FTNT - Earnings call transcript Q3 2020

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Welcome to the third quarter earnings call. I would now like to hand the call over to Peter Salkowski. Please go ahead.

Peter Salkowski

Thank you, Michelle. Good afternoon, everyone. Vice Investor Salkowski, at Peter is President Relations of Fortinet. This our to third discuss welcome pleased call quarter everyone XXXX. the I'm for to to results Fortinet's of financial and are Officer. Financial Fortinet's today's our Ken on Keith Jensen call Founder Speakers Chairman CEO; and Chief Xie, our live on Relations is via a available replay that call This website. be will for webcast Investor Ken business. will on perspective our our begin call high-level by providing a guidance financial for follow that fourth quarter, with and our operating then of third results will XXXX. Keith before of review providing the quarter the for a We'll then open the call for questions.

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

and and to differ Before cause Risk to today's refer Factors in everyone we results we on uncertainties our I'd most SEC are actual those from the that remind to like in subject to forward-looking our which those filings, statements forward-looking could risks will Please projected. begin, statements materially call be our making particular, recent this statements. Form opinions financial date to disclaim forward-looking more obligation of information. references only all make undertake as and non-GAAP, reflect of for forward-looking any statements stated metrics are All otherwise. and obligation and that unless our we update no specifically today's Form to we on Also presentation XX-K XX-Q call

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

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

Ken Xie

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

performance. pleased $XXX XX% very to increased with Billing We our third quarter are million.

growth latest Magic firewalls. over total recognized was doubled XX%. Edge quarter-over-quarter both only increased the more Magic leader accelerating Recently, up as a year-over-year Quadrant Total and revenue Fortinet to Gartner $XXX million, and than WAN revenue solution with network and SD-WAN infrastructure revenue for Gartner XX% XX% in product of service represent XX% to the billings. for Our vendor Quadrant

the security the pandemic transformation. with it's growth whether integrated into built SD-WAN revenue WAN, and to that saving the new has and base in data COVID-XX or protection, fastest environment, major FortiGate The organizations zero-trust whole that organically cloud, customer space. has performance provides players digital to in is cost solution largest Fortinet's among And only for a branch appliance accelerated leading the edge. delivers center, challenges the deal home network, single networking infrastructure secure and a

security-driven approach. customers and helping through these platform is solve our networking issues Fortinet

and whether FortiGate which entire Security networking cloud-based Fabric combine connect environment security environment. or virtual protection across the on-premise, provide

hyperscale mobile. edge The this could few fuel stated forward. together FortiASIC growth of new will enable going and our security latest will and replace and to release immersive technologies replace to over anywhere, capitalize Fortinet has Gartner machine leaders competition. begin virtual Today, our threat. of by next will years, organizations Our XXXXF by center and environment. than recent for higher to Fortinet performance have Powered showed time enterprise-level survey data XXXXF internal Fortinet concerns XX% offer segmentation announced security multi-cloud the cybersecurity in secure up of our computing new XX the about FortiGate NPX FortiGate the with a a almost insider cloud several cloud called software-based that on processor, highest appliance the with and SPU, investment

Keith? COVID-XX our Keith, worldwide call to manage to to I customers, would thank support employees, ongoing their for pandemic. the our turning the to over like Before response partners continued

Keith Jensen

you, Thank Ken.

secure from up to increased Service FortiGate demand revenue revenue. start $XXX strong quarter review solutions. Let's third XX% the for SD-WAN, of revenue $XXX $XXX was XX%, Product million of Total was XX%. and revenue with million. high-end up benefiting cloud million

to XX% increased $XXX revenue service FortiGuard million.

million. $XXX the The service XXxX FortiCare to representing mix. and XX% was shift now points, revenue increased from XXxX over XxX support of with to mix revenue XX other XX%

non-FortiGate of revenue. the FortiGate mix to Moving and

increased FortiGate and revenue Non-FortiGate and solutions. product XX%, driven and growth fabric by service products grew XX%. service in cloud revenue

Given non-FortiGate noting it's growth of our fabric absolute business. this size or of worth strong platform, the continuing the

provide trailing and For of and form example, when range methods period, period. including ended Revenues hosted virtual during the entire the offer cloud, to software and or customers our center, WAN, September non-FortiGate solutions. Combined solutions FortiGate whether the to and home factors even data include business, compared of across and enabling the non-hosted office XX-month the million, $XXX our physical form delivery edge. and as infrastructure, and range their XXXX, factors security cloud, perpetual IT an totaled network with solutions XX XX-month appliances, as services we SaaS increase needed complete at products security them XX.X% branch well of previous it's

across Our diversification our third industry illustrates quarter performance customer benefits geographies, of the segments verticals. and

at Looking Geos. by revenue

highlighted the it As with geographic of revenue geographic of business. pandemic economic with and impact the the our quarter, with second performance diversification the aligned our

