Fortinet, Inc. (NASDAQ:FTNT) Q4 2025 Earnings Call Transcript

Fortinet, Inc. (NASDAQ:FTNT) Q4 2025 Earnings Call Transcript February 5, 2026

Fortinet, Inc. beats earnings expectations. Reported EPS is $0.81, expectations were $0.743.

Operator: Hello, and welcome to Fortinet’s Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that this call is being recorded. I would now like to hand the call over to Anthony Luscri, Vice President of Investor Relations. Please go ahead.

Anthony Luscri: Thank you. Good afternoon, and thank you for joining us on today’s conference call to discuss Fortinet’s fourth quarter and full year 2025 financial results. Joining me on today’s call are Ken Xie, Fortinet’s Founder, Chairman and CEO; Christiane Ohlgart, our CFO; and John Whittle, our COO. Ken will begin our call today by providing a high-level perspective on our business. Christiane will then review our financial results for the fourth quarter and the full year of 2025 before providing guidance for the first quarter and full year 2026. We will then open the call for questions. During the Q&A session, we will ask you to please limit yourself to 1 question and 1 follow-up question to allow others to participate.

Before we begin, I’d like to remind everyone that on today’s call, we will be making forward-looking statements, and these forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those projected. Please refer to our SEC filings, in particular, the risk factors in our most recent Form 10-K and Form 10-Q for more information. All forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation and specifically disclaim any obligation to update forward-looking statements. Also, all references to financial metrics that we make on today’s call are non-GAAP, unless stated otherwise. Our GAAP results and GAAP to non-GAAP reconciliations are located in our earnings press release and in the presentation accompanying today’s remarks, both of which are posted on our Investor Relations website.

As a reminder, this is a live call that will be available via replay via a webcast on the Investor Relations website. The prepared remarks will also be posted on the quarterly earnings section of our Investor Relations website following today’s call. Lastly, all references to growth are on a year-over-year basis unless noted otherwise. I’ll now turn over the call to Ken.

Ken Xie: Thank you, Anthony, and thank you to everyone for joining our call. We are very pleased with our excellent fourth quarter growth, driven by broad-based demand across our platform as billing increased 18% and revenue grew 15%, driven by product revenue growth of 20%. Operating margin was strong at 37%, reflecting our continued focus on balancing growth and profitability. Secure networking billing grew 13%, outperforming the overall secure networking market as we continue to gain market share. Fortinet remained the #1 firewall leader with a 55% unit market share and the highest product revenue among our cybersecurity security peers. Fortinet has led the convergence of networking and security for over 25 years, and secure networking is expected to surpass the traditional networking by the end of this year.

Our firewall leadership is driven by FortiOS, which unified the networking and security, and our FortiASIC technology, delivers 5x to 10x better performance than competitors while lowering the total cost of ownership and energy consumption, which provide a large advantage and a scale — and securing AI data center. We will introduce the FortiOS 8.0 at the Fortinet’s Annual Customer and Partner Conference, Accelerate in March, featuring significant and new capability in security and networking, especially in AI security, such as agentic AI security in enterprise, plus a new bundled SD-WAN and SASE service. We also recently partnered with NVIDIA to leverage their BlueField-3 DPU to secure AI infrastructure. Unified SASE billing grew 40% representing 27% of our total billing, supporting our belief that Fortinet is the fastest growing SASE leader at scale.

Our momentum is powered by 3 key advantages. First, Fortinet uniquely integrates next-gen firewall, SD-WAN and SASE on a single OS FortiOS. Running on-premise or in the cloud, allowing customers to expand SASE in minutes and driving upsell across a large customer base. Second, we’re supporting both Sovereign SASE and Public SASE. Sovereign SASE enabled enterprise and service provider to deploy SASE in their own data center to meet the data privacy, sovereignty and the compliance requirement. We are seeing strong demand in Sovereign SASE, and none of our major SASE competitors offer Sovereign SASE solution, making Fortinet’s total Unified SASE addressable market significantly greater than our peers. Third, our owned and long-term invested global cloud infrastructure FortiCloud delivers high performance and security at roughly 1/3 of the total cost of ownership of our peers.

These differentiators position Fortinet as a leader in the 2025 Gartner Magic Quadrant for SASE platform as we continue to be the leader in SD-WAN and believe we’ll be the #1 Unified SASE within the next few years. AI-driven secure billing grew 6% in the fourth quarter and 22% for the full year, while ARR was up 21%. Our strong performance was driven by more than 20 AI power solutions as customers consolidate multiple security vendors on to Fortinet’s platform. In addition, Fortinet’s leadership in security also extend to operational technology and the cyber-physical systems, offering enhanced visibility, robust threat protection and secure connectivity. The demand for OT solution has driven significant growth, with billing up more than 25%.

Finally, we reaffirmed the midterm target we shared at our Analyst Day, reinforcing our commitment to continue to grow faster than the overall market, including delivering billing and revenue CAGR above the market growth of 12% and achieving the Rule of 45. I would like to thank our employees, customers, partners and suppliers worldwide for their continued support and hard work. I will now turn the call over to Christiane.

