Fortinet (FTNT) 7 Nov 242024 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Fortinet Q3 2024 Earnings Conference 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, Senior Director of Investor Relations. Please go ahead.

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

call are Jensen, by for call today our call a our results begin Agard, the will that a Ken of as Keith John Keith our XXXX review website. Joining me on fourth and perspective then for CFO; our of XXXX business, via on for Ken Fortinet's updating financial providing our webcast providing operations quarter and Relations our high-level operating and Founder, COO; guidance our available live the before quarter sales will the replay full Xie, on will Whittle, CAO third be and year. CEO; Chairman Christian Investor is today's leader. This

the We for will call then open questions.

session, Q&A one the yourself and please you question participate. During one to to ask to I others question limit follow-up that allow

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

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

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

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

to basis Lastly, unless year-over-year noted. all growth references otherwise are a on

over the to turn now Ken. call will I

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

and product to with positive momentum, $XXX to We SASE operation margin building execution Total returned to by growth by of of we billion. of continued a increased pleased operating all XX%. XX% as XX% margin another secure report quarter points networking strong and margin operation over growth building basis of growth. secure growth XX%, growth building revenue growth are gross record and including and to addressable positive in total gain continued Unified of market revenue returned driven our share XXX

for leverage XX on and continued single infrastructure. operating presentation, single secure network of system delivering edge, As SD-WAN, dynamic solution wireless Enterprise with secure quality be X a investor highlighted the Fortinet service vendor report, firewall vendor to only the in U.S., to Slide line the network

the delivered than to combined competitors total lower U.S., performance ASIC ownership customers' cost with technology while power expect computing For Xx secure significantly proprietary energy boost for and our consumption.

In building business, the secured driven pipeline third up up with was XX% of our building growth quarter, Unified XXX SASE points, XXX%. of by X.X

the in only and in SASE unified networking within This is on-premise stack allows minutes to SIM from Fortinet security FortiSASE a customers. a deployed providing our functions single offering be the vendor SD-WAN all and operation

Our to enterprise their for SASE large with providers own SBS-based also FortiSASE privacy. data data service FortiSASE sovereign for deploy and center enable

same integrated vendors and SD-WAN for SASE. fourth most path row, firewall easiest a execute SD-WAN of in for within recognized migrating and XXXX recently SD-WAN secure and Unified to the provide leveraging for In addition, fifth all quadrant leader FortiOS, the secure from traditional FortiSASE year and position in leading firewall magic highest we our in for notably were as and to position ability clear in year the government a consecutive the

center, infrastructure in global operation office briefing of feet centers. space, million square invest across data X over our facility [indiscernible] and

us long-term management. gives our capability allowing hosting own security better advantage Our and to cost were Fortistack own us for use a

the was operation for [ growth, XX% a total with XX.X% accounting our ] X building outpacing overall business, market fast-growing up pillar points. security of our

portfolio represent opportunity. our And of a a We [indiscernible] the secured billion with solutions to market together large base $XX which of operation new launch we both cross-sell installed customers. have expanded to expect

and Our commitment system to solutions. to R&D rapidly us X innovation our investment has in FortiAI, key into GenAI enabled expanding

accelerating. announced FortiAnalyzer, GenAI FortiManager, announced FortiCNAPP. will as operation FortiSIM, FortiDLP, early business and FortiNDR AI-based in XXXX, be FortiAI are and for secure Fortinet recently

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

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

with quarter. start highlights third the from the Let's key

growth. to resilience driven of execution We our of margins enterprise are of again gross by raise top and strength we And believe our year. added operating delivering of exceeding our you'll second the at returned on and We while full of partner, for robust the and moment, margins the the a new are to guidance record X,XXX top repeating range. by consecutive revenues the to driven achieve quarter small revenue XX%, we over results strong logos pleased our again XX. in our rule quarter, growth seventh customers pleased we third line with As by again channel guidance Total year in record our operating product achieving the track are hear strong very margin and services revenue and performance revenue financial grew performance in

technologies, billings Unified related billion, to billings in growth $X.XX the XX% robust SD-WAN large to $X.X from SASE, SSE and detail, base. by were Unified RPO and security grew benefiting operations in our at XX% again at customer growers grew in X% at SASE Looking total driven and billion, cloud fastest more XX%.

