Fortinet(FTNT) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total billings grew by 18% to $2.37 billion in Q4 2025, driven by strong growth in Unified SASE and operational technology security [13][20] - Total revenue increased by 15% to $1.91 billion, with product revenue up over 20% to $691 million and service revenue growing 12% to $1.21 billion [15][21] - Operating margin was strong at 37.3%, exceeding guidance, while gross margin was 80.3% [20][22] - Free cash flow reached $577 million, representing a margin of 31% [20][23] Business Line Data and Key Metrics Changes - Unified SASE billings grew 40%, representing 27% of total billings, indicating strong demand for cloud security solutions [6][15] - Operational technology solutions saw billings growth of over 25%, driven by demand for both hardware and software [9][14] - AI-driven SecOps billings grew 6% in Q4 and 22% for the full year, with annual recurring revenue (ARR) up 21% [9][15] Market Data and Key Metrics Changes - The U.S. and Europe were the largest contributors to growth in $1 million-plus deals, each delivering more than 30% growth [14] - 16% of large enterprise customers purchased FortiSASE, an increase of over 50%, highlighting continued expansion [13][15] - The company maintains a leading position in the firewall market with a 55% unit market share [5] Company Strategy and Development Direction - The company aims to continue growing faster than the overall market, targeting a billings and revenue CAGR above 12% [10][26] - Focus on integrating networking and security through FortiOS, which enhances performance and reduces total cost of ownership [6][12] - Continued investment in R&D, particularly in AI-driven security and quantum readiness, supports rapid innovation and organic growth [12][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustained growth driven by strong demand across cybersecurity markets, including Secure Networking and Unified SASE [11][32] - The company anticipates service revenue growth to accelerate in the second half of 2026, driven by product revenue growth [24][26] - Management highlighted the importance of addressing supply chain challenges and maintaining healthy margins through strategic pricing [41][42] Other Important Information - The company has a disciplined approach to capital allocation, with a focus on maintaining the Rule of 45 and strong free cash flow generation [12][13] - A $1 billion increase in the authorized stock repurchase amount was approved by the board of directors [20] Q&A Session Summary Question: What drove the strength in Unified SASE billings and the strong guidance for 2026? - Management attributed the 40% growth in Unified SASE to unique advantages such as Sovereign SASE and the integration of network security, SD-WAN, and SASE on a single OS [30][31] Question: How is the company navigating the current environment regarding memory prices? - The company has prepared for supply chain issues by maintaining inventory and adjusting prices to manage margins effectively [41][42] Question: What is the revenue mix between Sovereign and public SASE? - Management indicated that the Sovereign SASE market is likely larger than the public SASE market, with strong growth expected due to a lack of competition in this area [49] Question: How does the company view the potential for AI to impact cybersecurity? - Management sees AI as an opportunity to enhance cybersecurity measures and control data leakage, with significant demand for AI-driven solutions [36][38] Question: What is the company's approach to M&A? - The company remains open to M&A opportunities, particularly in secure operations, but emphasizes a disciplined approach to acquisitions [86]