Fortinet (FTNT) 2 Nov 232023 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Fortinet Q3, 2023 Earnings Announcement. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Peter Salkowski, Senior Vice President of Investor Relations. Please go ahead.

good and Ana, you, afternoon, everyone. Thank Peter Investor Relations is Salkowski, Senior and Finance of President at Vice This Fortinet. quarter I'm pleased financial third Fortinet's call to XXXX. to welcome everyone results to for our discuss of the are Speakers Jensen, Keith Financial Ken on Chief today's Xie, Founder, CEO; our Chairman Fortinet's Officer. and and call

will for our providing website. before our This begin Ken quarter review year. available will our is business. a on results webcast call third XXXX the full that call updating via a by and high-level providing fourth will on perspective our Keith live today operating the the and be replay Investor for financial of guidance options quarter for XXXX of

remind the then we call Please forward-looking and actual SEC obligation be refer uncertainties, call, for statements, from our reflect open our Form more making like the differ will statements cause statements. could projected. specifically take risk we forward-looking and filings, no forward-looking more results to We'll risks to to subject that materially statements everyone which are these our XX-Q Instructions] All presentation today's [Operator Before only questions. forward-looking begin, I'd any information. obligation in to as this and the Form date disclaim XX-K of opinions most to to for recent update in particular, of and those factors

that metrics our be results on call today's and website today's in Investor Keith on to prepared the of release section are Investor the cited posted the earnings and quarterly of call. make are Relations references remarks call Ken GAAP our both earnings that the and remarks, GAAP in today's we are following to otherwise, website. on press accompanies which unless today all immediately posted our financial non-GAAP for will the Also, earnings Relations presentation located non-GAAP reconciliations

are call on to basis to a turn the unless reference over I'll Ken. otherwise. Lastly, now year-over-year I'll growth noted

you flow. free thank In street our Good to and call. everyone exceeded for afternoon, in QX, Thank cash and we margin you, Peter. expectations operation joining our

towards have focus However, slowdown in growth, building secured market years. and are a our over innovation marketing with execution in next below focus networking and SASE response revenue leading marketing maintaining slowdown the expectation market, our faster-growing networking quarters. How sales been the challenging secure our for and we to team's leader in a product shifting to along while secure the as fell operation efficiency. a XX security and where convergence on we networking networking and due sales secure of few In in consistent

While we anticipate for limit it important is ear-term growth market, in secure Fortinet. networking very

valued enable billion is a single billion we digits believe, annually us [ XX platform market the the shipped. massive by market leader The XXXX. in projected units [ increase ] footprint secure to leader ] our networking both strategy is and firewall with as and revenue CNY As in $XX to market at high

XXx [indiscernible] networking consistent combined better network which provides to drive performance supported share application our our industry-leading ASIC-driven XX with to performance which average on DOS, continue focus and function flight over Our competitors on gains. than our capability market security

time. Secure a believe double-digit vital and we will remain strategy part return growth that our networking market annual a to over of

market as XXXX. annually to by billion have $XX SASE . We been some operations billion operations of Security innovating a faster-growing growing and setup for is mid-teens secure at in known the time segment also $XX

the solutions. and Consolidation seamless offering in Fortinet SIM, security and underlying our tools. EDR, MD platform other is comprehensive secured integration integrated and integrated demand SAR,

a degree integration. high strength enable Fortinet innovation ability its product lies and to in through its of automation

stock automatic platform. consolidated underpinned a and analytics management and and second, by product all power AI Our business single

expected focus a to our to XXXX. to have billion market XX% by continued growth we compose on A ], grow addition [ increase at to Secop $XX $XX In rate SASE. billion

Fortinet only solution the cloud perform functions with can on that or in the email system. common all We SASE is with service a a company operation believe and is

and management networking SD-WAN, council. market-leading set, security and the vWAN X Including

Our is over with location XX-plus data With supported XXX the Cloud. present centers. together solution Google worldwide SASE service cloud by and point own SASE our

use salary For case, our client-based our SASE we using service function technology. are ASIC

of security boost region firewall, customers. to X.XG that anticipate our to For a service to of we integrated We from SASE Which from a Fortinet Secure ATX installed XXx leverage X including thousands new in lock SD-WAN, better base offering, tens SD-WAN announced of support solution. and success looking our single-vendor attracting will side. SASE instance, our And gateway, recently which market secure a with computing process upselling SASE full SASE big competition. than service first a come prevention customers

