Fortinet (FTNT) 6 Aug 242024 Q2 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Fortinet Second Quarter Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Aaron Ovadia, Director of Investor Relations. Aaron?

afternoon, good and you, everyone. Thank Ovadia, This Fortinet. Investor at of is Erin Relations Director I our XXXX. everyone Fortinet's welcome am to pleased to for second financial the call quarter of results discuss to

Xie, Joining today's Keith our and me CFO; Chairman Whittle, COO. call Ken Jensen, our on John and Fortinet's are CEO; Founder,

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

for then the call will open questions. We

factors on and that forward-looking SEC could Form today's cause to be making in information. particular, Instructions] actual uncertainties, from forward-looking risks for XX-Q Please projected. these risk results will our differ more call to [Operator I'd to begin, is Before our we and statements we filings, and are which those like Form and in subject most statements to refer that remind materially everyone the XX-K recent

All forward-looking the we of disclaim of no only statements opinions and specifically update presentation, any our obligation and to forward-looking as undertake obligation this statements. date reflect

to all Also, references call unless on today's are we non-GAAP, make financial metrics that stated otherwise.

Relations section of today's earnings Investor our Our of to earnings call both reconciliations posted release are posted press earnings with on in remarks call. the immediately our GAAP for and The GAAP the accompanying Investor located will prepared today's and remarks, which results are Relations following our on presentation today's non-GAAP quarterly be website.

call I turn on to basis, a references unless the noted growth will otherwise. to year-over-year Lastly, Ken. are now over all

you, Aaron, joining to Thank call. for and Okay. our everyone you thank

the continue of We fast-growing to revenue guidance to our and market. full XXX range, high strong in Operation and second and market managed margin, year and record and Unified growth successfully we balanced our with invest quarter building we XXXX and growth. XX% pleased increased basis to the Networking in points reached as gaining achieved revenue guidance, execution in Secure profitability. operation Secure are end We for investing SASE operation which margin share, the

recognized Secure technology and networking better customers ownership. are security XXx and competitors FortiOS providing X than to cost a while total FortiASIC increasingly our low our effectiveness offering performance improving of

and indicate For than X XXXX, projection years years, will networking by have anticipated. security been network industry shift traditional XX over previously earlier and secure leading now we the the to networking convergence surpass

quarter, XX% up second the Unified for SASE In accounted of building, X total point.

We built has Unified We in in single to expect differentiated all the indicate. believe leader SASE are system. operation become functions only our we a the the a company SASE offering SASE organically that

ZTNA, converged stack, a networking innovations. We SD-WAN, have market-leading including Web and Gateway, our and Secure CASB, Firewall security other many

provides to offering enforcement SASE securing user and a delivering better while flexible the cloud. application Our on-premise in experience access

of a cost to continue own build delivery with FortiGate leverage we us technologies, infrastructure, long-term including Furthermore, competitive SASE advantage. providing our

cloud-native next-generation well solution. SASE protection for market immigrate allow endpoint enter as cloud. enterprise will earlier to data SASE This stand-alone we a as to market today, extending announced the [indiscernible], DLP the platform, As acquired from us

network OS wide service network included single-vendor Gartner We position improved Each and FortiGuard system with wireless in security for SASE, Magic vendor the also are Quadrant the firewall, our solutions edge and in unified management. only X recently the Magic unified all secure for SD-WAN, of SASE in Quadrant on secure major and service the single AI-powered our single-vendor run enterprise of and operating infrastructure.

second total building accounted XX% quarter, AI-driven for up point. of Secure in Ops the X

continuous range backed Ops Secure of activity access offers identify broadest AI to of cyber analytics the a to strides. decade portfolio experience of some advanced over by comprehensive sensors Our and

AI decision help threats and better respond secure generative operation the faster our to team AI informed make platform task. chart most and complex For harness by table to simplifying the

for SIM in store will and product. available for Fortinet and in soon is other Fortinet available be FortiAnalyzer the

pleased addition, organically expand further secured of In will of our one be and acquisition the the comprehensive protection with This dedicated cloud across a and [indiscernible] that network, form to with entire power to billion increases of by security AI-driven can of of native from our single portfolio we solution combined platform, solution platform addressable security also cloud talented a most security vendor. while sales ensuring full-stack are our Fortinet engineers believe that application together, cloud-native endpoint. portfolio [indiscernible] total available solutions. force expanding our acquisition cloud protection the $XX Fortinet broad and add market team developed sell

and reflecting Yesterday, vendors, enhancements we leading OT announced secure with to which security physical new to enhancements already security platform comprehensive the the for cyber as market, include [indiscernible] platform, OT expanded plans most Fortinet's on partnership capability market. several stand are growing security advanced and secure the operation commitment networking system recited

in commitment X-grade earned of model. further for to innovation XG As our a OT, design prestigious a recently evidence work Red we excellence and Dot product

the secured in firewall. only this will was industry company Fortinet recognition who the see next-generation

