How did Fortinet perform in the fourth quarter of 2023?

Total revenue rose 10.3% to $1.42 billion, and billings grew 8.5% to $1.86 billion. GAAP operating margin was 27.2% and non-GAAP operating margin was 32.0%. Service revenue growth of 24.8% offset a 9.6% decline in product revenue. GAAP diluted EPS was $0.40 and non-GAAP diluted EPS was $0.51.

What is Fortinet's guidance for 2024?

For fiscal 2024, Fortinet expects revenue of $5.715 to $5.815 billion, service revenue of $3.920 to $3.970 billion, billings of $6.400 to $6.600 billion, non-GAAP operating margin of 25.5% to 27.5%, and non-GAAP diluted EPS of $1.65 to $1.70. For Q1 2024, it expects revenue of $1.300 to $1.360 billion and non-GAAP diluted EPS of $0.37 to $0.39.

Why did Q4 operating cash flow decline so sharply?

Q4 operating cash flow was $191.7 million versus $528.1 million a year earlier. The filing does not give a detailed explanation for the quarter alone. Full-year operating cash flow still rose to $1.94 billion from $1.73 billion, and the balance sheet shows inventory up to $484.8 million from $264.6 million, which suggests working capital timing played a role.

How is Fortinet returning capital to shareholders?

Fortinet repurchased 27.2 million shares for $1.50 billion in 2023 at an average price of $55.25. In January 2024, the board increased the repurchase authorization by $500 million, and about $1.03 billion remained available as of February 6, 2024. The company has repurchased $5.31 billion of stock since 2020.

Is Fortinet's growth shifting toward services?

Yes. In 2023, service revenue was $3.38 billion, up 28.1%, and made up about 64% of total revenue, compared with about 60% in 2022. Product revenue grew only 8.2% for the full year and declined 9.6% in Q4, while deferred revenue of $5.74 billion provides a multi-year base of recurring income.

FTNT 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 6, 2024. Cited figures are marked; the original filing is the authoritative source.

Fortinet (FTNT) reported Q4 and full-year 2023 results on February 6, 2024, showing strong top-line growth driven by services.

Q4 total revenue rose 10.3% year over year to $1.42 billion^a, with service revenue up 24.8% to $927.0 million while product revenue fell 9.6% to $488.1 million. Full-year revenue grew 20.1% to $5.30 billion, billings rose 14.4% to $6.40 billion, and deferred revenue reached $5.74 billion, up 23.6%. GAAP operating margin for the year was 23.4% (versus 21.9% in 2022), and non-GAAP operating margin was 28.4%.

GAAP diluted EPS was $1.46^b and non-GAAP diluted EPS was $1.63, up 37% year over year. Cash generation remained robust, with full-year operating cash flow of $1.94 billion and free cash flow of $1.73 billion. The company repurchased $1.50 billion of stock in 2023 and, in January 2024, the board added $500 million to the buyback authorization, leaving roughly $1.03 billion available as of February 6, 2024.

Q4 GAAP operating margin compressed to 27.2% from 27.9% a year earlier, and Q4 operating cash flow fell sharply to $191.7 million^c from $528.1 million, partly reflecting working capital and inventory build. For 2024, management guided revenue of $5.715 to $5.815 billion, billings of $6.40 to $6.60 billion, and non-GAAP diluted EPS of $1.65 to $1.70.

Q1 2024 guidance called for revenue of $1.300 to $1.360 billion^d and non-GAAP EPS of $0.37 to $0.39. The guidance implies a slowdown in growth versus 2023, which investors will likely scrutinize given the company's strong Security Operations and SASE billings momentum.

02—Key points

Key Highlights

Full-year 2023 revenue grew 20.1% to $5.30 billion, led by service revenue, which rose 28.1% to $3.38 billion.
Q4 2023 product revenue declined 9.6% year over year to $488.1 million, while service revenue grew 24.8% to $927.0 million.
Full-year 2023 billings reached $6.40 billion (up 14.4%) and deferred revenue reached $5.74 billion (up 23.6%), supporting future revenue visibility.
GAAP diluted EPS was $1.46 for 2023 (up 38%), and non-GAAP diluted EPS was $1.63 (up 37%).
Full-year free cash flow was $1.73 billion, and the company repurchased $1.50 billion of stock in 2023, with about $1.03 billion remaining under the authorization as of February 6, 2024.
2024 guidance calls for revenue of $5.715 to $5.815 billion and non-GAAP diluted EPS of $1.65 to $1.70, implying slower growth than 2023.
Q4 2023 operating cash flow fell to $191.7 million from $528.1 million a year earlier, a notable deceleration in cash generation.

03—Questions

Frequently Asked Questions

How did Fortinet perform in the fourth quarter of 2023?
Total revenue rose 10.3% to $1.42 billion, and billings grew 8.5% to $1.86 billion. GAAP operating margin was 27.2% and non-GAAP operating margin was 32.0%. Service revenue growth of 24.8% offset a 9.6% decline in product revenue. GAAP diluted EPS was $0.40 and non-GAAP diluted EPS was $0.51.
What is Fortinet's guidance for 2024?
For fiscal 2024, Fortinet expects revenue of $5.715 to $5.815 billion, service revenue of $3.920 to $3.970 billion, billings of $6.400 to $6.600 billion, non-GAAP operating margin of 25.5% to 27.5%, and non-GAAP diluted EPS of $1.65 to $1.70. For Q1 2024, it expects revenue of $1.300 to $1.360 billion and non-GAAP diluted EPS of $0.37 to $0.39.
Why did Q4 operating cash flow decline so sharply?
Q4 operating cash flow was $191.7 million versus $528.1 million a year earlier. The filing does not give a detailed explanation for the quarter alone. Full-year operating cash flow still rose to $1.94 billion from $1.73 billion, and the balance sheet shows inventory up to $484.8 million from $264.6 million, which suggests working capital timing played a role.
How is Fortinet returning capital to shareholders?
Fortinet repurchased 27.2 million shares for $1.50 billion in 2023 at an average price of $55.25. In January 2024, the board increased the repurchase authorization by $500 million, and about $1.03 billion remained available as of February 6, 2024. The company has repurchased $5.31 billion of stock since 2020.
Is Fortinet's growth shifting toward services?
Yes. In 2023, service revenue was $3.38 billion, up 28.1%, and made up about 64% of total revenue, compared with about 60% in 2022. Product revenue grew only 8.2% for the full year and declined 9.6% in Q4, while deferred revenue of $5.74 billion provides a multi-year base of recurring income.

04—Continue

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