Our significant with a in advantage. -- leadership SD-WAN and of firewall us industry competitive largest X components SASE both the provides

the SASE peers. in We us combined have operation the differentiation and company service competitor us and a strong apart track This we solution record successful only provide setup are significant a over sets advantage with of believe system. same and with the execution

to XX% We digits XXXX. we and to and in transformation generating healthy realignment business comparison next and half modest While anticipate XXXX. . our We security or committed SASE towards growth the return to XXXX of remain by networking margin line be for greater challenging of to top expect the growth operation double operating due few second quarters

turning and and would call Before their over like support for our the continued to suppliers Keith? employees, partners work. worldwide to I hard customers, thank Keith,

good and Ken, everyone. you, Thank afternoon,

mentioned, are the through confident is deck. XXXS slide As which our Slides strategy, of X in Ken on earnings we driven integrated platform XX summarized

we in SecOp and market and consistent is investments opportunities. the shifting markets As go-to-market R&D with believe SASE near-term our forward, faster-growing look we

for and on XX, SASE Slide respectively, business of today. and account SecOps our XX% shown As XX%,

mid- very for Networking, And our robust are to accounts annually. to of years as currently shown on is the experience Slide of high X, to these growth teens lower following growth. expected X Secure expected grow which XX% in business, markets

high continuing more execution and for With expect top term, result, mid- a continued healthy along we with the level in growth. we growth believe teens investment markets, return to profitability and top SecOps -- to the As line to growth and near SASE modest can on delivering of deliver to or we growth to return which rule status XX. balance other XX to led or Slide and In achieve greater. profitability, the XX% in operating deliver years, shown XX us of margins has words, while as XX a

of a first, from In by the like But the a moment, few shift investments. highlights expand tactical and strategic steps I'll review on to some I'd quarter. sharing the

to margin line We X,XXX logos We new XX%. enterprise which software customers, cash small were top enterprise rate saw in and above by expectations. free grew over add logos, performance continue supported flow was and an at new added while operating by and impressive small bookings strong

and at a personnel our XXX points XX%. $XXX drove to above Our representing other costs cash basis efforts flow operating high million, end the was Free XX.X%, range. to margin margin guidance strong of manage the of

at XX%, from of strong over billings our sustained Looking annual XXXX, illustrating CAGR ability an growth X-year or quarter to Starting the billings. drive a of period. third rate we saw compounded and extended growth

in In duration month demand we growth from X% product appliance earlier as QX, growth periods. importantly, contract and of $X.XX billings however, resulting billion lackluster shorter experienced elevated X represented of

growth provider strong were retail strong, government varied while Phil's and while terms rates showing were GEOs billings larger by were emerging In larger service GEO our weak. industry growth buildings disappointed. verticals, the of buildings with and education strong, international much of with enterprise growth U.S. Small and Europe enterprises growth, while weaker. was

CAGR revenue CAGR our $X.XX our to and X-year of largely Slide XX% which XX-year revenue grew reflecting X-year refer security lead of and to the Product margins. lighter on with levels Turning billion, compares illustrated CAGR $XXX revenue network XX. Total demand down X-year times The XX% was of can levels, million, with to CAGR product backlog XX% and was representing historical revenue Prometal aligning XX%. of to. consistent a of X%,

consistent a Service which XX%. are. revenue. $XXX CAGR of XX%, XX% how illustrate XX% they of total by represents X-year of revenues CAGR the driven million of security XX% representing higher-margin in accounted for to subscriptions, We grew total revenue growth revenues service Service mentioned X-year

XXXX gross as service points increase from points levels. basis pressure related margin was margin to in X-point service driven as higher are Total from the X margins Slide Service the and levels of to to down inventory the adding higher we outpaced up was returning each and saw revenue. our service metrics, XXX the were in were starting top confidence basis revenue, margins same CAGR for illustrated CAGR which XX-year same the by XX.X% the up product of IPO, to basis points within of billings, revenue costs. With gross product hosting line XX gross points revenue revenue shift our growth total of gross service X-year cloud revenue CAGRs, growth XX, Product on and levels. XX margin

higher guidance high million our XX.X% Operating range of consensus of million and operating $XX on the reflecting efforts margin the income of high range, million and our above control $XXX than to end the the high exceeded spending. guidance $XX of end was

XX the cash $XXX X representing Free cash flow, Slides summers consensus. $XX or to Looking XX% flow above cash points million through of flow increased million, on cash increased of XX. to free Operating to of flow statement a margin XX% revenue. XX%

million expenditures million. $XX real quarter Cash $XX estate were the paid taxes in $XX Capital including of million, of investments.

totaling an payments form of second and million $XXX in from in $XX other respectively. reminder, the flow quarters, the cash a and As in In million, benefited cash free fourth regulatory $XXX third stock of of relief tax for third estimated XX.X quarter, the million, million payments. million million deferred and deferred the aggregate our expect quarter. including tax total we to of cost $XXX shares taxes repurchased the $XXX common We

$XXX at remaining of X.X purchased approximately end In million stood additional our October, an share $XXX million. And repurchase at million authorization for October. shares the we

financial initiated users. in single solution couple SASE to wins upsell win In customer Now like for vendor us of share a an for quarter. XX,XXX a services the SASE existing key X-figure I'd their

