Good day, and thank you for standing by. Welcome to the fourth quarter 2024 earnings announcement conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Erin Ovadia, Senior Director of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. This is Aaron Ovadia, Senior Director of Investor Relations at Fortinet, Inc. I am pleased to welcome everyone to our call to discuss Fortinet's financial results for the fourth quarter and full year of 2024. Joining me on today's call are Ken Xie, Fortinet Founder, Chairman, and CEO, Keith Jensen, our CFO, John Whittle, our COO, and Christian Agard, our CAO and sales operations leader. This is a live call that will be available for replay via webcast on our Investor Relations website. Ken will begin our call today by providing a high-level perspective on our business. Keith will then review our financial and operating results for the fourth quarter and full year of 2024, before providing guidance for the first quarter and full year of 2025. We will then open the call for questions. During the Q&A session, we ask that you please limit yourself to one question and one 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 our 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-Ks and Form 10-Q for more information. All forward-looking statements reflect our opinion 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 that accompany today's remarks, both of which are posted on our Investor Relations website. The prepared remarks for today's earnings call will 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 will now turn the call over to Ken.

Thank you, Aaron, and thank you to everyone for joining our call. We are pleased with our strong performance in the fourth quarter, successfully balancing growth and profitability, including a record operation margin of 39%, total revenue growth of 17%, including product revenue growth of 18%, our highest growth rate in six quarters, as we further strengthen our market leadership in secure networking. And strong growth in Unified SaaS and secure operation with Security Service Edge building growth of 85%. Each grew our unified SaaS building growth of 13%, accounting for 23% of our business. The strong UniFi SaaS growth highlights the value that our customers see in our single vendor SaaS strategy. We are the only vendor to organically develop a key SaaS functionality into a single operation system for TOS. Which email gateway might be linked to a firewall, SD WAN, VPN, secure web gateway, Caspi, CLP, and other innovations. Sincerely, unifying networking and security delivering enhanced user experience, and securing access to application across on-premise and cloud environment. This infar an SD WAN customer can be fully certified in the cloud or on-premise within minutes. We also are able to sovereign SaaS for service providers at a large enterprise. To host forty-five seats within their own data center. Enabling heightened control of their data and a greater connectivity. While leverage our forty AC technology to accelerate study function for superior performance, Additionally, Fortinet's AI-powered security unified management, and single agent approach provide consistent protection across all location and devices. Ensuring full control, visibility, and simplified deployment while also offering industry's simplest licensing and three x or five x. Better performance per user. AI-driven secure operations are counted for 11% of total billings, while AR grew 32%. We recently enhanced our secure portfolio by acquiring perception point. A…

Thank you, Ken. Thank you, Aaron, and good afternoon, everyone. Let's start with the key highlights from the fourth quarter. We delivered strong execution and financial performance, with top-line results above the high end of guidance, together with record operating margins at 39%, total revenue grew 17%, driven by strong product and service revenues, as product revenue growth pushed up to 18%. In addition, we added a record 6,900 new logos, driven by close alignment with our channel partners. Looking at our financial results in more detail, total billings grew 7% to $2 billion, including double-digit security operations and unified Sassy growth, RPO grew 12% to $6.4 billion ARR growth was very strong for SecOps and grew 32% and Unified SaaS, which grew at 28% to a combined total of over $1.5 billion. Within Unified Sassy, SSE continues to gain traction. With ARR growth of 96% As we continue to see early success, upselling forty SASE to our large SD WAN customer base, Forty Sassy deals increased over 60% and the pipeline was up 90%. Typical forty Sassy journey as for the customer's first purchase of our ASIC-based market-leading FortiGate firewall, followed by an expansion to SD WAN, and then to our single vendor SASE solution. The expansion journey is particularly significant as over 70% of our large enterprise customers have adopted our SD WAN functionality, and are poised to expand to forty Sassy. Our large enterprise forty Sassy penetration rate increased to 10% That's up two points just since our November Analyst Day reporting. Rounding out the billings commentary, deals between $5 million and $10 million increased over 90% SMB was our top-performing customer segment, with growth of over 30%. And EMEA was our best-performing geography. Driven by growth of over 25% from international emerging. Among our top five…

Thank you, Keith, for your great service and contribution. And Christiana, we're looking forward to working with you in your new role. To continue to drive the success and footprint So I will now hand the call over to Aaron for the Q&A session.

