Hello, and welcome to Fortinet's Fourth Quarter 2025 Earnings Conference Call. 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.

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 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.

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 billings increased 18% and revenue grew 15%, driven by product revenue growth of 20%. Our provision margin was strong at 37%, reflecting our continued focus on 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 segment security peers. Fortinet has led the convergence of networking and security for over 25 years, and secure networking is expected to surpass traditional networking by the end of this year. Our firewall leadership is driven by FortiOS, which unifies 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 provides a large advantage in securing AI data centers. We will introduce FortiOS 8.0 at Fortinet's Annual Customer and Partner Conference in March, featuring significant new capabilities 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 in scale. Our momentum is powered by three key advantages. First, Fortinet uniquely integrates firewall, SD-WAN, and SASE on a single operating system, allowing customers to expand SASE in minutes and driving upsell across a large customer base. Second, we support both Sovereign SASE and Public SASE, allowing enterprises and service providers to deploy SASE in their own data centers to meet data privacy, sovereignty, and compliance requirements. We are seeing strong demand in Sovereign SASE, and none of our major SASE competitors offer a 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 delivers high performance and security at roughly one-third 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. AI-driven secured 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-powered solutions as customers consolidate multiple security vendors onto Fortinet's platform. Additionally, Fortinet's leadership in security also extends to operational technology and the cyber-physical system, offering enhanced visibility, robust threat protection, and secure connectivity. The demand for OT solutions 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 a 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.

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 security services 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 SaaS. 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 a 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's 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 enterprises 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, 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. Regarding 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. Now I'd like to highlight some key deals that demonstrated our market leadership and customer expansion. In a 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 Points of Presence. By integrating our Points of Presence 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 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 AI, 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-performance advantage. Lastly, in a 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 two 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 new 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 one 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 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, and a non-GAAP tax rate of 18%. 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 relatively 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. Lastly, 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. We are enforcing 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.

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.

Our first question comes from Shaul Eyal at TD Cowen.

Thank you so much. Good afternoon, everybody. Congrats. 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?

Yes, that's a great question, Shaul. Thank you. Actually, you can see the Unified SASE grew 40%. That is where we see probably the fastest-growing Unified SASE vendor in scale. Because of the three 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 market. So that's all the other vendors are doing right now. But we don't see any of them trying to get into the Sovereign SASE or having the function to support Sovereign SASE, which we kind of designed the SASE in the beginning to support our service provider and all these things, which is a Sovereign SASE approach. Lastly, we have a huge growth and Sovereign SASE. Usually, they buy the product first, then deploy it in customer or service provider data centers, and then we keep supporting with additional services. So that's a huge market opportunity. We believe we are the only leader in the space for the Sovereign SASE. Second, we have three functions integrated into a single OS: network security, SD-WAN, and SASE. That gives us a huge advantage leveraging our huge customer base. None of our competitors have this advantage. That’s making us grow very, very quickly, and both our sales and partners see the huge advantage and are starting to ramp up very quickly. And then also long-term, because of our investment in the infrastructure, we see a cost advantage. So our costs are about one-third compared to some of our competitors, right? So that's also how we can pass all this kind of cost savings to customers and play the long-term game. We see very strong growth of Unified SASE. Maybe Christiane and John had some other points?

I think we saw strong traction in our execution during Q4, which was very broad-based. We performed well in the enterprise sector, executed effectively on the OT side, achieved success in SASE, and AI was a major contributor to our results. This gives us considerable confidence for 2026, as we believe these growth drivers will continue due to the clear demand.

I would just say, obviously, the sub-security market is growing really nicely. As Ken highlighted, we have a lot of competitive advantages where we feel we can grow faster than the market and faster than each of the three pillars that we focus on, as we did throughout 2025. We see a lot of different growth drivers amongst the three pillars, the OT momentum. We see opportunities with AI and quantum. And when you look at our business, it's really diversified in several ways, geographically based on customer segments and also industry verticals. And then if you look at our solution sets as well, they are diversified amongst the three 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.

Got it. Maybe just a brief follow-up. Ken or the team, what are your views on the evolution of AI as it relates to cybersecurity? We can see that while many software sectors are experiencing declines, cybersecurity has been holding up slightly better. However, in recent days, it hasn't been encouraging at all. I'm curious about your perspective on whether security enhances AI or if it works the other way around.

Yes, we are definitely seeing changes in the enterprise landscape. Some software may need to adapt to take advantage of AI or risk falling behind, which has led to AI influencing some software. On the flip side, we view cybersecurity as a significant opportunity due to the need to manage AI. In the enterprise environment, we observe strong demand for internal segmentation to control autonomous AI and prevent data leaks. Additionally, we recognize the substantial potential in AI data centers. We plan to provide more details next month. Based on presentations I’ve made at previous Accelerate events, I believe that edge computing will not surpass cloud and mobile solutions. I think AI solutions and immersive technology will transform traditional software infrastructure, which we've been preparing for over the last 5 to 10 years. We see this as an opportunity to leverage our capabilities and help enterprises secure AI.