X,XXX our expected named journey XXXX, Slide I expands SaaS our Quadrant, X to X-figure of for as release in cross-sell solution. Magic XXX the significantly adding customers strategic continued worth an locations solution Fortinet should are as vendor. cloud-based the Cloud, Quadrants and SASE is Fortinet existing X. a as customer consolidation such single by PoP SASE SecOps, shown for one, another on these a noting transition displace believe partnership and to of Google to SASE coverage where be single new recently note in deals before which Gartner's vendor By X/X prior over recognized Gardner were closed inaugural we opportunity customer deployments adding And was by this incumbent rich purchases. with challenger. It's to Magic announced We security continue with existing also SD-WAN applications SASE cloud users. their supplementing offer us, their network our SD-WAN a earlier our deal, their and able

Cloud Now solution of in we're our and XXs strategic I'd ] our [ like of and continuing Ken's enhanced Google own and technology single with SASE expand tactical the just commentary AI some and capabilities continuing efforts on additional our to delivery, research increasingly development investments, on areas and integration. focus the to to integrate partnership SecOps SecOp into functions with new we're I expand investments and addition data in features in to mentioned center the making SASE to

improvement finalizing with enterprise customers to continuous large level co-development of SASE And solution. enterprise our agreements integrated existing accelerate

SD-WAN Fortinet our a certification key of network Slide and in Quadrant, integrated and strategy, of as on our SecOps position broad on Gartner vendor security XX. include third-party our Including and marketing SASE and actively focusing and the solutions. summarized SASE, components Our advantages investments challenger SSE competitive promoting Magic aggressively go-to-market single

the professional motion in sales Certifying company after X,XXX net same SecOps largest ready sellers these certifying foot of SASE, solutions in history. enablement is which all sales

incentives SecOps. Investing and comp in to and and to specializing deeper to plans capabilities partner in roles customers. channel new into Expanding SASE SecOps sales partners include existing sell SASE

and a of And landscape According to developing comprehensive differentiating market We stages. thousands the XX% are Fortinet focused to vendors. Fortinet's remains of is and cybersecurity pursuing capabilities. and on and reflecting of companies shift early fragmented training the in consolidation well is evolving market in believe SASE SecOps with industry in integrated highly channel vendor cybersecurity is strategies a strategy, Gartner, the platform positioned

allows SASE of solution security and security integrated that and is to slower a the identifying, solutions communicate As in the shown reporting improve each each on gaps data security with X SecOps, complexity significant piece recognizing solution to security incidents. best a posture pace and and system security slower in AI-driven security together improving Slide consolidation effectiveness. as key from strategy. reducing are growth vendors X, Pertinent their share Attending adoption, can approach to across and multiple result our technology network best-of-breed other, single resolving with security an Organizations operating method drivers this brings

increased which we continue results. Moving near-term to deal guidance. constraining to cycles, longer sales our scrutiny is see and

with cycles these scrutiny, guidance fourth sales expect budgetary takes We longer quarter our consideration. to into and us the continue along associated

are to which Non-GAAP $X.XX, the earnings margin we $X.XXX assumes XX.X%; which share of a to share at range is XX.X% operating range capital to Peter I $X.XXX count As $XX our ]. outlook, of beginning billion, year of $X.XXX fourth of in in cash $X.XX full XXX Slides quarter, expenditures XX.X%. XX.X% forward-looking of disclaimers subject information to And margin a summarized represents XXX to reminder, to the a of of non-GAAP million of of are the XX, the billings [ fourth rate expect the Revenue Non-GAAP a on decline million billion provided at In which taxes, the XX%. $X.XXX as which midpoint of billion, to between million; X%. tax to XX quarter per million; non-GAAP that represents and XX%. regarding at million billion $XXX the growth gross call. the $XX and midpoint of mentioned,

of billion which expect the we represents range the year, full $X.XXX billion, growth to Service billion, of which billion represents at the is to the which a $X.XXX midpoint of of For billion XX%. $X.XXX $X.XXX $X.XXX range range revenue midpoint growth growth in represents billings at midpoint $X.XXX the of of in Revenue XX%. billion, The the XX%. to

product of of earnings $X.XX margin which non-GAAP expenditures of of non-GAAP non-GAAP revenue million; and XXX service of Capital implies to of guidance XX% per of to margin growth and Non-GAAP The to million. $XXX assumes $X.XX, $XXX revenue XX% share of X%. a taxes gross between rate XX% and operating XX.X%, million share count $XXX to million. XXX tax million cash XX.X%

forward look looking we to growth, from As a thoughts few can product we XXXX of elevated transition offer a period and forward.