Christiane Ohlgart: Thank you, Ken, and good afternoon, everyone. As Ken mentioned, we are very pleased with our strong fourth quarter performance, exceeding the high end of guidance across billings, total revenue and operating margins. This outperformance reflects solid global execution and broad-based demand for our solutions, with product revenue growth accelerating in the second half of the year. We are well positioned to deliver durable long-term growth as a leader in large and rapidly expanding cybersecurity markets, including secure networking, Unified SASE and security operations. This opportunity is supported by strong secular tailwinds such as vendor consolidation, the convergence of security and networking, ongoing technology upgrades and the expansion of enterprise attack surfaces across cloud, OT and AI.

Our strong network security foundation drives adoption of SD-WAN, SASE and SecOps while creating significant opportunities to upsell integrated solutions across enterprise customers. Building on these market dynamics, our leadership in secure networking, combined with our Unified FortiOS operating system and broad platform, enables customers to deploy security anywhere across private, public and hybrid multi-cloud environments and in any form factor, including hardware, software and SASE. As a result, our platform approach drives strong customer expansion, increases wallet share and supports growth across both existing and new markets. In addition, we benefit from durable competitive advantages through our proprietary ASIC technology and single integrated operating system, which delivers superior performance, lower total cost of ownership and meaningful differentiation versus peers.

At the same time, continued investment in R&D across custom silicon, OS convergence, AI-driven security, quantum readiness and Fortinet own cloud infrastructure supports rapid innovation and organic growth. Finally, our highly diversified business across geographies, customer segments and industry verticals reduces volatility and enhances resilience across economic cycles. Complementing this diversification, we operate a strong and balanced model with the Rule of 45 plus profile, robust recurring revenues, strong free cash flow generation, a solid balance sheet and a disciplined shareholder-focused capital allocation strategy. This balanced model supports our confidence in our 2026 guidance and continued long-term shareholder value creation.

Now moving to an overview of our strong fourth quarter results. Total billings grew by 18% to $2.37 billion, driven by strong growth in Unified SASE, OT security and success in large enterprises in the U.S. and Europe. Unified SASE billings grew 40%, driven by growth in cloud security solutions. Furthermore, SASE adoption momentum has remained strong, as 16% of our large enterprise customers have purchased FortiSASE, an increase of over 50%, highlighting our continued expansion of FortiSASE in our customer base. Operational technology use cases continue to contribute strong growth to our success with billings growth of over 25%, with broad-based demand for both our hardware and software solutions. And our continued momentum in large enterprise drove growth in the fourth quarter as the number of deals greater than $1 million increased by over 30%, while the total deal value grew by over 40%.

The U.S. and Europe were the largest contributors to growth in $1 million-plus deals, each delivering more than 30% growth. In addition, we continue to expand our customer base. 7,200 new organizations selected our Unified FortiOS platform, reinforcing our strong position across all market segments. With regards to ARR, Unified SASE increased by 11% to $1.28 billion, which included an increase of over 90% for FortiSASE ARR, while SecOps ARR increased by 21% to $491 million. Total revenue grew 15% to $1.91 billion. Product revenue increased by over 20% to $691 million, reflecting broad-based growth driven by strong performance across our product portfolio as we continue to gain market share. Both hardware and software grew 20%, supported by technology upgrades, upselling and expansion into new use cases.

Service revenue grew 12% to $1.21 billion, reflecting lower product revenue in 2024, while service billings growth was strong at 18% in Q4. As a reminder, we view product revenue growth as a leading indicator of future service revenue growth, as shown on Slide 20 of the earnings presentation. Now I’d like to highlight some key deals that demonstrated our market leadership and customer expansion. In the competitive 7-figure upsell deal, a large consumer services company and existing 41 SD-WAN customer selected FortiSASE to secure more than 10,000 users as part of its next-generation access and security transformation. The win was driven by our single OS approach that tightly integrates SD-WAN and SASE, enabling rapid expansion to SASE and delivering strong performance at a meaningfully lower total cost of ownership.

The customer chose Fortinet for our Unified FortiOS operating system, which reduces complexity by enabling a single consistent security policy across FortiSASE and FortiGate devices while leveraging our globally distributed PoPs. By integrating our PoPs into their existing SD-WAN fabric, the customer has simplified centralized policy management and enabled secure private access at scale, which highlights our platform model. Next, a leading global data center provider supporting AI and cloud workloads signed an 8-figure deal with Fortinet to support its rapid global expansion. The customer selected Fortinet for a predictable, scalable investment model that aligns security growth with its accelerated data center build out. As the company standardizes on our FortiGate, FortiSwitches and FortiAPs, our solutions will streamline operations across IT and OT environments, including critical power, cooling and physical security systems.

This strategic partnership enables the customer to scale security and consistently, supporting its long-term global growth strategy. In another key win, a major utility company expanded its partnership with us through a high 7-figure agreement to secure its operational technology environment. The deal includes a comprehensive set of solutions covering network segmentation, identity and access management and zero-day threat detection across the utility’s advanced distribution management system along with the adoption of FortiAI. This competitive win was driven by our ability to automate critical security operations, our proven expertise in protecting critical national infrastructure and a compelling price for performance advantage. Lastly, in the competitive displacement win, a Fortune 100 company signed an 8-figure multiyear agreement for Unified SASE, selecting our virtual firewall solution to secure approximately 1,800 store locations.