of installed are to their operation organic considerable traction pillars solution, Our from secure XX% combining billings SaaS and rate Unified over with gaining XX%. our drive SASE ARR and security of networking growth coming our base

large begins with journey SASE. to and to share towards I a first and The journey customers, from mid-single-digit of consolidation of firewall deployed our our SASE our demand OS as SD-WAN FortiSASE. our penetration well to delivered expands customer year the rates, for These high customers supports mid-enterprise SD-WAN and are that both and dramatic customers highlighting with providing in consolidation. This customer SD-WAN should vendor them first traction. a XX our gaining as next to to consolidation X/X have buying technology, opportunity is FortiGate typically expansion gateway drive SASE

the XXX% billings, mid-enterprises large Including representing and to respectively. into enterprises pipeline the unified our ARR of Unified Larger growth XX% while over SASE, drive And and respectively. and and XX% over all elements was continue XX%. expansion and markets seeing growth technologies XXX%, Secop's pipeline with SASE are SASE and operation security of SSE

wind-down buildings last backlog the related our expected. growth. year's best-performing year-over-year double-digit geography were has SMB through large of enterprise year, work performing growth EMEA segments, out we with the was our networking this to and to top headwind X Rounding and commentary, we As returned while as growth the secured customer

X quarters, for top over highest of the billings the over verticals, period. in quarter X%, up service our first OT by time Among manufacturing X provider XX%, billings returned to X rate that driven growth vertical by its grew same while growth XXX%. Retail reached

XX% for $X.XXX revenue. for growth. XX% revenue growth to quarters, SASE. Unified was revenue Turning margins. and growth grew million. revenue services accounting total first returned growth Total Service XX% XX% services XX% in $X.XXX growth by to billion service and grew revenues billion, Product SecOps growth in XX% returned and of by to driven time X% to driven Service solutions, of SaaS to in product growth revenue revenue $XXX increasing including the in our X revenue

similar we and sequentially firewalls solution revenue describe double-digit product the saw historical at ago, A customer's to impact journey on norms. sequential SD-WAN storyline QX also about in for norms grew with the following of a backlog, consolidation And QX, moment Excluding growth SASE. outpacing we and historical on talked around to what rates, outpaced QX.

begins The over networking. enterprise second larger of to is purchased that and noting leverage Fortinet It's and XX% FortiGate access firewalls. journey customers and Fortinet simultaneously to technology previously buying of expand journey our convergence customers' points. FortiLink with firewalls security our manage worth or switches supporting customer Their

for customers At around larger these penetration and opportunity. our XX%, future is highlighting the time, the our both same rate success switch

Solutions Combined increased total percentage an revenue license services quarter SaaS of driven licenses and and and software and its run a growth, to the Software XX% from providing revenue. software cloud annual XX%, by of accelerating security solutions, million. rate SecOp from high-teens as represented continued revenue second product such revenue double-digit $XXX mid- in over

renegotiation XXX XXX basis as margin Total guidance the margin well to the which basis increased was benefited Gross includes basis a of higher-margin service also product revenue. XX.X%, point from X-point points. gross as margins and high service by of shift mix of basis increased higher quarterly of record end a supplier margin exceeded growth X,XXX range Product points XXX our a a points, related XX.X% benefit contractual commitments. quarterly to record and to

been benefit, ]. higher-margin towards X.X% margin XXX mix as onetime benefited security a labor the shift service margin this revenue increases from Excluding increased points product gross would of services. basis outpaced [ growth ] [ FortiGuard cost XX.X% have and gross subscription Service

a points our Operating the guidance high of XXX margin and to quarterly range. end record increased XXX XX.X% was basis basis above of points

would benefit onetime to have product been margins, operating gross the margins XX.X%. Excluding

QX directional together provide QX the to with performance. Taken margins, our our the excluding financial margins, reported benefit, insights onetime

revenue points, QX impact and XX and details and points, basis and by and the related next acquisitions. by a of Lacework XXX to statement increased acquisitions operating few cash increased And flows, XX decreased VLP approximately as XX and respectively. like respectively, and billings on margins gross moving gross basis margin about I'd margins. operating most These Before to the provide to of

margins or estate Looking a for XX%. billion Free the estate X Slides and at first in was cash representing margin of the year, $X.XX the for came after real the free summarized adjusting at $XXX XX cash real months adjusted flow investments, And flow cash was of billion $X.X In investments. statement of flow XX. XX%. on million,

term estimated million, up million, payments. million. decreased XX tax stronger days, regulatory days The year-over-year prior was third quarter of investments $XXX XX were the months, reflecting quarter-over-quarter taxes and flat $XX contract reflecting year's totaled and to Infrastructure year-over-year extensions usual average than the linearity. $XXX X DSO in quarter-over-quarter. Cash

financials, million gain assets. Lacework the is gain purchase the the is an the share GAAP from month, recognition non-GAAP acquisition our per it deferred to bringing financials, EPS. billion. of tax repurchase additional GAAP the share on last and $XXX. The authorization repurchase in Share authorization the our NOL $X included bargain from to the $XXX related The relates $X Board in our buybacks increased but excluded totaled remaining $X.XX share approximately quarter adding And to billion, carryforwards by