to improving will continue In profitability. we term, focus the near on

We expect XX% that operating margins we in or pressured greater. product expect gross margins be are Nonetheless, XXXX. healthy to

to gradually by the growth of SecOps and easier the in reflecting backlog the and approach progressively first the year growth XXXX, double-digit second of draws our to billings easing We headwind of the increase half the comps XXXX through expect focus. from the of and due half and benefit SASE

growth ability in water contract We confident revenue with marks and the shifts in in we to SecOps, term to lag market. growth trends prior to solutions term, investments We increase remain and our balanced we remain our share expect of XXXX. years, Consistent strategy and high growth taking expect below Longer that SASE product we market service timing trends. of profitability. as returning the our our our to adopt will ultimately

begin And to coming that, forward updating the to quarters. back to look over Q&A. Peter with the progress hand I you in I'll the call our on

can you the . Operator, Instructions] open questions. [Operator Operator, call for

first Instructions] Fodderwala from comes Stanley. [Operator from Hamza Morgan question Our

you. are what a seeing a you clearly, network There eat and go-to-market extent for effort is there's to into Because SASE just security To start there. dedicated firewall budgets? focus bigger maybe Ken, there.

that So is cannibalize degree? do you firewall -- starting market to the think SASE to some

move I towards compared is the definitely slow the customers more think model. OpEx dip service-based it's to networking SASE economy bit environment, little the different a CapEx, OpEx. during business service

kind it long to of of adopt also a of involved SASE SASE little that -- will time. be been since in have the service some slower So some we providers bit a

expected. kind of of the than some provider we slower And service

the the ourselves So of aggressively with we at of closely partner. kind still that's the same time, where working going more some strategy changed

from from JPMorgan. Essex Brian comes Our next question

to negative I the low and quarter a comps product to, quarter. hit growth the we'll guess might well? after is for look you, for product of this you're this spending growth trajectory declines a we either seen And cycles? double-digit billings this Keith, as understanding half, of them, guess that those going at in spending what confidence have and you billings product from to growth guess, that other, you've have ability as where recovery in or cycles you or implies -- return What call in product single-digit degree maybe, you've the revenue second I trough both easier I observations guidance gives your of billings or level

Yes. Brian, should great question, I say.

of is with the of out One investor nature presentation more revenue. a call cyclical to than the this slides about that the business we in the can you added past -- earnings see maybe maps for we've product talked what the actually cycle

somewhat X%, in out a that watermark. due of XXXX, of some and The of of a For there due and analyst growth have I suggested we members pause a firewalls. product other kind had been may was that Wall market have there's I the little revenue from of low was that Street market think example, in think studies for bit

seeing we're naturally forth, issues think because And more that may of something some supply delay XXXX. was occurred of perhaps I so in or pause that And that and chain XXXX there now. in have

going industry been volatility slide that are. to terms since that the intention -- with broadly, at CAGRs new has I that the was the you company be IPO of looking I at company company. understand Canada confidence, deck, think if combined the in its the and and led you in think in of the been success CAGRs has those what in look that that through and there And the the there's of the past

But CAGRs over very that. see the in some longer stretch, attractive you

be network the the in still compass of into be like traditional also Long which will will security [indiscernible], we happening, in than enterprise. the the believe networking, by security don't environment, especially the secure network XXXX network larger term, convergence networking by valid

huge do believe a we market And opportunity. it's so

market. operating acceleration, with integrated a unique We and gaining network the market in keeping our with our advantage system we have also in are share ASIC SASE both

Our from Fatima next question Citi. Boolani comes from

specifically prepared Ken challenges the a Keith, you out vertical provider that bit alluding Just thinking just are how to detail you and verticals perhaps commentary, -- called rolled little -- of intentions exceptionally spending you this to sort of but behavior was patterns retail buying. could your was from the hoping areas in was And service more particular buying provide sort X as in I assumptions weak in understanding provider scope their service buying some get and why the dramatically to about in pipe? the and weak a these your better were of the why become in these have the have of so over specifically? as wanted stemming of

Yes.

provider that's has number reported headline think -- think is service a surprise. probably itself a this of companies commentary I cycle. through not I don't the by been earnings other the

the a think the of I particularly it's surprise, the number, we service worldwide least our was what also business not just prepared U.S. in and sector. in as we Europe, to the saw at and the because provider significance U.S. both slowdown But the retail European the that for the saw markets. the I weakness service to applies comments, service noted provider and a in in in provider,

projects is that's more their retail I still probably working of prone digestion a different. of bit SD-WAN to and perhaps some through, bit think little maybe that way sector . the the little are a

in earlier disconcerting the headlines to quarter. part the little As sector probably well the a retail of the as bit of were some economic

comes next Our from from question BofA. Tal Liani

same on the questions you. have I Thank topic. X

the to appliances. service only start to then which nonappliance the upsell years, And you sales, we on and slow, when back X things go you blame a non-FortiGate. a lot SD-WAN, head talked last If is meaning about

non-FortiGate, why us it a on you meaning with parts they other at -- So add-on at and look the ability and down look the the cetera. of that's selling in SD-WAN, and even et you or it's attached a the going the being the at things, appliances, are sales is to based look if features, sale, other all question business of it's an you and you FortiGate when it's retrospect,

for X you So it's first, the sales, successful year? outside drive over could when it what second just to able easier is the related getting easy exposure our drive XXXX comes kind is the Is to and the that of a the appliances? comps you are your now big have sell the on just about the replacement to exposure were outlook applying of the understand refresh of do appliance? And that retrospect, you're all through to years comps of question, products how it to total in is really refresh which a what to kind understand planning that any if or from there next to is anything of some the last end cycle the -- company

