FTNT - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fortinet Second Quarter Earnings Announcement Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Peter Salkowski. Thank you, and please go ahead, sir.

Peter Salkowski

Thank you, Chris. everyone. afternoon, Good quarter Salkowski, and Peter our of Relations the Investor to This am Vice pleased Fortinet, second for results I Fortinet's to XXXX. to at discuss is financial President of welcome call everyone Fortinet's Speakers CEO; Chairman Financial and Ken Chief and our Founder, on Jensen, are today's Officer. call Xie, Keith live will our be a website. Relations Investor for replay is This available call that on via webcast high-level begin will our Ken on business. by a call our perspective providing today second how the provide financial performance for and before XXXX. operating details of will our some providing quarter Keith review regarding for additional then our and results some July guidance quarter, second quarter third insights the into performed then the for We'll open questions. call making we to results forward-looking I'd like these projected. Before risks on statements remind are Instructions] subject today's materially uncertainties, differ begin, actual statements, will cause forward-looking which could to and that [Operator those be from and to everyone call, we to recent factors in our particular, Please and filings, more risk for XX-K XX-Q Form the SEC information. refer most our in Form forward-looking only presentation, our any the to obligation no update of opinions specifically obligation and as reflect we undertake this forward-looking and of statements. date All statements disclaim references that call non-GAAP, today's otherwise metrics make on are to stated. all financial unless we Also,

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

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

Ken Xie

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

call what enterprise these we service and To and the it's product total was focused to XX% digital on with revenue in deploying as second second security-driven Secure SD-WAN networking. or of environment, to bringing networking challenges, refer with vision a climbed of are million, In security their been Revenue revenue similar Access quarter efficiently meet pleased security physical performance. XX%. the solid increased very are effectively billings, network. today's which Service XX%. time together the up Gartner We cost up supports Secure over on first Edge they Fortinet across XX% and and XX% to founded $XXX concept, SASE. quarter

industry Fortinet an and Fabric, automating including in and security is product building, service Fortinet integrating Security leader into FortiSASE.

recent the as its firewall a Fortinet OPAQ acquisition solution expanded of Network With cloud Zero-Trust Access. Networks, and FortiSASE including has service with delivery, enhanced

are Additionally, into SD-WAN average FortiSASE is recently Security Fortinet higher growth built Fabric industry to anywhere offerings. high-performance partner-friendly appliance quarter XXXX, SoCX of XXF, build as by center deliver Today, FortiGate in and share. machine Rating generic the can XXXXF portfolio SD-WAN announced We appliance to of and XXXXF, offices which firewall from ability cloud FortiSASE only to Gartner, FortiGate much last component networks. together is investment home than new data FortiSPU Fortinet was top or the branch latest our critical According MSPs Fortinet this and FortiASIC hyperscale software-based strong appliance as FortiGate customers SD-WAN. Compute we data up quarter. by XXx branch work-from-home. remains the highest by than platform and be network by providers, their secure, to We to service going of the Security industry we for to to strong the SPU, capable deliver us able put the to demonstrated using for of a competition. the of market and XXF the The with with delivers during the forward. position growth platform the the several X growth and worldwide in new performance our the anywhere, first latest of revenue to investment capitalize processor, our global XG was highest for Security powered Powered virtual has higher empowering integrate released priority enterprise market release cloud. big attribute CPUs. The NPX Rating our deploy a Compute powered and high-end securing own for easily this the to equipment A the Security SD-WAN expand on security XXx our FortiGate the for

quarter second welcome people closer look and customers a the the who who their take turning and and like Keith to to the to I manage continued over response over to ongoing during Fortinet Before our COVID-XX second OPAQ XXX joined performance guidance, as thank the our at team call a Keith? well to moment for our would to partners worldwide for employees, joined, pandemic. recently quarter as our support welcome

Keith Jensen

you, Thank Ken.

