2025 | no prior guidance | 79%–81% | no prior guidance |
Non-GAAP Operating Margin | FY 2025 | no prior guidance | 31%–33% | no prior guidance |
Non-GAAP EPS | FY 2025 | no prior guidance | $2.41–$2.47 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q4 2024 | $1.56B to $1.62B | $1,660.1M | Beat |
Non-GAAP EPS | Q4 2024 | $0.58 to $0.62 | $0.68 | Beat |
Non-GAAP Gross Margin | Q4 2024 | 79.5% to 80.5% | 81.05% = (1,660.1− 314.5) ÷ 1,660.1 | Beat |
Non-GAAP Operating Margin | Q4 2024 | 33% to 34% | 34.57% = 574.1÷ 1,660.1 | Beat |
CapEx | Q4 2024 | $100M to $120M | $97.6M | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Billings guidance and momentum concerns | Q1–Q3: Guidance often cautious due to large deal timing, backlog digestion, and macro factors. | Cautious Q1 2025 forecast due to tariff exposure and potential U.S. government issues. | Continuing caution |
AI solutions | Q1: FortiAI launch and monetization. Q2: Generative AI integrated into SecOps and SASE. Q3: No mention [“”]. | Expanded FortiGuard AI, AI-based DLP, and FortiAI Ops driving service margin gains. | Resumed focus |
Expansion in OT market | Q1–Q3: Strong OT momentum: large deals, manufacturing vertical wins, OT billings >100% in some quarters. | OT sales near $1B, highlighting success with large energy deals and critical infra. | Continuing growth |
Consumer home-based network security (Linx) | Q1–Q3: No mentions [“”]. | Linx acquisition details and alignment with secure networking for home users. | Newly discussed |
Unified SASE offerings and pipeline growth | Q1–Q3: Consistent pipeline increases, double-digit billings growth, strong upsell from SD-WAN. | Unified SASE ARR +28%; pipeline up 90%, highlighting single-vendor SASE appeal. | Continuing with strong momentum |
SD-WAN replacement opportunities | Q1: ~50% cost savings spurring migrations. Q2: No specific mention [“”]. Q3: Major refresh potential vs. stagnant competitors. | Integrated firewall/SD-WAN upgrades as part of SASE deals, emphasizing TCO benefits. | Continuing interest |
Delayed hardware refresh cycles | Q1–Q3: Customers extending device use, with a bigger cycle expected by 2025–2026. | Some refresh underway for large enterprises; cautious hope for gradual upgrades. | Ongoing mention |
Reduced product revenue growth expectations | Q1–Q3: Year-over-year product revenue pressure; -18% in Q1, -4% in Q2, slight improvement in Q3. | Product growth assumption ~10%, more moderate than earlier expansions. | Continuing caution |
Operating margin impacts from acquisitions | Q2: Higher sales and marketing costs from Lacework, Next DLP. Q3: +220 bps margin lift. | -190 bps impact, better than expected -230 bps, mentions Perception Point acquisition. | Continuing effect, slightly better |
Underinvestment in sales and marketing | Q2: Acknowledged shortfall and plans to hire/increase spend. Q1–Q3: No other direct statements [“”]. | No mention [“”]. | No longer discussed |
Geographic slowdown (Europe, APAC) | Q1: Slight weakness in Europe, APAC contraction. Q2–Q3: No direct slowdown noted [“”] . | Not mentioned; EMEA cited as best-performing region in Q4. | No longer discussed |
Enterprise agreements driving larger deals | Q1: EAs enable bigger expansions. Q2: Large utility EA displacing multiple vendors. Q3: EAs refresh before expiration. | Pre-negotiated purchase schedules; large deals do not “creep up” unexpectedly. | Continuing driver of big deals |
Integrated single OS and ASIC for SMB | Q1: Better performance at lower cost for SMBs. Q2: General FortiOS/ASIC advantage. Q3: Emphasized cost/perf benefits. | Enables easy deployment for SMB/home, fueling growth; leverages simpler user experience. | Continuing differentiation |
Hyperscale data centers | Q1–Q3: No mentions [“”]. | ASIC advantages for large-scale AI/data center security, big future opportunity. | New area of emphasis |
Shifting sentiment from expansions to cautious growth | Q3: Cautious approach for closing large deals. Q1–Q2: Less explicit [“”]. | More moderate outlook for Q1 2025; focusing on ARR and RPO amid macro uncertainties. | Continued caution |
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Weak Billings Guidance
Q: Why is billing guidance weak for Q1?