the I'd significant share to third quarter. from few a Now wins like

across ease X-figure of FortiSASE customer their consolidation users. deal, continued a First, industry, retail selected security multiple onto and leveraging adding the customer the simplicity, This operations a enforcement management by our an to single solution journey, platform. our functions FortiOS of reducing FortiSASE We operating while in XX,XXX showcasing our Streamlining our upsell ownership system. and in competition existing consistent consolidate infrastructure. for SD-WAN for outperformed cost ability security

to customer remote chose to This In cost company FortiSASE's another device their Fortinet we management, connectivity and effectively. consistent policies a their X-figure purchased particularly security and savings solution. bidirectional replace significant win, the center push medical enhanced more users, and enabling existing functionality, between FortiSASE data simplified

FortiOS their partnership security In capabilities our This selecting X-figure to particularly and multinational a was with customer system. integrated win, our multiple secure solutions displacement response architecture. our set end-to-end bank automated and FortiGate top of visibility with an firewalls us their commenced impressed operating by competitive hybrid

Before offer opportunity. guidance, of recovery to the like refresh discussing firewall and our on a couple comments I'd

in customers had to number quarter's registered the Today, by normal. XXXX. support digestion end at to inventory In record stable, in of the improvement indicated continued last refresh reach metric cycle validating and view sometime expect we our the for FortiGuard FortiGates contracts these quarter, was to in these firewall that life market is commentary will products to recovering. add end start this of cycle, or we'd days of returned this mentioned a their noting like XXXX, users to returning that the the that remarks, During was further we third the

on guidance. Moving to

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

and those note, Before outlook, XX revenue I reviewing by margins billings basis for and XXX points. expect and respectively, QX our points, by XXX DLP ex should Lacework basis audit and acquisitions, decreased we

All right.

to billion XX.X%; billion Non-GAAP $X.X to share of which and growth quarter, midpoint of $XXX rate fourth of XX%; at XX.X% a represents XX%. of billings the $XXX a million; Revenue $XXX which non-GAAP of For million. million we between growth between X%. $X.XX the non-GAAP expect gross margin which of in to of range count expenditures billion, $XXX at cash and million; to $X.XX, share the to of of of earnings [indiscernible] operating capital $X.XX midpoint the represents $X.XX and XX% $XXX million XX% taxes per tax to assumes non-GAAP $XXX margins million

margin billion, share growth non-GAAP non-GAAP XX.X% represents $X.XX of and count of operating expect XX.X% to billion at represents the in earnings which in which Service margin per to XX%. at For XX.X%, share of $X.XX $X.XX range midpoint $X.XX of which to range $XXX $X.XXX to billion; we billings the billion, between full XX%. midpoint $X.XX $XXX to year, of million. of a assumes revenue the in of driven million Non-GAAP gross the growth the range billion, of XX.X%, $X.XX, to of $X.XXX the billion

Capital cash taxes XX% non-GAAP between million million $XXX $XXX million, to rate and $XXX million. of expenditures $XXX of and of tax

you the you our look forward and Analyst progress Day on this I to quarters. seeing at month the later coming updating in

I'll to Aaron begin now it Q&A over call session. hand the to the back

Thank you, Keith.

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

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

another couldn't there. over over a in the you share talk of the talked is differently, those you in and curious How regulated by doing a bit investor market there? highly could your the that growing help big a of And Obviously, is driven out I'm X of more verticals it competitors particularly that SASE chunk years. approach about terms see Sovereign thing you that in differentiated I is little about versus SASE. $XXX some market that next Ken, growth presentation, billion, XX% for there? Fortinet's what you're if out your

and SASE a SASE We It's the the our same invest market, great in on-premise function Hamza. in in question. also X the cloud. you, also including XX Thank SD-WAN in the to the for years both FortiOS, all

SASE a the look SASE, private they And We even actually year without call same probably differentiation kind keep we important data and whether or that's of own and for center. on is the more were them data there cannot with lot X own to a huge in different their of to sovereign with focused play which competitor, the data in you center service -- provider, data process the ago, SASE. box. So also which us also quite center SASE at to run within the within data also process OS our for if own

the that's there. factor X important So

data lot have so they of the and huge be secure kind FortiASIC local a advantage and in can to and function data a same the also So pro locally, of to same use OS salary. in that's

business The other differentiation the from comes side.