The customer chose FortiGate VM through our FortiFlex points-based consumption program, which supports flexible hybrid firewall deployments and a broad set of security solutions. Fortinet was selected after a highly competitive evaluation due to the flexibility of the program and our ability to meet demanding technical requirements at scale, enabling the customer to consolidate security on a single architecture while gaining deployment flexibility, centralized management and long-term cost efficiency to support future growth. Turning to margins and cash flow. Total gross margin of 80.3% was better than expected, which is especially impressive given the strong product revenue growth and related mix shift. Operating margin of 37.3% exceeded the high end of the guidance mainly due to stronger-than-expected revenue growth and cost management.

Free cash flow was very strong at $577 million, and adjusted free cash flow was $589 million, up $130 million and represented a margin of 31%. We repurchased approximately 730,000 shares of common stock for $57 million during the fourth quarter and an additional 4.6 million shares for $356 million quarter-to-date. In January, our Board of Directors approved a $1 billion increase in the authorized stock repurchase amount, and the remaining share repurchase authorization as of today is approximately $1.4 billion. Turning to our full year 2025 results, where we once again exceeded the Rule of 45 for the sixth consecutive year. Billings grew 16% to $7.55 billion. Our faster-growing pillars of Unified SASE and SecOps grew a combined 24%, representing a 2-point mix shift year-over-year and 6 points over the past 2 years.

The 2 pillars now make up 36% of total billings, reflecting the value of our integrated platform approach and the convergence of security and networking and success in cross-selling our other solutions. Total revenue grew 14% to $6.8 billion, driven by strong product revenue growth of 16%. Service revenue grew 13% to $4.58 billion, representing 67% of total revenue. Gross margin of 81.3% was flat despite the shift to product revenue and investments in the build-out of our data center infrastructure. Operating margin increased 50 basis points to a record of 35.5%, resulting in operating income of $2.41 billion, which is up 16%. Our GAAP operating margin of 30.7% continues to be 1 of the highest in the industry. Earnings per share increased 16% to $2.76.

Free cash flow was a record of $2.21 billion, representing a margin of 33%, while adjusted free cash flow was $2.5 billion, representing a margin of 37%. Our adjusted free cash flow CAGR of greater than 20% over the past 5 years demonstrates the strength of our business model. Now moving on to guidance. As a reminder, our first quarter and full year outlooks, which are summarized on Slides 24 and 25, are subject to the disclaimers regarding forward-looking information that Anthony provided at the beginning of the call. For the first quarter, we expect billings in the range of $1.77 billion to $1.87 billion, which at the midpoint represents growth of 14%. Revenue in the range of $1.7 billion to $1.76 billion, which at the midpoint represents growth of 12%.

Non-GAAP gross margin of 80% to 81%, non-GAAP operating margin of 30% to 32%, non-GAAP earnings per share of $0.59 to $0.63, which assumes a share count between 746 million and 750 million, infrastructure investments of $80 million to $ 120 million, a non-GAAP tax rate of 18%, cash taxes of $45 million to $50 million. For the full year, we expect to achieve the Rule of 45 for the seventh consecutive year and expect billings in the range of $8.4 billion to $8.6 billion, which at the midpoint represents growth of 13%, revenue in the range of $7.5 billion to $7.7 billion, which at the midpoint represents growth of 12%. Service revenue in the range of $5.05 billion to $5.15 billion, which at the midpoint represents growth of 11%. We expect service revenue growth to pick up in the second half of 2026, driven by accelerating product revenue growth in 2025 as a key leading indicator.

Non-GAAP gross margin of 79% to 81%, non-GAAP operating margin of 33% to 36%; non-GAAP earnings per share of $2.94 to $3, which assumes a share count of between 747 million and 753 million; infrastructure investments of $350 million to $450 million; non-GAAP tax rate of 18%; cash taxes of $350 million to $400 million. Before we open it up for Q&A, I just wanted to share a few modeling considerations. As a reminder, the majority of our service revenue is recognized ratably on a daily basis, and the first quarter this year has 2 fewer days than Q4. From a margin perspective, our first quarter operating margin guidance reflects the timing of several marketing events. Additionally, the recent weakness of the U.S. dollar may create a modest headwind in the first quarter.

And finally, we plan to repay the first tranche in the amount of $500 million of our senior debt at maturity at the end of the first quarter. This, alongside lower market interest rates, will reduce net interest income for the year. As we look to 2026 and beyond, we are confident in our growth strategy, driven by significant secular tailwinds such as rising cybersecurity spend, the convergence of security and networking, vendor consolidation and the increasing need to secure AI and OT environments. We believe we can sustain product revenue growth of 10% to 15% over the midterm on average and reaffirm the midterm targets shared at our Analyst Day, including delivering billings and revenue CAGR above 12% and achieving the Rule of 45. Reinforcing our commitment to continued growth beyond that of the overall market.