over able As XX.X% slide continue Latin summarized economies largely XX%, X, reflect impact especially the to countries in growth Asia the have on and Americas remain open. increased many pandemic, of of to been for Asian the Revenue to was we in America Pacific, revenues as three all for the of the in the quarter year-over-year increased well a $XXX shift XX% of Revenue as billings very Americas as comparison. total difficult XX%, highest to If million. third billings, geographies. XXXX growth

of billings billings. XX% accounted Looking total for segment; FortiGate increased at by and billings solutions XX%

cloud As in Non-FortiGate strong shown solutions. demand high-end increased strong X billings quarter. posted FortiGate the fabric XX%, with on billing slide growth for and

with performance billings geos, of followed As pandemic. the all path of America. outperformed aligned billings by then geos impact and including Americas, Europe, Latin with our APAC the revenue, the the by economic

segments. customer by billings to turning Now

large posted in As the channel geos, the and a illustrating the our growth in programs, employees makeup strength and by solid growth we across customer solid of billing diverse of large experienced we strong this quarter, the second multinational SMB SMB, segment. saw enterprise segments. channel partners, execution the all our

verticals. industry worldwide billings Moving to by

account at MSSPs total of experienced U.S. a secure semester. with We worldwide two-thirds billings. Financial XX% growth top total about solid total billings. strong The also providers at at quarter performance with for XX% fall X% the to of the at verticals as internationally billings services XX% sector XX%. had for billings Our Education total XX%. government levels. the in rebounded local all and quarter accounted very the over third topped schools of continue and Service and billings prepare verticals in for e-learning total in of of billings five grew

in a over the compared quarter in Now looking at ago, accounted deals deals more total of over deals and $X billings million for million billings. by and while the $X to of SD-WAN year XX seven quarter doubled, SD-WAN deals than total of as and third eight quarter, XX% mentioned, $X We XXXX. had Secure XXXX the XX million deals deals accounted in of Ken the approximately over third dollar from third size. XX for down

Moving back to income statement. the

by over investments pandemic margin has XX.X%, gross As basis cost expenses from shown benefiting margin FortiGate margin XX.X%. five on gross points the of towards margin quarters virtual XX% including continued increased It's offset basis newer of for noting new X, products, quarters, head points a Product to and increase the third events, offset improved two direct Total XX gross the generation been continued by a addition lower costs. at to of quarter in marketing from X,XXX, ended to the to XX%. for basis the and in improved shift driven row, slightly Operating XX.X%. grow members. that related XXX improvement higher the Product gross indirect increased business. XXX to count travel points we've by to margin lower team our our the product slide quarter benefit gross worth program made margin

diluted our $XXX per million strong the the GAAP earnings $X.XX income net or diluted share income $XXX quarter product and the our diluted And this integrated GAAP income and we of automation. quarter a security offerings was year $XX investments per in truly enabling share a platform per $X.XX our strong third and share Given versus to increased income share. $X.XX expand net diluted of On long-term to the for invest or operating expand result of strategic sales to million. partners a reported diversification is the we've provide global made our of million The ago. to business basis, channel $X.XX per performance performance, force,

Moving in slide flow to the on seven million. flow summarized and statement cash cash of at Free eight. $XXX came

a strength our they of we we as partners sheet our advantage economic balance customers pandemic. are as and As to the competitive challenges of our experience support leveraging the previously, the commented

our reflecting XX payment average result outstanding decision days in targeted sales to geographically with line three provide As and expectations up days plans. XX our and a days, days year-over-year to extended sequentially increased

are first to to our terms building turns to and We and in including capital estimate to all We XXXX on-hand quarter to of we million through year the were and be range lower and real effect million pushing least The as supply balances between quarter expect due as extended for the of utilities between X.Xx $XX $XXX spending new construction chain and mitigate XXXX. $XX XXXX. more activity. delays and $XX move million other inventory full of decreased risk. half million our to to we estate million. increased for payment $XXX CapEx in for million expenditures construction Capital expenditures to campus the Inventory that third the inventory higher is at fourth other $XX related

flat well as for moved Our the move mid-XXXX. has term average date in was as months, The sequentially. year-over-year contract quarter third XX to

taxes our approximately million non-GAAP We full expect rate $XX be tax cash full to XX%. year year to and be

on we forward-looking slide review fourth I'd the outlook the that disclaimers regarding look Peter information call. for provided the to is our which forward, at quarter like As nine beginning subject to of summarized

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

We in last year of the milestone. this full rule said based been achieve year XX%. on making the year XX of that, for XXXX a the quarter expect we've expect that to of tax XX achieve able the to consecutive non-GAAP Having rate ninth the years third fourth guidance, we this

our Fortinet team with times. over hand and hard unique to the thank begin Peter along the like these I'll and difficult Ken, to during back and support work their to our So, I'd call partners, for customers, the Q&A. now

Peter Salkowski

please for Operator the you. Q&A. Thank call open

Operator

Sachs. Brian first Essex Instructions] [Operator comes Our of question Goldman from

is Your line open.

