FTNT - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fortinet Q3 2019 Earnings Announcement Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]

to call like speaker, to now Mr. would hand over the your I President Investor Salkowski, of Peter Vice Relations. ahead, go Please sir.

Peter Salkowski

Investor I Thank you, to for Peter of the is Halloween, our everyone. at Sherry. Good Fortinet’s of afternoon, Salkowski, and call to third Vice financial welcome quarter pleased to am Happy discuss This Relations everyone Fortinet. results President XXXX.

providing perspective fourth call for Ken This questions. providing a replay our and CEO; will call Jensen, CFO. is Speakers guidance and business. Investor live today, Ken results, our Chairman to your be the webcast for XXXX Relations on and high-level the quarter will Keith review will via Founder, opening available then today’s guidance on operating our begin Xie, Fortinet’s update our call and financial that a are our on call website. Keith before our

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

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

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

press on in in to is Investor located release posted Relations presentation both are accompany of and non-GAAP that the results our GAAP GAAP remarks, today’s and website. Our which the reconciliation earnings

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

now over turn to call will I the Ken.

Ken Xie

XXXX results. to today’s and quarter our everyone for review you third to Thanks, joining thank call Peter,

pleased margin significant quarter. are our service flow hybrid a secure security offerings with of revenue, operating third the We product adoption to FortiGate Forti advanced third quarter SD-WAN integrated were billings technology, Contributing strong cash and multi-cloud free and in and solutions, fabric and our our our solution. SPU-driven strong performance result

million, was up accelerated product XX% revenue revenue Total to $XXX XX% and growth. to

third the environments. the Quadrant leader was Magic in delivers consecutive security for Gartner recognition a Fortinet that network, During automated Network validates create This Firewall. quarter, enabling named advantage for a integrated the our customers and network all third to security-driven to enterprise year

new secure protection, threat popular Security times leverages XX announced release SPU It next-generation industry FortiGate the SSL most next-generation SoCX to that Today, performance and industry. inspection desktop of XXF, SD-WAN. and the X Fortinet firewall the of than Rating average Compute delivers XXF the best-selling in appliance. enables faster firewall Fortinet’s The for

market X.X will Security Compute security and utilizing solutions solutions compares average performance total XXXX in our increase and the XX% age Rating networking range WAN appliance XXXX. billion IDC of addressable industry price X.X edge need that CPUs in The for the with WAN by generic estimates security Forti-SPU same billion of to from capabilities. enhanced

Our the outperformed secure clearly quarter. SD-WAN solution in

low and solution. to of providing high-performance is market mobility FortiGate networking cloud border solution second people latency change computing According IoT early mobile, capabilities they and the and enterprise are Traditional of our the secure customers. that security fast clearly secure require third of in network XX% needs with the Edge validates with way ranked share. of demand growth with secure. growth to the Fortinet XXXX, security XG resonate share rollouts and quarter Gartner, data in market SD-WAN technologies with faster work SD-WAN dissolving and innovation as the are This volume stages

as well and as clear multi-cloud security and hybrid performance advantage. security high in low networking cloud competitor Fortinet’s is both edge ability security, with and driven latency edge offer to leader a and a As

Going forward, drivers growth we four see for market for share Fortinet.

First, huge Compute FortiGates with transition competitors. lead compared will advantage of SD-WAN and a gain Forti-SPU to secure Fortinet that the continue will Security refreshing market with adoption security-driven other all has new Rating portfolio our in to These FortiGate networking allow share. to additional

a towards Security us Fabric Fortinet’s integrated fewer customers protection consolidate security allow secure solution and vendors. Second, offer as to broad, end-to-end for automated

enable security solutions the of IoT a lower much fourth, integrated security Third, Fortinet’s Forti-SPU And and broad to faster for cloud advantage result to the XG our the is and of technology, transition security Fortinet hybrid well performance. cloud. embedded as range from us to a provides provide huge cost with and lead and multi-cloud to positioned which and

On around to Monday, real-time of enSilo. acquisition an we fabric opportunity endpoint data. take The detection our and response acquisition capability endpoint company, Fortinet’s security strengthen and to offering I would enhances announced like this security Fortinet’s to automated we and and their hard anniversary as public-traded celebrate team to for and team for enSilo want Fortinet work On customers XX-year our support. I the their November XX, partner thank Fortinet. will welcome company. ongoing our a edge

great all have our success. You to contributed

the turn third to full year. Now fourth on quarter I call look the Keith over for our quarter performance will our guidance and and closer a for then

Keith Jensen

Thank you, Ken.

unless to except and on to a posted of summary on make I comparisons for our Investor website. quarter that growth the note the strong I’d quarter The stated. amounts revenue, like of non-GAAP first financial rates presentation are slide provide are Relations XXXX, otherwise refer now third third based references our to me Let performance.

in and geography, has and consistent highlight solid As growth to how by contributed industry solutions execution. diversification part business our segments summary, the customer and will of I the

Let’s with start revenue.

of from our up Security, half first XX% growth our year. million in acceleration revenue led the by strong Product an cloud Revenue was fabric Network growth XX%. XX%. of revenue revenue XX%, growth up Total was achieved growth represents, segment, $XXX XX% of from was and segments. first, we the largest the

third, that we earlier rate off comparisons Second, more estimate accelerated XXXX. difficult And the double growth is through growth rate. growth increasingly year industry a growth as