Ken. it's Yes,

offer as SD-WAN, for a place to functions free, they SD-WAN and all think in Function the of do place be SD-WAN for We launching started these service I deliver [indiscernible] need we part last SD-WAN to there. the quarter. really

in ramp-up believe We SASE the faster still market do So stage. market. it's will we're service, the networking the one like the like secure accelerating than keeping all be to growing

is because certain for as I a just a have the cycle or we well. product next which of second X long-term some starting year. inventory launched back supply I after there. but presentation this of digestion, like affected we in cycle go we'll our we like After same product ASIC in some half I holding in last XXx performance But through since shipment the few gave to see months. some also launching, XX, where us there's together, the the do believe new believe see being chain product shows two and product down because the combined it's building of do go -- chunk with and ] story new the to is kind on the new elevated in I the to probably do can relate you have price . Also, cost. which Which the supply up the Page X convergence I directions service, still fully the of last normal on X, the that's sales combined of started and the of years. at launch a of also new think feel one and kind Because ISPX function think [ of better more

with solution, OS especially And salvation. part hybrid as have It's our a we position call SASE cloud, integrated plan solution. both We the better with . a part the a big of our universal whole

So that's -- of cycle, of presentation, there's the refer if that we Page right kind of go you some now. cycle to XX kind through the probably

to comments. Tal, maybe Yes, I'll add Ken's

think vast that I or security you're firewall. It the to a beachhead these could correct physical and majority customers that the products. then be in other And virtual be time, that, go your of can the functions sell really, interest a that it is first sales our firewall appliance. a

I down you're participate you're the the and is because particularly part seeing in that market maturity. not It's and it products investments fastest note we think really is so such, SASE, SIM making those reached a is the think of EDR that there about some we of segments, And markets doubling largest shift the greater level . to have while but talk of opportunity I the and X growing. that more, have now it's of in seeing what also our product the strategy SecOps. the on family as in of investments like SecOps

from Kalia Our next question from comes Barclays. Saket

I'm Ken. Great. to ask going X Okay. together.

So one, the you. maybe for for first Ken,

I That's about is business solution term SASE a right, of specifically answer want can this it. big Fortinet long part of just the have question. to longer business, now, the that the feel in you and can Maybe hear solutions? compete the like do you head-to-head And the do be the think will how but maybe you term? part with how first when think thinking other SASE about Just

think because question margin about generate now -- is talk about the kind second Maybe great of of margins balance you of The of just the operating you're how for that clearly, given the sort you could being. sort How higher it's here? can midterm XX%. do thinking you, business than Keith, see some about changes to profitability

Yes.

the ROI ahead we very to integrated The they cost also universal instead with allows the we is cloud, plans to which fold Compass at better deal first a solution all have locally some the and SASE And because sometimes traffic, the compared better now at are process traffic you part solution their answer like yes, much SASE. of is, a And we have is you have believe on of time, the much campus whether of to solution, because enough the offer also office better customer can more unique within competitors appliance. other competing. our in both the same same solution, our on

Yes.

innovation reinvest R&D well So in marketing, that's go-to-market, also robustly you whether And flow, about very the has cash of does you're whether to the free company on point operating had in back The a in bottom both whether form about selling. you're continue very, great that spending, about talking talking margin. line. but strategy the to been that's

coverage a think sales the do sell how to we're looking to bit -- We've at trying market. slower. looking Obviously, of think better several with with coverage, now right a probably firewall point at the We of side, North the were where conversation little started And is I at in our business. But you're XX. good model a our per reaching now many how XX, X rep. talking years you're a for you're do pretty want We X I on down is accounts we ago. to firewall we're solutions to it's years workout that. solutions if think, sellers about America, I when sort you the new many will. bring XX, number enterprise talked and That -- to about for for reaching example, or probably

go feels probably lower, pretty little could a but good. You bit that

be continue opportunity share in we of or partners, channel think resellers that front in support they terms be they right there's do the distributors of from now I right make and another mind to of them. how level immediately getting us sure our we're

At here, forward. how part efficient there same investments that's and it be think functions would there's suspect you. in what selling more opportunities in how the business our some be or office the us about marketing spending some will we're that I talked Ken's go or to we whether with of about have money, and So time, I as in back

guide today, but some was trying think us maybe -- the like look XXXX should So we're to what floor that important did line. of for least obviously, it thoughts in on for to early provide bottom a not at we XXXX terms to

from Deutsche question next comes Bank Our Instructions] Brad Zelnick from [Operator .