Our leadership in innovation and price for performance enables the lower total cost of ownership across secure networking, Unified SASE and SecOps, positioning us to outperform the overall market. We are well positioned to deliver durable long-term growth considering our highly diversified, cash-generative and profitable business. I will now hand the call back over to Anthony to begin the Q&A session.

Anthony Luscri: Thank you, Christiane. As a reminder, during the Q&A session, we ask that you please limit yourself to 1 question and 1 follow-up question to allow others to participate. Operator, please open the line for questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Shaul Eyal at TD Cowen.

Shaul Eyal: Thank you so much. Good afternoon, everybody. Congrats. Ken, I’m interested in what drove the strength or the change that you’ve seen during the quarter, specifically the Unified SASE billings and the strong guide? What gives you confidence into 2026?

Ken Xie: Yes, that’s a great question, Shaul. Thank you. Actually, you can see the Unified SASE grew 40%. That’s where we see probably the fastest-growing Unified SASE vendor and scale. Because the 3 unique advantages I mentioned, first, actually, the Sovereign SASE, we see very, very strong growth. I believe the Sovereign SASE market is probably even bigger than the current Public SASE. That’s all the other vendors doing right now. But we don’t see any of them try to get in the Sovereign SASE or have the function to supporting Sovereign SASE, which we kind of designed the SASE in the beginning, try to supporting our service provider and all these things, which is all kind of Sovereign SASE approach. That’s have a huge growth and sovereign SASE usually buy the product first, then deploying the customer or service provider data center and then we will keep supporting with additional service.

So that’s a huge market opportunity. We believe we are the only leader in the space for the Sovereign SASE. Second, we have 3 functions into single OS: network security, SD-WAN and SASE. That actually gave us a huge advantage, levering our huge customer base. None of our competitors has this advantage. And that’s making us grow very, very quickly, both our sales and the partners see the huge advantage and starting to ramp up very, very quickly. And then also long term, because of our investment in the infrastructure. So we do see — we have a cost advantage. So our cost is about 1/3 compared to some of the competitors, right? So that’s also we can pass all this kind of cost savings to customers and play the long-term game. That we see drive very strong growth of Unified SASE.

Maybe Christiane and John have some other point?

Christiane Ohlgart: Yes. So I think we saw a really good traction on our execution in Q4, and it was very broad-based. So as you heard from me, I mean we were great in enterprise. We executed well on the OT side. We had successes in SASE. AI was a big driver. So that gives us significant confidence for 2026 that these growth drivers are going to continue because the demand is definitely there.

John Whittle: I would just say, obviously, the cybersecurity market is growing really nicely. As Ken highlighted, we have a lot of competitive advantages where we feel like we can grow faster than the market and faster than each of the 3 pillars that we focus on, as we did throughout 2025. And we see a lot of different growth drivers amongst the 3 pillars, the OT momentum. We see opportunities with AI and with quantum. And when you look at our business, it’s really diversified in a number of ways, geographically based on customer segments and also industry verticals. And then if you look at our solution sets as well is diversified amongst the 3 pillars that we focus on. And when we focus, we have a track record of doing really, really well.

If you look at what we did at SD-WAN, we focused and did really, really well, starting around 2018 or so and really grew that business. And we’re really focused on Unified SASE in these other areas as well and expect to do well just like we’ve done in the past.

Shaul Eyal: Got it. Maybe just a brief follow-up. Ken or team, what are your views on AI [ eating ] software, specifically as it relates to cybersecurity? We have seen — we’re sitting here in front of the screens. We probably — everyone else, my peers here, seeing software demise. Cyber has been holding a little better. But I think today, the past few days, it hasn’t been fun at all. Just curious as to your views whether security actually augments AI or maybe it’s the other way around?

Ken Xie: Yes, AI is definitely changing the — especially enterprise landscape. Some software probably also need to be changing to see whether they take advantage of the AI or they kind of falling behind, which led AI to [ eat ] some of the software. But on the other side, we do see AI as an opportunity in the cybersecurity space because also how to control some of the AI. We do see in the enterprise environment as kind of — see some strong demand in whether internal segmentation to kind of control some of agentic AI or some other data leakage provision. So on the other side, the AI data center also, we see some huge opportunity there. I think we will present more detail in the next month’s Accelerate. If you see some of the presentation I did in the last few Accelerate, like 6 years ago.

I do see the edge will eat the cloud and handheld mobile. So that’s where I think some time — some of this like edge AI solution and the immersive technology with AI, I think, it would be kind of changing some of the traditional weather software infrastructure, which we keep invest, we’re keeping — kind of prepared this in the last 5 to 10 years. So we see this as an opportunity to both leverage AI and also helping enterprise to secure the AI.

Operator: Our next question comes from Saket Kalia at Barclays.

Saket Kalia: Okay. Great. Ken, maybe first for you. Can you just talk a little bit about how you’re navigating the current environment in memory? And maybe as part of that, Christiane, can you just talk about how you’re thinking about the impact of higher memory prices as part of your guide in 2026?