Our next question comes from Saket Kalia at Barclays.

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 guidance in 2026?

That's a great question. We have been preparing for supply chain issues for the past five years. During the COVID supply chain disruptions, we managed well because we maintained an average inventory of about six months. We try to implement buffers during these times and have consistently mentioned that we are upholding a healthy margin. We have adjusted some prices based on our margin, and even after recent price changes, we still have a significant advantage due to our technology, which allows our ASIC to deliver five to ten times better performance for the same functions at the same cost. Additionally, our operating system provides more features than our competitors. Therefore, despite slight price increases to protect our margin, we remain very competitive against others in the market. We see this as an opportunity to gain market share, similar to five years ago. We are well-prepared with a good inventory and manage our operations directly from our centers worldwide. With our technology, we believe that even with minor price increases, we will continue to be competitive and our growth or market share will not be impacted. Christiane, do you have anything else to add?

Yes. As Ken mentioned, we are planning to maintain our profitability and gross margins on our products in two ways. One is by negotiating to secure components early, and we have already raised some prices where we face component cost pressures. We may continue to do so throughout the year depending on fluctuations in component prices.

The other part in helping the margin is we're starting to see the service revenue will be turning around probably during 2026. And also when we shift more sales into like Unified SASE, which has the most service, we feel the margin will also improve from that angle, which has more services. But there are other things we also kind of measure, whether the currency issue might impact margins. But we feel we are prepared. And with all the diversification we have by vertical and geography, we feel we can maintain the margin and keep the Rule of 45.

Got it. Christiane, for my follow-up, it's great to see the billings result for the quarter and good to have the guidance. Can you remind us what the billings duration was this quarter? Additionally, as we consider driving services revenue for next year, can you help us understand how the services revenue might develop throughout the year?

From a billings duration perspective, it was slightly up due to all the enterprise deals, and it's around 2.5 years. So yes, it's not too different from what it typically is in Q4.

Our next question comes from Rob Owens at Piper Sandler.

Great. I know you highlighted the Sovereign versus Public SASE is 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 sockets. I think it was the third question, but I'm not going to call them out. When you look at the shaping 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?

For the service or product revenue, as you can refer to Page 20 of the presentation, we gave out the last 16 years since our IPO, the growth between the service revenue and product revenue. You can see that since changing, the product revenue has become a leading indicator of service revenue. So we do believe this year with the last few quarters with stronger product revenue growth, that's what's helping drive the service revenue turnaround to start growing faster. On the first question, sorry. Sorry, what's the first question?

Sovereign versus Public SASE mix.

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

Our next question comes from Gabriela Borges at Goldman Sachs.

I know last year, we shifted the conversation away from refresh tight end of support and more toward refresh tight 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?

Yes. There are two key points to mention. First, we talked about the end of service for 11 products ending this year. Some customers still seek support and service, so we have found a solution that likely benefits both parties. Instead of pushing customers to buy new products, we may extend our service and offer additional external services, albeit at a higher service fee for both hardware and maintenance software. This creates a win-win scenario. However, this is not the primary driver of our growth; that will come from new functionalities and the increasing market demands. The second point is that historically, hardware products, whether for network security or general networking, typically required replacement every five to six years. We experienced significant product revenue growth around five years ago during the COVID supply chain disruptions, as noted on Pages 21 and 22, with over 40% growth. Some of that revenue will likely carry over in the coming years. But again, the primary driver will be new functionalities, such as support for SASE in secure network environments, facilitating internal segmentation, aiding enterprises in their transition from traditional networking to network security, and safeguarding data against breaches or AI threats. This demand fuels strong growth, as evidenced by the 40% growth in Unified SASE in Q4. Customers are increasingly interested in better functionalities and the future advantages they bring, which will drive purchases. Without this, they might consider alternatives from different vendors. Therefore, emphasizing our strong functions, future advantages, and leveraging long-term investments in AI, content, or infrastructure is crucial. This approach instills confidence in customers and fosters long-term partnerships with Fortinet.

Please, Christiane.

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 FortiSASE or similar, they upgrade their underlying technology at the edge as well.

Our next question comes from Junaid Siddiqui at Truist.

Great. I just had a question on your software firewall business. As AI transformation across enterprises accelerates 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?

I think Q4, we see the software and hardware grew almost at the same pace, up 28%. So the partnership with NVIDIA, the BlueField DPU, that's probably more like the software approach. And also, we're working with some service providers, cloud providers to offer software. But I do believe we have more advantages to leverage our own secured ASIC, which kind of gives a 10x better performance compared to some software approaches with lower costs. But I see so far, it's almost the same growth pace.