Product both solutions. from appliance in a well noted million software as the benefited growth of revenue segment and moment $XXX as growth ago

the Given the of we the Consistent comments business and historical our secure believe earlier to rapid Fortigate-based industry trend SD-WAN our is market market’s consistent our with the significance Ken’s renewals, our refresh in growth muted. adoption from related SMB an impact cycle our SD-WAN offering. business of on benefited share, of

points to and service higher-margin years. revenue total XX% increased represented million Our XX four up XX% revenue, of in $XXX

subscription increased FortiGuard’s while to FortiCare million, other XX% $XXX support to and $XXX million. revenues technical increased services revenue XX% security

the accounted for revenue very remained over XX% quarter Deferred periods. in consistent revenue of beginning of services quarter. rates XX% prior with Renewal of revenue and recognized at total the third the

predictability, deferred for fourth service similar revenue. the expect For of we the percentages level and of quarter, balance a similar total provide to accounting revenue

deferred XX% revenue accelerated increased XX% the to earlier revenue basis, just Total more to shy revenue to billion. growth despite Americas $X accelerated year increased On geographic a growth XX%. to term XX% of comparison. Short EMEA $X.X deferred billion. for difficult a

growth solutions. Now for security billings, and security, customer from which segments $XXX non-network our up and million services, billings. turning billings includes security includes XX% of both and Total geographies, benefited billings. to outpaced and increased and products network industry products Billings were for the accounted across of XX% XX% total Network business billings. which of diversification and services,

billings aggregate, of total countries generated XX in of where were In individual XX% billings. billings nearly countries XX less than X% our total their We these billings. over represented

While and EMEA several in somewhat countries. growth UK clearly saw other was slower the by we in offset it Germany, strong growth

the top the of segments one While strong our and experienced segment we government total billings, from accounting contribution MSSPs services service from remain equivalent financial providers a XX% of segment. contribution and for an

Looking sizes. of the now up of SD-WAN increase deals. in third deals in a $X the Deals $X excess deals accounting $X to year. over contributor was for XX to at leading from X deal million the increased quarter, in last deal over of Secure X million, XX% million number

We to and are our XXX number deals, of with large coming XX% see from $XXX,XXX in respectively. EMEA deals XXX to of over geographic over APAC. $XXX,XXX the deals each and and of them The increased XX% pleased diversity all

contract Average transaction represented have not than the diversification, in single quarterly flat of more one XXXX, QX note of down months And since to year-over-year month offer that was X% term had a and billings. we quarter-over-quarter. XX quarter of final one on

gross the back to margin improved margin gross income XXX Product Now Product points stable software XX.X%. transition statement. deal discounting margin environment. growth basis product Gross to an XX.X%. environment, revenue points attractive basis and a improved mix, from to XXX benefited

associated leverage driven XX.X%, in margin headcount margin increased pleased performance. more to very product levels operating we’re increased basis third improvement Services quarter, while points to with with revenue in quarter. basis gross return expense expect increased the to and it in to XX%. margin gross XXX performance XX our XX% Operating X,XXX. to by Total margin we the the fourth Now normalized strong gross points the

operating strong performance, the was million million, $XX net up Given income or income XX%. $XX GAAP

the XX%, flow, expectations, increase in of the due cash to reflects net expenditures resulting of to million strong a up timing flow-through margin Capital were and free operating $XXX below for income. cash Moving Slides basis on summarized third quarter billings, XXX to statement the X. third spending. the increase in collections and The million, XX%, X and points. up cash flow was flow Free of quarter construction profit $XX the

year $XX capital expenditures to million million, quarter between capital and in million. $XX be We full of $XXX expect fourth $XX expenditures million a to resulting

the In the cost an $XXX $XX.XX. share shares At $XX share the approximately for common the quarter, remaining third end price repurchase million a quarter, stock of total average authorization we of was per over XXX,XXX million. of at of repurchased

remind As consistency geographies, solutions, Slide our to customer I by X, contribute industry to diversification to on model, in and provide guidance our and and and our to segments like on of again, turn financial growth continuing the performance. our I’d provided everyone

We at and on consistency of deeper Day this XX. financial predictability our and Investor visibility November our will dive into model

everyone start about guidance to provide. Peter like applies forward-looking disclaimer to I’d that, the the of including statements, of at forward-looking the call remind the it all I’m to as presented With

million. billings between per the XXX in the million. to million operating Non-GAAP XX.X%. to and assumes range million. of quarter, Non-GAAP million share of $XXX of In earnings XX.X% of expect $X.XX, a $X.XX the million fourth $XXX XX.X% we gross of to $XXX count in margin Non-GAAP range which XXX Revenue share $XXX to of to XX%. margin

expect XX%. tax a non-GAAP rate We of

$X.XX, margin gross in margin the expect XXXX, of a XX.X% and million range to to per $X,XXX,XXX,XXX to earnings million. revenue $X,XXX,XXX,XXX non-GAAP of the in XX% to service $X,XXX,XXX,XXX; share XXX XXX of range non-GAAP range of $X,XXX,XXX,XXX assumes $X.XX between revenue which count non-GAAP of of share XX%; operating and For XX.X%; in to $X,XXX,XXX,XXX; of total billings we $X,XXX,XXX,XXX; the

be our expect rate XX%. non-GAAP tax We to

We $XX million. $XX and expect million cash taxes of between

team. enSilo Like Ken, I’d the a warm to like extend to welcome

the traded like celebrate over efforts $X I’d XX to is turn support closed partners, Peter, on is our team dedication work. with Fortinet $XX customers, able back over I to as XX. all your call thank the then, you. Before publicly the years company Nicely of Fortinet Ken, a hard It’s to a Peter, November because for and our their to and that billion. market billion. cap you Today, market cap of day back back done. your

Peter Salkowski

ready open Operator, Q&A, Thank please. up we’re to you, for it Keith.