Non-FortiGate million start $XXX of quarter growth our Let's XX%. second with by machines the up Total revenue non-FortiGate virtual demand strong from benefited review revenue growth was revenue very of products for work-from-home and solutions. driven and service revenue. XX%,

secure time, COVID-XX the across of for revenue FortiGate our industry XX% it together of service To in business growth, the illustrates backdrop At and affirms with our benefits was verticals. of customer the pandemic, diversification the growth predictability extent, and billings the geographies, levels of product quarter segments solution. model. same a level benefited our revenue SD-WAN record from large revenue and our second

excuse million, high-end SD-WAN, update penetrate security strong secure FortiGate million invest environment to from $XXX a XX% in channel our for partners grew our made demand continued and extend our virtual per and result we cost revenue advantage force, performance sales is machines. FortiGates offerings and expand product markets. adjacent Our of benefiting -- strategic our this Product $XXX in to investments our as global me, growth internal

provide continue solutions to work-from-home Our tailwind to a growth.

suggest take firewall and innovation. Our growth where we contributed have reports SD-WAN share leadership we and rates industry both in the markets, market to markets continue and

continues beginning revenue support service revenue our was predictability. from to revenue. service $XXX deferred million, of grew total and representing of XX% Service the revenue. Moving and revenue growth revenue to quarter the at to XX% XX% Over of

subscriptions security increased $XXX to million. FortiGuard XX% revenue

FortiCare XX/X points, to support representing higher-priced mix. mix support revenue of technical X to with $XXX XX% now our increased support XX/X million. XX% support was the shift revenue X/X The from

the Let's professional $XXX training growth shift million. Total online increased products fabric not and Earlier free classified year, FortiGate, approximately this which by make billing by services to and to announced and program or The X decision total cloud. expert, points negatively was as our certification billings. or other training security to XX% billings to our network impacted public. we miscellaneous are products, NSE,

with we reduction training and in While NSE billings this we're about are very our a training. seeing resulted revenue, excited training decision the in demand

number is XXXX NSE XXX,XXX. to over the the week, this NSE up of XXX,XXX. And certifications of is for registrations nearly XXX% As issued over well of number

product by billings Looking at segment.

increased and XX% XX% FortiGate of accounted billings. total billings for

representing XX%, with strong by training mentioned, FortiGate products. the switches demand work-from-home secure from XX% our ever, first the billing as time miscellaneous contributions And access and billings. threshold also over of other offset billings SD-WAN and declines And Non-FortiGate as solutions. Ken include our passed points. billings increased for I a solutions, total SD-WAN mentioned ago, smaller and for XX% virtual moment from professional services,

the a geographic of impacted along, followed it, Europe geos, North path the with Our while by geographic pandemic. with outperformed further performance more. highlighted being business, diversification all APAC America aligned of our And was

pandemic opportunity education retail States, provided SMB saw of U.S. where headwinds and from SD-WAN partners our segment comparison, By an we strong growth, this COVID-XX U.S. in and solid the solution. vertical The channel the continued with the and local Fortinet the strength include channel remaining results we of America execution and well our North programs, strongest-performing was by growth away the market saw expansion as team. government illustrating the verticals the where XX% by the channel far issue. the segment remained United Our the over U.S.

Looking the certain year more on with at and and our these priorities. that other companies capital second this focused of suggest delayed partners Americas, transactions as immediate channel the half into their structure were discussions our analysis

revenue billings. Moving strong billings of again had top with Worldwide portions billion. total total sub-verticals, deferred total quarter, topped increased end in concerns, with XX% billings of of accounting and retail providers the billings. of of We our to accounted with strong posted was and The And on Short-term such of growth and industry. ago. total of it XX% $X.X for sector billion. growth billings. continue continued to of account I model services the verticals XX%, drug saw industry increased government worldwide for moment verticals. retail business diversification billings now to of as X/X COVID-related the from to growth At about display worldwide XX%. our stores, XX% vertical X very of XX% the all benefit billings for total XX% Financial mentioned performance a billings XX% despite strong verticals the groceries a as quarter SD-WAN second revenue Service MSSPs with $X.X deferred to U.S. wholesale by

at The offering. single Secure our the now This secure continued million. SD-WAN upmarket dollar million illustrates deals XX continued to deals enterprise accounted Looking over segment and ability to by XX%. $X over of SD-WAN $X of XX% these number move of performance unit, increased deals acceptance differentiated size. for the our into

Moving back to income statement. the

the XXX XX%. newer margin shown of to in gross in As lower margin attrition employee With ended growth improvement at our program any to made strong and and Services continued other Operating products. the foreseeable COVID-XX-related increased free increased to XX%, to to quarter Product XXX anticipate business we virtual gross lower investments software mix flow, increase products points layoffs support. growth, the second to the Total XX.X%, XX/X gross generation continued on XX% marketing not of related basis the structure X, operating events. gross gross of margin head basis do basis sales to an quarter and points shift improved points from points towards benefit FortiCare driven in grow basis the margin decline and Slide Product by continued reflecting for FortiGate improved and shift future. XX%. from increased revenue the cost over count of we've cash our and the benefit margins XXX a XXX XX.X%, margin margin benefiting X,XXX, expenses the our in travel reflecting rates. to

our plan on continuing capitalize opportunities our we strategy. invest growth in balanced hire many fact, by and to In to

for quarter the net operating income second Given income was strong million. $XXX performance, the

income diluted share. $XXX income or share per share ago. versus million GAAP earnings per share diluted reported year we a $X.XX increased $X.XX On diluted to million or $X.XX diluted basis, $X.XX a Our GAAP $XX net per of of per