Brian Essex

in seeing congrats physical taking if Particularly SD-WAN and you're afternoon picked firewall you demand. results. a good like really the nice and wondering had touch in it environment. But the was our a Hi, quarter quarter spending maybe we on and you sounded strength growth you of quarter. of question also on up could thank for nice I what fabric

So, what the CIOs maybe from the standpoint quarter? the you're surprised and what you from actually demand the in most about of hearing

Ken Xie

That's question. good Yes. Ken. Brian, a this is

watching also to we're the that's in change the we thinking in also have We last networking. space. secure-driven promoting concept call And closely monitor whole keeping years. so the try the that's where the we XX Basically since we

So, see the the $XX the to probably years billion. definitely over networking side can -- three grow SD-WAN and next you starting come can the in

time Zero huge. be get same at hope the to next year. popular. leader number be will that So the space at one starting to security to very is concept And in Trust target the want the We

infrastructure So, year try to work -- we once the see starting Like secure. people the home. And very the lot. and supporting whole make pandemic enterprise how can early also in IT for just also a home just to this work need changing from started

or also whole is infrastructure networking like try Now, call shaping they're different or some traffic application, FortiGate where home in many same they managed like the can manage we sometimes to the they other So, secure can new broader equipment also time switch printer some SASE the device. that's the call That's It Wi-Fi what's solution home branch and other solution. that where long-term can right? installed for much altogether the the the to appliance. the starting users also even home service-based SD branch can have and different other different way whether see at and priority the the manage other

So, that's see. we're to starting

companies some planning, even other employee whether big whole XG altogether. -- a them access things only or some of XG, but packaged help also -- enterprise started provider call including the them with some it what some and FortiGate is or the like branch. working call Some new XG, secure they them including infrastructure service They because security. the XG, offer not some whatever internet this kind they solution XG, It's the kind of to give

we kind why see of approach. that's both So,

provider, this – we're or home's-the-new-branch kind whether service whole new branch security So infrastructure of SASE to closely working with the approach. the a service approach, to base but

environment. So it's whole definitely changing the

security So need content more same no whole provider also based time, the space. content the the we certain some just also or SD-WAN, and based the gateway at add like security and like the be on to the infrastructure. And application longer on to application are in border secure starting the network awareness, the expect like there other

ramp saying quickly. us network keep up what that's So secure-driven kind to starting of the is

Brian Essex

but – and you OPAQ this, know, any traction That's through MSSP super-helpful. relationship that just with it. made and going or how OPAQ And mispronounce much that a progress channel far? initial Any Got follow-up with comment. have so to I I'm on SASE maybe

Ken Xie

we're the few same for make OPAC acquired the a closely keep service position working service together to offer The last a We Yeah. with lot solution service. years. it quarter, the of lot Also, whole best provider, because working we has provider – do for we SASe. and of a to it work

or we is branch So help can their build they within into one And the – company. even of or inside platform POP them. to the also extend the whether FortiGate extend best

good a space. the change it's in So

Brian Essex

Got it. much. Thank very you

Ken Xie

you. Thank

Operator

comes question Fatima UBS. Boolani Next from from

open. Your line is

Fatima Boolani

Keith, for you two you. I Thank question. the have for taking

the being wanted as takes and a think billings from implies outlook a of we that into third your to relative guidance and performance quarter how cautious are put little have bit should sense your to quarter I follow-up that unpack little a I your about you get just deceleration of And and up? at some bit puts and performance a looking the you the more where well. guidance Just the

Keith Jensen

current year Sure. to It's in QX back. really with for a strong. QX media be shown function Look, very, happening daily interesting very I guidance. a is think almost layer a see in guidance reflect into U.S. has pandemic. terms very I the environment, bounce happening U.S. QX challenging. Europe. a the what think understanding pandemic also we I whether job the of – current seeing it's shown of what that was XXXX what's reports in also the we're the pretty election, a does setting the in basis our We was watching can And of to but of on nice think good trying

Fatima Boolani

bigger picture And a enough. Fair question for just you.

of about I spoken margin shoulders that the to margin XXXX and the XXXX above you're at XX% profile, As head you've look watermark operating think complexion your if sort I historically.

I and structural hiring front? from are parse maybe I'm be longer of with undertaken on the really think over out would the sales you. you. That that would helpful. trade-off next term Thank So as what impacts the quarters we couple on pandemic margin some of you've love trajectory considering the through the the versus some acceleration wondering, temporal to of here

Keith Jensen

Yeah.

of margin the to sales that reference that income that the get were the I having that the think I think probably much continue a structure new of – we're not on not terms cost there get very programs we as introduce why to higher for of I move think to over of really structure extent products, of not we'll terms benefit terms that the as having as in There excuse hopefully, the call to and marketing in even your successful you quarters And being in it our start continue – of of it's to world gross probably down salespeople product benefit. margin. we going we're time travel as number. virtual. a And the that think XXs. pricing And well the kind gross to travel the margin our gross conversation the spending. to We me statement, in way stays like to benefits we're was XX% and marketing it being kind of in top-down way and financial salespeople at I seeing periods some made and XX% be five in Clearly, continuing row. and

committed and we online the right coming salespeople at fully think timed this We programs that obviously historical the very those use an to marketing our and when bring newer around Now, to same that time productive. previously adding growth that I we're It to opportunity salespeople. Hopefully, such line count revert more of they're norms. the to time we've will XX%. that talked as talked about this in top are they're travel be head

Fatima Boolani

detail. Keith. Appreciate you, Thank the

Operator

Shaul comes Oppenheimer. Our next question Eyal from of

Your line is open.

