Fortinet Q4 Earnings Surpass Expectations, Sales Increase Y/Y

Fortinet Inc. FTNT reported strong fourth-quarter 2024 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate and improved year over year.Fortinet reported fourth-quarter 2024 non-GAAP earnings per share (EPS) of 74 cents, which beat the Zacks Consensus Estimate by 23.33%. The bottom line climbed 45.1% from the year-ago quarter’s earnings of 41 cents.Find the latest earnings estimates and surprises on Zacks Earnings Calendar.Total revenues of $1.66 billion beat the consensus mark by 4.19% and improved 17% year over year, driven by strong growth in services and product revenues.In the fourth quarter, Fortinet added more than 6,900 new logos, driven by close alignment with channel partners.RPO grew 12% to $6.4 billion and total billings rose 7% to $2 billion, driven by double-digit growth in security operations and Unified SASE.Fortinet, Inc. Stock Price, Consensus and EPS Surprise Fortinet, Inc. price-consensus-eps-surprise-chart | Fortinet, Inc. QuoteFTNT Quarter in DetailSegment-wise, Product revenues increased 17.6% year over year to $574 million, recording the highest growth rate in six quarters, driven by hardware revenue growth of 19%. On a sequential basis, product revenues increased 21% and represented the third quarter in a row with elevated sequential growth. Software license revenues continued the double-digit growth and represented a mid-to-high teens percentage of total product revenues. Service revenues of $1.09 billion grew 17% year over year, accounting for 65% of total revenues. Service revenue growth was driven by SaaS solutions at 130%, which includes Lacework, as well as strong organic services growth in Unified SASE and SecOps. Combined revenues from software licenses and software services, such as cloud, Lacework and other SaaS security solutions increased 41% in the fourth quarter, providing an annual revenue run rate of more than $1 billion.Unified SASE and Security Operations gained considerable traction, with security service edge billings growth of 85%, which drove FTNT’s Unified SASE billings growth to 13%, accounting for 23% of the business. Within Unified SASE, SSE continues to gain traction with ARR growth of 96% as FTNT continues to see early success upselling FortiSASE to a large SD-WAN customer base. FortiSASE deals increased more than 60% and the pipeline was up 90%.  AI-driven Security Operations accounted for 11% of total billings while ARR grew 32%. The company recently enhanced its Security Operations portfolio by acquiring Perception Point, a leader in advanced email and collaboration security. This acquisition strengthens the company’s end-to-end cybersecurity by extending protection beyond email to the entire modern workspace, addressing the growing advanced threat risks in today’s elevated threat environment.Fortinet expanded the Security Operations portfolio with the launch of FortiGate 30G, 50G and 70G next-generation firewalls and unified SASE solution designed for SMB and distributed enterprises, with cutting-edge performance and enhanced security delivering up to 5x to 10x faster throughput and better threat protection than industry averages, and support a wide range of secure network interfaces for remote access. Total deferred revenues were $6.36 billion as of Dec. 31, 2024, representing an increase of 10.9% compared with $5.74 billion as of Dec. 31, 2023.Margins of FTNTTotal gross margin increased 340 basis points (bps) to 81.9% and exceeded the high end of the guided range by 140 bps. Product gross margin of 69.3% increased 920 bps as inventory related charges normalized from last year’s highly elevated levels, adding 840 bps to product gross margin and 290 bps to total gross margin. Service gross margin of 88.6% increased 50 bps to a quarterly record as services revenue growth outpaced labor and hosting cost increases while benefiting from the mix shift toward higher margin FortiGuard security subscription services as well as some early AI-related savings.Operating margin increased 720 bps to a record 39.2% and was 520 bps above the high-end of the company’s guidance, reflecting the strong gross margin, a Fx tailwind of 110 bps, as well as the top line over performance that flowed through to the bottom line.FTNT Balance Sheet & Cash FlowFortinet exited the fourth quarter with cash and cash equivalents and short-term investments of $4 billion, up from the $3.6 billion reported at the end of the third quarter of 2024.Cash flow from operations was $477.6 million for the fourth quarter of 2024 compared with $191.7 million for the same quarter of 2023.Free cash flow was $380 million for the fourth quarter of 2024 compared wth $164.8 million for the same quarter of 2023.FTNT Provides Guidance for Q1 & 2025Fortinet estimates first-quarter revenues in the range of $1.5-$1.6 billion. Billings are estimated in the band of $1.52-$6 billion.The non-GAAP gross margin is expected in the range of 80-81%, while the non-GAAP operating margin is anticipated between 30% and 31%. Non-GAAP EPS is projected in the band of 52-54 cents.For 2025, FTNT predicts revenues in the range of $6.65-$6.85 billion. Services revenues are projected in the range of $4.575-$4.725 billion. Billings are expected in the band of $7.2-$7.4 billion.The non-GAAP gross margin and operating margin are expected in the range of 79-81% and 31-33%, respectively. Non-GAAP EPS is anticipated between $2.41 and $2.47.FTNT Zacks Rank & Other Stocks to ConsiderCurrently, Fortinet carries a Zacks Rank #2 (Buy). Arista Networks ANET, Freshwork FRSH and Canaan CAN are some other top-ranked stocks that investors can consider in the broader sector.While Arista Networks sports a Zacks Rank #1 (Strong Buy), Dell Technologies and Workday carry a Zacks Rank #2 each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.Arista Networks shares have returned 4.2% year to date. ANET is set to report fourth-quarter 2024 results on Feb.18.Shares of Freshwork have returned 13.5% year to date. FRSH is set to report fourth-quarter 2024 results on Feb. 11.Canaan shares have lost 8.7% year to date. CAN is set to report fourth-quarter 2024 results on Feb.10.Free Today: Profiting from The Future’s Brightest Energy SourceThe demand for electricity is growing exponentially. At the same time, we’re working to reduce our dependence on fossil fuels like oil and natural gas. Nuclear energy is an ideal replacement.Leaders from the US and 21 other countries recently committed to TRIPLING the world’s nuclear energy capacities. 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