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

afternoon, Aaron, Thank you, everyone. thank and good Ken, you, and

Let's the range. in and in growth numbers XX.X% Overall, top while from respectively, execution margins line operating the key delivering quarter. achieved pleased the are quarter. we record end our XX.X%, high second very at at start the our highlights guidance We with with of

with exceeded revenue sequential that growth and by Revenue aligned hardware grew XX% historical growth driven closely more product norms. robust revenue our expectations, software as

to X,XXX our we added logos partners. also invest channel new in We continue as

our Lace a in time, another we and our DLP. position Next believe enterprise CAP moment, operation improves acquisitions XX sales we DLP security are Lace engineering stand-alone Work the while position the Combined, markets and Fortinet loss on you'll Work same $XX market. hear over XXX in SASE year. prevention for the talented our customers pace in fast-growing in gain total As expands and of teams. a At billion, Unified investments the our market data of strengthens Next accelerated market and will by and high-growth with addressable the we rule

And members to pause from both offer here just welcome I'll warm team companies. very to a

our want QX to Infrastructure are understand our taken we've practices. with with or a Continuing the customer and and through secure [ ] lead the trust emphasize, with pledge Agency, is highlights, Security transparency leading our we Cybersecurity in responsible to We business. by partnering paramount CISAP design U.S.

testing at Simply a stated, in net for a offers of others few advantage significant level. buying and solutions. this hundreds pillars, Our X a robust each have, our continued thousands security scale very customer across is customers success represents a of segments end all also customers validation of responsibility and and

We and updates to supply are deployment processes transparency. chain committed security and controls, responsible product measures

measures our please more customers reputation, and we website about our proactive take our understand the to at trust visit fortinet.com/trust. safeguard To

Looking recovered SASE along more year-over-year sequential billion, detail. consistent comparable and expected. chain the from $X.XX overcoming strong sales SecOps in quarter. at headwind than more drawdown pre-supply and billings in growth approached backlog total At Total in the year-over-year more the the while Unified billings growth the bookings product increased were norms. pre-COVID, software with importantly, rate delivered time, at same

growth progress are SecOps. gaining within and for base and Both XX% strong We of see of from existing momentum in Unified XX% XX% is continue our significant for both customers. SecOps significant our pillars pillars are investments over Unified to from billings SASE pipeline SASE installed and saw coming

and represent largest large XX% respectively. enterprises and Larger XX% of combining mid-enterprises segment. continue customer to to SecOp solutions, and be with Unified SASE our

rates as minutes Within Unified SASE, triple-digit FortiSASE their to existing solution at grow integrate customers buildings our hybrid seamlessly can continue to workforce. secure within

and to customers to XX able applications. a While private Internet, SaaS single are client agent use secure

XX unmanaged AP devices. with XX thin SASE integrated securing and also for We've edges

Our market solution SASE continues Unified recognition. gain to

for third placement For Magic single in year, recognized been SASE the the execute Gartner to second in consecutive AXIS. as the a challenger vendor ability highest the with we've Quadrant

customer earlier, international as the powerful And again further while commentary, loss mentioned geography. our from best-performing was FortiSASE the Next top performing prevention data was capabilities segment, improving Rounding are SMB DLP. by emerging solution the out again billings we our adding

while On an were challenged. technology transportation service double-digit and vertical basis, grew rates, at provider more industry manufacturing and

grew XX%, SASE. driven service of was Service growth and and by led million revenue growth and licenses. in by margins. revenue revenue XX% accounting revenue for billion, Unified revenue XX% and grew SecOps growth of revenue. XX.X% growth to Turning to $XXX $X.XXX software Service in Total total XX%

better As noted and decreased together on $XXX includes million. to related SASE expected with Slide than Product X, technologies SD-WAN. but X%, Unified revenue SASE

Excluding the similar amount a XX improved impact growth sales points quarter-over-quarter backlog, year-over-year. and product of

the teens license software a accelerate percentage growth XX% year-over-year. at Software continued mix increase nearly of revenue represented X-point and in high product revenue, a to

security SaaS software from year of revenue as providing services ago run accelerating and solutions, XX% XX%, annual software and licenses a from and $XXX over revenue increased cloud million. an such rate Combined

XXX a service points, from mix to as basis quarterly XXX Total and of to a guidance gross higher points basis margin record of the revenues. and as end well X-point by product exceeded gross high benefiting range our margin services shift increased higher-margin XX.X%

basis mainly levels increased demand quarter-over-quarter costs. gross moved closer mix of On historical indirect and inventory charges basis, margin related gross Product a lower product hardware to points to XX% increased from increased as to margin XX% year-over-year, XX% XXX inventory due and software increased and norms.

mix outpaced labor XXX increased higher-margin towards and cost of FortiGuard shift subscription revenue margin from basis and increases services. service XX.X% benefited gross the Service as growth Security points

as margin XXX our gross points reflecting margin high within record Operating basis was the XX.X% increased the end XXX and basis business. above guidance a cost range, quarterly the points of efficiencies of record as well to