also So firewall. we We're network the the SD-WAN. on #X are the security #X the on

the SASE. same also leverage function IT So firewall installation with and OS both the base and also function our the

the firewall to the firewall mean have in only reconfiguration few easy SD-WAN some SD the the or firewall customer can based SASE. I for previous that they on from vendor, that migration the part their customer most traditional It's contribution traditional enable minutes there. go customer, to So SASE a

So it's migration easy very a path.

from As growth XXX%. pipeline the over XXX% see, the can business and is there pipeline grew the over like growing SSE you also

leader next in #X in the be the we'll believe do years. few we So the assays

line of Essex Brian Our next question the comes JPMorgan. from

into topic. the commentary Stick or refresh Ken firewall could guess around to you cycle provided. I that one you Keith, either dig the

do customers, F&B, service have large do the far to Any the conversations insight you've to provider, point half renewal this be, helpful. of event? you're and really timing retail event, the would what first the and insight maybe a of be magnitude might what enterprise mix customers before bit little tend and you respect a refresh? any into historically, seen with kind whether could with provide you might half be with of So And how color having second

Yes, in this. little on I'll kind bit of jump a

of make XXth we the think until these of see don't these the the to to starting wait hour in expect that customers I XXXX. second products change. end-of-life the We half

larger in certification enterprises, service. go project before they as another perhaps of part through would them For POC that they place

revenue a if much, you I similar similarly you was in but XXXX look at in different larger. XXXX, will, in saw And back why switches, product et chain, So XXXX, world, and little although in product lift, -- the similar, saw if growth supply over XXXX much the bit magnitude cetera, we go revenue XXXX, a not very growth think XX%. we to relevant a is that it's is

there. earlier. relationship starts we do think there's a do it We So think

To as or entry-level seen each far the the in ever, we've absolute is the X mentioned, XXXX is number the certainly firewalls. I is in It your the last comment, that -- see years. dominated second we X part of but largest by probably year by

However, in and a portion break SMB or else. well. see I XXXX, mid-range significant of that situation. do that -- And actually being unusual right the as I by positive firewalls have don't very something we down is would in a

maybe, Christian, that. want offer more you do So something to on

Or before in retail and large you've to that by you service I provider vertical, think recover. need order mentioned enterprise

have you helpful. impact, may -- cycles that spending would insight how their and if be any patterns that how there, So

industries that active expect manufacturing would players, And Christian? refresh partly But Well, was I will, you the across about be retail robust XXXX. you that in particular for a if again, they in I cycle XXXX we board. think the just year that those in and would see talked

Yes.

support levels how whether customers refresh. the where have asking customers of many they were enterprise or agreements and -- subscriptions. would account And You early have enterprise

contracts would allow they because smaller typically the XX see will refresh about expires. to probably year, So wait until But they to until U.S. ever cycles be we ]. for And about -- refresh something expect don't yes, customers, we try less before for I will what XX -- They [ renew than see also a wait the to expire. them you don't happening really

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

for Ken, you. of our the is SD-WAN And a converting gaining universe. to customers. market a question and by leverage the within SASE lot routes important about base routes those terms migrating share the was discount one a There of in installed market of your

as And of for question I a my potential we for from of Keith, how have then just I SD-WAN So some SASE? transpires cannibalization follow-up potential should for to you about migration is think refresh journey your the may. that if

question. great Very

I a customer, think at the if supporting DTA you environment. the look and also remote really of lot is SASE growth

So any network security in there. more be the to they kind tend are the in not deployment, of office firewall like which headquarter

other if customer current growing the or most the of our base is even come base -- from firewall On at here. side, look you strong it's SD-WAN most current SASE the customer

layer SD-WAN So SASE with where need addition that's firewall service license a all other these do support SASE with to they functions additional hardware there. user add-on

where that's the add SASE and will the networking starting we secure also secure and service additional help call plus see a the the other So side, kind growing. of we side X whether like side, pillars, which all operations

some technology out And huge believe of in share, also believe of the the grow or in also SASE we offer in keep SASE and put their kind will carrier also to private So the lot a can OS important in gaining keeping customer. -- the own accelerate can SASE provider SASE we advantage. market SASE supporting eventually, their role play the X than and is a cloud these areas to Sovereign we comment, service especially faster both market, AC same do with SASE, we all

it's network top their we very support own growth on the providers -- so potential And infrastructure. huge we strong traditional in service a market. that's of firewall all do have SASE And build where

aggregate? footprint around of XXXX. shipment in base double give analysts And the just footprint the can Keith, this footprint the the you you either proportion the to installed or or for back lens end on us the that talking way for refresh on you're that the of and support applies a to customer telegraphing to Any

is Day the of all in XXXX say at. At risk best more days, looked was the fun was taking -- than second little out the second Xx I the Analyst the bit 'XX. 'XX XX would I Yes. a XXXX of second -- highest

to coming not you're the Day. Analyst So

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

I inorganic remind that the is number that or in for Christian, you prepared number? we Solutions organic Maybe just are remarks. growth what Keith or just think touch that driving as Could solutions an mentioned on us, And growth? maybe the are ARR

want Christian, to... do you

Yes.

