FTNT – Fortinet
Fortinet, Inc. (FTNT) CEO Ken Xie on Q4 2021 Results
Best quotes below.
For the fourth quarter, bookings increased 49% to $1.420 billion. Billings increased 36% to $1.306 billion. Global G2000 billings growth accelerated to over 90%. Q-on-Q billings was up 67%, accounting for 16% of total billings. Total revenue growth, 29% to $964 million with product revenue up 31%.
The networking speed and computing capabilities of our ASIC-powered for gates can be 5 to 10 times more than competitor firewalls with their off-the-shelf silicon products.
And turning to our 2021 performance, billings growth accelerated to 35% or $4.2 billion, representing our highest annual billings growth rate in six years. Revenue growth also accelerated coming in at 29%, representing the fourth consecutive year of revenue growth of 20% or more. And despite the supply chain environment, product revenue growth came in 37% growth, our highest annual product revenue growth rate in 10 years. Driven by strong demand for our fabric and cloud security solutions, non-FortiGate billings and revenue each exceeded $1 billion for the first time in our history. Non-FortiGate billings increased 46% to $1.25 billion, and non-FortiGate revenue increased 42% to $1.1 billion.
We are experiencing exceptionally strong demand, demand that exceeds supply by more than historical norms. As a result, we are expanding our disclosures to include bookings and backlog to provide greater visibility into the strength of our business.
The number of deals over $1 million increased 79% to 122 deals, breaking the 100 deal threshold for time in our history. We saw a record of four low eight-figure transactions in the quarter, all in the Americas.
I was mentioning that we were breaking down our backlog between product and services, approximately 75% relates to product — future product shipments, while the remaining 25% relates to various services.
Product gross margin of 62.1% increased 140 basis points sequentially. Service gross margin of 87.1% increased 50 basis points sequentially. Operating margin of 28.5% improved 270 basis points sequentially and exceeded the midpoint of our guidance range by 100 basis points. Better-than-expected gross margin performance and a slightly less-than-expected impact from acquisitions contributed to the better-than-expected operating margin. Headcount increased 24% to 10,195.
We repurchased 1.8 million shares of common stock for a cost of 541 million. For the year, we repurchased approximately 2.6 million shares for a cost of 742 million. At year-end, the remaining share authorization was approximately $1.5 billion and set to expire in February of 2023.
For the first quarter, assuming bookings in the range of $1.100 billion to $1.150 billion, which at the midpoint represents bookings growth of 32%, we expect billings in the range of $1.50 billion to $1.90 billion, which at the midpoint represents growth of 26%; revenue in the range of $865 million to $895 million, non-GAAP gross margin of 75.5% to 76.5%, non-GAAP operating margin of 19.5% to 20.5%. Non-GAAP earnings per share of $0.75 to $0.80, which assumes a share count of between $166 million and $168 million. We estimate first quarter capital expenditures to be between $140 million and $150 million. We expect a non-GAAP tax rate of 18%.
In 2022, we expect a small shift in our seasonality towards the second half of the year by two or three points. And for the full year, assuming bookings in the range of $5.580 billion to $5.680 billion, which at the midpoint represents growth of 30%, we expect billings in the range of $5.400 billion to $5.480 billion, which at the midpoint represents growth of 30%. Revenue in the range of $4.275 billion to $4.325 billion, which at the midpoint represents growth of 29%.
Total service revenue in the range of $2.685 billion to $2.715 billion, which represents growth of approximately 29% and implies full year product — implies full year product revenue growth of approximately 27, non-GAAP gross margin of 74% to 76%, non-GAAP operating margin of 24% to 26%, non-GAAP earnings per share of $4.85 to $5, which assumes a share count of between $169 million and $171 million. We estimate full year capital expenditures to be between $270 million and $300 million. We expect our non-GAAP tax rate to be 18%. We expect cash taxes to be approximately $210 million.
We raised prices. We’ve talked about before prices in August and again in November.
On our price list, keep in mind, those get discounted down. The price — because services, whether it’s support or security, attaches — the pricing attaches to the box, so to speak. When you raise prices on the appliance, you’re also effectively raising prices on the services. But then if you think through revenue recognition, obviously, you’ll get some — you’ll get the price increase in revenue for the product more currently than you will for the services you’re going to recognize that over time.
Q: And I wonder if you have any thoughts with respect to CheckPoint’s recent introduction of their Lightspeed firewall, which is extremely price aggressive? How do you think about that in the market? Any thoughts there would be great?
A: Yes. I also mentioned the Checkpoint earnings this morning. I probably sent to deal we mentioned Fortinet. And so their newest product, probably like 20% faster than Fortinet product 1800 app, but that’s the product we released more than two years ago. I think based on Moore’s law. So every two year – every 18 months, the speed will double. So I think the latest product a much faster now. So I do see because the – we see security-driven networking conversion of network and security. So the network security started deploy pretty much in all the infrastructure, not just secure the border.
We’re leading innovation in both space with our own ASIC with all the secure SD-WAN 5G connection. It’s a much bigger total addressable market compared to the traditional network security. So that’s where we identify as over $170 billion total addressable market for us in the next three, four years. It’s a huge potential and market large enough pretty much for all the competitors to compete, but definitely have to keep up the innovation, keep up the change to keeping gaining market share.
And also, we have a lot of growth potential in the Global 2000. So like we said last year — last quarter grown at 90% year-over-year. And also, this is the bigger account, you also can upsell, cross-sell a lot of other products. So we do see the pipeline is very, very strong. And also we’re keeping enhance in the marketing and keeping pretty aggressively higher net sales and the sales capacity. So far some regions, some of the vertical, we still have much less capacity than some of our competitors. I think with the additional marketing sales capacity, we do see the growth will continue in the next few years.
The cloud security ported by 2025, it is little bit over $20 billion and compared to current total addressable market, including network security, converting network security, endpoint or the other will be $170 billion. It’s a much bigger market.
And also ASIC advantage and the continue scale and scope all starting working for us because we have the quantity, which helping lower per chip cost, which none of our competitors have. And also, we’re probably the only company-only chip. And we also leverage any other commercial chip available, including all the — whatever Intel, MV, GPU, TPU,IPU other things we’re using, but we have unique advantage of our own ASIC chip, which help in drive over high-speed, low-cost network security solution.