$X.X of of for adjusting first flow Slides and infrastructure statement on the million estate was flows and or at half Free million and Looking real quarter after investments. the $XXX XXXX, for $XXX XX. cash summarized for cash the billion XX

were taxes the Cash quarter $XXX million. in

the approximately quarter reminder, As ultimately from were payments, cash year's in $XXX a which benefited quarter XXXX. deferral paid million in of last of fourth the tax second

term year-over-year DSO XX Infrastructure in and increased flat totaled contract year-over-year million. XX decreased quarter-over-quarter. to days X the month X X investments months, up days Average second quarter and $XX was days. quarter-over-quarter

QX, repurchase totaled X not have buybacks the years $X authorization plus share did we billion. is the $X.X over and While last buyback billion shares remaining in

visibility selected I'd consolidate a The X-figure Secure features all customer government agency our to ability Fortinet Now integrated security, customer a purchased end-to-end and international This significant with operating a deal, security quarter. SASE SecOps, new system. of like SecOp networking the because X impressed single the over operating response was system's FortiOS few covering solutions into wins an unified to solutions. functions of platform, including automated In second from X pillars, and our XX share and across Networking. XX

large to This control enterprise agreement OT first a plants, their to this by win, X-figure in us and proven power securing deal customers' company, a and in the environment. expertise legacy advantage. performance to deployed utility displaces centers substations. with X infrastructure equipment signing were their our our partnership for Next, vendors ruggedized expanded and includes critical expansion win Keys price our safeguard

a competitive And FortiSASE existing as platform, displacement a X-figure lastly, integrate solution Fortinet they our of win, store their able seamlessly our chose in FortiOS our chain retail FortiSASE Fortinet were solutions. because to with in deal. integrated This customer security purchased

has of its users signs cycle. peak to security signs comments normalizing firewall the of the another contracts a update Inventory possible customer to The to and I'd appear that as returned from Now XX, indicator pre-supply can recovery. To and an and service offer soft inventory an Slide of XX but start end to registered the this number levels now XX% market, at on share pointed to normalizing quarter, improvement Last chain, days our as other second in the at manufacturers we show indicator in in crisis "inventory view could of digestion" and channel. and contracts market and be improved of FortiGuard quarter. like firewall on days digestion refresh registered shown some are provide pre-COVID the and contract days levels. improvement of this on the we XXXX firewall commitments that in early

aligned quarter noted earlier, hardware in norms. second in as sequential historical And closely sales with more increase the the

on managing environment macro a impact tough and U.S., While customers purchasing we these election key our we indicators the are positive, an a decisions. currently customers' this are believe believe is year and in having

in a a more is XXXX, we in likely result, cycle As believe but refresh occur to unlikely XXXX. full

to Moving guidance. on

information are As a which XX reminder, the outlook, provided XX, summarized the at year call. to full forward-looking third and subject regarding Slides on our beginning of it's and Aaron quarter disclaimers that the

year included modeling guidance. covering Before and estimates to a Work the I'd in reviewing of outlook, acquisitions, DLP our light like offer and Next notes QX few our full Lace in

the revenue acquisitions year QX X.X and QX point and year billings, point Total growth by respectively. points, For by increased X/X increased by the and X full full approximately X.X approximately point.

for margin, by For period. decreased they QX than full margins year point gross less each X.X and

year they margin, points, points decreased X operating For respectively. QX X.X and margins and full by

Inclusive million tax XX%. to of assumes of XX%. Capital and these a third to of Non-GAAP to represents billion to acquisition-related non-GAAP $X.XX the of $X.XXX million earnings rate cash operating Non-GAAP of revenue $XXX And at expenditures margin which expect share $XXX billion the Non-GAAP XX% of of which of the to between range $X.XXX we of billings $XX to quarter, XX.X%. at share taxes range XX.X%. count midpoint to $XX which the midpoint represents XX.X% margin estimates, $XXX $X.XX, for $XXX gross billion, growth growth $X.XXX $X.XXX the A in X%, of of million. million billion, per in million. of million.

the cash ago, $X.XXX million. of growth Service of of for XX%. we billion to billion, of XX% and $X.XXX which represents the assumes expenditures inclusive again, moment in $X.XXX remained rate billings billion between represents of operating $X.XX XX%. of revenue to Non-GAAP $XXX and XX% share to the of to tax billion at revenue XX% XX%, gross of million we per $X.XXX growth million of of which a million. between and $XXX Non-GAAP a of the billion; XX.X%. which $XXX the to taxes to full billion. million $X.XX, million. count numbers range $XXX margin share $XXX $X.XXX earnings $X.XXX to midpoint Non-GAAP Capital at the expect And gave of year, range $XXX in of Non-GAAP midpoint margin

to I progress forward our updating look you in on coming quarters.

commitment the that for Fortinet Investor on recognize of this X it mentoring positive worked and within begin of is generation the and know Peter and to years. his shared many with Relations. contributed I the we Peter integral on shareholder Peter in leaders. of people's renowned with his our the shows fostering is the company. part lives. and fondly passing Peter impact was to and and SVP and closely talent to condolences increasing $X was sadness Finance he over tenure and during $XX session, billion our that pride potential clearly you call, to memories friend, deep heartfelt for Fortinet you've outlining next Peter team passion the had Salkowski, We'll Before Aaron, nurturing so since billion miss having many of value developing great contribution Q&A of his our remember for rightly we his an to back so. from Fortinet. you. passing of

Thank you, Keith.