So acquired organic was the Keith include that DLP ARR We not Lacework. and from an did Next the that growth growth number we referenced number.

the growth variety solutions, is clouds, are be What of that XXX%. ARR out, growth So offer. would FortiWeb, solutions solutions to FortiEDR, and even we've higher so will the FortiClients, solutions organic the cloud year-over-year driving this that started be a our are really FortiNDR

are them Some of of them are internally developed. acquired, some

for Got it. Keith, maybe follow-up for you. my

gears little It you to remind us profitability sustainable more what about the was? just quarter. the just a you this level think And remind -- of profitability? but a do bit, small, to you Just onetime importantly, Could what see shift that about in us you as in again. nature mentioned more could being sounded it was great something

Yes.

the gross you XX.X%. back operating out about I backed forma be think benefit, the product you benefit first, XX.X% out would I onetime margins, if pro XX.X%, use to if margin were that that I margin, have would been if headline say and would

One you have traditional the that's pretty recall, inventory calculation and margins we our straightforward regard. impacting inventory you that on that have in As is X obsolete may in different things comparison. excess are related hand,

that kind That's hard team is $XX unusual. not got benefit I about And in in that really you the there a round numbers, those with benefit to pencils past. We've worked has renegotiating The of out we those. seen gave operations last negotiating very the year second of one we margins million. QX and And there saw a deliverables.

I understand. margin? sustainability sure question wanted asked. the anything And And was if anything on that totally of But that to pulling sort I from of the the make risk

Yes.

it really on Will back the the think feel there. company. growth of really and profitability room others And think certainly and to want as I comes Ken how and to have investment ample those the vectors we the I invest go good business. invest think where we But focus we to John I of that to going we forward about in are

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

You Tomer for on have Zilberman Tal Liani.

Just next billings ask Next guidance organic well came about and ex wanted for to quarter. the Lacework expectations. below DLP Street billings The in

to ask weakness where Just expected refresh firewall the how you and see comments in the wanted quarter you seeing of and cycle measure this XXXX? that the stable against demand

our question. And second Yes. very the what the think the out little seeing thinking month is us with the early bit quarter. we pleased deals are we we're now, fourth we quarter mature final when Great teeing they we're need of before part it's a them got pause I some numbers. just of yet, first to I the what start month And or We're that -- it's look first And quarter. at up giving think tracking. of about that chunky guidance the really of month for right as

large there a it's a little coming X-figure deals really of into So are and I think population that of kind that bit. few play X-figure

financing. quarters more now last competitive And over to seen even it. and focusing asking landscape. vendor the about are of larger couple Got vendors generally more up, of on discounting, maybe the follow We've bundling some the

see with are pricing And well? participating you see you of competitive pressure as that the you Do how because landscape? that? do how So

Yes.

what comments -- discounting the here well. But the Christian maybe prior been think periods. to add think couple I will a it's similar of was very I as in

a take as part ample our But to our in we to of been team that. there's think incentives well. changes and of encouraging that other and ways, range As I maybe also well. we're partners margin have have Christian invest terms mentioned, as we of som offer certainly I wide thoughts in channel But some sales

Yes.

then we our overall, I set Fortinet discounting expect more bit. product to a for yes, market be But it think the little to have to stable. depends incentives also -- that And specifically for in of solutions. buy channel pretty on course, yes, partners, the will but customers the

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

you you you go-to-market. do level SSD. wanted think you your it's go since is I Ken, ask a learnings? year think to your are about and about the And been is more? sales more you can some force of Keith working around XXXX a upleveled I we And do What where as think maybe you up into some incrementally think well? What what focus specifically,

Yes.

takes -- XX% so very And actually own come the margin firewall and starting security or finally can service, XX But from months, into the SASE service additional we of that probably still directly. the the turn SSD of see it's the provider QX You see helped huge progress that's a can from some also on of SASE now realize other sell you and easy additional the But SASE in side, existing into last kind SASE customer go-to-market the we also, made see also our importance probably time. in customer base customer. -- really business micro our setting us some worth their But and base. like there.

side, it the function, was have, technology sell and other the advantage OS, beyond cloud-based whether single On the all we society. a which the traditional this focused to ASIC is on SASE only expand market,

to So these who's go OT growth software -- device, the technology area, says all the supporting agents, the whether agent area the of with even potential we OT/IoT kind the hardware beyond also CE our sovereigns for edge especially both that's a also appliance huge see where computing we probably see with there.