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.

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 deceleration from Q3. Could you maybe just unpack that in terms of what were some of the drivers there?

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. Our 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 one quarter as a trend.

Yes. Also, the secure networking and Unified SASE can be leading indicators for some future services because they tend to buy the product first and then eventually will also handle the additional operation services. I have to say a lot of our calls and partners see the Unified SASE demand is so strong that they're probably shifting more focus on that, and they can see that’s more of an easy win. But SecOps is a long tail. And we have so many different products with AI, you’ll probably be looking at the annual number which will be more kind of addressable instead of some quarterly numbers.

Our next question comes from Patrick Colville at Scotiabank.

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

It depends on the appliance, but that's what we are targeting, yes.

Yes, we can actually justify the price monthly. We usually give a distributor like a 30-day notification. So some of them already see we probably reach the price next month. But on the other side, we do have a buffer. That's where we feel we can react to this situation better than other competitors. And we also have a good global operation with the whole operation center managed directly.

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 endpoint peer, you saw that at 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 there are tuck-in deals needed in certain areas?

I think like the technology we developed, whether the FortiOS, FortiASIC and integrate all these functions together sometimes probably more internal innovation will be better. But we do open to merger acquisition, and we do look at different opportunities, especially in the secure operations area. But on the other side, we have a discipline whether the Rule of 45 or some healthy margin and we try to plan the integration before the acquisition. I think with the multiples, the market is a little bit more reasonable now; I think definitely, there's more opportunity we're looking at for merger acquisition. But we do have the discipline that we maintained in the last 25 years, kind of tend to acquire the technology or some talent instead of trying to buy some market or customer base.

Our next question comes from Adam Borg at Stifel.

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 okay production. But any color over there in terms of that and the ability to drive innovation and additional attachment going forward?

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 not to guide exactly too early, to put it this way. But definitely, it's a good technology. We're improving the performance. We add more functions there. But we usually announce the product after we deliver instead of some competitors trying to announce ahead of 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.

That's incredibly helpful. I have a quick follow-up on the clarifying question. When discussing the refresh opportunity, whether related to COVID or not, and when those boxes come up, I'm sure the answer is it varies. However, do you usually observe a one-for-one box refresh, or do customers tend to purchase additional boxes? Additionally, what is the approach towards cross-selling and upselling SASE and SecOps during those refreshes?

We notice that there are additional areas for deploying network security, particularly with the growing impact of convergence. As more network security measures are implemented within the company, we are focusing on segmentation and replacing some traditional network systems. Our demand for FortiSwitch, which utilizes advanced technology to connect with FortiGate, is seeing good growth, especially as a hardware agent within SASE. Additionally, we are seeing opportunities in operational technology security and support for remote work, suggesting that network security could eventually extend into the consumer market. This presents a potential new opportunity. However, the growth may vary based on verticals and regions and their maturity in networking security. For instance, retail has historically shown strong growth in this area. Retail and online services heavily utilize our solutions, and we are likely the only company capable of addressing these challenges with our integrated networking and security offerings. Moreover, developments in the data center and large infrastructure could lead to new solutions involving ASIC chips. Overall, the market is expanding as more tech services and features are needed within enterprises, consumers, and across different regions.

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.

I would add that any discussions regarding the firewall upgrade at the edge are connected to the FortiSASE discussion because it is very compelling for our customers to expand.

Our last question comes from Brian Essex at JPMorgan.

Congratulations on achieving strong product growth this quarter. I have a question regarding the memory issues that were raised earlier. Ken, I appreciate that you have six months of inventory supply. Can you explain the dynamics at play here, specifically what percentage of your bill of materials is related to memory? Additionally, how long are your contractor agreements committed for? It would be helpful to understand how you manage your supply chain, especially with the recent price increases.

I think we're very similar to any other system server; tend to be 10% to 20% of costs come from the memory. Because we also manage a lot of manufacturer components directly with the supplier instead of going through some third party. That's where we tend to have some direct contracts. That's also dependent on lead time. I think lead times are probably a little bit different than 5 years ago. 5 years ago, you saw that there were communication chips and CPUs. A lot of this ham was probably more related to memory. Actually, there's a daily memory price tracker, and you can see somehow in the last couple of days since it started coming down. So it's kind of interesting. But for us, like I said, we do maintain 6 months of inventory and also based on growth based on projections. Sometimes we also kind of adjust it up and down, and it also depends on the product. So we feel this is the opportunity just like how we did it 5 years ago; it’s the opportunity for us to gain market share, and we're prepared for that.

Right. That’s very helpful. I have a quick follow-up for Christiane. Regarding the security networking aspect, can you share the breakdown between networking products like switches and access points and the firewall mix? I'm interested in understanding how this might impact your thoughts on accelerating software services in the latter half of the year.

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.

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

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

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.