XX to of quarter we contract up statement be within to term and range month Day, summarized Analyst on in sequentially. to months XX.X% at continued the Free flow and The second increased cash million. the declining $XXX the X Slide flow year-over-year to X. Moving month cash moving average X X the provided

first million of construction including for terms portion to our million. million our the stated building the increased million were Average to the XXXX call, we second real our expected decision of days moved the first a million, as $XX a on XX% quarter the partners and XX extended with be half As XXXX. expenditures quarter capital for related between and in $XXX balance to and to to $XX customers. the between previously contractual be competitive and into expenditures CapEx to payment payment expected and we sheet XXXX the new expectations all leverage support estimate Capital term million strength for advantage or $XX to our other and estate plans. targeted third spending provide We to geographically reflecting activity. sequentially, our have related line Delays $XXX campus quarter $XX of of

million. approximately repurchased In million, We expect authorized full year for year February term be quarter, In our non-GAAP authorization to approximately XX%. be of X.X Board shares full second of tax additional million our to for to an and we aggregate $XX an million and price rate stock $XXX purchase $XXX the XXXX. extended approximately cash share repurchase taxes the our common July, the

buyback authorization share approximately $X billion. remaining the today, of is As

ongoing the to guidance, some offer to thoughts moving wanted Before pandemic. additional COVID-XX to we related

plan may shutdowns DSOs inventory ability to increase uncertainty. continue of impact balance strength the to and The temporary with which countries seems levels. the We our business different pandemic and sheet, of have avoid geographies leveraging in and reopen and we of the economic and line and

In delayed again strong April, activity. being the after was level in then supported strong strong we QX to there deals -- improvement pipeline a future bounce we channel economic slower by and to in lost, the pipeline as points of May, increases a in the completed conditions. July billings selling July. year. growth reported partners not our worldwide. as in our For about second At quarter, by the good back time, concept the and same level with followed the about into the of an and growth remains both June remaining The saw U.S. example, in events second pandemic some elevated as well half seems of uncertainty Clearly, delayed, future growth

of look to X, XX% XX.X% provided expect million; $X.XX, regarding forward, XXX review which $XXX $XXX of the the of like outlook million. to to beginning forward-looking margin range revenue in million; Slide third a between information XXX operating non-GAAP $XXX share per the gross at we range on which I'd count XX%; that margin million to XX.X%; our earnings million quarter, quarter, In and call. $XXX the disclaimers $X.XX summarized non-GAAP As share of of to the the third Peter is subject to assumes of of we million to the non-GAAP billings in for

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

along our to including and Fortinet who Ken, have Peter XXXX, the now over welcome with and the guidance And due partners, call all team. also this joined continued pandemic, the COVID-XX hard during difficult the begin Q&A. not uncertainty members finally, hand unique I'd the time. with I'll for at thank For I'd these times. OPAQ and economic support the to to like full to us, their like customers back work team to the from year associated team issuing we all are impact the

Peter Salkowski

like Keith. would the Chris, to you, we please. line questions, open for Thank

Operator

[Operator Rob first Sandler. question of with line our the Instructions] Owens from And comes Piper

Robbie Owens

demand, metrics opportunity of of types forward Have more of side guess, billings. over work-from-home you're Or start that the branch like. I conditions to SD-WAN and relative the seen just the want you now pipeline success much obviously robust you on of I But lot the these a solutions? and to of things looks there seeing XX% in what rush as that that are a given replace seeing to COVID of pipe? through

Ken Xie

SD-WAN it us, some competitors. the make benefit it's secured benefit and the is more lower ASIC also time, lower building think together, SMB enterprise connect so they it's have with much long-term compared because of Internet. I to can also for efficient. and security the cost At additional and a same cost also for both also to other additional And

market the So grew about XX% year-over-year.

