FTNT - Earnings call transcript Q4 2020

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Fortinet Fourth Quarter 2020 Earnings Announcement. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. now today, hand of Peter would to conference Investor I host your Salkowski, Instructions] like the to over Relations. [Operator Vice President ahead. go Please

Peter Salkowski

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

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

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

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

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

Ken Xie

Thanks, you quarter for our joining $XXX increased and million. XX% full review results. quarter fourth call thank XXXX today’s to Peter, year to billing everyone and Fourth to

Our for XX% fourth XX%, secure billing. to all-time total operating revenue quarter-over-quarter contributing revenue quarter. revenue We achieved offering SD-WAN non-GAAP growth to solid accounted the a for fourth Operating XX%. of over company quarter of benefited record of XX.X% accelerated from performance. margin margin Product

the opportunities to shift at announced we quarters. many remote replace to Fortinet trust we traditional attack the leading and This to updates. focus only reduces while few ahead, With surface firewall-based is X.X the VPN. our this features access access cybersecurity to release, offer more zero XXX enabling plan Given the the with network vendor least growth improving FortiOS new the Today, for experience. user next

network security home LTE that cloud-based security-as-a-service. FortiOS Access resiliency. and extends the policy, XG Zero security performance off WAN X.X same via for SASE solution to The consistent, enable in increase now, beyond gives by to or delivered innovations their solution also FortiOS connectivity integration the from consumption or and with with network. SASE the of management the network Network simplifies need Trust enterprise-grade X.X whether Edge access with using and improve Fortinet’s on-premise, they enterprises wireless work flexibility Tighter a workforce on the

to The mission this networking Fabric a scalable or integrated security separate is available inflection endpoint Security is automated to secure, enables offering all cloud technology integrated, to This anywhere. from will and built platform Cybersecurity a broad, Fortinet to of delivering security networking XG not drivers towards is release FortiOS consolidating organizations together. highly a seamlessly consolidation Fortinet Security across and cyber and network network achieve of automated are The and is operate forward. Quadrant. recognized Fabric Xth connectivity network everywhere. platform application holistic approach built Fortinet point. on our and that broad with X.X set any device, cloud, And organically expands a platform security security-driven to but approach in organizations Our deep the any area. on security Magic to communicate at Gartner just Today going security key our platform an for increasingly, be endpoint, provide

Quadrant. Our Next Generation FortiGate in the product is a both, SD-WAN Firewall and leader Magic

experience and share market excellent few unique solution to years. a SD-WAN to continue our adoption expect leader within a our secure of We become

of work elevated In they addition, incident and as the grow infrastructure the used at pandemic platform. estimate raise of their an market SolarWinds four a IT need environment. percentage for we security a XX% our and broad, we to years edges will for reach for by expect will recent $XX the our integrated over rate And across entire compound multiple the XXXX. billion security total spending companies addressable trust to annual next The in automated zero growth a secure drivers,

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

Keith Jensen

you, Ken. Thank

machine. XX%. and -- acceleration of with revenue review Service sequential Total start demand XX%. was million strong revenue form substantial XX%. fabric for across was million up $XXX Fabric in and $XXX Platform up was growth relating Let’s up revenue saw from Product fourth Product Security hardware, all revenue. the FortiGate of virtual quarter software, revenue factors,

the cloud increased continued representing revenue to their Security and While Support of solutions. Service from shift in revenue XXxX related cases. professional of mix. other secure demand XxX was range $XXX FortiGates The and their security cases $XXX revenue services services of for strong XXxX XX benefited million. wide million. XX% use to the dramatic operating million XX% system driven fabric and increased of was $XXX product by SD-WAN with cloud embedded capabilities revenue from majority XX% support and points, growth, the to subscription revenue mix now provider use

increased FortiGate and non-FortiGate end Network XX%, increase revenue. by XX%, FortiGate of families. a revenue security high to cloud the Non-FortiGate driven in product increased revenue for the revenue solutions. security and fabric by mix service and entry-level XX% Moving and products driven