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

Thank you. And as a reminder, to ask a question, please press Our first question comes from the line of Hamza Fodderwala with MS. Your line is open. Please go ahead.

Hey. Thank you for taking my question. This is Jonathan Eisenson on for Hamza. First off, Keith, congratulations on your career, and best of luck with retirement and with your next endeavors. So, Ken, for you, so I believe some of the hyperscalers like Oracle, are big customers and partners with Fortinet. So just curious as you have Oracle and some of the other hyperscalers, building out new data centers, just curious to what extent Fortinet is involved in securing these.

Yes. Thank you. It's a great question. So, fortunately, it's only company we develop the secure ASIC processor It's increasing the secure computing Power quite a lot compared using general purpose CPU. That's a lot of our growth into recording internal segmentation within the data center, hyperscale, all these things. So we see a huge opportunity and not just the secure networking there, but also lot of our data center also related to the AI. We also see huge opportunity to drive the AI security, whether it's secure the infrastructure itself or secure the data. Or secure the access. So there's a lot of opportunity. I do believe that's the huge potential for growth because of unique advantage using the forty-eight

Thank you. And we'll move on to our next question. Our next question comes from the line of Tal Liani with Bank of America. Your line is open. Please go ahead.

An honor for me to ask a question after John, my associate, across the line. But I wanna ask you two things. Number one is about the billings Why is billing weakened? Weak guidance? And that second question is product revenues outperformed so much this quarter And that might be a cycle, a reverse cycle, but the guidance for next quarter, I don't see outperformance. So why is it just the quarter phenomenon and you don't carry the strength into the next few quarters? Thanks.

Yes, Tal. I wasn't sure on your first question about billings if you were asking about the fourth quarter or the first quarter.

Sorry. I'm asking billing in general. So billing for the fourth quarter was better, but billing for the first quarter is weaker. So why is the weakness in bidding?

Yeah. I think yeah. I think the if you look at the fourth quarter, maybe start there a little bit. As you recall, we talked last quarter the fourth quarter guidance process. There was a lot of concern around the eight quarter, probably the eight-figure deals and what we were going to get out of that. And we were being cautious in the guidance That that was a lot logically or rather a prudent approach, Where we got the upside was on those deals from five to ten million dollars and I would say the close rate and the opportunity there was probably forty million dollars to fifty million dollars more than what I anticipated in the guidance setting process. And you saw that same overperformance on those larger deals show itself in the product revenue line. And then also we saw in the product revenue line, our significant growth in product revenue was in the mid-enterprise the mid-sized firewalls and the large firewalls. When you peel back on that onion, you start to see enterprise companies have actually started their purchasing of the refreshes that we talked about at the Analyst Day. So I think obviously that the information that news about q four is very good. I think if you look at in q one, whether it's billings or product revenue, probably just a little more caution there as we kind of got exposed to the tariffs here over the last week and we saw the reaction And some of the concerns for us were the more of a multinational footprint particularly in Latin America and Canada, for example, with customer footprint. A little more exposure there. And then, of course, the direct impact of perhaps some disruption in the US government where we do have a footprint also. So maybe a caution in that regard.

Yeah. The other problem may impact some of the buildings, really. We're more also driving the ARRPO, which a little bit different than before. It's more about building, but this is RPAR probably would defer some building to the future. But we'll kind of secure the customer with all these the platform, the unified SaaS approach. That's where the SaaS and the secure up tend to have a higher growth in the AI and IPO than the building.

Thank you. One moment as we move on to our next question. Our next question is gonna come from the line of Gabriela Borges with Goldman Sachs. Your line is open. Please go ahead.

Hey, good afternoon. Thanks for taking my questions. I would love to hear a little bit more on the Refresh opportunity for this year. I know you've broken it out for us in product versus cross-sell in a couple of different ways. Wanted to ask you specifically about the implications for subscription revenue as you see the hardware come up for renewal and as you sell some of the networking components on the hardware side into your actual base So either for Keith or maybe Christian, how do you think about the implications for subs hardwire comes up? Thank you.