little potential, head count, keep of a on more like lot a lot we're We added, gain additional they the we to more other share because a solution to market potential XX%. sales with competitors. take believe sales compared a of new a do see going we a Even see bit and during train pipeline. So very the then we we gaining our customer, a And time pandemic, do capacity add little is unique, huge bit to new maybe people, huge but time take forward. advantage

Robbie Owens

dialogues this you your could this some Was on previous acquisition. OPAQ the on Was the I on customer and calls, from opportunistic then driven? SASE defensive? touch the of perspective, secondarily, offensive, guess, opportunity And focusing maybe

Ken Xie

FortiSASE, this part like earnings in the last believe of have call, do it's time even and whole We mentioned, infrastructure. we a the I

So the delivery, other we're building. broad, already cloud and for but leverage OPAQ as product more cloud partner we the some the for definitely we're delivery, to customer, making infrastructure keep more have flexible enhances,

hence, do at of have. deployment see and platform our other the is both have the keeping already also competitors this form compared And see do on position. the kind different we to offering same and the on on and time, of so function ahead also we And offer broadest we the we

Operator

next Boolani with the Fatima comes UBS. line of our from And question

Fatima Boolani

perspective. combination giving for in environment cannibalization either maybe question footprint durable The enterprise more traditional work-from-home is you. adoption perhaps a the Maybe and that picture perspective as a sense of and investors branch risk sense a from at a potentially investors giving SD-WAN a office it's -- But the bigger misplaced. refreshed

as adopt help the those or situation? us follow-up can wondering a in to your takes and as through some more office then for to and and in if of branch might have footprint SD-WAN And of I'm place happens what be shelter permanently at home sort So Keith. customers stay you misconceptions what puts some parse I of

Ken Xie

The if in week. product slowdown also, it's some enterprise some ago, side, for the see the to U.S. out we our a the XXF, you come like SoCX XXF do XXXF look -- which especially profits from building XXF product, But just we we branch including other then the started last on years at like out announced come X

go ramp-up, XX%. in little it U.S. the over So behind like adopt on as we're we the see strong. to especially the bit It's very SMB, up a the including U.S., can very, some also release about is new up. like using end low products, the starting this year and high starting including early some ramp and -- SoCX which both so NPX, to end the to Internationally,

the we So security we performance the other than compared like call in same the have a easily Xx, - new competitor which better see is compute huge a the - use benchmark product, why cost, of that's which Xx to advantage. benefit the to rating we

the So very have cost -- testing evaluate we the after cost top the product. with come that additional on of performance benefit. the the on SD-WAN gave the side, up see other when new also product product benefit, new the But together growth quickly we

last it to X see announced that's end to X helping we what we driving SMBs. the after well. quite starting like starting high leverage So NPX. Also growing starting to the ramp up high product, the We quarter, see end quarter, also

whole call probably infrastructure. we call But we lot do I the a more more evaluation see the believe this combined, And We together, secure-driven time do on. see sales networking during enterprise deployment. networking more engage team. bit some little to going were why trend. traditionally, including takes to the networking That's security the And that's also of interest, into do some sometime So set sales security. pandemic do we a other

Now to networking with as call engaged the team together us also secure-driven networking. starting

this So Keith quickly, So better. pandemic it's a a situation as trend better then region mentioned, And we APAC the maybe little to right? well. like growing XX%. quite the but of And see on The the kind simply very grow Europe believe see later probably which invest, it's new also, little next by we'll region, build, recover And year, over bit product vaccines with slow, the also that we lineup, going continue is we XX%. very we forward. very, over going a we additional staring sales the more capacity year see do where over, also U.S. with to strong potential bit

Keith Jensen

Yes, is Fatima This Keith.

significant Ken by considerations, job verticals. where geographies think it's diversification different great a note covering does component also of to some also be geographies I SD-WAN SASE also that whether off a of solutions. for work-from-home and by important is may the also it's But of and

Fatima Boolani

you, Fortigate And remainder security for since SD-WAN qualitatively me. guidance? you network the specifically drove And what sort XQ comments the of sort this in you're gate to of and about to the SD-WAN, pipeline your get and for enough. QX that's it the secure traditional wondering have I'm billings this can I how includes bus of quarter Keith, into Fair on security versus and kind thinking baked year of what's because non-secure talk the quarter? the double-clicking your perimeter both SD-WAN performance, And any that just piece. billings if secure

Keith Jensen

Fatima. topics, I'll lot last Maybe with start one in. the A of

Fatima Boolani

I tried.