Ken Xie: That’s other great question. Actually, we prepared for this kind of supply chain since — you can see 5 years ago when there’s a supply chain issue during the COVID, we’re doing quite well because we do have inventory on average of about 6 months. We try to buffer during this kind of time. And also, we kept mentioning during the Analyst Day, we are maintaining a healthy margin. So we will adjust some of the price based on our margin. And because even we had adjusted recent price, we still have a huge advantage like leverage our technology, where the ASIC give a 5x to 10x better performance for the same functions, same cost. At the same time, the OS offered much more function than other competitors. So that even with a little bit of raising price to maintain our margin, we still feel we are very competitive compared to any other competitors.

So we view this just like 5 years ago, it’s an opportunity to gain market share. So that’s where we’re well prepared with good inventory and also managed operation, manufactured directly with our own operations center worldwide. And also with the technology, we feel we — even a little bit price raise, we are still very, very competitive, it will not reduce our growth or market share. Christiane, other things you want to add?

Christiane Ohlgart: Yes. As Ken mentioned, we are planning to maintain our kind of profitability and gross margins on our products in 2 ways, right? One is by negotiating and making sure we get the components early, but also, we are — we’ve already raised some prices where we have some component cost pressures, and we will potentially continue to do so throughout the year depending on what the components prices do.

Ken Xie: Yes. The other part in helping the margin is we’re starting to see the service revenue will be turned around probably during 2026, this year. And also when we are shifting more like sales into like whether Unified SASE or the AI-driven secure op, which has the most service, we feel the margin also will be kind of improving from that angle, which has more service. So that’s also helping. But there is other things we also kind of measure, whether the currency issues matter. But we kind of feel we are prepared and with all the diversification we have, whether by vertical, by geo, we feel we kind of maintain the margin and keeping the Rule of 45.

Saket Kalia: Got it. Got it. Christiane, maybe for my follow-up for you. It’s a great billings result in the quarter and good to see the guide. Can you just — and apologies if I missed it, but can you just remind us what billings duration was this quarter? And to Ken’s point, just as we think about that driving services revenue for next year, is there a way that you just have us think about the shape of services revenue for next year through the year?

Christiane Ohlgart: So from a billings duration perspective, because of all the enterprise deals, it was slightly up, it’s around 2.5 years. And so yes, not too much different than it is normally in Q4, yes.

Operator: Our next question comes from Rob Owens at Piper Sandler.

Robbie Owens: Great. I know you highlighted the Sovereign versus Public SASE as one of the strengths. Curious if you can give us a sense of what your actual revenue mix looks like, Sovereign versus Public? Number one. And then number two, to kind of follow up on Saket. I think it was his third question, but I’m not going to call him out. When you look at the shape of services revenue and the recovery there, and I know you talked about the second half being stronger. But it doesn’t seem to track with where you’ve been historically in terms of a recovery given what you saw with product revenue this year. So is there something unique in 2026 or something unique going on that’s causing that to lag just a little bit more than maybe you’ve seen historically?

Ken Xie: For the service or product revenue, as you can refer to the Page 20 on the presentation, we gave out the last 16 years since IPO, the growth between the service revenue and product revenue. You can see that since changing the product revenue leading indicator of service revenue, so we do believe this year with the last few quarters with product revenue in the last few quarters grew stronger. That’s what’s helping drive the service revenue turnaround, starting to grow faster. On the first question, sorry. Sorry, what’s the first question?

Robbie Owens: Sovereign versus Public SASE mix.

Ken Xie: Yes, I believe the Sovereign SASE market is probably even bigger than the current Public SASE market, but kind of approach is different. The Sovereign SASE market, the service provide enterprise is handled by the product first, which also we see the product growth very, very strong in Q4 and also believe it will help drive this year product revenue growth with Sovereign SASE. We have not compared the Sovereign and also the Public yet. But I believe probably pretty close to each other right now, but Sovereign SASE, we see more strong growth because we don’t see any of our competitors offer this Sovereign SASE approach. And also with the product with the ASIC acceleration is a huge advantage for us. So that’s why I do believe we have probably doubled the total addressable market in the SASE market with a Sovereign SASE supporting the service provider enterprise with their own kind of SASE approach.

Operator: Our next question comes from Gabriela Borges at Goldman Sachs.

Gabriela Borges: I know last year, we shifted the conversation away from refresh tied to end of support and more towards refresh tied to technology upgrade cycles. Tell us a little bit, Ken and Christiane, on what you’re seeing in the pipeline from the 2020 and 2021 refresh cohorts, their willingness to engage across the platform? And do those cohorts look more meaningful or notable than the cohort that you had refreshed last year?

Ken Xie: Yes. I think there’s 2 things. One is we mentioned on Analyst Day is end of service, which we said there’s [ 1112 ] product will be end of this year, end of the service. But actually, during some communication with the customers, some of them still want supporting beyond end of service. So I think we kind of found some solution probably win-win. We may extend the end of service instead of try to force customers to buy the new product. We may give them actual extended service, but we do charge more service fee, both hardware fee and also the maintenance software fee. So that’s a win-win situation. And then also, like I said, that’s not a major driver of this growth because the growth will come from the new function, come from all this kind of like new demand in the market.