most was enablement. head distribution and direct into advantage distinct your more always installed time that think and ramped? get both sales distribution, your to go I how properly indirect enjoyed I appreciate, comments motion to trying had of have to market, us security of Great. a when base. indirect, an ever box-centric? direct needed do purpose-built know in And to my of same performance appreciate that the around price you've industry-leading all in operations, Keith, get just the dollars Fortinet's that sales and for that both you achieve that. hardware, is in as the having level can how which But also changes you obvious advantage showcase is I'm and viewed you SASE about in the But lean made investment you've those you the about productivity

we important. broad reaching with are same We our continue network to do closely training, efficient customer distribution believe very, working partner our more market, channel time, marketing restructuring. more with At SecOps the is in sales sales also, And this fast-growing SASE base. the very

the opportunity thinking large huge partner So through we're our network and especially there. go cross-sell is also

believe We and will we've consolidation also kind any market actually us basis investment expand we any I us more slow do are past or this So down. service the helping made approach. SASE in don't the issue to feel be secure of more in

And Yes. all comment, We're just and talking would on I Ken's build questions. Brad, not by fair accident. It's SASE. about and good

you different about back for been catalyst of I accelerating a The strategy now Quadrant, it us gives strategy quickly. Gartner Ken to little single bonafides that and challenger providers a go think, talked to us and us you PoP which If the in quadrant it vendor about the if the you to talking and conversations. about lot having ways, the come see PoP the market bit, we've of cloud a in will, Magic have the number with think of has strategy, more

I back that terms to, installed at customers. first would we've as really for have and already. other somewhere any real that over base last sales support. have And cases. and it firewall expected coming were support They the SD-WAN. or pie bars several arrow done was be in interesting. It was we hundred And just strategy, without and you vendor brand use behind customers of were the X how marketing sales single quarters, went referred grew. looked The honest, to solution often that would SASE were it's just dominated deals that wood quite the there were to not been us They customers SASE many for customers new of part clearly the SD-WAN were third SD-WAN as by those times, they that the are

SASE up -- expectation the would enterprises think signed we of customers already I we XX% was disagree and mid-enterprise. And of So market. the SMB SASE at that in that the customers, space. the of going in successful be same look remainder part to our kind I the then don't with that. of mix be those between the -- initially I in When smaller we're nearly don't the larger divided that

but positioned a we like installed single base. we're data not in operating PoPs, the So vendor the maybe got investments publicly, centers, now system in made here by of we've the the in to Quadrant, the I the that fact I it well accident. just don't Gartner Magic We about think think talk because

this right I for strategic think make point. is us to at shift this the

the And just But know as should term? CapEx Keith. mix? SASE with of a strategically, to do know How And the topic and quick competitive deliver we've to required I as a follow-up, we longer the part past. spoken you've way increases infrastructure. in this think about the a help over Google the partnered in I about it's

Google. with given owned like really partnership digital some data more At XX like good a a same also cost some which center service by has PoP time, we have ourself, of over advantage. our us do other royalty. We the own built providers And

to need So up. as time ramp that strategy, do we're but containing

-- So Google much networking, feel customer customers. of X much kind SecureOp separate different we with realign into customer quick is for is also, we Secure different solution clearer, very And the with the a and we us, lineup demand. segments. for SASE market and better need also

FortiGate product. whether like compared better, the that's clear enhanced previous to non-FortiGate more some other or So we the one have much

We a up segment feel is X well customer with demand. clear line the quite this

for market. train this more and these starting what current environment. us of the tracking of a one, started partner clearly drive really need the also and So to compensate very we're X will internal the we sales segments kind in separate on customers customers to to based marketing along sales That be

Now locations. To about -- locations, building we're PoPs were ourselves, Ken's look, XX last over were about you're point, talking we XXX quarter, them talking over XXX we right? because well

go-to-market I opportunity So there there's us. a think that to brings this

this and one to competitors, approach pretty longer investments think of their are obviously, and their that visibility, -- I margins our good have there. term what we know and they is the we take,

right? that And there's I their building PoPs space not the I in of have are individually own number much are more PoP, huge will. if another single-digit think. mean you really that's a racks player things, they PoPs,

more more that's forward-stage strategy So in and and I talked need increasing data delivery about, services our do you we've believe particularly And about with I SecOps. consistent some centers. that think hosted

with something of not people is terms in our going this think CapEx that spending. we're I surprise So to

Our from next James. question from comes Raymond Adam Tindle

cash makes confident the flow, itself which profitability over it in years. sense. has Keith, and like Obviously, proved model you're free the sounds

already sheet about wanted to I The is So allocation. balance very ask healthy. capital

repurchase in the share Just up to sheet lot repurchases? the action at opportunity SecOps, mentioned. Right potential You've that very SASE And step potentially how as time balance and towards stock after-hours where have towards M&A. here, a market larger of the about is Curious during the potentially weapon pressured? got a a if strong pivot to as now, with we is you conversely, capacity. using business pivoting the and on the your looking is ROI look share accelerate internally universal the general, how thinking you're gone conversations

Yes.

