Summary
Fortinet reported fourth quarter revenue of $1.42 billion, up 10.3% year over year. Full year revenue reached $5.30 billion, up 20.1%. Gross profit was $1.10 billion for the quarter, up 11.5%, and full year gross profit was $4.07 billion, up 22.1%. Gross margin was 77.7% in the quarter, up 0.8 percentage points, and 76.7% for the year, up 1.2 percentage points. Operating income was $385.4 million in the quarter, up 7.7%, and $1.24 billion for the year, up 28.0%. Operating margin was 27.2% in the quarter, down 0.7 percentage points, and 23.4% for the year, up 1.4 percentage points.
Net income was $310.9 million in the quarter, down 0.9%. For the full year, net income was $1.15 billion, up 33.9%. Diluted EPS was $1.46 for the full year, up 37.7%. Deferred revenue (current portion) was $2.85 billion at quarter end, up 21.3%. RPO was $5.75 billion, up 23.7%. Operating cash flow was $191.7 million in the quarter, down 63.7%, and $1.94 billion for the year, up 11.8%. Capital expenditures were $204.1 million for the year, down 27.4%. Free cash flow, a non-GAAP measure, was $164.8 million in the quarter and $1.73 billion for the year.
Billings, also non-GAAP, were $1.86 billion in the quarter, up 8.5%, and $6.40 billion for the year, up 14.4%. Security Operations billings grew 44% and SASE billings increased 19% in the quarter. Management said the platform strategy is resonating and pointed to over half a million customers and FortiOS covering over 30 networking and security functions. Headcount was 13,568 as of December 31, 2023, up 8% from 12,595. The company repurchased 16.8 million shares in the quarter at an average price of $53.29 for $895.3 million. For the full year it repurchased 27.2 million shares at an average price of $55.25 for $1.50 billion. In January 2024 the board authorized a $500.0 million increase, leaving about $1.03 billion available as of February 6, 2024.
Guidance for the first quarter of 2024 calls for billings of $1.390 billion to $1.450 billion, non-GAAP gross margin of 76.5% to 77.5%, non-GAAP operating margin of 25.5% to 26.5%, and diluted non-GAAP EPS of $0.37 to $0.39. For the full fiscal year 2024, Fortinet expects billings of $6.400 billion to $6.600 billion, non-GAAP gross margin of 76.0% to 78.0%, non-GAAP operating margin of 25.5% to 27.5%, and diluted non-GAAP EPS of $1.65 to $1.70. The guidance assumes non-GAAP tax rates of 17% and share counts of 775 million to 785 million for the first quarter and 785 million to 795 million for the full year.
Risks remain heavy. The 10-K points to macroeconomic conditions, longer sales cycles, delayed purchases, and increased inventory and purchase commitments. It also notes that billings and product revenue in 2023 were affected by a slowdown in secure networking growth, along with sales execution and marketing challenges. Management plans to shift marketing and sales toward SecOps and Unified SASE, but warns this may bring go-to-market challenges, increased sales turnover and other execution risks. Other listed risks include competition, supply chain constraints, geopolitical conflicts such as the war in Ukraine and the Israel-Hamas war, and instability in the global banking system.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2023 | Q3 FY2023 | QoQ | Q4 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.42B | $1.33B | +6.0% | $1.28B | +10.3% |
| Gross profit | $1.10B | $1.02B | +8.1% | $985.7M | +11.5% |
| Gross margin | 77.7% | 76.2% | +1.5 pp | 76.8% | +0.9 pp |
| Research & development | $152.5M | $156.9M | -2.8% | $128.9M | +18.3% |
| Sales & marketing | $507.4M | $504.4M | +0.6% | $455.9M | +11.3% |
| General & administrative | $55.1M | $53.5M | +3.0% | $44.3M | +24.4% |
| Total operating expenses | $713.8M | $713.7M | +0.0% | $627.9M | +13.7% |
| Operating income (loss) | $385.4M | $303.2M | +27.1% | $357.8M | +7.7% |
| Operating margin | 27.2% | 22.7% | +4.5 pp | 27.9% | -0.7 pp |
| Net income (loss) | $310.9M | $322.9M | -3.7% | $313.8M | -0.9% |
| Net margin | 22.0% | 24.2% | -2.2 pp | 24.5% | -2.5 pp |
| Diluted EPS | $0.39 | $0.41 | -$0.02 | $0.39 | ±$0.00 |
Risks
Worsening economic conditions, including inflation, higher interest rates, slower growth, any recession, and geopolitical conflicts such as the war in Ukraine and the Israel-Hamas war, may result in longer sales cycles, delayed purchases, and decreased sales productivity. MD&A states these factors may have a material negative impact on future billings, revenue, and costs.