Attorney, what jump in there? Okay. I think, at the end of this day, I explained a little bit that the

the existing hardware has subscriptions. In order to grow subscription revenue, we need to upsell and sell either more subscriptions with the same hardware or more services. So we are we have put plans and incentives in place for our sellers and our channel partners to do so. But that's kind of the prerequisite for us to grow our service revenues or accelerate the service revenues.

Yeah. Also, the new Howard tend to be have more capacity to run additional function. And better performance, that's also gonna enable additional service including a lot of new service we develop in the, you know, forty-five in the last few years. Mhmm. As a like, all this unified SaaS function and some other AI AI kind of based function. Not not gave the new new opportunity leverage a new hardware.

Thank you for the detail. Congrats on the quarter, and congrats to Keith and Christian as well.

Thank you.

Thank you. One moment as we move to the next question. Our next question comes from the line of Brian Essex with JPMorgan. Your line is open. Please go ahead.

Good afternoon. Thank you for taking the question. Keith, I thought when you started with key highlights for the quarter, your retirement would be up to the top. Seriously, it's been a real pleasure working with you, and best of luck on the retirement. Well deserved. And, Christiana, looking forward to working with you. So congratulations on the appointment to CFO. You know, I guess the question I had was with regard to the know, the billings guide for this next fiscal fiscal year. Would love it if, you know, maybe Christiana, if I think you've done a lot of work on it. If you could unpack the assumptions behind that, you know, how much is upgrade growth of SecOps and SaaS, and how much is, you know, product-related refresh cycle baked into that? And maybe if you could share an exit rate, that would be super helpful.

So in our in our billings and revenue guidance, Of course, we have the two components. Right? Product is what we sell this year. Services is what we what rolls off the balance sheet mostly. And about ten, fifteen percent is from from new services that we are selling this year. And Our assumptions, of course, are as we presented at the analyst day that we a significant upsell component. But we also are planning to with certain incentives for again, our own sellers as well as our channel partners to drive new logos. And from an exit rate perspective on sir were you looking at exit rate for services

Well, I guess you're overall for billings, and then, you know, maybe if you can You know, help us understand how much product revenue is baked into that. But it's really trying to get a sense of the trajectory that you're you're baking in the billings to kinda get to that full-year billings guidance that you have.

The product revenue growth, we assume is around ten percent right now. As we saw already a significant traction this year, but yeah, that's the current run running assumption.

Okay. That's helpful. And is that does that require, like, a Like a exit rate in four q of, like, teens like, high teens billings growth or are you expecting a more moderate bill throughout the year?

Right now, it's more moderate.

Okay. Super helpful. Thank you so much, and congrats.

Thank you.

Thank you. One moment as we move on to our next question. Our next question comes from the line of Fatima Boolani with Citi. Your line is open. Please go ahead.

Good afternoon. Thank you for taking my question. Questions. And, Keith, congratulations. I hope you very much have an enjoyable ride into the sunset. It's been terrific. Partnering with you. I wanted to go back to some of the commentary you made on the tariff impacts I did wanna dig into that a little bit. So, you know, I think there is significant amount of uncertainty from these tariffs. They're in flux. There's some potential retaliatory policies being thrown around. So I both wanted to dig into some of the demand comments you made. And how far-ranging those are and how they are being contemplated in guidance. And then also from a supply chain perspective, how is that influencing or potentially impacting your supply chain and ultimately COGS and gross margin? Thank you.