Operator

[Operator Instructions] question comes with Fatima Our UBS. Boolani first from

Fatima Boolani

Good start with afternoon. you I’ll question. taking for you. Keith, the Thank

You’ve releases over year. this and of of FortiGate had pace a course feverish new fairly gateway the

Forti about base. the You’re through talking SPU refreshing

appliances extent if and follow-up how well. you’re shipment on do cannibalization you any around ASP I color have? can of trends, So product spectrum I’m you us can comment as sort the provide trends? And the ASPs you of on managing of a wondering given general have And

Keith Jensen

I’ll and from a try Kind to Fatima, of them. in hear of and each every you. there. of number recall it’s nice one topics

probably products come important? a pretty if products or maybe we the You of that I eight, life of up other XX we’re Why look, those firewalls, that you are to refreshing the you some sort our some probably pace of and I XX – suite at compares different product XX. closer think have at about that our XX year. that’s with think, cycle with assign to look FortiGates, FortiGates, quickly people idea

solution, how at with become ASPs, customers. something about of other upward very I our and for if missed contributing up which you ASPs of fairly how and manage it the ASPs, that to it’s and trend margin say on good manage specifically consistent I talk probably that quarter, been think some part billings think a total of was not to with also means And driving, I’m I our we overall. I the in going very ASPs at it, would – we think I else. are that that’s terms transition than but comment I the I attribute both of ASPs. being will. pleased our that fabric inventory, a we’ve good I don’t when to in to products, And

Fatima Boolani

That’s very helpful.

gears of sense deal in if competitive the traction. deals onion you X SD-WAN shifting peel to Just called significant because here? And the million speak you to the audience quarter, of relative wanted improvement. the the better the that is one out did year, on a secure dynamics to that $X were a back last I in that’s think that The pretty to you get excess who buying to I can

some of peel on dynamics of the strength So to just wanted you. back Thank the there.

Keith Jensen

market buyers who about tilted talk less towards mix we SD-WAN shift first. the dynamics, in the customer SD-WAN. in let talk and towards the our and the more competitive SMB, see that enterprise the the I’ll about a Maybe I Ken? is Clearly, can just But bit little are and Ken

Ken Xie

Yes. I solution. Also with customer enterprise because, in XX% like SD-WAN said, security

that’s we’re single security So why integrate box. a in one the SD-WAN and only together can

for is competitor. SD-WAN with better huge easily can or add the any Rating, Computing Secure huge And So kind gave computing so function, whether side, side that’s computing we even can add call which advantage the advantage. was it just huge additional And of computing function, capability, on security, them, we that a power, a any much whether us security the network also other like other forward. networking, performance alone, going [indiscernible] power really than

Fatima Boolani

Thank you.

Operator

Our comes JPMorgan. from with Auty question next Sterling

Sterling Auty

Thanks, Hi, guys.

this at percentage of is give as point, how So sense a just business? a can SD-WAN us your you big of

Keith Jensen

second think their was share to that our ago that year share probably had report. the I’d according report market quarter point a I Gartner our I And in to market noted XX% of out, was think, X a SD-WAN.

you look that I at. think there there’s some could information

Sterling Auty

differ? Alto some then, asking can in me, for a so frame the And Zscalers, to replacing do versus Okay. Internet you better help the maybe with the Palo kind Ken, Internet they’re are terms, asking, access, giving et sides customers take SD-WAN, that secure and How of of understand they to And cetera? just MPLS, what what is coin? and these of is then SD-WAN secured what’s access opportunity doing, is actually both your investors that’s what minute your

Ken Xie

That’s relate a It’s enterprise, smart position. low-cost kind most bit the reliable like probably a market the to cloud. much little provide of way, and software-defined, different way SD-WAN Secure access WAN-age transition. to access the

So the that’s XX% in adoption. They driving SD-WAN almost where years. few year-over-year next grow

Zscaler including $X think so about Gartner is you or a security And and market. billion their data, secure – I then other And some by security Palo Alto which $XX XXXX, whether about [indiscernible] security cloud SD-WAN by or is look network about if some access of could billion access, part, market. security, and more so secure

So it’s larger. times X

to overall bigger – compared part So still big security. much infrastructure that’s the where security is network a

the have and of similar for So offer but on and we working a we do both we’ll a a of service side with access, that’s kind more all we one, provider type them where solution only the we some prefer partner. treat as Zscaler cloud solution, of secure kind are

like the On like and make the believe, Wi-Fi, secure driven some the network other security call networking integrate XG. whether SD-WAN, do other side, which them we change, altogether, a or like we

general process limited also advantage in So from – both this enable computing power compared and used other better has of solution security process solution technology more function. which our much function a because the secured security to security the the is to and purpose a network kind CPU, very unit the of

two also different much little market bit approach competitors. do other address a believe fast and a approach, to our and well fast growth, it’s compared quite with positioned we transition bigger we’re any So and

Sterling Auty

Thank appreciate you. I that.