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

question comes Instructions] the of At Our first JPMorgan. we from [Operator of Brian question-and-answer Essex conduct the time, session. will this line

the touch could your for Keith, maybe I loss. margins. on if Sorry

quarter. margin maybe incredible the saw it's understand -- you where effort help effort outside or results me cost on selling the to and the light think force incentivize SASE margin that in you you obviously, sustainable Could I they focus with benefit efficiencies, how unpack me Maybe particularly saw some of SecOps the quarter. help are and the to of maybe better the understand gross sales more in channel the incremental for

Yes.

for in gross seeing or on and particularly turns in look us to channel and normalized to made operating largest more of our you inventory manufacturers. that, of quarter-over-quarter reference margin, but a we the talked in contract when with you what levels, I margin terms a environment what about at also think the we're inventory driver it saw is the basis, commitments

more and that continue So that X for I would that, the to X on. quarters, And think returned think that expect normal we've . would through I a with to quarters. been state, we've working I last I say, so probably maybe

expect bit getting make maybe of to I little year. second sales a us work I the as from of at to we made mind, there on large feel certainly line. from the contribution moment, in we're we the acquisitions. next and very group little we're the getting a go salespeople think the a half guidance I marketing as and margin I'd would for think through the more investments both reference more lease like the Ken than and DLP with the given But and we've comfortable year both QX that full for Keep

and on the anticipate as margin year. flow payments cash to follow-up. and there and going maybe timing to of reflect Great. Maybe estimate cash takes flow through we kind of models? a spread as that fine-tune same our impact historical margin cash free kind the mess Or of going operating flow quick Should of the we are to be spread? free should more the like between we the puts at that with just we ballpark look tax margin How rest of margin are look

don't is I cash free good think to at look I flowing in starting -- it's a point mean, to the operating flow. Yes. margin through improvement I

haven't duration, companies quarters, talking would changes have we duration us. the about now for through through like should contract be to say, come us industries yes, and seen to going I been of Some things seen contract but monitor yet. that that and you've you that habits come really several to

balance over we customers have days I XX more I think shift or days, leverage see not But that our and area. we XXX don't a I'm opportunity next sheet so in our the have. with And to that prospects dramatic

question. next our for moment One

of comes Hamza the question Stanley. Morgan Fodderwala line from next Our of

XX%-plus his obviously, Keith, question the it I of towards more wanted lot base margin a of the a onetime follow strong expecting . very rate. I Fortinet out of type than coming them. that condolences term? run goes the sort think on margin business beat, us Peter operating has it miss of Or and digestion was margin is my definitely the longer margin the what of off family, inventory the new were because of kind I'm echo side historically, this a to outperformance saw for gross Fortinet up any should we I'll curious, sort given on managed you is think headwinds? we'll

inventory the state. think a think Yes. back Again, more is way I of that worked to I part our normalized we've

model forward always the it that There for by biggest that something way. I in is business I far away there. opportunity margin our and but going So anticipating see gross that changes, something that think the is line, and can be us don't

those also go-to-market invest think And did than opportunity in . -- in have I some that says ideas we've in in it this half the the that our ideas of more we or clearly guidance. and our of year. factored investment first more forecast think I to we

increase that's and I'll whether terms different the Cry, let or topic, I a Ken respond way margin not make I In that. to of when did, him the I

revenue, we'll service has the to compared the much higher margin which from a Also, benefit revenue. product

once is margin, the but has indicator leading So margin, probably future growing, the product of also product gross will lower impact starts that the because product service. a the

of higher also margin. . kind percentage, that's has a we now, impact also the to So plus see which will I that think were probably the going growing product where the with forward happy starting also

comes next Our Boolani from of question Fatima of Citi. the line

was wanted Peter, person, comments for license just software a condolences fantastic your I my missed. growth. he and Keith, zero-in share be on will regarding to absolutely to he wanted I

behind to your some the high-teens that we consideration us the this context of I shared help and shift how wanted hardware product of the constitutes potential XX% now . accelerating for a and You it the of bringing year-on-year, year talked you the if away? well, shift trajectory in square digestion, guidance should about what comments believe, the that that massive about you of that your mix understand remainder of are think can as mix into drivers prolonging percentage I revenue, and

Yes.

make look want what to think of to kind model the and ASIC. it step if compelling at I we the compelling and with the to firewall the business so only is start simplistic, -- with license, back not software it's start to you very it's

that. a it, what do virtual. fairly Really, in So of the of a the it's physical the that, takes get form is always is firewall, whether almost we hands but what always start with And or customer. we're system we to part operating factor physical about you don't that do want agnostic

once seeing throughout that form use knock-on continuous to start selling or see into of other effect that organization. So full hold.as then product factors either portfolio, organizations firewall line cases SecOps more expand you the you're and the happens, to take

the been . Will that So FortiGate we're growth, to to about a the Sure, a starts tailwinds to think, shift business. and little about I quarters going probably shift absolutely. the we've that be return? a and that I been talked continue and part slows we see trend firewall quarter that some when it doubt bit, expect mix earlier would But bit last there little has from no the this and software software of about a seeing. mix mix.