Yeah. I'll it's as you pointed out, it's gonna be dynamic time, if you will, in trying to understand where these may end up. I would say that for selling purposes, for demand, we have a fairly significant footprint in both Latin America and Mexico. And over the weekend, when the tariffs were announced, there was a lot of activity here internally Sunday night and Monday morning to understand what the destruction would be more about those economies and their buying habits, if you will, of our products. And I think it's that type of reaction that we're focused on. I would also supplement that way a little more context, you know, our forty Authenticator product, I believe it is, actually, it's a very small product line, but it is manufactured in Canada. And we were looking at what the tariff impact would be like that. And then by Monday night, all those things all bets were off. So, you know, we're kinda chasing it a little bit. Yeah. And we do have similar to our sales leadership in last America raising their hand immediately in what they were seeing and being concerned about with Mexico. Our US federal team similarly raised their hand and said, you know, there aren't gonna be employees in the federal government to sell to, it's gonna be challenging. So I just think we're acknowledging that it's a very dynamic situation right now, and let's try not get too far ahead of over our out of our season until we know more. On the other side, I think, in terms of tariffs, coming into the country or products, well, keep in mind that our pure US business is around twenty-five, twenty-six, twenty-seven percent of our total business. So obviously, that That thirty if I'm gonna say seventy percent plus international would not be subject to the tariff schemes of the US. And that is I think there's obviously if we had to respond in some way, the market, I think the tariffs would be broad brush and would affect not only our sales and our US business for that remaining twenty-five, twenty-six percent, but our competitors are what as well. And I would expect that we would still, at this early stage, still have the pricing advantage that we currently have.

Thank you, Cristiana. Congratulations.

Thank you.

Thank you. One moment as we move on to our next question. Our next question comes from the line of Shaul Eyal with TD Cowen. Your line is open. Please go ahead.

Thank you so much for taking my question, good afternoon. Congrats on the results. Congrats, Keith, and congrats, Christian. Keith, my question maybe builds a little bit on the prior question, but touches more specifically on your US performance. This year, you had, I think, this quarter, the best quarterly performance in 2024. Do you see that being sustained into 2025 given some of your prior investments? What are the plans specifically as it relates to US sales operations? Thank you.

Yeah. It's a great question. So I think probably starting a little bit over one years ago, we're starting as the US enterprise sales. And also more focused on, like, adding sales capacity and also kind of working closely with our channel partner to drive the growth. Which both in the in the in the high con and also drive the program with the partner there. So that that's we see some pretty good results. And so we do see there's a lot of loan to grow in the US. And at the same time, we have a huge advantage on the on the resource on the facility, on the on the people here in the in the US and Canada, the continual drive there. The future growth. So that's why we see that the US could be the fast-growing region in the in the next few years.

Thank you so much.

Thank you.

Thank you. One moment as we move on to our next question. Our next question is going to come from the line of Rob Owens with Piper Sandler Companies. Your line is open. Please go ahead.

Great. And thanks for taking my question. I was hoping you could expand a little bit just on the Linksys relationship and what you hope it brings. And I know Ken, you did outline some expectations relative to revenue and billings, but just strategically where it positions you better. Thanks. Bye bye.

Yeah. This is actually we acquired about fifty-one percent of share about three years ago. And then we're keeping private shipping the company to more line up with our own kind of a secure networking strategy. But also, this all kind of a new market. We feel fortunate profits only payer complain in the consumer home-based network security. Because we have this technology like a a say. We have all this unified SAC and together with the links, it's consumer and also the huge user base, which they have twenty-five million active user and has been shipping almost two hundred fifty million device in the last almost forty years. So it's a leading brand and with this customer base, without technology, all this combined resource with few We can really drive the new market for consumer to supporting work from home and also to cover some SMB space. We see pretty fast growth. So that that's the strategy, but that's also probably take some time to continue to develop all these technology market together, but we do feel this could be a huge potential in the next five to ten years for the company growth.

Thank you. And we'll move on to our next question. Our next question comes from the line of Eric Heath with KeyBanc. Your line is open. Please go ahead.

Great. Thanks for taking the question here and Keith, congrats as well. So Keith and Christian, I wanted to understand a little bit just ahead of the refresh opportunity that's starting in the second half. How should we be thinking about inventory levels in anticipation of that demand? Then secondly, maybe to follow on to Brian's earlier question, just the assumptions embedded in the product guide and specifically from the end of service refresh. Are you assuming half of that four hundred to four hundred and fifty million dollar opportunity happens in twenty twenty-five? Thanks.