MD&A states that during 2023 billings and product revenue fell below expectations due to a slowdown in secure networking growth, along with challenges in sales execution and marketing programs. The company plans to shift sales and marketing focus toward SecOps and Unified SASE, which may bring go-to-market challenges, increased sales turnover, and other execution challenges.
MD&A discusses a slowdown in product revenue growth in 2023 and expects product revenue growth rates to continue to be impacted by overall macroeconomic conditions in 2024. This follows a period where product revenue growth rates decreased compared to 2022.
Substantially all revenue is generated through channel partners, and one distributor accounted for 33% of total net accounts receivable as of December 31, 2023, while six distributor customers accounted for 70% of total net accounts receivable in the aggregate as of December 31, 2023. Financial difficulties or liquidity issues at these partners could harm collections and sales.
MD&A reports the accounts receivable allowance for credit losses increased as of December 31, 2023 compared to December 31, 2022, primarily due to an increase in past due invoices over 60 and 90 days. Worsening economic conditions may increase channel partner default risk.
Sales to large and medium-sized businesses, service providers, and government organizations often involve longer sales cycles, in some cases longer than 12 months, and service providers and MSSPs represent the largest industry vertical. Delays or losses of expected large deals in a quarter could materially and adversely affect results.
In December 2023, the Chief Revenue Officer announced his upcoming retirement after 19 years at Fortinet, and the company depends on senior management including co-founders Ken Xie and Michael Xie. Competition for qualified sales, support, and engineering personnel is intense, especially in the San Francisco Bay Area and Vancouver.
Sales to government organizations require certain security and other certifications, and until the company certifies under FedRAMP, it risks losing government deals to certified competitors. Government audits, investigations, or refusal of certifications could reduce government purchases or lead to fines.
The company may expand data centers and office buildings, and construction projects expose it to delays, increased prices for building supplies and data center equipment, labor availability issues, permitting delays, and unexpected lack of power access. MD&A estimates 2024 capital expenditures between $370.0 million and $420.0 million.
As of December 31, 2023, the company had outstanding Senior Notes with covenants and change-of-control repurchase provisions. If it breaches covenants or is required to repurchase notes early, it could negatively impact cash position and liquidity.
MD&A reports the effective tax rate increased in 2023 compared to 2022, and the company has ongoing tax audits in the United Kingdom, Canada, Germany, and several other foreign jurisdictions focused on allocation of profits among legal entities. OECD tax proposals could increase the worldwide effective tax rate.
The network security market is intensely competitive, and competitors such as Cisco, Palo Alto Networks, Check Point, CrowdStrike, and Zscaler have greater name recognition, larger sales and marketing budgets, broader distribution, and substantially greater financial resources. Larger competitors may leverage broader product offerings to discourage customers from purchasing Fortinet products.
Component shortages, inventory management, and future inventory purchase order commitments could cause operating results to vary, and MD&A notes increased inventory and inventory purchase commitment reserves. Inventory purchase commitments decreased as of December 31, 2023 compared to December 31, 2022.
As supply chain challenges normalize, growth comparisons versus prior quarters where backlog contributed more to billings have become more challenging and may become increasingly challenging. This could cause in-quarter billings and revenue growth to slow even if aggregate billings and revenue do not reflect it.
FortiGuard and other security subscription and FortiCare technical support services revenue has historically accounted for a significant percentage of total revenue, and revenue is recognized ratably over service terms of one to five years. A decline in new or renewed service contracts in any one quarter will not be fully reflected in revenue in that quarter but will negatively affect future quarters.
SaaS KPIs
All quarters →Billings
Free Cash Flow
Non-GAAP Operating Margin
Summary, forecast, risks and KPIs are extracted from Fortinet, Inc.'s SEC filings for Q4 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.