The second refresh is that’s where in the past, probably the average hardware product, whether network security, networking, even server probably after 5 to 6 years, they may have to get a new one. So we do see 5 years ago during the supply chain COVID time, there’s a strong growth of product revenue. You can see on the Page 21, 22, there’s a pretty strong product revenue growth like over 40%. Some of that one probably will help in the next couple of years. But like I said, the better driver will be new function, like how to supporting the SASE in the ZTNE, Zero Trust Network Environment, how to go internal segmentation, supporting enterprise to convert from the traditional networking to the network security and like helping protect the data level, whether the data leakage or some kind of AI agent.

That I feel is the one to drive the strong growth. Just like the strong growth come from the unified SASE with 40% in Q4. I feel customers are definitely more interested in if you have a better function and also kind of — they can see the future of long-term advantage, that’s what will drive customer to buy. Otherwise, they may replace the product with some other different vendor. So that’s I see it’s more important. We more focus on the — how the strong function, how the future kind of advantage we have and also how to leverage the long-term investment we have, whether in the AI, in the content, in the infrastructure. That gives the customer confidence and also keeping or partner with Fortinet.

Gabriela Borges: Thank you for the detail, Ken — please, Christiane.

Christiane Ohlgart: Yes, I would confirm what Ken said, based on the customer conversations we are having. The driver is that they need additional security. And so as they look at 40 SASE or similar, they upgrade their underlying technology at the edge as well.

Gabriela Borges: Yes. That makes sense. Ken, my follow-up is on how to think about the second derivative of AI compute demand. So more on the inference side. How does that impact what you see from a network security standpoint and a network traffic standpoint in particular?

Ken Xie: That’s everybody still kind of — because the space changes so quick with AI. We definitely tried working closely with customer, with our engineer, try to develop all this technology, try to do better protection. But in general, I think we kind of more linked to whether like the edge computing and also how the broad infrastructure protection instead of too much weight on certain cloud or certain software. That’s where we kind of — a lot of long-term investment we have whether in the ASIC chip, in all this kind of system level, in the infrastructure level and also in the support. I feel a kind of more broad approach will be helping better instead of just too much focus in one single area.

Operator: Our next question comes from Fatima Boolani at Citi.

Fatima Boolani: My first question is for you, Ken. The strength in Unified SASE at 40%, your product growth this quarter in excess of 20%. That paints really the interesting picture that maybe is in contrast to some fears around SASE or FortiSASE, rather, being maybe a force of cannibalization of the product refresh opportunity. And I know you alluded to Sovereign SASE specifically. But I’d be curious to get your perspective on how you are independently driving strong growth in SASE and independently driving strong growth from a product refresh perspective? That doesn’t seem to be affirming fears of cannibalization, especially for branch and branch location environment. And then I have a follow-up for Christiane, please.

Ken Xie: I have to say that that’s the same SASE, cannibalized some of the network security come from some of our competitors. I never think SASE will cannibalize all this network security, even the branch. I feel will be complement and also will be add-on additional business opportunity. That’s what we’re doing both in the networking and like traditional network security and also SD-WAN and SASE for many, many years. So from our angle, we do see SASE do offer additional business opportunity, additional product service, both at the customer level, in the service provider level and also in some other like a branch approach and eventually may even try to — supporting, working remotely, working from home of this kind of approach.

And also will be leveraged both the infrastructure in the public cloud, in the colo and also on kind of infrastructure. So that’s where we see there’s a lot of different approach to SASE and the different customer, different regions may have a kind of a different need. So that’s where we kind of — in the very beginning, when we developed SASE technology probably like 6, 7 years ago, we more believed the Sovereign SASE service provider kind of SASE will be the future. That’s where we’re kind of keeping investing in this area. But also like when we launched our own kind of SASE a little bit over 2 years ago, we also feel kind of working side-by-side with service provider of our own SASE and even some more infrastructure also very, very important.

So that’s where we see the SASE actually will be complement, also will be an additional business opportunity to add beyond the traditional networking and network security. In the branch office, you still need a physical device. That’s the advantage we have. We have like we call 3-in-1. You look at the networking device, network security device and SASE device into one solution, one FortiOS, one FortiGate box in the branch office. That’s probably none of our competitors offer this kind of a solution, and that’s what we see as a huge opportunity. So we don’t see SASE will replace branch office and network security solution. And you can see the unit shipment even in the branch office solution in the low end in the retail grow very, very strong.

Some is because of SASE, but some also they try to buy — deploy, I believe the future, they can enable whether the SASE, the SD-WAN, some other additional security service they needed. But they do need to have a device in the branch office. They do need some kind of edge solution to handle all the — both security and networking.

Fatima Boolani: I really appreciate that detail. Christiane, I wanted to go back to some of your comments with respect to pricing actions in response to an earlier question and something you mentioned in the prepared remarks. I was hoping you could quantify what degree of pricing, gross pricing increases you’ve been able to roll out in the base and to the extent there’s a net pricing yield associated with that and how that’s influencing your guidance? And maybe just to take that a step further, is that one of the reasons why we’re maybe seeing a slower ramp in the services trajectory of the business because you are seeing a price action yield on the product, which may not necessarily be translating to services? I’d love for you to just explain that for all of us.