Yeah. I'll cover off the inventory question a little bit and then maybe Christiana can come back over the top and talk a little bit more about the model for twenty twenty-five and I don't know that we explained we'll explain specific dollar amounts to each individual item in that, but in any event, Ken and I have been at this for a long time. You like to see an inventory turns to two. I like to see inventory turns to five or six. I lose constantly on the inventory turns. We've gotten, you know, as we we've gone through the supply chain cycle here, You saw the inventory turns. We did very well with those storing inventory, if you will, on our balance sheet. If we got into COVID and supply chain crisis. And it really helped fuel the super cycle for us on our income statement. And with that in mind, you know, I think a healthy move number for us, I'd have to agree with Ken now, is probably in the range of two x with returns. And I would imagine that he would expect you could expect us to target that each quarter in terms of our inventory balances.

Yeah. On the linearity of the product revenue assumptions wise, there is definitely a compelling reason to refresh in the second half year because you can't you can't you can only renew for one year. We've seen refresh activity happen already, especially for large customers? And we will try to accelerate the upgrades cycle as much as we can. So we've assumed that there's a more gradual than kind of spiky upgrade parts.

Thank you.

Thank you. And one moment as we move on to our next question. Our next question comes from the line of Saket Kalia with Barclays. Your line is open. Please go ahead.

Okay. Great. Hey, guys. Thanks for taking my questions here. And I tip my cap to both of you on your respective exciting next steps. So very clear numbers and a lot of helpful questions. Keith and Christian, maybe I'll ask just a couple housekeeping questions. If I may. You know, first, can you just remind us I think you touched on it a little bit. Can you remind us how big LatAm and Canada are just in terms of percentage of billings, And then maybe on top of that, can you just remind me of the twelve percent growth that we're guiding to roughly in twenty in twenty twenty-five, how much of that is organic versus inorganic?

Yeah. To your first question, LATAM and Canada are about fifteen percent of total business. And on the organic growth number, it's we expect about one point inorganic.

Very helpful. Thanks, guys.

Mhmm.

Thank you. One moment as we move on to our next question. Our next question comes from the line of Adam Borg with Stifel. Your line is open. Please go ahead.

Hey, guys. I've got Max on here for Adam at Stifel. Thanks for taking the question. Over the last few quarters, we've talked about SaaS and SecOps billings coming primarily from existing customers. So as we look out into twenty-five, just wondering what the opportunity is for SaaS and SecOps to become a more meaningful contributor to new logos? And do you or do you expect that to kinda remain as primarily an upsell motion?

I think we do have a huge installation base on the NextGen firewall and also ST WAN. I still feel grow upgrade from laptop probably will come most of the new Unified Sassy. And that also will be the sale for the sales force and also for the partner. I believe the last few quarter, probably over ninety percent of come from leasing customer, which are already all firewall major firewall. And also, I see one customer which does give us also more advantage compared to all these SaaS only player. So that's where and that also the reason is also because we have the single OS. I have all these networking security with all this SD WAN and also all the all the function in the same OS. So it's very easy upgrade. On the other side, we do have see a lot of new customer and especially some big enterprise. Some of them Do have issue with some other Sachi player, and we do have a lot advantage on the better function, better integration, a single OS solution, and much better performance and pricing. Like I mentioned, probably suite five x more price advantage and plus our own kind of infrastructure supporting this kind of Lower cost, better margin, and the same time, integrate function to together is more easy to manage and better protection So that's my advantage we have. That's why we also put a confidence We believe we're not only we're leading the number one player in the MagGen firewall and SD WAN. We also gave us some time. We're also we're leading to become the number one unified SaaS player in the space.

Yeah. And I think Ken's spot on in terms of the factors that's now build on one of those, which is you know, removing reducing complexity and reducing cost and making things simpler. You know, I was really impressed with the first deal that when I talked about in the script here when I talked to the sales team, which was a pure wide space account. Started off as a competitive firewall displacement, and we know we're really good at that and we know how to do that. But then to see them, you know, consult and collaborate with a customer and make it not only an SD WAN deal, which we've been a ton of sense, but also to get them in the boat on the SaaS deal. And I think that speaks to well, one of our very good sales team that brought that to the table for us But the evolution and the maturity that you're seeing in our own organization as we get more experience underneath our feet and our ability to branch out and sell into those organizations that are focused on you know, a consolidation play removing complexity and controlling cost.

