Fortinet Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jonathan Eisenson - Morgan Stanley - Analyst : This is Jonathan Eisenson on for Hamza. First off, Keith, congratulations on your career, and best of luck with retirement and with your next endeavors. So Ken, for you, so I believe some of the hyperscalers like Oracle are big customers and partners with Fortinet. So just curious, as you have Oracle and some of the other hyperscalers building out new data centers, just curious to what extent Fortinet is involved in securing these.

Question: Tal Liani - Bank of America - Analyst : It's an honor for me to ask a question after John, my ex-associate across the line. But I want to ask you two things, number one is about billings. Why is billing weak and weak guidance? And the second question is product revenues outperformed so much this quarter. And that might be a cycle, refresh cycle, 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?

Question: Tal Liani - Bank of America - Analyst : I'm asking billing in general. So billing for the fourth quarter was better, but billing for the first quarter is weaker. So why is the weakness in billing?

Question: Gabriela Borges - Goldman Sachs - Analyst : I would love to hear a little bit more on the refresh opportunity for this year. I know you've broken it out for us in product versus crosssell in a couple of different ways. I wanted to ask you specifically about the implications for subscription revenue as you see the hardware come up for renewal and as you sell some of the networking components on the hardware side and to our installed base. So either for Keith or maybe Christiane, how do you think about the implications for subscription, specifically as hardware comes up?

Question: Brian Essex - JP Morgan - Analyst : Keith, I thought when you started with key highlights for the quarter, your retirement would be up to the top. (laughter) But seriously, it's been a real pleasure working with you, and best of luck on the retirement, well deserved. And Christiane looking forward to working with you. So congratulations on the appointment as CFO. I guess the question I had was with regard to the billings guide for this next fiscal year. Would love it if -- maybe Christiane, if -- I think you've done a lot of work on it, if you could unpack the assumptions behind that? How much is upgrade growth of SecOps and SASE, and how much is product-related refresh cycle baked into that? And maybe if you could share an exit rate, that would be super helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 9:30PM, FTNT.OQ - Q4 2024 Fortinet Inc Earnings Call

Question: Brian Essex - JP Morgan - Analyst : I guess overall for billings. And then maybe if you can Help us understand how much product revenue is baked into that. But really just trying to get a sense of the trajectory that you're baking into billings to kind of get to that full-year billings guidance that you have.

Question: Brian Essex - JP Morgan - Analyst : Okay. That's helpful. And does that require like the exit rate in 4Q of like teens, like high-teens billings growth? Or are you expecting a more moderate build throughout the year?

Question: Fatima Boolani - Citi - Analyst : Keith, congratulations. I hope you very much have an enjoyable ride into the sunset. It's been terrific partnering with you. I wanted to go back to some of the commentary you made on the tariff impact. I did want to dig into that a little bit. So I think there is a significant amount of uncertainty from these tariffs. They're influx; there's some potential retaliatory policies being thrown around. So I both wanted to dig into some of the demand comments you made and how far ranging those are, and how they are being contemplated in guidance? And then also from a supply chain perspective, how is that influencing or potentially impacting your supply chain and ultimately COGS and gross margins? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 06, 2025 / 9:30PM, FTNT.OQ - Q4 2024 Fortinet Inc Earnings Call

Question: Shaul Eyal - TD Cowen - Analyst : Congrats on results. Congrats, Keith, and congrats, Christiane. Keith, my question maybe builds a little bit on the prior question but touches more specifically on your US performance. This year, you had, I think, this quarter, the best quarterly performance in 2024. Do you see that being sustained into 2025 given some of your prior investments? What are the plans specifically as it relates to US sales operations?

Question: Rob Owens - Piper Sandler - Analyst : Great, and thanks for taking my question. I was hoping you could expand a little bit just on the Linksys relationship and what you hope it brings. And I know can you did outline some expectations relative to revenue and billings, but just strategically where it positions you better?

Question: Eric Heath - KeyBanc - Analyst : Keith, congrats as well. So Keith and Christiane, I wanted to understand a little bit just ahead of the refresh opportunity that's starting in the second half. How should we be thinking about inventory levels in anticipation of that demand? And then secondly, maybe to follow on to Brian's earlier question, just the assumptions embedded in the product guidance specifically from the end of service refresh, are you assuming half of that $400 million to $450 million opportunity happens in 2025?

Question: Saket Kalia - Barclays - Analyst : I tip my cap to both of you on your respective exciting next steps. So very clear numbers and a lot of helpful questions. Keith and Christiane, maybe I'll ask just a couple of housekeeping questions, if I may. First, can you just remind us -- I think you touched on it a little bit. Can you remind us how big LatAm and Canada are just in terms of percentage of billings. And then maybe on top of that, can you just remind me of the 12% growth that we're guiding to roughly in 2025, how much of that is organic versus inorganic?

Question: Max Perisco - Stifel - Analyst : You've got Max on here for Adam at Stifel. Over the last few quarters, we've talked about SASE and SecOps billings coming primarily from existing customers. So as we look out into '25, just wondering what the opportunity is for SASE and SecOps to become a more meaningful contributor to new logos? And do you -- or do you expect that to kind of remain as primarily an upsell motion?

Question: Shrenik Kothari - Baird - Analyst : Just really solid Unified SASE growth rates you guys are seeing increased penetration among larger enterprises which in the earlier commentary was still building momentum. So just curious, Ken, help provide an update on such like incentive, which are tied to they're upselling SASE SecOps and how these incentives are impacting overall kind of property metrics, deal conversion. And then I had a follow-up question as well.

Question: Junaid Siddiqui - Truist Securities - Analyst : Keith and Christiane, congrats to both of you. Keith, you mentioned SMB being one of the top-performing customer segments, which is a bit different from what we hear from some of the other vendors. I was just curious what is underpinning that demand? And what are you seeing that others are not?

Question: Joseph Gallo - Jefferies - Analyst : Keith, congrats on the much-deserved retirement. And congrats to Christiane, look forward to working more with you. It was great to hear about the early end-of-life refresh demand. In those early renewals, how has the average deal size increased versus four years ago? I'm just trying to understand how you're thinking about the size of the cross-sell opportunity versus that $450 million product refresh?

Question: Ittai Kidron - Oppenheimer & Co - Analyst : Congrats as well for both of you, Keith and Christiane. Good luck and enjoy retirement, Keith, you earned it. A couple of questions for me, just again on this upgrade cycle. If you know the devices and you can ping them and you know exactly where they are and when they get retired for the vast majority, can you just be a little bit more specific on what was the contribution of this upgrade to revenue this past quarter? And what is the exact dollar contribution you expect from the upgrade in your '25 guide? And the second question is for Ken on SASE. Great to see the progress in adoption over there. Can you comment, though, of how much of the adoption with the large enterprise is against brownfield displacement of all SASE solutions or walking into a vacuum? Would love to understand how much of your footprint in your opinion as something that you need to displace versus you're stepping into a vacuum.