Christiane Ohlgart: So the pricing actions are on specific products and of course, dependent on the components that go into it. Overall, it’s — I think it’s between 5% and 20%. But then also positively impact services because our service pricing is a percent of list price. But of course, it’s going to take longer until that materializes in service revenue, right? So for a product, you will see it in the next couple of quarters for service revenue, it’s going to take a bit.

Operator: Our next question comes from Junaid Siddiqui at Truist.

Junaid Siddiqui: Great. I just had a question on your software firewall business. As AI transformation across enterprises accelerate growth and cloud workloads, do you feel that your software firewall business, which has been growing at a nice rate, could inflect even further? And how do you think about that hardware software firewall mix going forward?

Ken Xie: I think Q4, we see the software firewall and the hardware firewall grow almost at the same pace, about 20%. So the partnership with NVIDIA, the BlueField-3 DPU, that’s probably more leveraged a software approach. And also we’re working with some kind of — some other service provider, cloud provider to offer some software. But I do believe we have also more advantage to leverage our own kind of secured ASIC, which kind of give a 5 to 10x better performance compared to some software approach and with lower cost. And that’s probably — but I see so far, it’s almost the same growth pace.

Christiane Ohlgart: And for most of our enterprise customers, I would say they have hybrid models. And so they buy our hardware, but they also buy virtual firewalls.

Junaid Siddiqui: Great. Just got a follow-up as well. Great to see the billings number. But just wanted to ask about specifically billings for SecOps. It seems like a decel from Q3. Could you maybe just unpack that in terms of what were some of the drivers there?

Christiane Ohlgart: Yes, I don’t want to call it a driver. I would say if you look at the annual growth, billings growth for SecOps, it’s very compelling. ARR growth is compelling. Revenue is compelling. So billings is always a little bit of a more volatile number. And in Q4, we had a lot of success in secure networking and Unified SASE, but our SecOps portfolio is solid, and we continue to see interest and demand. And so I wouldn’t take this 1 quarter as a trend.

Ken Xie: Yes. Also, the secure networking and Unified SASE can be a leading indicator for some future SecOps because they tend buy the product first and then eventually will also handle the additional like operational service. I have to say because lot of our sales and the partners see the Unified SASE demand so strong, they probably shifted more focus in that, and they can see that’s more easy win. But secure — SecureOps is very, very long tail. We have so many different products with AI, I feel probably looking at annual number will be more kind of a reasonable instead of some quarterly number.

Operator: Our next question comes from Patrick Colville at Scotiabank.

Patrick Edwin Colville: Nice end to 2025. Could I just get a clarification on the pricing comments? Because I thought that was interesting. And Fortinet is a company that over the years has clearly demonstrated pricing power, we saw that most evidently in 2021, 2022, good to see that lever being pulled again. Christiane, did you say that expect pricing for appliances in 2026 to go up between 5% and 20% on average?

Christiane Ohlgart: It depends on the appliance, but that’s what we are targeting, yes.

Ken Xie: Yes, we can actually adjust the price monthly. We usually give a distributor like a 30-day notification. So some of them already see, we probably will raise the price next month. But on the other side, we do have a buffer. That’s where we feel we can kind of react to this kind of situation better than other competitors. And we also have a good — like a global operation with our own operations center, we manage to manufacture directly.

Patrick Edwin Colville: Okay. Okay. And I guess I just want to ask maybe just kind of a question zooming out. I mean, we’ve seen your peers really accelerate the pace of M&A. You saw that at your kind of endpoint peer, you saw that, your firewall peer, both for tuck-ins and for larger deals. Fortinet hasn’t done that over the last few quarters. What’s your thinking in terms of M&A philosophy and whether — like how we should think about that into 2026, whether the tuck-in deals are needed in certain areas?

Ken Xie: I think like the technology we developed, whether the FortiOS, FortiASIC and integrate all this function together sometime probably more using internal innovation will be better. But we do open for merger acquisition. And also we do look at different opportunities, especially in the secure operation area. But on the other side, we have a discipline, whether the Rule of 45 or some healthy margin and also we try to plan the integration before the acquisition. I think with the multiple — the market is a little bit more reasonable now, I think, definitely, there’s more opportunity when we look at the merger acquisition. But we do have the discipline, which we maintained in the last 25 years, kind of tend to acquire the technology or some talent instead of try to buy some market or customer base.

Operator: Our next question comes from Adam Borg at Stifel.

Adam Borg: Excellent. Maybe just thinking about your ASIC chips. I don’t want to front run anything from Accelerate, but we’ve been talking about the opportunity for ASIC chips this year. And just remind us what kind of opportunity there is when those chips come out? How long after an announcement do you typically see those being adopted by customers? Obviously, it goes into the test first and hopefully production. But any color over there in terms of that and the ability to drive innovation and additional attach going forward?

Ken Xie: We see the new ASIC chip will come up this year, but we tend to announce together with the product. But also, the new ASIC chip also takes some time to build into the product. That’s where like the next month Accelerate is more focused on the FortiOS first. And the ASIC, we try and not excited too early, to put it this way. But definitely, it’s a good technology. We’re improving the performance. We add more function there. But we usually announce the product after we deliver instead of some competitors try to announce ahead of the time. So that’s where we want to keep in the same way, same culture. Once we have the related product or we are very sure we can deliver to the customer partner, then we announce it.