expect the would that, on going success other I to continue in given the pillars. we're that's X seeing So

for time, Forti plus part. pretty percentage which the networking software service hardware us. FortiSASE In and fully see Secure more in a we At secure service setting base also secure customers has enable also more a same to on lot the more FortiOS, much high the function, the the our tone [indiscernible] of and Ops compared

drive that's licensing So both growth. helping software and additional the

Our next Sachs. the Gabriela line Borges of from question comes of Goldman

or Ken Keith. for for Either

would you get perhaps will through updated macro will because or their an of XXXX, they that the some as see we'll helpful. on On in indication customers cycle, are to extent the not and in of why to little you giving election think appreciate color refresh XXXX what why And plans? be XXXX. on it detail in your a perhaps on be depreciation be more expecting the -- refreshed recovery a timing you [indiscernible] see I bit the Share we us XXXX. Any comments can think

I probably Keith. more think it's

still some The I still that's investment, to is pretty probably the rest high. really spend some companies where environment the year long-term the X X building it historically, what X at that's -- the and every need if here pretty they rate which is revenue of think may faster, years another an so function or we to not network want costs tough some drive security to make more view. money look product interest election where years, refreshed infrastructure, the pretty Also, to network be for there. you high. not

So chain that's much year we're this the where artificially when [indiscernible] starting pushed will we feel negative starting like supply since cycle up issue, full they maybe be now.

retail, So in other on refresh infrastructure. especially may some to may years the start X pretty chain to growth return we issue in purchased company looking probably years, starting X the some they product X, supply a certain . see investment X see early to like next ago, of in to we and strong days vertical the feel some they

lot SASE, we home, do do also an both also appliance mode, there's a see the OT/IoT SASE. And even hybrid secure on On we private the the always infrastructure work premise-based very to cloud-based even of for have we secure and SASE always trend side, like advanced area, big you we and field. we but also in offer to side, SASE a -- other need for believe, infrastructure a have

needs So for hardware that customer. some in to also support local the

of Bank America. Liani line the of Tal question of comes next from Our

billings, are are the you acquisitions that the effect, fact but billing the the spoke What what didn't you for it back quarter, for the made what's forward? can in drivers to we year, go going so the I billings? drivers quarter this the quarters. you change that outlook know X fact for by but guidance beat reduced X next did for you $XX the numbers in billing this and The the for . millions, you past, billings in the billings about

outlook buybacks? you your question do But is revenues what's growth. buybacks for OpEx? for don't look you they're you now -- And executing by you flat. now what's on Second the start that the at Will OpEx, And XX%. revenue it when grew growing started outlook

missed questions us had. Tal, kind on the of of faint if maybe very, very later can a I recap you X you give think your I Maybe -- there. questions little

billing. that the I contribute maybe impact the touched part X Work Lace think maybe about on believe think, I funding. post I acquisitions some acquisition, the will

Yes.

of I you not at look in think the the if lot of a there's of recap will. that I year, kind you it, -- mean variability if

We are came the recovered little quarter first bit a the light back in in we first shortage the quarter. quarter, second and

looking get from numbers. some in leaves acquisitions, of Now and numbers little looking taking taking fourth see it a at what expect third the terms quarter. intact. third offsetting of the we the the off that Street and But quarter quarter you kind maybe see amount us similar year bit correction year just very that the back and little the to to into putting and full Street range number. the yes, that much the of in to we're a of But very full of a very, bit

in -- that [indiscernible] that down getting at numbers of point that number the X.X of part the I really business. we the -- about benefit here. I understand I'm taking talking And I'm small is inorganic organic that about think quick, and of we're of part the taking talked But understand I again,

was second second those question and . question okay OpEx can My items? was my outlook on buybacks. What's that now. it. no the hear But about me flat Got

Yes.

half sales would the the and maybe OpEx as think second to of year more into we than particularly looking the probably and the marketing is line XXXX. start on we get like lighter see, little opportunities a into at I as we

think going be sales you're will changes significant I X what there our Buyback, make impact to the and that as opportunistic largely Obviously, that opportunistic plans. investments. about So days and OpEx that still we we a and to we number is reset remain being hopefully, just that some did, be, in going marketing. movement acquisitions number we'll the we there the find every XX fairly opportunities from gave to get

whether X, years. market, the see friendly the last the to Yes. now company, private And company, probably for compared multiple the [indiscernible] we X more in also, public

So . back so opportunity some more we see reasonable there. should go to that we

of Our comes of Sandler. next from Rob question Owens the Piper line

to obviously and via a what theaters? customer the cross there, your relative and Curious different macro seeing currents lot of you're different maybe sizes out

Yes.