A: Management explains that while Q4 billings were strong due to large deals, they're cautious for Q1 due to concerns about tariffs and potential disruptions in Latin America, Canada, and U.S. government sectors, which could impact demand. -
Refresh Opportunity Impact
Q: How will the refresh opportunity affect subscription revenue?
A: The company plans to upsell more subscriptions and services as new hardware allows for additional functions. Growth in subscription revenue requires selling more or new services to customers. -
Billings Guidance Assumptions
Q: What are the assumptions behind the billings guidance?
A: They assume around 10% product revenue growth and expect billings to grow more moderately throughout the year rather than spiking in Q4. -
Tariff Impact and Supply Chain
Q: How will tariffs impact demand and supply chain?
A: Tariffs create uncertainty that could disrupt demand in Latin America, Mexico, and Canada. The U.S. business represents about 25-27% of total business. Despite tariffs, Fortinet expects to maintain a pricing advantage. -
SASE and SecOps Growth
Q: Will SASE and SecOps contribute more to new logos in 2025?
A: While most SASE and SecOps billings come from existing customers, Fortinet sees opportunities with new customers, especially large enterprises. They believe their integrated solution and cost advantages will drive growth in new accounts. -
US Performance Sustainability
Q: Can U.S. performance be sustained into 2025?
A: Yes, enhancements in U.S. enterprise sales, increased sales capacity, and close work with channel partners have led to strong results, and they expect significant growth potential in the U.S.. -
Inventory Levels Pre-Refresh
Q: How are inventory levels being managed ahead of refresh demand?
A: They target inventory turns of 2x to ensure product availability. Refresh activity is assumed to be gradual rather than spiky, with ongoing purchasing habits among large customers. -
SMB Segment Strength
Q: What's driving strong demand in the SMB segment?
A: Fortinet's mature channel program and tailored incentives have boosted SMB performance. Their single OS with integrated functions provides significant advantages for SMB customers. -
Linksys Relationship
Q: How does the Linksys relationship strategically benefit Fortinet?
A: Acquiring 51% of Linksys aligns with their secure networking strategy. It opens new markets in consumer and SMB spaces, supporting work-from-home and expanding their customer base of 25 million active users. -
Early Refresh Demand and Deal Size
Q: How has average deal size changed with early refresh renewals?
A: Large enterprises are moving first with ongoing purchasing habits, so average deal sizes haven't necessarily increased. They negotiate needs over several years, leading to consistent purchasing patterns. -
SASE Adoption Details
Q: Is SASE adoption displacing competitors or in greenfield?
A: Fortinet is seeing both. Some of their biggest SASE deals involve displacing legacy VPN or SASE providers, leveraging their performance, integration, and cost advantages. -
Latin America and Canada Exposure
Q: How significant are Latin America and Canada to billings?
A: Latin America and Canada represent about 15% of total business. -
Organic vs Inorganic Growth Guidance
Q: How much of the 12% growth guidance for 2025 is organic?
A: They expect about 1 point of inorganic growth, implying most growth is organic. -
Incentives for SASE Upselling
Q: How are incentives impacting SASE upselling and pipeline metrics?
A: Fortinet is accelerating training and increasing sales capacity. Feedback shows that upgrading to SASE is easier and sales cycles are shorter, benefiting from their integrated single OS approach. -
Assumptions in Product Guidance
Q: Are you assuming half of the $400-450 million refresh happens in 2025?
A: They expect a more gradual refresh activity rather than assuming half of the opportunity occurs in 2025.