I -- a as in for that I as available included -- back we fairly well during comment of month, the me shopping the the the let we start of buying have in in the of -- in think week, available the my I remarks companies we remarks of the saw go quarter so guess, And buyback. of the Canada being stock. some authorization start think million numbers prepared of that still about prepared the itself terms had aggressive we you for often. very provided $XXX

I'll So of in him defer his terms that. thoughts on to

We're looking. definitely keeping

the we now, together. are all the feel we the join innovation But same time, realize other X also continue the can on multiple were for strongest among looking the we We on do companies, reasonable also, probably than to the right some And engineering quick. X to the player. open which space, together, internal we also think work to last We'll I do years. marketing internal changing the innovation. more pretty

one. want Peter while been monitoring state And deteriorating given been little Okay. about that this will to future new commitments. itself inventory just is to weeds, results. be demand But manage And to off it to think Keith, elevated inventory one and I might quick the of in now. sorry. than manifest for follow-up, the Obviously, We've expected. we're call where ask how inventory supply. faster demand. make next trying kicks a time for in about this They've me sure just

I think But on that you of the managing if inventory mentioned related wonder relative kind that. pressure. this margin I oncoming comments current demand? to any product to gross was

it been the look we've the And that's from. part pressure of may year. this the better as levels. in some the inventory of related Yes, into to of it the you're half XXXX of for is second terms getting And I commentary we managing where come think

quantify to it though? way Any

Quantify, . no.

Yes, That's certain because keep when we delivery months' a happen, healthy in time, of feel level, inventory. should need about still X, we and products. supply like market lot also our chain X we years are X urgent ago, to customer tend the some position in a where of

still there. products, new probably policy but we're similar especially keeping we're cycle end. So a of also our in the refresh

I in to -- think years. so from oversupplied. last a so now X little bit stabilize also I shortage some even think kind since changing far, . of a X, towards the we and resurprised starting we more

is manufacturer a position operation directly. So we we feel more handle in are good pretty because we

current right than inventory don't we inventory a handle on Yes, our big about the see it most So we of now. competitors the level. better issue other also

Adam question Stifel. comes from Next Borg from

know sales what what a from a issues a on talked on with happened talk exactly conversations? obviously as a of little the the feedback maybe customer about the partnership couple execution and GCT exactly little you SASE about been And maybe Maybe in I taking. deeper initial go on just just more follow-up, just just that the [ steps -- ]. maybe it's bit you're script, about but early weeks,

of last salespeople the the shortage if the time, business. And we -- chain, as a feel look -- at because years, you business X, you of sales to years, there. of X, same X certain certain last hired a also get in We supply Yes. lot X and it a we're growing probably during too doubled deal easy the somehow the always should product lot

we to more the the So disciplined the be and need same that's performance. -- enablement training need I enhance also at where feel about we time, to

and kind at more So also same shifting in the -- keep At learning. the more growth that's new need -- service-based efficient market a projection also of to like of to the also we to the sales consolidation secure a this when kind time, time, multi-cell cross-sell need same to of we're opportunity. kind be SASE part

focus the that's we have now. right So

forward. sales So going marketing we and are definitely both more the efficient keeping to in looking be

what Great. And about early . feedback [indiscernible] on the

give partners. a [indiscernible] they us number any with of time, coverage, start that quick on location, also good the to to very and a have good partnership. so up, match working very number a it's Yes, it's we other broad At same continue the some competitor other

competitors invest some us return. our much some long-term build strategy, of which we have ourselves. because always some a more the than strategy including long-term real parts, we investment other advantage in we estate, give have also We to feel a some long continue long-term better And term, or will

from question comes next Scotia Bank. Our Patrick from Colville

My double-digit growth remember about high in Peter. of question I fiscal XXXX billings. being, the of correctly, exiting last Was 'XX. exiting quarter I kind teens guess, guys Keith, Ken, commentary it If you kind expect was guidance right. gave expect is for this growth quarter, XXXX? busing All qualitative

I'm following try Let's the math.

a was to some if of gave billings kind look I trying high double for of -- which the teens. was -- expect in remarks, exiting to guess just forward second the a was from XXXX growth guys comment quarter, prepared like kind Is be digit? rightly, your teens high to remember And that there growth we so you the look kind I last double-digit in expect in Earlier billings. are change? I'm half. forward going of

Yes. Yes.

performance. just I in we've what think third the that's seen of quarter given prudent terms