So that's why pretty we're confident.

like the firewall SD-WAN SASE space. did So we we're in market just the leading and

Yes, with Ken I think, spot that. on

SASE to ago, design now are want we us, given just is in of And early I some meet more of closely some that with of that you of where customers it taken. getting contrast reference very resonates the we When are I at And what I we more that excited we've the hear getting need from with that about, also -- channel say if get see them, really customers those is needs that. that and we what with ARR more sase to customers very think numbers to a vary which down architectural about more and part that we're is still that And partner on response think talking involved. I the the today numbers days. when we're they story, you and advanced pipeline it sit versus us year that the think opportunities. they're make channel with sure would the

different infrastructure competitor. Yes. than also SASE also the other were

I we to square own deliver the like then feet the center kind but -- own of have core said, facility, probably of can think our colon own we're our which function definitely and some to to provider, them SASE with compared also because XX% of the I good also XX% than data is less half kind million coverage. compared they X all working only

that's the center on side, SASE we cost SD-WAN. OS where, advantage, infrastructure lower within the I technology, Acceleration infrastructure we huge plus the have within for energy customer have the technology on all firewall think So from business data the have a us, the cost on base leverage a and we can also advantage processing, on do do the on both

advantage the have that's competitors. other over SASE our So we

It's you pillars, year 'XX earnings some the of at X those I said, it's been like A out said, over year pillars. also focusing focus the that And seen a broke building and of to it's course. really internally analogous kind I and year. the like note, to think when other year execute. you externally solutions also Sassy little been on a right SecOps, really we've about on time, call to you've think ability when SASE started solution November nice and growth those like only around for think a interesting we ago, we Fortinet's Ken on ago, we -- that focus past

grew you steadily at to which focus the and If started in leader in risen time. it to the Garden we've look Quadrant, over XXXX, Magic be really SD-WAN, we on then

focus and those around things. what we've that that for And illustrative so are delivered focused on results SASE I really they do can year. of when SecOps think past been on SD-WAN And

come that lot -- very period over course results good more over really going had a of short we the forward. year -- to focus think I that so in And a

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

to want Low you're growth. Keith, Keith, release, press barriers drive growth, will in color highly I Day teens, or it sustained mid-teens? in run be the here? and to talking advance, positioned lead core being talking spoil Analyst Ken again, Fortinet well we are its in appreciated. front X don't Any what growth sustained about but your

he -- Yes. a to although to the little and Ken to careful probably what it, bit, be opportunity talk maybe but would I says. walks I appreciate

we we'll XXXX obviously, get about XXXX some February the to that we'll, of the think is as conversations. Analyst earnings call, we the understand going in bake I and Day probably to talk November

So well-structured for answering I it it's pause -- I now. we'll a that's on think but question, think

agree. I Yes,

than want the And We'll waiting also to XX grow detailed sector. the you so And more addressable faster in about there. information provide market. number probably for probably days. some can market investor we probably X, how slides, in each there's total information

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

I looking the comments a of chunky caution. to Have when to second your the QX you your were back giving I across around quarter, these not before? that guess, purview, month to them things and get for the in somewhat half yielding slipped for final your up the line. I on Keith, Was setup maturation, the guess, you of at of some wanted relative double bit the ability

the them additional conservatism now? Just curious why around

other I little seen in maybe in that slower we've bit do the or question. prudent the now third let got larger of more they those cautious more Yes. I quarter the quarter. maturation Great right approach I it's on deals a to little a them And think to take -- bit think teed and what little them progress not just a quarters, up out. a compared as shutting less fourth Certainly for bit. mature

more time fact. them IPO annually. compared detail multiple deal, It's some year the Christian can RPO know get give finance of probably building the really gave started of using some deal, another It's just of this from better. for away probably first also Maybe channel, right may the instead we a number X Christiana and just the ago, bill

Yes.

can pay you years the imagine, upfront. won't As customers

comfortable want just because in ourselves, do this don't guiding but customers some gives around without getting be have finance some and And internal for enough not financing. or that discussions channel to either mature pause sign also long the so is we direction, up it periods us

but has maybe long This company a customer better short-term relation. benefit impact, the bit better margin, also little term with

So that's what we all looking for long-term success.

Our Catharine of from next Rosenblatt. line the question from comes Trebnick

been or [indiscernible] this really discuss Can doing quarter and good here. you firewall. virtual how trends a job the their up Trebnick competitively, your is that virtual we've have for firewall picking performing been with Catharine

So that with how competitively is you? standing

Yes.

virtual well. as of as network It done security is the that firewalls have think a component Unified portfolio. SASE very, I very our well

other is we is which thing still topic. [indiscernible] Are So Catharine? there, I'll I very relationship that Well, just a you the at -- -- we think between finish see, and strong look the crossover the

thing and overlap month between talk physical that that virtual both this just I about will strong we customers exists enterprise think later is are appliances our another the buying appliances.

