“Non-GAAP operating margin of thirty-one to thirty-three percent, Non-GAAP earnings per share of two dollars and forty-one cents to two dollars and forty-seven cents, which assumes a share count of between seven hundred seventy-three and seven hundred eighty-three million.”

In context

“Keith Jensen (CFO): Thank you, Ken. Thank you, Aaron, and good afternoon, everyone. Let's start with the key highlights from the fourth quarter. We delivered strong execution and financial performance, with top-line results above the high end of guidance, together with record operating margins at 39%. Total revenue grew 17%, driven by strong product and service revenues, as product revenue growth pushed up to 18%. In addition, we added a record 6,900 new logos, driven by close alignment with our channel partners. Looking at our financial results in more detail, total billings grew 7% to $2 billion, including double-digit security operations and unified Sassy growth, RPO grew 12% to $6.4 billion. ARR growth was very strong for SecOps and grew 32% and Unified SaaS, which grew at 28% to a combined total of over $1.5 billion. Within Unified SaaS, SSE continues to gain traction. With ARR growth of 96% as we continue to see early success, upselling forty SASE to our large SD WAN customer base, Forty SASE deals increased over 60% and the pipeline was up 90%. A typical forty SASE journey starts with the customer's first purchase of our ASIC-based market-leading FortiGate firewall, followed by an expansion to SD WAN, and then to our single vendor SASE solution. The expansion journey is particularly significant as over 70% of our large enterprise customers have adopted our SD WAN functionality and are poised to expand to forty SASE. Our large enterprise forty SASE penetration rate increased to 10%, which is up two points just since our November Analyst Day reporting. Rounding out the billings commentary, deals between $5 million and $10 million increased over 90%. SMB was our top-performing customer segment, with growth of over 30%. EMEA was our best-performing geography, driven by growth of over 25% from international emerging markets. Among our top five verticals, worldwide government, and service provider both grew over 20%, while financial services saw the expected challenge from the difficult year-over-year comparison driven by several seven and eight-figure deals in the fourth quarter of 2023. Turning to revenue and margins. Total revenue grew 17% to $1.66 billion. Product revenue increased 18% to $574 million, our highest growth rate in six quarters, driven by hardware revenue growth of 19%. On a sequential basis, product revenue increased 21% and represents the third quarter in a row with elevated sequential growth. Software license revenue continued its double-digit growth, representing a mid to high teens percentage of total product revenue. Service revenue of $1.09 billion grew 17% to 65% of total revenue. Service revenue growth was driven by SaaS solutions at 130%, which includes the Wayzworks, as well as strong organic services growth in Unified SaaS and SecOps. Combined revenue from software licenses and software services such as cloud, Lacework, and other SaaS security solutions increased 41% and provides an annual revenue run rate of over $1 billion. Total gross margin increased 340 basis points to 81.9% and exceeded the high end of the guidance range by 140 basis points. Product gross margin of 69.3% increased 920 basis points as inventory-related charges normalized from last year's highly elevated levels, adding 840 basis points to product gross margin, and 290 basis points to total gross margin. Service gross margin of 88.6% increased 50 basis points to a quarterly record as service revenue growth outpaced labor and hosting cost increases while benefiting from the mix shift towards higher margin forty Guard security subscription service as well as some early AI-related savings. Operating margin increased 720 basis points to a record 39.2%, which was 520 basis points above the high end of the guidance range, reflecting the strong gross margin, an FX tailwind of about 110 basis points as well as the top-line overperformance that flowed through to the bottom line. Before moving to the statement of cash flows, I'd like to summarize the financial impact from the Lacework NEXBLP and Perception Point acquisitions. These acquisitions increased fourth quarter billings by 115 basis points versus our expectation of 75 basis points and decreased operating margin by 190 basis points versus our expectation of a decrease of 230 basis points. Looking to the statement of cash flow summarized on slides eighteen through twenty-one. Free cash flow was $380 million and free cash flow margin was 23%, up eleven points. Adjusted free cash flow was $549 million, representing a margin of 28%, up sixteen points. Cash taxes were $156 million, down $186 million reflecting the prior year's regulatory extension of estimated tax payments. While infrastructure investments were $98 million, or up seventy-one million. Average contract term in the fourth quarter was twenty-nine months, down one month year-over-year, up one month quarter-over-quarter. DSO decreased ten days reflecting improved linearity year-over-year. And the remaining share buyback authorization is $2 billion. Moving to an overview of our 2024 full-year results. Billings exceeded $6.5 billion while total revenue grew 12% to $5.96 billion driven by revenue growth of around 25% for both Unified SaaS and SecOps. Service revenue grew 20% to $4.05 billion driven by a 22% increase in security subscriptions and 33% growth in Unified SaaS services. Gross margin was up 390 basis points to 81.3%, benefiting from the revenue mix shift to service revenue and a 140 basis point tailwind of inventory-related charges normalized during the year. Our operating income was a record 35%, resulting in operating income of $2.1 billion, which was up 38%. Our GAAP operating margin at 30.3% continues to be one of the highest in the industry. Earnings per share increased 45% to $2.37. Free cash flow was a record $1.9 billion, representing a margin of 32%. Adjusted free cash flow was $2.2 billion, representing a margin of 37%. If I were to just sum up 2024, I think it's important to note that we have now met or exceeded the rule of forty-five for the fifth consecutive year. Now I'd like to share a few significant fourth-quarter wins showcasing our SaaS expansion and our leadership in operational technology. In a seven-figure new customer win, the healthcare provider strategically included forty SASE in its first Fortinet purchase alongside SD WAN while replacing a competitor's firewall. With a new leadership team focused on vendor consolidation, reduced operating costs and complexity, and addressing technical debt, the forty OS consolidated multiple security functions onto a single platform, modernizing an