I kind and world less diversified, international people XX% lot it's weighing business there's elections been to, of of as see. of a the is this think so XX% but the the election, taking on a yes, we to and maybe are of a year, every you in bit U.S. around because And waiting of position U.S. little alluded certainly kind than the

As international back you quarters part the the on emerging pull be. continues move of strong, from strong has several been very for that, to business -- and

of So countries similar. oil-producing a are and lot those

So . in they've There well with more to economic I there really geopolitical hasn't little in impact think events point, this a But risk it perhaps those some are cycle. this done there. had an of countries.

cross-sell Latin I much We parts more outside on of base. you and installed in site, times having and you you're those challenging and likely to East parts #X and incumbency Europe the you're the because market will, that and and your Middle are more if APAC. there, America have be U.S. you advantage, opportunity of an And to move the think helps share you upsell when

the also U.S., which sales. direct area, growing In That's last also need direct marketing, more more next investment. needs

in plan U.S. the gaining more do and . marketing to to we market invest where into share sales keep that's So

mix acquisitions are shift mix in as and weak duration we potential some that's I how deals to duration? you potential about and recovery shorter billings off Keith, think right and that the And think back at of we towards you cloud-based contemplate software more look hardware overall now is of billings half, some about the little of increase realize if revenue, compression likely kind the the shave I software, but in as with But with software XXXX, how shift next year. or a thinking are the nature? we bit should and contemplate model You these probably and

places SASE interim, the XXXX If way in account my that much think I to I white What November is a have prone be, in contract. base. say Day, Lacework of and that in it's I they purchase of would point seeing installed if my the for forward November this more contract shorter duration, in of at and But be numbers. base midterm seeing example, the or solutions to you some these to be part look SecOps in selling talk probably terms installed XX% Well, having to space to like we'll duration I'm would about it's more of historically. to a Analyst going continues it's

for from into than solution something portfolio So vendor. -- my tend they from longer if a see of they firewall sell to one sign you a I the customers, up SecOp point haven't duration contract may

TD of from comes the next of line Eyal Shaul question Our Cowen.

guide taking don't Keith you again, XXXX? is And or thinking trying but have to half place XXXX again, we in to of growth? listening another fair about conceptually, year. likely should to not year the about I commentary not XXXX. accelerating refresh potential to Ken, the but so Day, run but 'XX, most know just the second cycle it assume to over current double-digit front November Keith's of this the And during visibility be Analyst

long-term see keeping year-over-year next I networking That's give We growth. networking the XX% secure area believe to security, we're going. CAGR why the about we convergence -- first, think network year, in is convert we overall, do do still there's

would OT driving, investor getting in new also customer the which the have presentation upsell, network a Unified look over SASE about a we expanding for competitors. after you the huge they're helping also other in beyond But see area market like firewall side, all by on cross-sell a moved opportunity, If XX% I and page. keeping the which the But FortiGate lot security, we the of slide in which that first. area. one, the are initially whether to security advantage network say, a probably other go and

to that's see Op. SASE go of with the . FortiGate back now what's now. happening growing on kind market slightly for Unified So the to firewall or we're starting the product, Secure especially normal And for are the the

will year average that's next where have X be the X, probably feel the if cycle, to years. after turn refresh. that's refresh customer, do starting the probably product we which the So whether for they -- existing

probably we're that do starting we so year, see And process. next

Deutsche Our next Zelnick line comes question Bank. of of Brad from the

on this can Unified But on an vertical? called remains and it. share a I unified update it you you as porting value SecOps quarter. more the that in think important out for strong SASE and it's And and segment lumpy I applies particular, always what's happening last quarter provider And performer know and been segment? in after in top how is service challenged prop being this vertical focus your has

long-term of the the they the we so area. infrastructure, will on customer sales them, more really product don't we're for provider provider SASE, cycle do don't probably long-term solution other -- wise, where on it's provider long-term focus biggest That's But the their But helping growing. helping look resting not like probably our customers provider Yes. the see you slowdown, private it's still service of a I telecom believe believe if service pretty the part they But our the want annually, using feel the big, at service the impacted quarterly. of kind lumpy in side, to X-figure the multi-quarter will really the drive also one or deal. own localized have service I starting the if relation, the kind whole biggest, have the growth. SASE, which do also the keeping telecom cybersecurity it's to lumpy of be and I offer more SASE interest and because still business deal keep

think the they as be to Ken importantly, that spot from services service that's independent I getting to well. It's conversation SASE at times more bring something conversations own Yes, is think But market I can around solution their is lumpy on, a more right? Financial lot the industry. can a providers.

a I and to opportunity to more But here saw think little of move bit going if we we're starting see forward. exciting it -- first continues pretty it it a domestically. that's that's internationally, to

you'd outperformed especially rebates from? be understand leverage see to and line that to follow-up quick said on top it the this that marketing just to billings operating anything we than you very And at a slightly change like line, about, this us. you've shown is it's impressive on just headcount? very structurally down, comes anything that the on I basis, Just more other particularly see you quarter. trying and point. albeit know, should than on like rates, sequentially as structurally, it Keith, But dollar deferral where or I'm thinking sales channel the like commission there that else a where whether it's

Yes.