Keith Jensen

which XX% towards end SD-WAN we've to saw opportunities made when I are about additional opportunity. of over a think But I bit in May. our talking some pipeline their say, feel QX And for a into in got U.S. we perhaps, we QX, we can at pause, us, good good plans forward pipeline continue that build-outs. maybe what the that exited comfortable that the the of we the we've in very see a making just for it of that to, the -- I month QX, May as do look Look, know let's the think you time. job. first threshold were about crossing Clearly, projects moved guided the SD-WAN is the clearly, as see we and moving we customers we

I'm into how see I some think comes of it comments, earlier Now lost actually play. And of we'll sorry. your track I

Operator

And question Shaul our of with next line from the Eyal comes Oppenheimer.

Shaul Eyal

Ken. the on Congrats or quarter. Keith

fastest quarter. was U.S. So region this the

looking of third What's quarter. Next quarter, week, about mark far talk within is Can U.S.? us the the to the the we'll like? middle performance you the so the pipeline

Ken Xie

We good has customer other some about some infrastructure. deployment platform cloud other just interest enterprise of like or SASE some and do see a

as and total dollar not the this relatively small, broad make the whole revenue customer has but of So about security make us still the sure of that -- we so an interest offering. of or and also offering. some may infrastructure much revenue the which when amount it impact of make And kind it are want there, there's flexibility billing

infrastructure So more that's FortiSASE on enhance meet on offer keep where and deployment customer also we see what the and product the OPAQ the on to have the broad, demand. we the side acquisition both

Keith Jensen

would to comment. Yes. And add I Ken's

Just July and in back terms pipeline maybe prepared activity as little as of saw to broadly remarks, we were at worldwide very in the the we made well selling and with in it more the what looking pleased were U.S. pulling build and the a that comments even

Ken Xie

on the to global partner, just time, also some like build like SASE including the and in At cloud. supporting keep to big they we we're their customers, own same our service provider even Yes. the said, want also

Sometimes or cloud leverage the public hybrid they or private have the the cloud cloud.

of zero-trust similar deploy security the function. here based thing also in which try customer SASE, have partner, to which service infrastructure we're seeing we're version on some their own to is the of So the supporting SASE, a it's

Operator

question from Sterling Auty line next our the of JPMorgan. with comes And

Sterling Auty

growth side on the tailwinds seen the a ex billings have and product continued certain rate the to extent, we fade. mentioned start to You but adjustments you from the work-from-home, mentioned

of we as Or back for work-from-home face in do the multiple tailwinds is, that trends you can question quarters? my continue the further further? do some guess half I more on expect fade So deceleration those

Ken Xie

provider, because also product this products. part product FortiToken, high early service some We continue do enterprise And FortiAuthenticator some and other of very other new the see in, the some we announced for target end continue grow healthy to work-from-home grow also, growth. SMB, to have the is some the mentioned, maybe also like year. even And

as it's buy pretty not rush So it's probably security still March, network a above back experiencing we're like in some the total strong but growth.

Sterling Auty

did And follow-up. from shift and then your one Okay. digital transformations. How digital heard about the We've accelerating either companies business positively transformations multiple to the cloud impact otherwise? or

Ken Xie

pretty Yes, or right? lot So the deliver if retail, in they online, -- can retail, whatever have definitely, order of other they we see strong do can benefit. they some a

probably where strong they're with we the retail, said of even call its And similar even traditionally, that's sense. networking more have engaged digitalization sort some regions see from So and some the sales, together. we team. growth security security vertical or in especially, a that's very other what the benefit And we other the networking, security-driven combined

to from team, security the Now a function, interest or SD-WAN they but it a SoC the combined see lot whether because FortiGate networking other together, needs trend is partially the the do see party networking together, of and working there. of also into [indiscernible] part is

the just progress little our network where designed that's we slow see people in enterprise also do bit many good we that in And together, Wi-Fi. a XG, the continuing the a not not But beginning, we Wi-Fi up. ramp see combined office, in right interest very, a see of office, including direction. work we now because So strong from quite which lot in increase especially SD-WAN, but offered the security

Operator

Goldman line And with Brian our the next question Essex comes of from Sachs.