Joseph from Jefferies. Gallo from comes question next Our

line then, adoption you. on-premise rip as Ken, of higher a confidence Is Band-Aid on workloads the And a billings. Or guide? line the given about digestion guidance? it turning of back long and follow-up Can what last the with got just to or I've X question, firewalls on SASE appreciate that drives taking a reacceleration just to seeing quarters? a X you each of need methodology parter, underpins this do a what and you Is commentary X eventually off talk AI visibility 'XX. workloads of shift believe hardware AI, X for Keith, bottom floor for on the And you're only term? to for top

the wasn't if or about guide Yes. XXXX about And the QX I commentary quite was numbers. the question sure

but year past line top your change More X quarters? for following the the both. guidance methodology Has for next

fourth deal we with just Yes. I for say quarter, that, giving Absolutely. guidance the actually while would

think dramatic. you the rates, will, I assumed close are if

much over I saw light what last that would half say for the I've the used used stock seen in I think pipeline in I've year. the given quarters, of indicators X years X obviously I what But better here close lowest that in I than put -- quality the is that I the fourth should And we've lower the think in first they're they're are of think don't the quarter. I in context. And what there assumed that. for that rates for done --

than So are I XXXX giving rate a lower guidance. just close I'm recently. more not have much content to assume really

the year I think and it buildings QX and know the we're of that, and impact year but what last it, aware QX that I perhaps backlog again, more focus and here last of to in on we're talking about all of eased really did of billings throughout how year.

going we at we're as impacted getting see the of assuming numbers. how bring improve necessarily is SASE you're hearing successfully think part I bookings, early you're will, to online operations. you what really don't for this really there a change comps So on do that it's know more going dramatic and expect it's of XXXX backlog to secure XXXX. stage clarity really But I if We growth ramp

in traffic about good security. the of feel, the back it's question more a and leverage degree, I secure one also that sure not guy. block getting operation. starting Protect by AI to years, very helping genetic we we XX, type a But what but that like last to porting quickly, also side, side, security using of some bad helping cost good make both also some doing and the -- and the probably a the still XX precision see have been in in kind AI, more generate the AI the AI definitely and Yes. the more guy the we're the of have I interesting more blocking

keeping cloud the in it's both security definitely AI, our we're and the appliance. and So the growth driving also

unique gaining see see long continue compass environment. leverage especially in security, term will in advantage very also cause keeping do to share. networking plans well, grow we networking of market the in our continue to will ASIC lead to healthy and that we and growth, integrated our the market convergence enterprise, especially We trend And

any the to don't I of the term, So long cybersecurity into get space. slowdown appliance see

BTIG. Powell from comes next Our from question Gray

it. right. really appreciate All here. Great. Thank in you I for working

follow-up. So maybe a and a clarification

you is core slowdown SASE chain things then more seeing the the to you're business the think the talk relative of that breakdown and and So switches today related some that that may like how each components budget rates flush stuff about from secured networking, and firewall is new may billings to there within way you versus out about like access of have like more for seeing you're and SecOps. have Did segment? -- and or benefited supply laid secure breakdown the networking that? been the a for points all And between much there growth networking,

We X all the forward. also Yes. market gaining growth X share And we the growth, segments than the do kind firewall AP for a growing headwind we the see chain issues switch AP lot of to AP versus give more of do going in switch these because in switch. FortiGate believe Actually, supply much market for we're Related segments. pretty faster some other the over.

so headwind the side. -- compared secure it's to so more networking And that's for probably firewall

question Markets. Our next from Capital from Heath comes Eric KeyBanc

probably to top getting customer Peter, here. just of to when to over thanks, And away line kind shift from And over a a firewall doing you, then switch change the SASE. billings. me farewell, of is apples-to-apples in Keith, secondarily, curious the for that customer shift for with the annualized kind economics of for means an the Great. from more Fortinet how

free to flow duration impact So curious going cash how you're that thinking forward? and about

Yes.

saw of could into a to to an easier. billings number. back more. probably terms term We've going down that And number, impact one months changes I business off We're don't really from months right coming the a we've talked about coming a billings total but know having XX year you second in the that in month XXXX, is Maybe month don't last our about this we be and about in term. roughly XXXX year. the XX I the think month. the contract by a will financials. impacts have the firewall year-over-year that -- impact we that compared any come in to The went if while about one to for I a in you it now SASE we significant it's on gave footprint such take we large know

think I it's a SASE. to going take for while

I deals. under several mentioned, already SASE done we've As

installed We more on successful SMB our two, X spaces early expect with in be base. to with and

but a an take would flow. it's while impact have imagine So to I cash that free to going on really

will traditional also sales a training we Yes, be than SASE to this our new internal operation, networking keeping SecOp which for the secure partner side. for is also different bit force little salaried

that -- So we also with installation feel the a huge base.

huge all SD-WAN potential to We we're we leading. force #X secure upsell the have once firewall which sales feel up the unevens much the SASE partner for cross-sell pretty this the train. and We're in the area,

has remarks. this turn Peter to the will for ended. Salkowski session call time, Q&A At the I now closing now over

Thank the to today. you, thank Anton. call joining like for everyone I'd

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