Adam Borg: That’s incredibly helpful. And maybe just as a quick follow-up on the clarifying question. When we talk about the refresh opportunity, be it COVID or otherwise, when those boxes typically come up — and I’m sure the answer is it depends. But do you typically see like a one-for-one box refresh or they come back and buy more boxes? And I guess the follow-up to that would be, what is the kind of the sales motion about cross-selling and upselling SASE and SecOps as part of those refreshes?

Ken Xie: We do see there’s a more kind of — whether we call attack surface or there’s more AI you can deploy, the network security and also the convergence also starting to kind of take more effect. So now that we see a lot of network security deployed inside the company, do the segmentation, replacing some traditional network there. Even our own kind of demand for FortiSwitch, FortiAP, which has a FortiLink technology can link to FortiGate is more like a hardware agent as a SASE also see pretty good growth. On the other side, there’s like OT security, there’s some other supporting work from home. Eventually, the network security can expand into the consumer space. That also could be the new opportunity. But I’d say if you look, it probably depends on the vertical, also maybe depend on certain region, how mature the networking and network security is.

I have to say by vertical, like 5 years ago, the first strong growth come from some retail, right? So whether retail or some other online service. So that part, we do see they heavily use in the box. And then this kind of whether 3:1 like networking, network security and also the SASE kind of into the same box, that we are probably the only one can solve that issue. So we do see that will be — continue to — will be — continue the market for us basically. On the other side, there’s a lot of — whether it’s in the data center with some other kind of bigger infrastructure, that’s probably the new ASIC chip or some other solution we will have like FortiAI Gate or some other thing maybe will help. But it depends on — I do see the market get definitely more broader, bigger because there’s more attack surface to cover and also more function needed, both inside the enterprise and also in the consumer and also in different regions.

John Whittle: And to your other point, we do see any refresh opportunity as an opportunity to expand. And when you look back 5 or 6 years, we didn’t have a lot of the solutions that we have right now that are at the maturity level that they’re at right now. So any time we can have those conversations whether through our partners or through our sales force, it’s an opportunity for us to expand to not only sell the firewall, but to sell beyond the firewall.

Christiane Ohlgart: And I would add, any of the discussions on — with regards to firewall upgrade at the edge is combined with the FortiSASE discussion, because it’s so compelling for our customers to expand.

Operator: Our last question comes from Brian Essex at JPMorgan.

Brian Essex: And congrats on some solid product growth this quarter. I guess I wanted to — just maybe 1 question with regard to memory questions that were asked previously. Ken, just really, I appreciate the fact that you have 6 months of inventory supply. Could you help us understand the dynamics there, maybe what percentage of your bill of materials is exposed to memory? And then how your contractor agreements, how long do you have those committed out? Just to understand that as we see like the acceleration in prices here. Just — maybe a little bit more clarity in terms of how do you manage your supply chain.

Ken Xie: I think we’re very similar to any other system server tend to be 10% to 20% cost come from the memory. Because we also manage a lot of manufacturer components directly with the supplier instead of go through some third party. That’s where we tend to have some direct contracts. That’s also dependent on lead time. I think lead time, probably a little bit different than 5 years ago. Five years ago, you see that there’s like communication chip. There’s some CPU. There’s a lot of — this time probably more related to memory. Actually, you can track the memory. There’s a daily memory price tracker actually. And you can see somehow in the last couple of days it has starting coming down. So it’s kind of interesting. But for us, we — like I said, we do maintain 6 months inventory and also based on the growth, based on the projections, sometimes we also kind of up and down and also depends on the product.

So we feel this is the opportunity just like how we did it 5 years ago is the opportunity for us to gain market share and also we are well prepared for that.

Brian Essex: Right. Super helpful. Maybe a quick follow-up for Christiane. On the secured networking side, how much of that was networking, like switches and access points versus more — or firewall mix? Just kind of curious to get the mix there and how that might influence what you’re thinking in terms of software services acceleration in the back half of the year?

Christiane Ohlgart: So it was a broad-based mix, so pretty much similar growth rates across all components. So we had good firewall growth as well as APs and switches.

Ken Xie: Also, the reason they buy the switch and APs because we have this we call FortiLink technology that link multi-switch and AP to the FortiGate and then using FortiGate to process certain traffic. Like if WiFi identified there’s a visitor, that traffic probably will go to FortiGate. It’s more like kind of local SASE approach with the hardware agent, which is AP, with the hardware agent, the same thing for the switch. That actually goes a lot for the internal segmentation. So to kind of broader security inside the local area networking, that’s where the convergence we see happening. But I think on the percentage, definitely, the FortiGate is the key part. It’s all leading by the FortiGate. The other part is a pretty small, I have to say.

Operator: We have no further questions at this time. I will now hand it back to Anthony Luscri for closing remarks.

Anthony Luscri: Thank you. I’d like to thank everyone for joining today’s call. We will be attending investor conferences hosted by Bernstein and Morgan Stanley during the first quarter. The fireside chat website links will be posted on the Events and Presentations section of our Investor Relations website. If you have any follow-up questions, please feel free to contact me, and have a great rest of your day.