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01/11 16:21
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals strong financial performance with record operating margins, significant revenue growth, and positive cash flow. Despite some hesitancy in guidance due to geopolitical uncertainties, management shows confidence in future growth driven by new product releases and strong enterprise activity. Share repurchases add to shareholder value. The Q&A section highlights some uncertainties, but overall sentiment remains positive with a focus on growth opportunities and market share gains. Given the strong financial metrics and optimistic outlook, a positive stock price movement is anticipated in the short term.
Total Revenue $1.54 billion, up 14% year-over-year, driven by strong product and service revenues.
Product Revenue $459 million, up 12% year-over-year, supported by growth in both hardware and software solutions.
Service Revenue $1.08 billion, up 14% year-over-year, accounting for 70% of total revenue.
Total Billings $1.6 billion, up 14% year-over-year, driven by 18% growth in unified SASE and 29% growth in AI-driven SecOps.
RPO (Remaining Performance Obligations) $6.5 billion, up 12% year-over-year.
Current RPO $3.4 billion, up over 15% year-over-year.
Unified SASE ARR (Annual Recurring Revenue) $1.6 billion, up 26% year-over-year.
SecOps ARR Up 30% year-over-year.
Total Gross Margin 81.9%, up 380 basis points year-over-year, exceeding guidance due to normalized inventory-related charges.
Product Gross Margin 67.7%, up 1200 basis points year-over-year, primarily due to normalized inventory-related charges.
Service Gross Margin 87.8%, down 10 basis points year-over-year, as costs associated with hosted security solutions increased.
Operating Margin 34.2%, up 570 basis points year-over-year, reflecting strong gross margin and cost efficiencies.
Free Cash Flow $783 million, with a margin of 51%, up 6 points year-over-year.
Adjusted Free Cash Flow $839 million, representing a margin of 54%.
Infrastructure Investments $67 million, down $155 million year-over-year due to lower real estate investment.
Share Repurchase Approximately 4.6 million shares repurchased for $401 million in April.
New Product Launch: Fortinet announced the FortiGate 700G series, a high-performance firewall for mid-size businesses and distributed enterprises, powered by FortiASIC technology, delivering a 5 to 10x performance advantage over competitors.
Market Positioning: Fortinet is the number one deployed firewall vendor worldwide and a market leader in SD-WAN and OT security, with strong growth in unified SASE.
Market Expansion: 73% of large enterprise customers have adopted Fortinet's SD-WAN solution, with FortiSASE penetration among large enterprises increasing nearly 10% quarter-over-quarter to 11%.
Operational Efficiency: Record first quarter operating margin of 34.2%, reflecting strong gross margin and cost efficiencies.
Free Cash Flow: Record free cash flow of $783 million, with a margin of 51%.
Strategic Shift: Fortinet is focusing on AI capabilities, holding over 500 issued and pending AI patents, and integrating AI technology into multiple products.
Regulatory Issues: The evolving U.S. tariff situation may impact hardware sales to U.S. customers, although the company does not expect a significant effect on operating margins in the near term.
Economic Factors: The broader economic outlook may influence customer investment decisions, leading to potential top-line risks.
Competitive Pressures: Fortinet faces competition in the SASE market, and the need to maintain innovation and customer satisfaction is critical to retain market leadership.
Supply Chain Challenges: The company noted that only a few components are subject to tariff charges, indicating potential supply chain vulnerabilities.
Foreign Exchange Risks: A weaker U.S. dollar is expected to create an operating margin headwind of approximately 120 basis points in the second quarter and 90 basis points for the full year.
Unified SASE Growth: Unified SASE building growth of 18%, accounting for 25% of the business.
AI-Driven Secure Operations: AI-driven secure operations building increased by 29%, accounting for 10% of the business.
OT Security: OT security is expected to be a key growth driver over the next 5 years.
AI Capabilities: Fortinet holds over 500 issued and pending AI patents, integrating AI technology into a dozen products.
FortiGate 700G Series: Announced a high-performance firewall for mid-size businesses, delivering a 5 to 10x performance advantage.
Q2 Billings Guidance: Expected in the range of $1.685 billion to $1.765 billion, midpoint growth of 12%.
Q2 Revenue Guidance: Expected in the range of $1.59 billion to $1.65 billion, midpoint growth of 13%.
Full-Year Billings Guidance: Expected in the range of $7.2 billion to $7.4 billion, midpoint growth of 12%.
Full-Year Revenue Guidance: Expected in the range of $6.65 billion to $6.85 billion, midpoint growth of 13%.
Operating Margin Guidance: Non-GAAP operating margins of 31.5% to 33.5% for the full year.
Share Repurchase: Approximately 4.6 million shares were repurchased for a total of $401 million during the month of April. The remaining share buyback authorization as of today is approximately $1.6 billion.
The earnings call highlights strong financial performance with optimistic growth guidance, especially in product revenue. The Q&A reveals confidence in product and service adoption, particularly in SD-WAN and OT security, with no significant headwinds. While some responses were unclear, the overall sentiment is positive, driven by growth in strategic areas and integrated solutions. The lack of specific guidance for 2026 does not overshadow the positive outlook for the upcoming quarters.
The earnings call highlights strong growth in Unified SASE and AI-driven secure operations, positive guidance for revenue and billings, and strategic investments in OT security and AI capabilities. Despite some uncertainties in service revenue growth and management's cautious guidance, the overall sentiment is positive, with promising new product developments and market expansion. The Q&A section further supports optimism with strong future growth drivers like SASE and SecOps, outweighing short-term margin impacts. The lack of market cap data prevents a precise prediction, but the sentiment leans towards a positive stock movement.
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