Release Date: May 07, 2025

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

Positive Points

• Fortinet Inc (FTNT, Financial) reported a strong first quarter with billing revenue growth of 14% and a record operating margin of 34%.
• The company achieved a record free cash flow of $783 million, with a margin of 51%.
• Fortinet Inc (FTNT) saw significant growth in secure operations and unified SASE, with security service edge billing growth of over 110%.
• The company is recognized as the number 1 deployed firewall vendor worldwide and a market leader in SD-WAN and OT security.
• Fortinet Inc (FTNT) continues to invest in AI capabilities, holding over 500 issued and pending AI patents, and integrating AI technology into multiple products.

Negative Points

• There is uncertainty in the macroeconomic environment, which could influence customer investment decisions.
• The company is facing potential headwinds from US tariffs, although the impact is currently limited.
• Fortinet Inc (FTNT) is cautious about the broader economic outlook, maintaining its full-year billings and revenue guidance ranges.
• The company noted some hesitancy from sales teams due to geopolitical uncertainties and macroeconomic news.
• There is a potential risk of customers delaying purchases due to the evolving geopolitical environment and economic conditions.

Q & A Highlights

Q: Can you explain the dynamics behind the maintenance and services revenue, and how do you expect it to grow throughout the year? A: Christiane Ohlgart, Chief Accounting Officer, explained that the quarter-over-quarter decline was affected by Q4 having two more days than Q1, impacting the daily rate going into revenue. The growth of acquired entities and their revenue streams also needs more time, impacting Q1 service revenue. Kenneth Xie, CEO, added that FortiGate growth above billing growth will drive future service revenue, with more services being added on top of FortiOS.

Q: Why is there some lightness in the guidance for the next quarter despite expectations of demand coming forward? A: Kenneth Xie, CEO, mentioned that there is still some uncertainty due to geopolitical factors, so they are being cautious. Christiane Ohlgart added that while they see good momentum and close rates, sales teams are hesitant due to macroeconomic news, leading to a cautious approach in guidance.

Q: What are some of the conversations sales is having with customers, and what are the reasons for hesitancy in committing to purchases? A: Christiane Ohlgart noted that feedback from events has been positive, and channel activity is strong. However, macroeconomic news creates hesitancy until purchase orders are finalized. They haven't seen delays yet but remain cautious about future developments.

Q: What gives you confidence in a stronger second half, and how much of that strength is implied in the guidance? A: Christiane Ohlgart stated that the second half strength is implied in the guidance due to harder comparisons. Confidence comes from new product releases and improvements in total cost of ownership and security. Kenneth Xie added that they are gaining market share in secure networking, unified SASE, and Secure Op, despite overall market uncertainties.

Q: Can you discuss the impact of tariffs on hardware sales to US customers and any steps to mitigate these impacts? A: Christiane Ohlgart mentioned that they do not expect significant tariff impacts in Q1 or Q2 as only a few products are subject to tariffs. Kenneth Xie added that their ability to relocate manufacturing and maintain inventory provides a buffer against tariff impacts.

Q: How is the unified SASE business scaling, and what solutions are typically being replaced at customers? A: Kenneth Xie explained that they are replacing traditional VPNs and other SASE competitors. Their integrated single OS platform and global infrastructure provide cost and security advantages, leading to growth in the unified SASE business.

Q: What is driving strength in EMEA, and are you seeing traction in APAC from modernization initiatives? A: Christiane Ohlgart highlighted strength in OT and government sectors in EMEA, with modernization initiatives also driving growth in APAC, particularly in government and other areas.

Q: How are investments in enablement progressing, and what have you seen from competitors regarding the upcoming refresh opportunity? A: Christiane Ohlgart noted that they don't see significant competition in their end-of-support cohort. Channel incentives are in place to execute on new products combined with more services, especially in the lower end of the market.

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