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

offering Ken, just about customer of R&D Lacework partner FortiCNAPP kind on priorities. bit the initial love for hear and Maybe feedback, and marketing now. Great. I'd little sales and a feedback near-term to

diligence, mean feedback What for the what the Whittle, I engineering is John did getting way. this we an by billion $XX found felt, TAM team. we incremental we're product, think when to I we our us. similar It's great great is Yes. of

TAM. opens So up it really incremental that

threat have -- out have we intelligence security, all we and great endpoint, network from X. Now

I continuing strongly make really, of positive areas it's really, a it the feedback We're other on interface and of competitive very terms in the product. in the user road quality really to really product. very, map So think improve the

based solution. I on together think of have who against their CNAPP forming it's multiple very solutions acquisitions accreditive kind pieced their some

on so of just this suite hear have all competitors, a find lot, kind broad was oftentimes, integrated, to other not customers we work by then do in And feedback that of organically And we seamlessly from context, vendors reportedly CNAPP this other snap. well who developed us. product largely versus offer single them point, Lacework what we is, single also together offer It's together. to We're really Solution but versus front. it's not that they're hearing positives products that can we

the space we that this see real we in against advantage. So to working others differentiators our have

also pretty technology strong. a company market-leading Both has the and there team are

a it's bet our solution huge actually let lot send so I our base, the of solution same there, other a strong combined in space. integrated -- time, and potential, and the solution On billion a resource, to in growth units, definitely leverage also app also total that's keeping addressable R&D both $XXX customer supporting also both new company, as kind hand-on secure probably market, than competitors also customer think SASE solution but a in the better

great. maybe as follow-up. quick And That's a just

I Fortinet. for about the Fed government Fed. the broadly Obviously, smaller talk bit coming a But in about vertical. know how government the Just U.S. little think and on vertical is vertical the in of important the maybe is you it more XQ a quarter for periods?

your local government. state with point, well us, market as not more the for the is international the of and Yes. we're To as part part really U.S. aligned government

see. X/XX So that other you same the some don't of really companies benefit get sort maybe

from Our next Patrick Scotia. Colville question from comes

you're they when with already Can about Patrick enabling vendors talk with is partners may more in SASE kind existing lead or on more established just you This Colville. space? how this Fortinet of relationships to incentivizing for Joe have Andrew

not security the also range, cost, a partner the a security, the see class any other also very than for And partner, to the upgrade the Yes, broad the lot to and you SASE. Follet of can competitor. actuality the performance, whether is compared of our also the channel you see flexibility SD-WAN we're easy better at network to lot can

acceleration do So we easy our see quite from but to to of migrate it's Fortinet, of some competitors there. some kind

a SMB kind of digit also single up only probably has big deployment. went SMB have is customer pretty any security we part other The network base.

see these the that's areas out runway fast-growing of also they do We because lot suffer also of a one contents.

see So private other segment for competitor there. same or can big solvency the same deployment grow service the whether local we offer in data for the do to additional provider center there's and can we time premise do OS also enterprise strategy, customer that's one within the this at

huge differentiation some we we quite have competitors. other feel that can advantage give us over So

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

It was sustainability the to changes competitive then growth. see are that And landscape? should XX% we there grew great billings that business? in of think about any OT How

on the OT that but market, think very us. for the I Well, bullish leadership opportunity

in we're time. connection software to And a most security. long OT will other year, already also of we in the OT some Yes. from security. and network do we the We deploy a have X XX device did year for is probably which in use space on have investing report, a believe probably only agent to believe leader the also, the the most to is next years, them way level the this come difficult

XX OT So it's we see be area combined growing X edge a this computing with huge will in to view, resulted the years. next opportunity the strongest

definitely ASIC whether driving we technology have, also amount and to there. the growth. huge infrastructure feel leverage, there We'll be is OS so the of or And we opportunity a have or the long-term

that, retail time, I to double-click grew X great the quarters. the first verticals. see think, to of on just maybe was and some It that then And for

next changes the Now any verticals you over Or there expect are that couple we're to expect? that should any post election? we going quarters that Like rebound? forward are there of