Shaul Eyal

I ongoing some on your And and a the outlook. of Have you. the opportunity. afternoon, question one given strength space disruption SD-WAN consolidating that opportunities see smaller Thank you on seeing. in could given displacement guys. the competitor's solid performance Good competitors Congrats the to market? potential seeing started had be given you're a

Ken Xie

This Ken. very no interest comes competitor to what strong see we close No. is still We and have.

one. both A see we year-over-year. customers last of And more firewall the it's at have are appliance. huge who network time, installation but also And has only base. enable quarter's billing, it's come than same for So Magic even we SD-WAN the XX% we that of the that lot the one on a also same two Quadrant double

We confident quite on not one. even that are

a as secure about also I'd treat solution. helping this going much solution. work-from-home are driving be we whatever like call you branch this So base or And we kind also whether new forward, home bigger of will the user a say believe -- SD-WAN we

and only ASIC market to also about other technology on performance and position the average XX also times organically accelerate build any internal So have feel the than faster have one we competitor. a we

And more It's So double and where grew a -- year-over-year. is huge XX% grow that's we we than market market gaining see year-over-year the share. opportunity. we like keep

Keith Jensen

it's Keith. Shaul, Yes.

think I spot Ken's with on that.

referring there's in cloud SD-WAN very I with to their think SD-WAN we is help -- their and to front the think that's unpack on look service still on look as start providers we to us focused on-ramp. Ken SASE incumbents is I and if think opportunities see of the I opportunity the the terms something critical relationship what of we're a the forward to component is existing in and the of side

think point going us. market So for Ken's to to is I continue that to expand

Shaul Eyal

Got it. the it. into American on super Keith characterize the expectations more on internal would when that with the is line the No And heading how a Americas question slightly isolate Got performance focusing and performance. helpful. the quarter? mixed of maybe performance northern part your you strictly the in you Americas Latin

Keith Jensen

Yes.

a I think Americas we -- currently. there's the difficult to very U.S. -- components the Latin place in America is the numbers. well which And saw that three

certainly difficult America. We in pandemic. To expect Latin related fairly terms that. other your footprint done a hand the Canada well It's of U.S. actually throughout quarter of to the has a different on just And the this. got we've specific question

I U.S. think much levels still at But than the not pre-pandemic would I there There's quarter that the second third say the in the better U.S. for did quarter. in us. opportunity did for clearly it we're

Shaul Eyal

Got Good you job. so it. Good Thank much. luck.

Keith Jensen

you. Thank

Operator

of Our Suisse. from Credit next Brad Zelnick comes question

Your open. line is

Brad Zelnick

you on tipping the wanted to XG acceleration seems broader a It's business. first approaching to your ask question the XG terms and great of Ken. business. much Thanks My the in about we're impact so for of coverage. point I congrats It on of Grea. see.

the you think why as is of this my is we Fortinet tipping your should advantaged how feel So point? we that approach and question about business competitively benefits

Ken Xie

ahead it than industry. like vertical also we're XG, successful far case to back XG also, of on connect than working and deployment in with so access. And could also we for also on the some said the now of provider. international the the carrier on past. to XG seems little be I earnings of quarter that But a for more more is faster the Like the last base. probably -- right bit be security. leading service a like closely also it's depends a in it growth. lot our material expected kind connect very But next of like XG work-from-home we and a WAN could this our OT/IoT on the it's But when half people device believe see lot quite contribute still so growing the do good XG year we And a small

Brad Zelnick

quarter do picked first QX Thank you to And How of hear. Thanks. characterize the at couple a mentioned in in the last Keith, you. quarters. time discounting Great up had discounting for for this point? you

Keith Jensen

out. a Flat. ago. Consistent Nothing to with year call what it was

We think I quarter. guess give not second color the So third more a that in the same that in to feel I do way pressure pressure we little felt quarter. the

Brad Zelnick

Great Thank my guys. much you to for taking so hear. questions,

Keith Jensen

Brad. Thanks,

Operator

Our next from Barclays. question Saket comes Kalia of

open. is line Your

Saket Kalia

my changes for the earnings guys. same the adjustment expand talk impacted Hey, deferred in slight Keith, maybe questions Thanks what some know here. billings on we're a housekeeping how for but taking just I you there's that and and balance about you just just deferred you is all the that historically? Can so a revenue to question. on page? footnote could maybe first the slide,