Brian Essex

particular, billings, hit bit maybe then we for deal a maybe and little more where financial the heard I'm is you quarter was little bit how a kind color in maybe the large quarter. of on dynamics, expected softer bit next I I impact retail billings. the behind quarter. in than if nice some Maybe a little strong, might but really services, had in Keith, that. dynamics we've and more interested And in could a about on it weakness some understand wondering that U.S. guidance particularly of

Keith Jensen

of pandemic strength the that hard quarter with financial second U.S. think quarter. got outside Obviously, hit. got in Northeast the I was pretty services the in the New hit the saw York we

it And we financial That's gave to our and growth U.S. kind of of And we've billings, represents it XX%. is I talked on so number largest that the business. services the majority some an Obviously, think, growth before that as diversification really businesses. that was XX% speaks country, not to a international the about XX%. number, diversification maybe other but our with it

the the earlier, to the rest Asia on effect, particularly and of we happening So we world. did of were feel said of the there are we towards but related middle the numbers, part Pacific our and the the the very in I quarter pleased that things some with total uncertainty U.S. what with as saw,

Ken Xie

Yes.

some really, what sales, like sales more gen reach -- year, level productive last May, mean, up ad started the in lead last to high-end time, actually part, quite year better, whatever we half U.S., have do especially started bit, capacity, in starting reach will believe become actually time in pandemic slow market second the the expect. the to we second starting additional the pandemic have, the strong slowed take see other The product the of the of to of little we get with with very position we capacity. the additional sales little once we we down new bit but especially do of U.S., hiring, new customer, some to longer growth a pandemic maybe for make additional ramp same productivity some or the down the since we new them then I and the a At half in the That's potential.

Brian Essex

the than just from rest particularly cash better cut takes year a of some it. billings deferred Nice quickly. thought. of flow outside -- puts a Maybe, working quarter, that and for of quick Got and change and Keith, capital the we in the from the outlook follow-up drove perspective. in in Maybe that

Keith Jensen

Yes.

it collections job of I that that with in. to part strong, our for they collections other bring working think is I are cash the the the did, and team great channel applaud the partners very

Yes. were in that we little planned. than we perhaps think more I a successful

I the we that at volatility things look from of our timing a flow get quarter-to-quarter you're think when little over try you of to going manage nature. free of payments numbers, cash and because bit not to

a billings. it's at key So it's of yes, quarters terms. at probably to in better together terms to stringing those the look look of But couple drivers,

payables. But That can is something large I is outperformance in really of margin the flow. ways, line free cash that driver. and You the really with get on manifests inventory think a one which of itself the in many part margin

Operator

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

Hamza Fodderwala

a not how you made cycles deals any, just so cycles end did of if had What, sales towards slipped wanted I And those sort deal on I'm quarter. in been progress little comments late toward out in the have around or those of of in whether Keith, QX. QX? the the in July? closed far the some if to wondering dig bit that

Keith Jensen

guidance well we the rate setting the leading -- as it very July And with the might or if while linearity pleased then the against you expected few July, rate. got start fair pandemic, is, week why we and last a get. deals good that was second get felt your final question. the rates. pipeline, some the whether to start are we've made very we're considering activity, perhaps good, the certain in think question, of as that about follow-on little we we And that them the And sales pandemic-related nonetheless, and I point this of with obviously, the seeing saw we to the in more of then what seeing well seeing the about a Yes, quarter. adjustments you pull we process, call part of to of go think close we're our signature I'll making and you as felt close pipeline thing kind in making for to And that base quarter, target I I your in what not growth with our as what your through you'll the as bit, did I'm assumptions I seen think on terms we up measure expected quarter I'm I what that's close question April, and

Hamza Fodderwala

question, I a Got if it. it. And just Got may. follow-up

big vertical, up? grew pipeline, Could a with one perspective? little about especially government on close see that coming bit for that's obviously, comment the how federal U.S. year-on-year the in you you. a a what you On the And from

Keith Jensen

Yes.

Fed performance Fed, So has by then -- State it that our international And excuse was has that is in Federal state business business U.S. the And a XX% It driven government at business. U.S. would U.S. governments business and the -- government. it suffered. has but state growth, local local our was governments. part not not strong part has huge and I our keep about local XX% me, of across federal a components. and growth, and of X it mind, business, government say is our our

did Fed very growth U.S. the while internationally at, looking attractive government really our well, had you're we So with segment. nice,

Operator

next from with the of Brad question Suisse. Our Crédit Zelnick line comes

Brad Zelnick

than nearest maybe at in putting that well? competitive this better is the there? to You see. results share of terms comment anything of full you in guys of terms diversification the execute out the And you you're to competitors. business your dynamic on pricing Can that your great can display all continue dynamic which just seeing as up is quarter, well, And

Ken Xie

Yes.