Operator

question next from of comes Montreal. Bank Keith with Our Bachman

Keith Bachman

very wanted this thank much. to you Hi, target I Keith, you. to

growth. impressive over you be Your to thinking about And how the outpacing should cash in be performance quite we to revenue just wanted year. continues next I about flow this ask

up part XXX year points. operating your over in of margins gone Now basis it have by last the is

I that this but working operating you was B, And it to, real – and capital might A, how the me you distill questions, have asking and just changing about the for hoping so metrics, just estate. we’ll concerns alleviate see margin to cycle, down neutralize

So was I just about underlying. thinking the

Keith Jensen

spending Thank you, we you yes, When on next into year. cash does Keith. look real flow, fair amount at estate free of come and estate a expect play, real

spending the me, Day least free not moment a but Analyst I XX, not at excuse ago. think or conversation the November flow, want think the maybe we is estate real at I cash on for misspoke here whether preview to I internal XXXX,

I you’ve is just terms well – the pay the kind model. of it fairly on Look, holding fairly firm of we’re fairly us. vendors Contract or are nailed firm holding we think us. terms for capital – for executing customer that our pay working in on How our

to of the our So and cash margin really that number. grow just your a flow to watching then continuing to manage inventory, through matter billings continue then it’s drop

Keith Bachman

there is I mean, fair growth. clarify, Is just like reason, outpace conclusion? revenue sounds any continue cash it flow that So to to could a

Keith Jensen

on if I’m getting I going on not just cash to flow, can. – closer to to I’m going free pause guiding

Keith Bachman

right. it you. me. All from Thank That’s okay. Okay,

Keith Jensen

Thanks, Keith.

Operator

question Saket next with Capital. Kalia Our from comes Barclays

Saket Kalia

ask my lot taking with start Hey, here. sorry, a I you. question. hypothetical guys. Keith SD-WAN. Thanks questions traction in Ken, to I’m a Obviously, just for of – to maybe want

question shoes or will prevent And the If power like is, the is feel the the FortiOS? don’t to just ability and slow Maybe guess bundled and of SD-WAN you network you barrier that in here? is, what processing a that your I’m what put do that, offer I inside entry is have firewalling? their sauce FortiGate the together? we going it Or to competitors, up yourself to is with security on either custom-built put they question ASIC with where it SD-WAN that have secret

Ken Xie

You the have concept we can FortiGate like call SSLs session, XXx in from Xx Rating. – and some look power threat networking can of at like today’s probably prevention, concurrent other announced you computing like see for I we Security Computing some introduced or release, a the we XXF and press session, also the secure part. mean capability to

They SPU, SPU, call But what whatever So we power generic we computing also kind we any, in CPU perform can function which easily computing have that’s when that where, inside a faster new unit. a secure where function cost. making and chip. embedded That’s of much so have we process security industry standard, like built this have do of XXXx close like lot they a seven-year by same into about the they to advantage needed.

CPU, So the we the function, in easily the a the to advantage that computing us we is ASIC is and to function, have WiFi together. competitor. like use outside to the really also most it compared enhance an thus can build do leverage also leverage we function They only function, that, function our also that and – XG add power SD-WAN security function, enable security commercial but which network available

So difficult time some has the need that year multiple effort. And chip catch. building feel a a competitor I to

shipment home of today, network our almost in security. time, we same the XX% At in global total have unit

So of the that’s in scale also that’s also play. economy

more network home half space. I unit than can in this. can We shipment total feel count the security So of the we feel

then they the difficult big can So in that up don’t have beginning. lower. chip, economy of building once the investment you also if the you to time any the catch making quantity, a have average scale some have also need And get competitor because cost will be

almost investment this company have XX ago we years when So started.

almost in the we my all funds, – investments XX-year add effort to the easily or script the what whether disappear. border Because additional So that us that’s security is in see like the networking security. that enable in where ready, border

seven what the enterprise ago. – in totally different different this than at time, years six, So refreshing is happened like

of firewall a on as prevention intrusion is the connection firewall. next-generation first base the mother, Now replaced generation

So this longer time, border the there. is no

needed you segmentation. internal this So

also, and secure the to need department need You data connection. server, the to kind of you secure of the one

us make to to we the the call driven and security network drive approach So the sure fabric that whole infrastructure. secure also

function XX, they so kind positioned this kind dedicated last And difficult like feel And years. acquisition, have we X also ASIC whether there. an the much power computing integrate. competitor, be better without to investment to try a to we So in of we than don’t more the which they – have chip, do of XX an are additional will prepared add

So this from have advantage investment, have. planning long-term we we also the that’s the all

Saket Kalia

a makes Ken. ton That of sense,

you a about FortiGuard Just and quick strong renewal FortiCare. Keith, follow-up you, maybe I Keith. for talked rates think with for

terms for Just in you FortiGuard in and support rates or to XX/X make FortiCare just just different whether changes talk or of and SKUs attach sure it’s were any asked, of trends FortiGuard on terms you FortiCare? whatever, that can particular there or saw lower about for trends in

Keith Jensen

a lines question. FortiGuard. not Yes. FortiCare renewal No, lines, product those rates good The I and by very consistent, that’s both two different think were only also or but total in service

to continue on In very well. it’s see services, see XxX very, the XX/X, we on few continue, the the to from UTM and deals. going we been now new continue bundle shift, to support years, a for the And of side services particularly terms perform of

Saket Kalia

guys. Very helpful. Thanks,

Ken Xie

Thank you.