Keith Jensen

contracts. and probably with than subset been a had bit a years, go FortiCare housekeeping we through many revenue We a recognizing Historically little period we little amortization this starting the of our Yes. should to sooner had have back goes been.

some revenue so every we a and footnote to that pick Its is forth. very period a It possible So a on the quarterly little X.X% there. little from pickup to shows for of of particular revenue. XX-Q X.X% When all range there's But that's revenue period. ranges file a of be about there'll service housekeeping FortiCare any small. just up bit bit long

Saket Kalia

Okay. Got it.

quarter reported the that have clear by been of to sort was be just $XXX really in So that it million right? the that impacted change wouldn't billings the

Keith Jensen

No, no, no.

Saket Kalia

differentiate of bigger Ken of follow-up do think the the you OPAQ -- just Okay. line the sense? about on Does Got it. the that a understood. maybe that make as part strength FortiGate you offering offering side I helps becomes I for when guess The SASE you're solution? a how product

Ken Xie

Yes.

I FortiGate to And are we sometimes part be at the think, because can within be sometimes working part to SASE of time, its can their service service or there. to do they same the use within the branch be can things other the be is we the also or be important their a best need kind SD-WAN provider or with of different firewall FortiGate a a positioned the solution the of pop like can or believe in the or traffic. have secure can you in approach the appliance home data and also -- in the very center

keeping FortiGate where for that's security So expanding or secure the SASE call see other platform POP very kind both -- all including part the of infrastructure. of whether whole inside a infrastructure as networking, we the secure-driven we good

Saket Kalia

helpful. Very Thanks guys.

Ken Xie

Thank you.

Operator

[Operator comes Instructions] JPMorgan. Our of next from question Auty Sterling

Your open. line is

Unidentified Analyst

little I pricing question. for This to if the what ask I that on taking guys. Thanks. front? for a you give make wondering Thanks on seen on landscape more Sterling. could is you color you've of what Matt on wanted competitive bit and on the was currently guys additional Hi, SD-WAN.

Ken Xie

the more also fast-growing is one the We the offer SD-WAN SD-WAN functional area market the pricing of of one performance best other competitors. any potential. the and than Yes. most And biggest also probably

want than together. combine network reached And two that's the multiple in even also billion security. there's say, we us, probably these research for over would to like $XX to XX bigger So be five years

both. platform same see the So for you

the So compared sometimes universal that's or weather software other is we some -- appliance. the where even to which approach CP to the only loading call or competitor, other

the -- this cloud. high-end plus home mid in low like or ASIC-dedicated can inside within to or to So the go the -- be center range branch go within and hardware to we the have both POP data the

competitors. we it's we'll the compared and we space. the have a the Gartner So Quadrant from do in believe the to from that's other huge be advantage Magic one we growth leader number And also where see

Keith Jensen

on Ken's I with -- spot that. Matt Yes.

how capacity. operating firewall he's it's have little We it's But been Fortinet really and functionality. bit probably of that increase is matter and When he's the receive a the system you in and think a ritually I pricing firewall. each embedded humble, the able on it because being firewall a different separately. in capacity going And SD-WAN charge ASIC for to for he's do use Different year. you what you methods. I think because the vendors the not strategy SD-WAN of what's every purchase built

So really we not and in change. anything I our sort certainly, don't talked think of that any terms we -- suggested as see that discount about of did

Unidentified Analyst

That's housekeeping quick just one question. very helpful. And Great. then

question to of a unpack? to If So, it in going revenue, on if back balance the to there take billings. on reported Saket's you kind just and what we that seems sheet billings. there's anything on I the the change deferred and like disconnect wondering was was there

Keith Jensen

a good There you difference really the like being revenue it's should No. is definition. something in deferred change think I or plus an or darn don't Billings have mean not acquisition defined a pretty so. that. minus unless I as there. be revenue

Unidentified Analyst

Okay. Thanks guys.

Ken Xie

you. Yeah. Thank

Operator

comes D.A. Andrew Our next Nowinski question of Davidson. from

open. Your line is

Andrew Nowinski

quarter. nice Thank the on Congrats Great. you.

called surprising somewhat it's last strength middle given been the for we're actually high-end which of a that quarter, is this strong but very quarters, out you billings pandemic. in So the in three

So can on that you just more end? growth in provide high strong what's color consistently driving any

Ken Xie

-- gig more almost to function Xx can there. a traffic XX also There and the like compared ship compared to new NPX, process XXX-gig are performance also now the they as per because improve the by and to NPX, some related in

like the other end some the end which sector, Keith high buy where the drive certain vertical they high And range. the by -- we're see the and help government out to which Maybe So new pandemic. high less impact has that's mostly at same middle with a service, NPX time starting NPX to also we the roll product go only finance do some point. has

Keith Jensen

No.