XX% think I the from with a business -- FortiGate. come like

support product most high-end like and release with new So the of the hyperscale. high-end today, to

see same to the getting SoCX-based quarters, the better, like that last performance huge So the you can we also in and few we SoC-based investment to much low-end especially, XXXF of time, XXF from the increased the this XXF at to field, the are usually buy they as product SMB, better well. we're see in starting keep growing see growth is XXF, also quite

compute come other It's additional advantage like products general the CPU, we're So the recorded a security the ASIC, security a the better so like we today's product competitor. a in from high XXx better like like to power than rating that's and purpose where function and investment function because better SD-WANs this keeping plus which XXx compared much parts. has from huge to see computing and

some to service. other different solution, of offer appliance not of software the with some time we're a have and the base, and or different cloud competing with just advantage infrastructure in deployment, So of some also positioned quite then probably gap difficult kind also, competitor. kind us, compared deployment, more base. whole appliance But the other we huge on a will us see for the pushing have into base, keep it or but a They did and also because this form in software which

still from fabric compared call -- quite growth. good is We solution. that's to we of angle. FortiGate Amount that also almost the fabric where see revenue And the growth approach, healthy the like double

more then pretty to healthy in you leverage into other FortiGate, get So still can the like see easy we we growth. non-FortiGate once expand of

grow is the -- So it's the industry the that whole -- in help really the advantage fabric still still benefit faster trend there. consolidation is keeping us the still above-average because

for They the reduce So prefer to dependent to automate. competitive the management see X we which more integrate automate some in-house, which difficult customers other day develop most to acquisitions, we make and benefit do product cost. integrate compared vendors, to to of and want us on consolidate it function, more because started some

is infrastructure it's believe see term to that's So we do technology we continue both the and on gain. invest long-term side, long a what product we

so gap now. we advantage And we share. so have the that's do right and where we're more see gaining keeping And bigger, market

Keith Jensen

within I a at with we cost And and E-Series, has the it advantage made mean down chip Keith. continue the in evolved job it's subsequent tremendous seeing company the the it bit. a think I of a Advantage to can reference Brad, the text expect with mind, I ASIC keeping there time, what that the on the a generations to done Ken's Yes, up comments of continue in that driving would F-Series. cost driving the same little I new in we're performance with discounting But I made to will, first a if to headwind a seen just outweigh the asking quarters, the with small came that reference margin Advantage structure time it I enough with in cost more Discounting that with point, coming have script, that's question. you that time. ASIC earlier than And about the performance. actually discounting. mentioned that that. that is in in we've That may increase gross perhaps X.X discounting is several for been first the the you

Brad Zelnick

And Congrats. Thank you just competitive strategy through. the thorough very to differentiation so continues much answers. both for shine I that say of would your the

Operator

the Your Pritchard. of from line comes next question Walter

Walter Pritchard

questions. product Two

some think the the access, real in I on you and just strength like things authenticators quarter, -- had remote last First, tokens.

how SASE the integrated SD-WAN SASE continued curious that Just product you side, are when also And this quarter. in then into the having on about an talking market?

Keith Jensen

benefit got say, take in the in numbers, first very call a benefit would $XX half million I second quarter. very it, I one. the round quarter if numbers, products. the on In work-from-home I'll round that I first of, X got those probably

Ken Xie

version also of they new the both interested the which build part this. SASE The we we're their want our quarter, solution. And behind. existing are to also to this customers. of And customers, time, FortiSASE from same service fabric the supporting Okay. them the customers, from call lot very customer are at SASE, interest we partners a we even also some of offering do them own the in the global partner to and it's provider what see And

Operator

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

Tal Liani

that firewall been share that X your of quarters the market. understand or experience question weaknesses. quarters, X for a your down What new firewall of is if in gain market? tremendously trying I'm The shows is My with general more the slowing the last about decline. is or compensating question the market has few are data continued growth continued to products

and demand market firewall the So what's for your market? view in drivers of the the overall

Ken Xie

[ph], go secured, you access. company Internet. network, There's between way since Yes, to called enough. a like no bypass the part lot lot of they're go they That part and -- a the we application, say, a positioned also is more cloud. the I is, multiple border which LAN can like the They some also also traditional other that -- a of go the mobile network to the and beyond internal there's longer firewall,

the point. quite where strong. That expand of firewall very traditional expanding the network part of we and solution security-driven of the solution. part That's where cloud we building total beyond like FortiGate call also and like do in the the growth that's with part and very, access also time, internally also is make see even that space we expand that's So and and where with slowdown. internal WAN keep At the growing switch, WAN it segmentation, the well same Wi-Fi we

including saying said it's to traditional infrastructure the I it now, point whole can internal keep both in like the switch also of like the the at to And for and Wi-Fi, the when segmentation so of we content the connection Internet whole WAN the of traditional solution formed a security it's for it's third-generation enterprise, and And the new say for end the gateway same we and Fortinet. the the go go the connection, different from infrastructure base we is called we application-based now more We security network security. cloud SASE, application.