a on few things I think going there. there's

look when X we the of across And people think programs, of ago, that and programs, trying direct And do hit think what people that you in I cost marketing is probably first you're months pretty the for early roll whether they or on. number looked get at make that pretty vote see areas. you. for kind through your changes or closely. salespeople at you're and And structure I it's hard a channel to place to have compensation

line. making those point go-to-market marketing well. quarter. lower second of we maybe think me, about in your than we'll sure the It say of some and I the half of investments I or think out revisit year. that have is channel in it's net I include would been why we continue it would as And think I I to would the opportunities a I sales liked bit for talk repeating have And And the and to your the important environment that kind investment decisions. that of to make now, have little of as kind in coming to probably us here second the we're

carefully for in Keith. marketing marketing each sales the for and with agree improve I Yes, starting also investment tracking with ROI the efficiency to the We're more try sales.

bit the little which in and On the hiring other we marketing side, to accelerate. sales on we are intend behind side, a

will for us. what drive future the actually that's So

question next . Adam Raymond from James. Tindle Our the of line comes of

margin I normalized. question pricing is the just quarter here. continue controls. gross supply product of the around core top sounds the clearly discussion. the to wanted in on Obviously, And great cost chain you from margin had like business those this firewall performance it's really dynamics tight

firewall of in years are reducing You've at price What core environment of back would want increases price during that light time. multiple you pricing dynamic period your of had historical here? expectations make this? to any to the it consider the from on of point? And even in competitive this comments maybe to some take What

quarters. I last have think the not few we in increased the price

has better more I energy cost. and a also think a ownership function of believe because we lower with total advantage that have still we performance, technology huge FortiOS FortiASIC, cost

So over that we keeping feel our competitors. we're advantage

more. pressure to On decrease any we the kind all other discount of don't price side, see also

where the the product will that's the of benefit service. that same stable the for better we're our customers solution the So keeping time, which we at with future pretty feel also see drive more performance, And and function, price.

in of some... and don't we see also the business I the back inventory. think the driving channel on go bigger changed behavior also, the environment much. we has the more the helping Keith in also also to kind that Definitely, normal healthy feel That's inventory weather supply inventory area. will Maybe chain

a what repeat maybe Ken little to granularity. said, Just more

to, of 'XX down prices 'XX, that some raising at pricing price that's the And prices the don't XXXX impact. think really at But We months. end we're beginning last did you of I we're 'XX. the only taken think really probably late we've referred actions very take the X increases in I XXXX. been a in and really the

where the to then it's solution we're I at the And very, think point, moment a very -- is value think for strong. probably Ken's we

that a be around that and U.S., I Ken actions Europe, energy about traction lot government of think issues the consumption -- on with people in and internationally starting concerned and it's you saw a but energy is manufacturing. conversation the to mentioned could EV and get AI in costs that gotten

So I do coming play advantage the more. is think into energy cost

I discounting one was, last think, that then on in And much line. very

improved number one other discounting a X similar improved prices. by and of for kind higher -- the meaning the actually or think I way full about we point year. quarter-over-quarter

push to obviously have that pricing use But and given lever. room margins we So think the first. things we'd other on to I discounting there's like the to

Stifel. line from comes question Adam of Borg next Our of the

stand-alone We'd love and acquisition. us. all you of to little talk overall He's about market in talk the to about next missed a what's Maybe on protection by passing. attracting data more next particular? enterprise Peter's the Also bit condolences ELP ELP certainly

tech We it on just And the closed There's obviously to Whittle. around today, we The announced John a great. of it solution. plan is did positivity will of but This our We with stand-alone, also integrated only a company, lot that. is diligence FortiSASE we not lot it offer yesterday.

steadily our very, FortiSASE and And We our so bolstering feel in there. think solution, confident strategy I very

I the this our developing you earlier amount and there ago. the is an very we've SecOps technology firewall made best mean, of talent to pretty we is to you as the year. the solutions develop SASE think protect kind important I to out just solution continue impressive. a customers. done in of we've networking questions, our step and than started progress and And in really in along next to X I very, made kind tuck-ins. and of less solutions know, competitive the think secure we've to the think SASE about execution of addition into way And coming back organizing market organic year the of most part, For is some Most some tech our these pillars

and That's great. and improvement the quick SecOps follow-up of maybe just a productivity on could for John. Maybe from force just comment as here? there, SASE you current And level sales opportunities for

Sorry, with SASE execution SecOps. the and sales

force many as just you've to of this months sales Just point ability training sell productivity your company ramping the of general and at across through gone that globally.

a it's good really question. No, Yes.

what seeing time. is it think I take does we're

our focused focus. sales with I from and say, customer-first I a very are the solution opportunity broad just We set always abounds always on enablement that mean,

really the sales sales that enable force, sure company up think to we always protecting got suffer support. starvation. have sales really I of we good train and they in But opportunity. that -- news big than place the the make the is have terms customers indigestion in sure opportunity to our more the we've in bounce a right force, say of I make to a they're force incentives our have So focus going and ton serving the from

them to support do qualify So different sets, when different solution they in in support opportunities that sale.