We there. We other finally other reach it's growth refreshing X is will manufacturer like we years, XXXX, in the We [indiscernible] XXXX to units cycle a already year to almost accelerating probably the time see begin see of the most probably Also, some the in go more or statin some like in postelection growth strong X now. provider most I in also be of in like QX. service through the registered market. number because 'XX, quarters. refresh a So pretty properties feel out next that's the studying XXX% probably that one the like -- strong growth the probably see think XXXX, we after as retail, whether And pretty still carrier like we space by some XXXX,

next Our the comes Keith from from of BMO. Bachman line question

the just and to of SaaS concurrently wanted I'll questions, Keith, two ask I just in on penetration. the and time. interest of a sort ask macro micro them a

You large is indicated X, Slide XX% enterprise. on with about

out -- you SD a very it's If the figure. impressive took and

the versus penetration rate how the trying And thinking the look consequence. other a you know I that's for or customer of couple broader as just to economic terms how what in but quarter of like and the next What me. plus just at are in If be But about election you SD-WAN. you -- Europe second bucket. as SD-WAN it looking or X? I'm terms over is not the question, out just the out over And may you QX? share X next of growth it's type? are T in the that quarters, took understand question then Europe would look I'm a

confuse Yes, myself on confused X. that's Slide maybe mix showing think I you we've the or I don't of penetration, customers.

if what Yes. I a took but That's what of customers, would the SD-WAN alone? piece of sorry, SASE that's the meant, what you mix -- out just Yes. --

universe look look You're entire tilted my be at alone at when going to SASE more that enterprises, to find a of customers mix you you expectation. larger if the would the than

mentioned EMEA was I number international at was Europe the I customer think call, I we said. Europe, mean, think not dollar on values, you It one. -- right, we accounts. Yes. -- look has when

saying well Europe, that U.S. not out. #X forward every like Europe performance behind a in economy aren't do And was comes the SMB It's the and on as there the we'll from fourth we to look I talk to is is #X. right every SMB, bit the worries continues them know like how little quarter headlines an that quarter, Europe. pressures think it we're we I'm about but I well. see about anything quarter don't in expecting outsized that

line from comes of the question next Quek from Janice Our

hardware family And little and want high-end give just a the the lower can how midrange just versus the bit more you your drill down maybe performed appliances. color I us if end? to in

Good question.

Looking here. numbers some quick for real

not to a has stable, continued So overall, be outgrow. We unit had and say, but in bit shipment I more would end. little the mid-range high-end

saying we're our numbers. page it's look the at what not that. when off we How's jump guess I is going to

BTIG. Powell with question Our final from comes Gray

piece Universal that disclosures a probably Sassy, So it months. last understanding could is level growing? over growth product sense deck. ballpark Within on you as pressure that's yes, SD-WAN rate XX helpful see under -- the slide the been us how really is the to to is give was My the fast maybe

I customers to my is question particularly you reaccelerate, for for guess that product VMware potential start So alternative see as like, do looking solutions? really

Yes.

base. you're bringing penetration if pointing I something larger That SD-WAN our customer greater out, at of made Greg, we enterprises that on XX%. -- reference the as or our on the -- them look accounts is by think XX% us to SASE. we're I and the and space in the opportunity board space, starting you growth FortiGate SD-WAN SD-WAN we and white of and see think solution is for goes on customer them in -- to journey with here that that the FortiGate order

and early to XXXX as into that into I get from we would adopters renewals SD-WAN XXXX, be some looking start the think here natural. of going you're

think we're opportunity where for competitors our the a an historically lodge SD-WAN, that's that going have those and incumbents. -- to as we we've renewal SD-WAN, I be superior like shown for just will a through just also, cycle same us product

agree. Yes,

the being strategy we also provider, of and these you a internally in the SD-WAN developed acquisition, content sold also some after a look comp other of X are the the other If SD-WAN. with one at top security of on lot things core

very leading few stop feel right also already huge technology not lot energy It's see So years also cost, opportunity are And we but opportunity. performance of we we they're developing kind of still do a do space, And the of now. we refresh, fragmented but deal technology, up now. a a only come see function replacement a in consumption.

the market, we're accelerating and keeping that's So than feel grow faster why we there. share market SD-WAN, gaining the

remarks. the Aaron This to over portion. it now turn I does will question-and-answer closing conclude back for

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

November on and update marking cybersecurity XX-year anniversary, where our reminder, share IPO will be the for we of strategy an financial a on our future As an model. company's midterm and vision we provide Day holding will the Analyst XX,

on hosted fourth Barclays, website. Investor also Fortinet's attending webcast investor We section link be Fargo and by during Wells the Relations the of conferences The will be posted Presentations quarter. Needham, will Scotiabank and Events

have rest If Have questions, me. of your a follow-up great any free to you feel contact day. please

the you conference for call. This concludes Thank here. being

You flying are now disconnect. to