outdated firewall infrastructure, and replacing VPN technologies with a five thousand seat SaaS solution that relies on Fortinet's points of presence. Another seven-figure SaaS deal, an existing Fortune five hundred SD WAN retail customer purchased forty SASE for two thousand users with the potential to scale up to twelve thousand. It shows for an effort of flexible and consistent security enforcement, which enhances user experience while securing access to both on-prem and cloud application locations. Additionally, they valued our strategy of building our own SaaS delivery infrastructure powered by our proprietary ASIC technology. And lastly, in a high seven-figure deal, a large energy company expanded its partnership with us by signing its first enterprise agreement to protect this global critical infrastructure. This customer secures its infrastructure using forty gates across approximately a thousand sites spanning branch locations, data centers, and cloud environments. Key factors in this win included our ability to support their global critical infrastructure both technically and with world-class support programs. Our leadership in OT infrastructure capabilities and the automation and seamless integration of our forty OS system. So with Fortis supplying over fifty percent of the firewalls worldwide, Fortis security solutions themselves have become critical infrastructure protecting the critical infrastructure. In a threat landscape where there has been a significant step level increase in sophistication, in risk. Given our scale, innovation, and broad adoption, national cybersecurity agencies around the world view our partnership as key to protecting the most important customers and entities in this dynamic landscape. Next, I'd like to review some of our key AI solutions for threat intelligence and networking. For threat intelligence, FortiGuard AI-powered security services combined with real-time threat intelligence helps organizations combat known unknown, zero-day, and emerging AI-based threats. For networking, Forti AI reduces the time needed to diagnose networking issues, monitoring trends in the network, and with full access to logs across a Fortinet security fabric, our AI engine uses machine learning to understand the optimal conditions for the network and highest potential issues. For the knock and sock, Forti AI uses natural language and generative AI to guide, simplify, and automate analyst activities. Forti AI is integrated into seven different network and security operation products, with additional products to be added. For LLM leakage, our AI-based DLP services actively identify and block sensitive information from being uploaded or shared with AI systems. Before discussing our guidance, I'll offer a few updates on the record level firewall upgrade opportunity that we shared during our November Analyst Day. In the fourth quarter, we saw early upgrade movement with large enterprises, both on buying plans and actual purchases. We expect the momentum to build as we move into the second half of 2025 as we get closer to the 2026 end-of-service dates. The 2026 and 2027 cohorts present a substantial upsell opportunity for SASE switches, access points, and SecOps solutions. To maximize our upgrade and cross-sell potential, we are implementing several initiatives, including creating sales plays for each customer segment and key verticals, expanding our account plans for larger enterprises to more specifically target the upgrade and expansion opportunities, collaborating with our channel partners on SMB opportunities, incentive programs, end-user data, and developing targeted bundle offerings for these customers. Moving on to guidance, as a reminder, our first quarter and full-year outlooks are summarized on slides twenty-three and twenty-four, are subject to disclaimers regarding forward-looking information that Aaron provided at the beginning of the call. I should note we expect Linksys and PerceptionPoint to increase fourth-quarter billings and revenue growth by approximately ninety basis and decreased operating margin around forty basis points. For the full year, we expect Linksys and PerceptionPoint to increase billings and revenue growth by approximately one hundred and twenty-five basis points and decreased operating margin by around fifty basis points. For the first quarter, we expect billings in the range of $1.52 billion to $1.6 billion which at the midpoint represents growth of 11%. Revenue in the range of $1.5 billion to $1.56 billion which at the midpoint represents growth of 13%. Non-GAAP gross margin of eighty to eighty-one percent. Non-GAAP operating margin of thirty percent to thirty-one percent, non-GAAP earnings per share of fifty-two cents to fifty-four cents, which assumes a share count of between seven seventy-four million dollars and seven eighty million infrastructure investments of eighty to one hundred million dollars, a non-GAAP tax rate of eighteen percent, and cash taxes of thirty to thirty-five million dollars. For the full year, we expect billings in the range of $7.2 billion to $7.4 billion, which at the midpoint represents growth of twelve percent. Revenue in the range of $6.65 billion to $6.85 billion which at the midpoint represents growth of thirteen percent. Service revenue range of $4.575 billion to $4.725 billion, which at the midpoint represents growth of fifteen percent. Non-GAAP gross margin of seventy-nine to eighty-one percent. Non-GAAP operating margin of thirty-one to thirty-three percent, Non-GAAP earnings per share of two dollars and forty-one cents to two dollars and forty-seven cents, which assumes a share count of between seven hundred seventy-three and seven hundred eighty-three million. Infrastructure investments of three hundred and eighty to four hundred and thirty million, and non-GAAP tax rate of eighteen percent, cash taxes between five hundred twenty-five and five hundred seventy-five million. On a personal note, I have made it clear in today's 8-K filing that after a four-decade career in finance, including eleven years at Fortinet, it's time for me to enjoy retirement. I'll continue to serve through the next quarter earnings call and up to May fifteenth and plan to stay at Fortinet to help with the transition through June thirtieth. Importantly, I leave Fortinet in very good hands. Pursuant to our succession plan, Christian Agard, who has served in various roles at Fortinet for almost six years, will take over as CFO when I step down in May. I'd like to thank Ken, Michael, and the Fortinet team and all of you for making this chapter in my life so rewarding. I appreciate the time I've had at Fortinet working with Ken, Michael, the entire team, and certainly with investors and financial analysts. I know, on this one, that is people, customers, it's our noble mission to protect and serve important customers and entities around the world.”