I performed think think would well. product -- about very It typically well done it's as the with I excuse in now for we ramping been that's I the XXXXF, me. up products. year high-end it's the here expect a third and extremely XXXXE and out very, point quarter Yes. The been

Ken Xie

-- half in Also contribution. or from Yes. the probably come SD-WAN high-end probably

Andrew Nowinski

sense. million the in you deals why think makes That quarter strength then do Thank you. given the this saw And fewer billings you that $X we've seen? high-end

Keith Jensen

Yes.

general on at of mix all it's had I quarter pipeline reports got because read think actually when that mean, I do are very a I and have a we good we've us know maybe deals. differs don't We And actually up into -- what risk, has little question. I getting different mean the we quarter terms bit But time. of quarter, then ended the every have why with is had that a mix obviously, don't really I deals this you item shifted -- the you larger I bit. thought maybe and from through -- and a looking in pipeline. that what that the get bit information the smaller a in it. little to of always something good larger came why little particular that what

Ken Xie

And large $X year increased $XXXXXX year one deal over quite we -- ago. grew we one million a has ago last number. a lot deal also to compared the grew right? But QX year

that's So very comparison. a small

Keith Jensen

point. Ken And good a makes Yes. very

deals you if over SD-WAN were fact over look those of well In year-over-year. up over at XXX% $XXXXXX deals

Andrew Nowinski

guys. Thanks That sense. makes

Operator

question next Fodderwala Hamza Morgan Our of comes from Stanley.

open. line is Your

Calvin Patel

comment you recent your you go a for This see bit trending in is on forward. the question. conversations that Hi, wondering more how durations the Hamza. and taking I And more invoice thank for Congrats was on we on quarter. first could guys. Calvin Patel as you if

Keith Jensen

Invoice I'm that duration question? that the was was sorry --

Calvin Patel

Yes.

Keith Jensen

to maybe Yes. see one some been that, expected other years right We've what at despite X.X year competitors ago.

XX, frame XX been at months. time throughout very that consistent about we've think I

Calvin Patel

All in firewall on a And segment? And as you occur landscape more think to level if on bit time you just follow-up, right. year that just some of the Perfect. a could not? then digestion over be competitive comment or the this will next the not if there SD-WAN

Ken Xie

-- we market. saying the long also believe We're started market Almost keep beginning keeping XX I this of share time. But gaining forward, in years ago. quickly firewall since a the company we for going

will secure-driven. networking new So more the be

routing That's speed they application the need and That's SD-WAN and sure they switch user based to routing deal networking networking device is they why the make and give also instead all level. handling. the on connectivity about can security So all with can with content all also application.

traditional So security traditional is whether that's transition a or probably doing traditional some where border security probably also network we which the need on -- networking see the the change.

in new So still good feel changing. security billion, there is But market technology networking. very this will be change. to address they really and we're secure-driven also good position network transitioning starting the billion market. the may $XX $XX traditional probably And about probably. be We we're networking And billion very will merging the leading -- $XX

Calvin Patel

Thank you guys.

Operator

Our from Owens next question comes Rob Piper Sandler. with

Your open. line is

Justin Roach

a one this was guys, I trending the just had on your that we what government strength is federal Rob. on Hey the quarter could just And there for relative how if quarter? to drove it quick on impact maybe the in vertical is Justin expectations? strong anything

Keith Jensen

we're which closely very We're is well look is and government U.S. government -- Fed Federal. Yes. the go us phrase if of a at governments. local large It's not you business. our as more part about as not international U.S. talking for about talking not back

Justin Roach

also pipeline Got where then now up maybe fourth to quarter feel relative you. sitting And it's just how usually to in your biggest? last it's quick year your historically you going given and relative on just the just follow a

Keith Jensen

that ways what new an it's the I a And new pipeline existing whether clearly through deal probably logo whether pipeline dicing all versus it's is biggest you. it guidance versus to the size guidance. input the and that there's or process the Well slicing And setting supports of go when kinds deal of right? whether Yes. different deal we think renewal it's have a customer

Justin Roach

Thank you. it. Got

Operator

Patrick next Bank. of comes Deutsche Our from Colville question

Your open. is line

Patrick Colville

my Thank guys congrats quarter. question. you impressive taking again? of doubling about SD-WAN talk for And you we super-impressive on very result growth year-on-year. out a just was put The Can

been have offices. some closing hearing checks the rationalizing around media kind or on of We their firms branch

would you can that through customers, effect had me that But you've heard your your business. talk or just amongst whether be anything that clearly to related hasn't So great? point any on