Operator

you. Thank

with Franchi Stanley. next Morgan from Melissa comes Our question

Melissa Franchi

I Great. am calc, revenue Thanks in provider the Ken, quarter? bit I year-over-year. about question. little ask to By wanted space taking a for my down the calculating my service

that maybe head then And of you XXXX? in an on segment? can buying expectation into your us in year give So is the update the close as terms out behavior and seeing just what we what you’re

Ken Xie

not just transition slower slowdown. close in they’re our I the grow but year-over-year, provider, probably can kind kind in they company, than you all but XX%, to overall believe Fortinet, company like look like The service growth plan. the average networking I do provider a service believe and of growth. in of

their probably service security like I customer. that, two-part, think provider, provider service really just the offered I can One help there’s to is service said, Keith a out.

secure a own infrastructure. their The provider service other part where is

offer connection, see to side, slowdown. any to center their try So kind don’t of the deploy other service. their some their Zscaler the data other to service provider do service position, of But first see to like kind they offer we some to service service customer how leverage part,

So up we pretty quickly. ramp that do see

competitive. cost with our provider, So and that’s huge have new more making have which cost compared a center more space a have data making they they the advantage service to which that’s or And build own some bandwidth, their infrastructure, profit what’s more them infrastructure, player, to own they because have buy huge has so their difficult.

do And kind the part. like future like second part lot they up year, for will secure different we because of And other – to infrastructure of some they’ve believe or their cost own do infrastructure, announced design whether try probably that testing, we some see do the – evaluation, see slowdown. a in a next part backup of a that we a got XG do But together. and ramp a because participate of lot that we structure

Keith Jensen

on. I spot Ken’s Melissa, think Yes.

is MSSP. is two One at of pieces the infrastructure the the selling it. looking second to we’re think and different I

a I selling year the of good people was infrastructure, into think companies, selling infrastructure. that for probably. And a many into for the it variety reasons, for very XXXX

probably then is the Providers. it the little second just XXXX Service is And comparisons. So the part bit, of by Managed a Security MSSP, suffering

both very in with I think what seeing U.S. we our there internationally. we’re feel good telcos, the and very, about

Melissa Franchi

product at Okay. helpful. quick one And follow-up. Seems looking just growth. guys like just share, That’s are then you gaining

competitive particularly and been, has around discounting. Just the wondering pricing what response

Ken Xie

our cost ownership, to TCO, of compared much total any competitor. of a We have better

look Computing at – you why Rating using to Security compare. If that’s we’re this

of have can You all fraction or to same support, right. a easily of see our any like perform competitor of causes security the function

computing performance also function enable security. deeper in got next much side in any much years, on security function – few a security compared in this like to and if much want cost so the of competitors can and don’t more they’re than see, people compete to So have the where really that’s more advantage our we the maybe go also on they on competitors. of any power, we Because the

that’s see can So margin. where – you the we

and like try at partner, our X to networking, We’re the And a right customer more now, the the both industry. most faster, like whether coverage, we’re time, or And marketing customer with partner for XX closely with working keeping us in grow driven improving. in to the it’s believe years. really to same have in the of approach change to there whole fabric coverage. will the internal follow next together OT XG lot the we so And security the segmentation, there’s security, benefit working sales

Keith Jensen

Yes. add to Keith. would quarter just in – for Melissa, I that. a tailwind was Discounting us. It’s to the clearly this

discounting ended where very we pleased up year-over-year. very, We’re the on spectrum

Melissa Franchi

Thank Great. you very much.

Operator

you. Thank

Our Liani question next comes from of Tal America. with Bank

Dan Bartus

thanks, guys. I Tal. on wanted This technology for two Dan Hey, Bartus questions. is ask to

at this all? that EDR is your partnership, hear may acquisition. right Symantec it’s adding think endpoint mainly I if your if First about Did you the capabilities? And so, impact do how

Ken Xie

think endpoint like our own solution. have some we do I

But We go-to-market strategy, time, enhance more acquisition working the part, a with Symantec. fabric. by the also of is this closely us At security driven still our more the a more So which help part on will is like that. which together. FortiGate, approach same have is close we’re partnership network

much we a then have in both benefit have coverage do more bigger network they of enterprise coverage So and win-win lot security. in the partnership, It’s the company. a will

Dan Bartus

it SD-WAN midsize maybe Got are web whether then typically another sorry offering? related, vendor? Or Makes And but these they gateway typically that with also taking enterprise? it’s about can I pairing talk they deals that if missed you kind And you your secure might are guys change, how are sense. it, large of or you. doing, a

Ken Xie

have you market, the the same at gateway, connection there. time, lot a them, of web secure the for to all West least Actually, need at this one access do to

the cloud. cloud there, I access side networking device side have they a network. helping actually at like player, – of a lot time, it’s don’t at on So same cannot to other a the And cloud the the like totally say, look network need because so don’t have and premise you a the they a both. the They is concept. replace The different

forward like how cost At angle, how probably forward Secure you when the the also cannot to to some data deep to can get. the Secure same Computing secure, cloud, compared the Because performance that encrypt points need the sometimes, use they time, there. measure during from also to cost and to Computing Rating whether Rating much of they cloud you the worse or security become or user data less whether is process a they the go can the starting

also But architecture need they same the both At of have. market already So advantage. their kind It’s and each that don’t is I time, I share. total total of have ownership approach side cost where with that from a approach. kind other’s bit at angle own both the different do little an side there’s address think they that’s believe security to