And that also we have been looking for a lot of our long-term investment, like, in the single OS, in the hardware and also in the ASICs. We're the only ASIC designer in the whole space, and a lot of new ASICs design will drive the new SaaS function. We'll keep give us a much better performance, lower cost, lower power consumption, and also the sovereign strategy for service provider for enterprise for data center, we obviously a lot of growth potential. That's already the unique advantage FullInNet has.

Thank you. And we'll move on to our next question. Our next question comes from the line of Shrenik Kothari with Baird. Your line is open. Please go ahead.

Hey. Thanks, Mark. Taking my question. Just really solid unified SaaS growth rates. You guys are seeing increased penetration among larger enterprises. Which in the earlier commentary was still building momentum. So just curious Can, provide an update on, start with the incentives, which are tied to about telling SAPI tech ops, and how did incentives are impacting overall, kind of, proper metrics, deal conversion, and yeah, and then I had a follow-up question as well.

Yes. Well, we do want to ask accelerate the training to both our sales team, the technical team, and also a partner. And it's a but they do see the long customer definitely see some of the long-term benefit of using a single OS to gradually adding more function and adding more security and easily upgrade to the next kind of security function they needed And on the other side, I think that we also need to keep in keeping to be higher and keeping at self capacity. And at the same time provide better training. On the other side, we see the feedback already from customer partner. They could see there's an upgrade of a SaaS is much easier compared to this new SaaS approach. And the much shorter sales cycle. And you can see since, like, we only launch our own SaaS approach a little bit over one year, and you can see the ramp-up is very quick and probably the fast-growing in the SaaS space right now. So we do see a lot of great potential going forward.

Thank you. And one moment as we move on to our next question. Our next question comes from the line of Jun Zhang with Truist Securities. Your line is open. Please go ahead.

Great. Thank you for taking my question. Keith and Christian. Congrats to both of you. Keith, you mentioned SMB being one of the top-performing customer segments, which is a bit different from what we hear from some of the other vendors. I was just curious what is underpinning that demand, and what are you seeing that others are not Thank you.

Well, I think the account program at four is probably fairly mature. I mean, Ken's been doing it for a long, long time. You know, I don't think, you know, we're scrambling to find channel partners, if you will. I would also give a lot of credit for Shiana and what she's done in her year here, which is really focused on the channel and getting to more senior levels with the channel leadership to understand what's important to them and how to structure incentives that are tailored to what the channel is trying to accomplish. There's just much more collaboration with channel partners today than I've ever seen before here. And so I think these you know, we had some fairly specific and targeted incentive programs in the fourth quarter that Chrisana helped develop, and I think those were, as you see in the numbers, the new logos and sixty-nine hundred and the mix of the business, extremely successful.

Yes. And I also see we have probably the best product because none of our competitor, not just small, has this technology, single OS with so many it's almost thirty function integrate in the same OS and with with about function about fourteen fifteen using AC plus. Accelerate. That give us huge performance and function advantage than any other competitor. Because the SMB, the, like, the three model we announced today, they run the same for the OS compared to some other big big box, bigger parts there. And that's where the SMB and even the long-term home users see some huge advantage using the same forty OS They can they can kind of whether connect to the enterprise or they can they can connect to the cloud and also this new unified SaaS approach. So that's where we feel, like, a technology product advantage gave us huge kinda unique benefit to our customer, SME customer, eventually can be the home user consumer space, which we feel is because so far, even in the in the in the US and Europe, the developed country, the SMBs still had only single digit of SMB customer has any network security to protect their network in there. So we do see there's a lot of growth potential. But how to address this technology need to be easy to deploy, easy to use, easy to solve audio, use AI. And all this. That's where we kind of invest quite a long time, and we do see it's kind of a long-term benefit of this long-term investment, also huge potential going forward.

Thank you. And one moment as we move on to our next question. Our next question comes from the line of Joseph Gallo with Jefferies. Your line is open. Please go ahead.

Hey, guys. Thanks for the question. Keith, congrats on the much-deserved retirement and congrats to Chris look forward to working more with you. It was great to hear about the early end-of-life refresh demand. In those early renewals, know, how was the average deal size increased versus four years ago? I'm just trying to understand how you're thinking about the size of the cross-sell opportunity versus that four hundred and fifty million product refresh. Thanks.