Ken Xie

manage us forward than cost And customers huge for saving. it the consumer costs some to it's to more offer user how also even Because on a of and the application time of the because to whether application kind or manage different some environment. Yes. has they multiple price different a one XX% the kind home a connection benefit dynamic among different other difficult different links like based fixed or probably SD-WAN and like cloud including MPLS as a of other

networking the improve of technology a that we other angle, may also But home user. benefit a some networking the of in offer FortiGate's this expand should VPN be need whether based is on to security the some do of fixed And base. working can network during the supporting or doing. just space. lot for different enterprise from the compared believe growth can to And It's a traffic pandemic. a the also can lot content-based big kind they they That's user as access. believe as software or the can huge different long driving even service try which change SD-WAN right applications application long-term with manage you term define into provider It's home like So we just additional whatever content work-from-home benefit consumer or now. service even or quickly of lot the level we a in

this could we interest. probably like years of the eventually grow whole approach application So XX the of content the a majority reason market long it believe of space on SD-WAN gets longer mainly customer believe of without know I And kind don't of how lot XX%. or traffic. sort half networking be maybe That's do the based I

Patrick Colville

guess FortiGate of sits is mean devices one made router? branch replacement the of does And it the mean around I solution often router? traditional points often a I was alongside SD-WAN I clear. office. at very a the how That's how you Great. traditional the the

Ken Xie

only multifunction gateway, We device Wi-Fi kinds VPN SD-WAN like all the as FortiGate Wi-Fi router, then It's device replace access of of single and a our or controller. including three, including security also five controller the one thing. replace can the need a these four, and security a out router including the

Patrick Colville

just in And Is point that is your cases those for replacement a FortiGate most a clarification. devices?

Ken Xie

there. altogether device stay and device only multiple Replaces Yes. to become

Patrick Colville

you appreciate your for it. Thank Really it. time. so Got much

Ken Xie

Thank you.

Operator

Powell Our Gray BTIG. from next of question comes

open. is line Your

Unidentified Analyst

in Stefan question Have change last between off you Thanks Gray. firewalls? seen for growth taking the This office. for center my demand Piggybacking the any on branch data of meaningful is mix branch or about question. the office and

Ken Xie

retail where you sort Yes. of whether still that's see can And growth. or we vertical pretty strong whatever see

home new mentioned believe really the think maybe the that. grow branch. like is bigger potential also something XX% I And is the I Keith

a we're service because even that's need time that's still stage same us, still also do service that. now manage to try right user working with to bigger. certain providers So home probably But I some the but help early are know in you of lot that. the in at of enterprise

Unidentified Analyst

Thank a U.S. that you. quarter? mention you you about up saw the in of in the some There this And talk delays quarter? deal end those the Did as linearity follow-up, third can just was landing

Keith Jensen

the pleased yes. of to I deals with in we would terms were be that we think they that in we got the delayed. start from in with what in third Well, you're saw were July quarter. talking the that answer pleased We what saw. Do QX we come The quarter? about

Unidentified Analyst

right. Thank All you.

Operator

from comes James. Adam question next Raymond of Tindle Our

Your line is open.

Alex Frankiewicz

SD-WAN? on Adam. to ASIC wanted taking on important important wondering Thanks Frankiewicz I in touch is just bake-offs? is SD-WAN How for that more how Alex was capabilities do a for of factor on questions. making decision? becoming Are time. This performance one customer my driving or your is I functionalities is you other and customers core when it's in come to first a and purchasing a more finding boost that decisions

Ken Xie

almost like them times gives more ASIC computing The XX power. Yes.

process can other the traffic other a at total service and much same quicker solution. add one make can providers Wi-fi a that function they security security like sure where device also with that's manage and working like some like it's So other some time infrastructure can

a that's handle other which the handle a computing multiple build advantage SD-WAN have for they many compared platform replace single to ASIC this can the some huge So only multifunction power other or which or the software we to approach versus compared whether CPU function limited FortiOS like can device. security

see as we where huge that's advantage. So a

Alex Frankiewicz

Thanks. Okay. just follow-up. And then a

kind years of profile some a quarters than top on -- see looking out drop-through are just Are expect Looking a the to we focused what of line could of couple you to you few XX or growth, more margin line? solely margin you expect could of kind ahead, rule targeting? bottom

Keith Jensen

very Ken managing closely. I'm Yes.

Ken Xie

closely. very me many He's

Keith Jensen

The same remains talked believing that the our year range strategy started the We XX% towards being midterm growth want and would tilt We of we have about balancing right? to we growth. margin operating profitability.

growth in the balanced think We I a quarters. But growth. we it. still balancing a doubt year, the of those and impacts an for is through believe believe As there grow profitability towards obviously to we went it's pandemic opportunity about the do ability couple longer-term, no strategy

Alex Frankiewicz

Okay. Perfect. Thank you, guys.

Ken Xie

Thank you.