Dan Bartus

Got it. Ken. much, very Thanks

Operator

Thank you.

question next Raymond Michael with comes Our James. Turits from

Michael Turits

been questions. board? you that across strong. that it Network is Hey been guys. Is is discounting One, market mentioned, discounting. has Can a all, typically where segment? And you again Gateway Or benefited very this Two times competitive Good the what’s evening. of that? has across first of you from driving board? the in talk Keith, about, couple that Because the a

Keith Jensen

Discounting across board. Yes. was the

of lift out But or got terms I product a fair I across the board, both think on it. Americas of in and offerings it of saw we amount suites. across the geographies product

for it, what have what effectiveness, power, security there. advantage home a for a competitive think really brings solution paying performance, Ken notion you’re the I Fortinet security alluded we you’re security and that, it getting, for to versus

more saw are hits conversation part discounting should, the us. it in I harder going our of who the so and And quarter, against we think up us competitors hit than the

Michael Turits

the Okay. selling what solution from perspective as talking you and said very utilizing And about it also. providers them or competing Zscaler service an a into MSP was about then, Ken, interesting

been with that in So are very is – your product And offering? that or typically, Is selling a appliances to you you’ve sell that strong there. competitive you competing right substitute Zscaler? now for against how a

Ken Xie

securing they the own solution. lot whether center. offer connectivity the provider, We’re the a supporting And more data the a different service of past, or service, using a infrastructure. Because like do provider kind of service similar in center little bit offer appliance data they

offer, supporting forwarding can data what or right? want their of to like service part, to call traffic want some approach. give Now center other or behind, data half the locally The they clean flexibility, kind other that’s of in process, center. they on the they or most provider, a by to also them process a to also or secure leverage what other way the we’re a some So whether and make whether process way where data data kind approach, certain pipe edge the they we’re service, the supporting to

them offer depending provider service for need. do we solution provider, their and customer service multiple on So

type of one that’s service service just offering So service, Zscaler just now. right Mike, type of and provider

Michael Turits

Great. Thank you, guys.

Ken Xie

you. Thank

Operator

Thank you.

with Oppenheimer. question from Our Shaul next Eyal comes

Shaul Eyal

set afternoon, healthy Keith, and upcoming beat want back to quarter. on horse, quarter. for Good go this strong to not Thank Ken. gross you. the a margin, dead Congrats guidance of performance to results the I the but

hand, range. Can out. you down mentioned on a to But specific the several trends, product Was it’s drill slightly I the Anything be mix. And more more just discounting? mix? stood the Or product it components? that into those other discounting going the have favorable You’ve ASP, a times back Was the it flagged the follow-up. also you a that normalized probably to combination?

Keith Jensen

Yes.

think to – also in gross it’s through deal the quarter. from discount, margin that the we came the "contributions" the but I had mix

of We also would as the on forth through we also that the reserves on a products it tend All matured, like overhead. some to X savings of COGS, contributed bit saw and and in our And those we product you what a call have our so quarter. get of had unit benefit things indirect per trend cost had, continue to cost. quarter. We

Ken Xie

see can certain the have function you sell one you side, are when we whether SPU, so some time because add power additional for or side, discounting huge a competition. there part, easily competition, service. computing But SD-WAN, I a on the other think on additional like able which price we

the with product. to a margin tend service Our better compared have much

help. that So will

trend approach. see we really, so the is we fabric other The call

FortiGate margin. So cost, deal the also get also selling improve help making together. so faster the that grows than a That’s sales the path. the much multi-product fabric where the bigger, That’s size

service, additional on competition, we’re by may together. see pricing. additional So time, where overall, you when by the But product certain less there’s that’s margin improving compete product do keeping bundled some we

Shaul Eyal

also want on addition to This it. I touch Got is Thank great for Ken. Europe, And you on that EMEA. color.

believe, Germany. performance region. I out, So and U.K. in very you consistent flagged the But both the

little talk So a us to quarter? can you of there dynamics that you the bit about the some have during seen

Keith Jensen

it. of slightly not we of of the the and any have to that would growth. think offer going Germany of growth were rest again, that asked diversification business, rate. I were enough we our company U.K. sort But total Yes, because our to on below in it’s terms given I really significant only anticipated about impact slightly get

Shaul Eyal

Thank enough. much. you so Fair

Operator

Thank you.

Ho Jonathan Blair. from comes with question next Our William

Jonathan Ho

to WAF afternoon your, I with AWS-based maybe bit color as and terms around a cloud. in cloud public on maybe reception results. service. of products out of you congrats Good I the start the like wanted And strong of have initial little some a just Hi. the guess, any the on commentary for spending

Keith Jensen

on offer Look, Day. both more terms twice of growth granularity and a the growing in it a company Analyst of But I weeks may over the little cloud period are period. the more couple think rest the of at fabric than we

talk about WAF or? want You more to

Ken Xie

weeks. the detail in good – think of he has customer together a I with think some through the Yes, present exactly we’ll Day Analyst probably sales for more even I pretty or go next couple a even in – to

Jonathan Ho

but to and offer the other than just does some core gateway. maybe bundling to entire with a just one then Fortinet SD-WAN, to just just add you’re about able Branch understand in it. that you the being maybe a the things concept follow-up, how the size products is the better maybe Can And selling of wanted more little Got we maybe as to of help by conjunction a bit that deals or SD-WAN differentiate more SD capability? where talk lot

Ken Xie

some same and the may manage box, at to single easy branch prefer networking SMB some be the which more WiFi, a to Branch they like part, SD other referred time can area. into extend

networking. of big And that’s a enterprise, to where consolidate But to It’s probably like it’s growing do fabric part. have different like product kind in the and that internal together we secure do see we we whether subset a you the see, – SD-WAN, just but we within – and kind segmentation. the approach, or So concept do approach part, infrastructure the together. total the need is – try solution driven of SD-WAN some also some different with other call other a we you but of branch,

Jonathan Ho

Great. Thank you.