So company. all -- the it's the this ASIC, address a which computing keep years speed power trend, XX in this new to we in issue. We for security, fabric, infrastructure whole prepare is doing we found the the using feel increase the we using since about the network

see differentiate made, So It's network compared early starting of security. product starting benefit to from ASIC, the other we day the investment still whether the the from compared side, to technology from and Fortinet side, from we're approach the competitors, us more some same infrastructure to the relatively.

bigger and as a we bigger gap going the and that's kind see forward. we of advantage So is have what

Tal Liani

isn't core SASE, to migration going the your And offering? it. against it Got

Ken Xie

have No. for SD-WANs the It's where to that's and infrastructure like So security that. is it, parts to SD-WAN a need and right? way a access of good really SASE whole the part access because other you the really,

have, So we functional advantage. performance keeping huge base and the that's and has And OPAQ same are at enhanced service FortiGate built model infrastructure customer the we acquisition where this the part. have, the in time, leverage, the we the into

see with no format they also security the supporting some give partner kind customer want. at of how can the of the new time, closely them that additional what And better, matter same them we flexibility of like that's address what need. working to things So customer form the the the we

Operator

of the [Operator line comes with Instructions] And Daryanani question Amit Evercore. our from next

Amit Daryanani

first would into I And from getting what pushed I could the Any revenue any if guess you you out guys give certain June deals you happening? the didn't in issues, September one, couple terms like? the have verticals quarter. where times these of you of saw sense the guess size deal mentioned quarter this or a just about of look June

Keith Jensen

$XX if a be us, They're $X right? of million, first million for know would large don't well, common $XX million, or deals. not $XX deals million there it -- I was all,

quarter. verticals, number of you're those transactions that you know think looking that in it that a don't So at probably terms or of was was of more other I some moved. if the a week I will. common there theme challenge it do last was last on the geographies week in -- bit of the for a U.S. than the rate the that month in of close

Amit Daryanani

share willing aspirations would to would Just way touch I or dynamics what just it. that cash would on even a Could flex get strength a have -- that on using you Got essentially And what take perhaps of you just financial how accelerate free on? sense margins trying as guess, talked you And gains. your flow of last your one, impact your some perhaps? amount share from about sense you have in your to your quarter are you've these gain want sort to model? much this a

Keith Jensen

we're places a little keep we'd at could this the to because hand. see. in you inventory One Yes. on probably There's like is X more inventory environment, that looking --

inventory think quarter, X. number the I about X.X look down and that's the in the And at probably was so you when turns,

do can you so and some it. there quantify math And

terms. also the and contractual of end look XX is of what up second metric the extended you the I terms of quarter, was provide were XX%. see think our at the -- that's days, We would can payment it on payment which You place the as

while flex we discounting discounting, slight our increase I cost kind it. life, outweigh in in than for us, is structural a discounting, structure, which can it ago. That the environment little that the in on a a covered The and by of moment difference did third is we was have place of outweighed fact bit that a more and current economic

our flexing the sheet if at place of flow think then you terms cash the for and collections. in balance key looking I looking inventory and the So, model, will, at

Peter Salkowski

payment contractual XX correction And just on terms, it days. one was the

Keith Jensen

sorry. happy happy. I'm I'm I'm it's XX. only

Operator

does Salkowski to for the turn I would this back call Peter like to And conclude question-and-answer today's now remarks. session. closing

Peter Salkowski

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

contact third the be investor doing on If the to you Have quarter. week of day. any Investor conference will XX; August me. be will during the September September Citibank the a links from following and conferences good will free questions, on virtual next the of Thank We'll your a feel please follow-up Event Have Relations Fortinet there conference webcasts available the Colliers webcast Take Securities Bye-bye. attending very are site. be X; IR on on and day. Oppenheimer much. conference care. Fortinet website be XX. great the these presentations rest

Operator

Ladies call. conference you for and Thank concludes this gentlemen, participating. today's

You may disconnect. now

Fortinet (FTNT) 6 Aug 202020 Q2 Earnings call transcript