with get to had of seeing sales there. success that I like often Keith a with lot the solutions, expand and alluded land support then to, firewall we're SASE and we our So think, and force SecOps and

of next of comes question Kalia line Our Barclays. from Saket the

the in little him. years. this what higher upcoming Peter like play as miss going sounds I well. others get next maybe the a maybe you've -- cap Tip mean of that? to of We're compare And cycles of to start to just the to Ken, you. bit. sort into past? you over would just SASE cycle How firewall seen a many wanted year with I my for into maybe refresh so mix of and on versus touch virtual how sort sort might refresh

Yes, agree. There's the infrastructure cycle. probably different the refresh last than

more connection, level. working remotely and or broad including whether OT/IoT working this see device more hybrid also You Connect environment, supporting

environment, not we should SASE the hybrid a believe cloud also be only. For just always SASE,

SASE You to a FortiSwitch time, the do device. provider. using a which SASE, also software secure FortiAP, agent some offer SASE agent to And service by some cannot need install like also local need some is other this device, secure a private have

unified be the also as We we future. of the we So infrastructure the combine and that's will the together. kind software long-term feel where always and believe also will this both hardware appliance and

that's refresh. where the So

need probably connect in do expanding devices market is biggest as side. secure XX years. security the network network been more to probably always side, cloud, access keep other because to cybersecurity XX it more the mean application the On on biggest you people I or now, XX, even has that years and the market the -- for

we access network when also also convergence see side of network the you what refresh. to security, that's and what long-term try drives the that's in the network So

salad. can you also also security network That's Gartner research convergence out the the network in of the a we see punted starting

traditional originally, I XXXX, the they secure So be think than networking say will larger by last networking. year,

say, XXXX, traditional than will the networking be larger years secure they X the ahead, networking. Now

FortiOS, this to area keep time, trend. at and making and really and also and in market So the try that's infrastructure, where catch gaining the FortiASIC best to the marketing term ASIC long trend this also appliance the all really technology on with investment and sales we both And invest the same share.

the there. that's to strategy So be

quick of I sense. could Keith, lot a makes in fit follow-up. That one if

Just software aggregate long Can rate. think million think what and at virtual I can even software But the of gross perspective I that run finer business said, we versus that it, on is they're a coming you on term? be a on, that roughly sort roughly put gross about how that just in firewall call might as $XXX shift at coming anecdotally, And touch margin of mix sort in product, realize in gross margin from we much you point margins. SecOps? of

at I Well, or virtual it's are software think very, licenses very I product software other or attractive the margins. a all any in firewall think coming whether the

relative of cost hosting Obviously, and I very the the that's look a harder. of think for of that the solution. But of are because at line when but forth, those numbers. get aren't you absorbing solutions services is maturity wide a very SecOps the little sitting only size some SaaS lot the new big in a or as range and something that so you margins there, it's of

start see normalize. the to get traction more As margins solutions mass, greater and critical those you SecOps and greater

for SaaS we're able sold being provider pleased line the Lacework everybody's solutions the and these managed goods terms gross in absorb kind token, cloud of got on POP, services hand. think been really, things the And on we've and operating what's developing product the pack the charge up hand to how the cost the because business I work exciting of is for in side, center X the same really ability absorb bring with colo, I their will to really those margin data hand by things, still of in margin. the fees think those

from of line question next Joseph Jefferies. Gallo comes from the Our

refresh better to I calendar Was double Peter I and also since expect just some like especially benefit that? in click to the wanted or on want drove that Sadly, big out, you segment don't the vertical team or to deals to echo there performance until the fill. shoes product my condolence what large in? stood region,

in of mean can X them. and our as did question. size kind X-figure X had QX. you had QX. of we saw in will still great the talked We year, No, X-figure quarter we've deals deals deal, one around, about fourth X-figure I last We

that. attribute wouldn't would I So to

think we place quarter, think what finish fall what got saw that I the started strong a to of market the in and is I see as a in and week we last month quarter the across -- the you line. of deals particularly last of getting lot . into we're the

than think I end year. like at positiveness or we we that a something last of of QX maybe will, at you the saw say lot end QX more the saw if

Okay. was And a follow-up to think question. follow-up then that. just it I to And a Fatima's on

are into you thinking have delayed that visibility the how it's billings that? is second visibility in that shift, confidence given given half? the Given or about mix half, what Do the you in second hardware now expect in Or refresh, your now, the more reacceleration less based? you, theory,

think and a form between we noticed really pipeline I in not Yes. that the the virtual you don't in if work I've machine machine. close terms in will, visibility terms sales the a in factor a how difference, forecasting. the of or impacts with teams physical what's rates of

XX, deep which anniversary more on would Yes, color we'll some the also we XX probably do some on some give next year ITO. also Day, and to of study November maybe model midterm Analyst

concludes Relations. now Investor like Aaron, to the of session. This Director would turn back to question-and-answer I it

everyone call. thank to today's joining like I'd you. Thank for

hosted Oppenheimer Fortinet Deutsche and will investor attending the Sachs third be during by conferences Goldman Bank, quarter.

November the Day Relations financial events on The Fortinet's of where XX We website. Analyst will we medium-term Investor posted webcast be will model. in also link expect our the update be on holding Presentations and an section to

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