Operator

Thank you.

from question with Walter Citi. Prichard comes next Our

Walter Prichard

Hi, questions. and I two guess a related thanks. A question follow-up.

now if non-network On help stack the understand the was families in security? us is product and especially non-network XX% interested that maybe of piece the you security. Can largest SD-WAN rank that product

Keith Jensen

impact And No, you fabric terms mix, the the FortiGate non-FortiGate, the business it’s is then which firewalls. been virtual as SD-WAN has if the real products, of FortiAnalyzer and of between as of if the no contributors got on it’s in in suite before, our the will, same that’s well question. FortiManager,

Ken Xie

function of the function The included in SD-WAN is FortiOS there. FortiGate. part It’s Yes. the

counted is so – within other XX%. non-Fortigate part. the where not that’s So SD-WAN It’s

bit. problem SD one is – But think little always in helped probably the I FortiGate. SD-WAN Branch a

Walter Prichard

the cloud talk that firewalls. of drove to just you a virtual cloud what security, the quarter. you sounds related the mentioned that driver about It was in Can Okay. And category strength? within performance then like

Ken Xie

we consistent an it. or offering whether broad enterprise we for use customers, a and go multi-cloud, have a hybrid or also appliance whatever, cloud or where That’s see offer, the cloud to more on virtualize like a the they

you a we want But did Computing we really the to this consistently see or interesting, we while the can easily customer function the it’s they whether they broad Rating. offering, And call cloud. plans, move secure deploy and back flexibility, on-premise So in want in deploy give to their also forth. some calculation,

cloud almost higher offering have an of like on-premise have to want cost ASIC much that because customers So some other flexibility to coverage our the or that’s to we have offering have provider whether customer, management, XX other approach. compared can but products. all tend usually, some approach – we And or we certain to But they also the a not. easily the it, we function or broad like offer using on choice where it’s may probably and their multiple we the cloud these different still have, point chosen out

flexibility You to can sandboxing buy we give FortiGate them or can and from broad to and and cloud customer the FortiManager, whether there’s a appliance they buy select offer whatever virtualize offering quite to on Analyzer, same, to you want deploy.

Keith Jensen

cloud only cloud we’re providing clouds but well talk the with that also we as to. Yes. And I providers, it’s private solutions not mean

Walter Prichard

Okay, thank you.

Operator

you. Thank

Moskowitz next will Our come question from with Gregg Mizuho.

Gregg Moskowitz

back Ken, much, and obviously, guys. enSilo there. endpoint very Getting you acquisition. many thank are out afternoon, the Hey, there good vendors to security

you could particular? And drew what if elaborate in so curious I you was them to on

Ken Xie

successful the working They fabric about together year are while all, Bradford thing partner. the we the same They’re go-to-market one together like well also we Networks and approach, call, for that a did working just and company, a quite ago. FortiNAC, did a very have all a we

where partners. we XXX that’s So close to Forti fabric now partners, XXX have

all we first. need together to probably, work we that’s sure So can starting first. where from that angle Make

Gregg Moskowitz

then That’s just for helpful. And Okay. Keith. really

the were decelerate. though, grew revenue well Americas your I and I tougher you this you in facing a growth as And EMEA both very know mentioned, that Asia compare. did Pac, So quarter, think,

that anything else there you call out? was wondering Just if would

Keith Jensen

that’s right, I the Probably to to Yes, than little healthier saw I give going for quarter. first work growth in that year. third back think Asia to bringing in on quarter, bit Pacific a of the something lag we part us hiring of – a guess, the the fourth pattern

we to focused to hiring, the the good of by of I team feel the we think, see the had the about needing on at year about get that. beginning the results we and U.S. and comparison, very conversation Americas

So I next time APAC little with think a we��ll spend quarter.

Ken Xie

tend we service probably then announced provider, they have major part little some XXF it, but like little it APAC, some when also partner, available end, they wait bit, do small sell low and a where kind some That’s of the transition. that’s make today, we of our more So the to is part right away. also a product bit

better cost. and we’re So same have where helping a performance that’s about will much new the because the generation

Gregg Moskowitz

very much. Thanks color. great That’s

Operator

you. Thank

with Ives Wedbush. question next Daniel from comes Our

Daniel Ives

those get to in of terms if on cloud pipeline? changes starting they to Are deals? move securities? larger there’s government Are starting to in about talk terms you of the especially a on federal you the Can see Yes.

Keith Jensen

governments other in So governments. the but wouldn’t you talk business, our one our it and it’s side, in of I say deal it’s that’s about out terms federal, some and on international there’s local business U.S. state mind, anything U.S. business the or includes when for sizes. driving we government impacting Fed that keep of also the way U.S.

Daniel Ives

like the something plans kind generally you Okay. think about perspective? And just going can of, six over a Like, would high level, stay XX just from from How think next Accelerate? months? to is that to you talk steady? that about a rep hiring Thanks. is you sales

Ken Xie

They’re improving.

verticals you add we So can behind, region, see QX, do headcount. mentioned, And last quarter, some certain more still but Keith APAC. like there’s –

I where we’re coverage, think keeping more with more can we capacity, that’s there. And marketing improving with sales grow So faster.