Operator

comes from question next UBS. Boolani Our Fatima of

line Your open. is

Fatima Boolani

questions in on. for $XXX gentlemen disclosure based billings the to back deferred wanted revenue hop billings sum on to I letting me your The on you, the Thank reported quarter. calculated million and to revenue back disclosed earlier in. double

And sheet in the release the so and calculating revenue have the metrics? and I numbers just billings you the balance between reported $XX wanted what deferred press to appreciate off in million delta that

Keith Jensen

Sure. I'll into. This When you is Fatima, have some jump housekeeping Keith. going on

three have can one or You things.

the so in small that's through you something have it run can just period. You current

you the something You large period that can prior have statements. financial restate so

you're XX-Q amortization have you come I is. from can point the forward the where R when You $XX December retained to is that of something recast see in little That's middle, being the it what earnings going believe the back in That XX which financials. starts that is. just a out called corrected. XXXX of this And will opening million

right? upon going many been that's million the on this $XX to came large you recast, became And billings number you it with right internally, need something type. track deferred the have, is revenue correct, now that years that QX's recalculation So we for for have that's to the not billings. you see deferred recast and we right? of for that right? So ago many, finally revenue And as reported in years three recast of for actually financials transaction out information to in number The enough revenue based small

Fatima Boolani

Fair enough.

see we'll that filings in the for least? cumulative -- at a impact essentially it's the details So

Keith Jensen

revenue. for That's we item quick the X.X very looked in of and why revenue that earlier that a each quarters of quarter. impact about It's at bite gave to I runs small quarterly the point one Yes. sound the points X.X any typically between

Fatima Boolani

Ken since Understood. around for a From product debate very standpoint, have thick between the a the architecture that's a architecture you SD-WAN versus you. the you, question paradigm. clear. I brewing a Thank SASE And discussion. branch think deployment there's branch That's within just thin I

in is the Fortinet how I'm former. So wondering positioned

uncertain branch And in we So increasingly the if that's duress under for potential be it may thin you. think environment thick me. Thank environment. an branch the macro arena in about

Ken Xie

in stop environment. thick I thin branch into sometimes real-time mobile can The locally also both And can certain branch it different application fit process lot think need the the the things that. a device issue. branch of can

you traffic can is FortiGate see the like That's how whatever process more in POP whether really this is processed. SASE local office a the SASE or the the how in in key home in environment. Which get point it's So our or POP the to the infrastructure. and within they FortiGate

-- it's our because an also advantage. that's So

of other give lower a kind better over which performance also us approach, cost. much huge computing have We power advantage

solution. that's we the flexibility POP/SASE be on-premise the appliance the can or had where to and in fit be converted the of or virtual the So cloud part

the they're us -- in which they the software the sit give beyond can other within only approach, because do some can data competitor, certain in other the for extend also So limited players center. and can flexibility only if server POP

go from replace other that's using my of we a the and lot one They will even edge location. kind can So years from mobile. technology go of beyond to comes research. that's that home few extend the also the the cloud -- is the in and Gartner edge, next immersive in and really say so what the quote go the to And remote to Gartner

real-time need computing see more you have that's environment. to you in where everywhere So the application

where this ASICs where space that's to changing kind to keep technology of software-only different compared or our infrastructure That's vertical XG all the is different with issue, So service especially and ASIC like. developed the providers have advantage address different these with the all approach. with this we working to more

Fatima Boolani

Very clear. you Thank so much.

Ken Xie

you. Thank

Operator

of Colville Deutsche Our question comes Bank. next from Patrick

open. is line Your

Patrick Colville

are there. influence Appreciate MQ hoping making? and Hi, much you you Fortinet outside me customer just the in and the SD-WAN corner Gartner's now did Farima of ago, This in. conclusion ask decision of time guys copying the you in top-right letting it. another the question. How year were back a of I'm top-right corner

And have that got that Fortinet your something in so was a on opinion and might bit dialogue more the RFPs? changed

Ken Xie

too but -- that like come It's we enterprise, end like -- certain have it's the on because the helps on we -- also new Magic only September quarter. It's quarter. the sector up geo It a on the -- the of probably day also and come Quadrant the much now a of in depending XX, also have much Magic diversity. broader and Quadrant. But last

don't think… I So

Keith Jensen

that We close fast. don't

Ken Xie

Yeah.

business that in going But helped Sorry, get forward. much can't quarter probably think QX. last more I day the in it's of we don't the

Keith Jensen

to yes. expect certainly helpful for forward tailwind a going it's and us be We going

Patrick Colville

you Thank much. Great. so

Keith Jensen

you. Thank

Operator

no over There Peter I'd back questions. are for Salkowski to closing the like remarks. turn further your to call

Peter Salkowski

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

-- be the the on at way and XXth, on conference available is Investor The quarter. Xth, a will on conference December website Xth. Fortinet. in by links Events the December with the Barclays the conferences Raymond and webcast attending presentations James website conference Xnd, December our on fourth UBS Suisse as conference Relations be attending Xth, Credit will on be December conferences will Fortinet November well as

contact you day. very care. Thank any free please great follow-up to you me. Take a Have much. feel have If questions

Operator

concludes the Ladies and gentlemen, this conference.

disconnect. great day. now have Everyone may a You

Fortinet (FTNT) 29 Oct 202020 Q3 Earnings call transcript