Yeah. I think I tried to make a point that what we've seen, and I guess it kinda makes sense, is that larger enterprises are probably moving first. We expect that the SMBs may move a little bit later on the timeline You know, they probably have less advanced per purchasing departments and maybe less regulatory pressures and things of that nature. There's probably a lot of reasons for it. I think what you see in our large enterprises historically is they often have a deployment schedule. They may not necessarily take all of the equipment at one point in time, but rather take a certain amount each quarter, maybe nothing in one quarter, and more in the third quarter. And that it was that same buying behavior pattern that I think we started to see in the fourth quarter, which I'm looking back at. Some of these more regulated industries, also some technology companies, and we could see the swapping out of the mid-major products that are being end of life then taking on new products. And we talked to the account person about, yes, that's they're on the they are on that runway and they will continue doing that now over the next several quarters.

And let me add to what Keith just said. Regarding your question of average deal size. So at as we have a lot of large customers that have enterprise agreements, they pretty much have an ongoing purchasing habit of replacement devices that they build out during the EA. You don't necessarily see creeping up larger deals, because they negotiate at a certain point in time what they need for the next five years and then they buy as they are ready to upgrade.

Thank you. And one moment as we move on to our next Question. Our next question comes from the line of Ittai Kidron with Oppenheimer and Co. Your line is open. Please go ahead.

Thanks, and congrats as well for both of you, Keith and Christiana. Good luck, and enjoy retirement, Keith. You earned it. Couple of questions for me. Just again on this upgrade cycle, if you know the devices and you can ping and you know exactly where they are and when they get retired for the vast majority, can't you just be a little bit more specific on what was the contribution exact dollar contribution you expect from the upgrade in your twenty-five guide. And the second question is for Ken on Sassy. Great to see the progress and adoption over there. Can you comment though of how much of the adoption with the large enterprises is Against brownfield displacement of all SAPI solutions or walking into a vacuum. We'd love to understand how much of your footprint in your opinion has something that you need to displace versus you're stepping into a vacuum. Thank you.

Yeah. I think on it's a great question. And keep in mind with the two-tier distribution model, yeah, we sell to distributors, we sell to resell to sell to end users. And oftentimes, it's SMB The quality of the data about the end user gets better and better closer you get to the end user with the reseller. And it's why you heard a reference in the script about the importance of working with them on data gathering. You know, there's a bit of an honor system when they register the devices. It may be more intuitive to us. And, of course, we get a device, you register it like our phone or something like that. But that's not what happens in practice, particularly in the SMB. And really, there's a heavy reliance there on the channel to spend time and energy if you wanna get good reporting and tracking on that. So we'll get better at it as go, and that's part of working closer with the channel partners. It is easier, quote unquote easier with the enterprise enterprise and understand the account plans and what they're seeing, but you're still only getting a partial set of information. I think the reporting and the information will get more mature as it go along. It's moving pretty quickly right now on us in terms of how we're developing it.

Yeah. For your second question, actually, you can refer to the presentation slide number five. So they do give some numeric penetration rate. I think for SaaS, it's around ten percent, a increase two point from, like, two months ago, and then I stay. And then so ISP one is not a not enterprise, probably about seventy percent. So that's where see with our leading in the in the the firewall major firewall market, and then that's actually drive a lot of SD WAN growth then also after SD WAN, the SaaS will be the next growth. We'll keep in helping customer build better security infrastructure. And in terms of your question whether brownfield or not, we are seeing some of our biggest sassy Deals. As displacement. So either legacy VPN providers or legacy SaaS providers

Appreciate it. Thank you.

Thank you. And I would now like to turn the conference back over to Aaron Ovadia for closing remarks.

Thank you. I'd like to thank everyone for joining today's call. Will be attending an investor conference hosted by Morgan Stanley during the first quarter. The fireside chat webcast link will be posted on the Events and Presentations section of Fortinet's Investor Relations website. If you have any follow-up questions, please feel free to contact me. Have a great rest of your day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.