Daniel Ives

Thank you.

Operator

you. Thank

Zelnick Our Credit Brad from next with question comes Suisse.

Ray McDonough

be I around on you follow-up Ray price to company they wasn’t years for interesting do McDonough had a technology. a Brad. generating of very weren’t acquisition. you for imply on some of stand-alone growing But having them. strong the basis? Hi, or very taking And achieve thanks the that if maybe a able might mentioned is not the to for company on lot enSilo able with the or combo to that several with revenue well, you This you you and just question. the has two. Ken, seems technology What, the do a paid been anything, partnership see know the a

Ken Xie

They of need much they there. have It’s a great pretty then go-to-market. technology. a are great very acquisitions a for quite But interesting, our similar. more investment team few They have

also to to can sure the kind our improve base companies of these customer we in the make they kind also to integrate help we At together. want them sales force tend can leverage So of well quickly and side. so to that’s we same go-to-market time, where like

we side And micro Forti And fabric can study have we create from great but different they so the decision That’s sure the made. and we approach, then first key. very we and many don’t to a partners believe regime. we most is make integrate, too that’s product want where product where integration do

Ray McDonough

might I what can And it, share quarter? missed then was in unit you shipment if one but Keith, I for the growth have could.

Keith Jensen

right say We moving product didn’t with unit what seeing tandem in most revenue I would growth it, shipment we’re but is that growth. that provide recently

Ray McDonough

great. Okay, Thanks.

Operator

Thank ISI. our you. Ken will from Talanian next And Evercore question with come

Ken Talanian

for thanks my Hey, taking question.

the success first, the give past in main how for pipeline you us could So competing give a for drivers enterprise has the over sense in segment? year. evolved the a your for sense And maybe us

Ken Xie

changing I better think We so there’s technology multiple angle feel segmentation. disappeared from technology for for the in fit add internal security the product the border solution trend. inside, need enterprise, side. the product to Like all go you I said,

need compared cloud also, of build the products You other have internally, – They Day then expand also integrated, these because mobile we acquisition. all and approach, of for most the to competitor. in WAN the kinds all fabrics approach, And to are It’s working other we it’s fabric, depend on automated to better provider things. some X. much worked all also with from service

sticky also that’s most with really and And also the deal so overall customer. security infrastructure the making helping the like larger and enterprise,

Keith Jensen

our you things third-parties have from and pretty I’m testing, the compelling these sorry. in you’re Ken even security Ken up the indeed clearly too offering Yes, really has the NSS recommendations, that and will, opportunity, And in many certifications fairly ago, think, with Ken’s three I talked prepared his here value become us. probably recommendations now five we’ve and security Quadrant the with benefit talking But RFPs you’re if remarks, we But and a the make that about then think I a – served following with I once about, Magic them row didn’t from in that concepts is does opportunity for invited exist. Gartner years us know the Labs good to door think for enterprises. third-party that, also, you together value open years in at getting in as like play up being to S

Ken Xie

approach marketing of the helpful. invest the in team there. also kind we sales also and Also, more That’s

focus or to the And sales enterprise. tracking additional internal we enterprise sales account like the more whether really coverage it’s tool better have and also, coverage So a in productivity.

And sales. all improving so are I think different enterprise parts these helping

Ken Talanian

at you Okay. earlier, And the essentially like Gartner regards included with that sounds mentioned take Great. we a it is data SD-WAN. to SD-WAN FortiGate. And look in

see with for about wondering any give can was that uplift for deal if we a deals of revenue we the a for you SD-WAN? framework requirement. And that’s of I kind terms by that accounting driven the a think think to could sense us So should might about you in how recognition

Keith Jensen

have to to call. close conversation a good Always the GAAP

of accounting no – FortiGate that thank So one it selling of one would because different for be appliance a an it difference you that. Yes, with in which example. a as embedded bunch the functionalities, you’re whole there’s for SSL has

be would SD-WAN Another functionality.

recognize all, subscription you appliance upfront. say them. appliances, the All out the of FortiGuard so And the with the shouldn’t I FortiCare, majority well, appliances security attached of

And over time. and is to still part allocated so But of the the on you receive deal deferred recognized FortiGate, that appliance. revenue then the

We’re still revenue that recognizing upfront.

Ken Talanian

you. Thank Okay.

Operator

remarks. I’m any like – no would Speakers, back queue questions closing time. turn now the showing I call over the to to Thank for this you. call in you at further

Peter Salkowski

Credit in here all Suisse will available conferences Day York Analyst as We’ll York; will of on the these November the Sherry. Presentations and New be XX UBS and link that for XX investor Scottsdale following you, Barclays dates. the webcast XX. let on on XX; December Relations Conference Investor San be RBC like for the December thank the today website X; in conference on and Thank to during be in webcast at November be I’d quarter. December know Francisco fourth well everyone Fortinet in the Great. hosting those will those the to Conference on joining on attending call Conference as you New events on the an a

contact regarding day. and – have you have call, of me, questions please any rest your the follow-up a If me please give great

Operator

Ladies your and gentlemen, today’s call. participation. this Thank concludes conference for you

disconnect. now may You

Fortinet (FTNT) 1 Nov 192019 Q3 Earnings call transcript