platform, $XXX proprietary non-FortiGate the ASIC capacity drives shared cost advantage, points. our success revenue operating Before take continuing growth. billion increase our grew performance. XX% strategy, integrated the the the with diversity, across billion. our platform the grew while our be more induced system the exit than a customer million. other enables to consecutive as add pride business on to our in fourth focus quarter full-year and the growth per the consistent for speaks are of XXXX. to cloud products for a XX% continued a with price of revenue In performance and revenue XXXX like security In pace features pandemic Total fabric, third and revenue performance advantage a results, year I’d And highlight This $X.X and to year other over of services we year XXXX geographic to We that maintaining XX%. great $X words, on our midst represents recession, total and to functions organic the

by and a Together, physical software, SaaS and as products solutions. hosted range and FortiGate form virtual and including of include let’s perpetual attack a range methods, and and protection security non-FortiGate factors, geo. turn QX of digital appliances, back as well form revenue non-hosted provide solutions environments, factors integrated for and solutions edges. delivery to their enabling cloud, results, Pivoting and hybrid expanding our Our they surface to complete and

revenue with align our Our of performance it the with the geographic continued business. pandemic’s economic geographic path, to highlighted diversification and

and many continue EMEA XX% to the As revenue remain Pacific growth largely XX%, of summarized Americas countries XX%. posted on revenue Asia economies Asian slide X, increased in revenue and increased as open.

were Let’s $XXX fourth up billings. million, shift Total XX%. to billings quarter

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

As X, for billings, quarter. driven XX% demand posted high-end entry-level FortiGates billings for cloud increased security of Non-FortiGate shown by and billings fabric on total strong the slide growth solutions. and

pandemic. with aligns of geo billings performance economic with the As the revenue, path

outperformed geos, Latin pandemic especially of followed Europe reflect APAC Americas. of terms billings and The the growth, In the by Americas America. all the impact continuing and in

segments. all posted by driven multinational channel by program. expansions, strength illustrating solid new by the geos, partners is of the segment security customer channel acquisitions, of execution this Engage to large segment Moving partner across customer enterprise makeup small growth our billings This and customer fabric solid our The customer segment. diverse

rebound X total quarter-over-quarter. Service Retail providers with continued Moving year-over-year. to worldwide our total accounted with billings, and industry by total at all to performance and sector of for XX% The of billings MSSPs XX% XX% grew another topped up up And Education points accounted from team. billings billings for billings. growth of international percentage worldwide strong XX% verticals XX% government verticals.

XX for XX total by quarter dollar Looking doubled over year deals XXXX. in in full fourth On deals XX% our $X SD-WAN compared SD-WAN versus had at million now fourth to Secure a approximately XX million, the the over of deals deals XX XXXX. accounted for deals the in $X quarter fourth billings of year-over-year. We size. quarter of basis, and accounted

to statement. income back the Moving

prepare headcount X, gross of XXX of shift by of XX.X%. and of and we basis a created continued services increased offset X,XXX, improved to points shift points Product an cost was continued basis of products. comparisons. for as XX% additional from year, to mix to revenue. The of members the program the margin XX.X%. team The fourth growth. the XX sales quarter-over-quarter quarter-over-quarter our a lower higher from the improved end slide basis XXX mix to gross improvement the margin newer benefit addition margin XX%. At generation Operating for increase margin mix margin margin direct software products travel lower growth total As and product for quarter product shown headwind expenses, the a to marketing gross Product new revenue the gross points on benefiting from gross was continue to XX.X%, FortiGate strong

summarized in XXX,XXX statement fourth million. fourth XX. shares quarter, flow the for the Moving total Cash stock of our the common of at million. cost a $XXX came to flow repurchased for XX, on XX In slides and $XX approximately cash we of quarter

the in advantage For billion. authorization we the $X quarter, and expire billion experience end they At end total strength $X.X million of shares was cost partners XXXX. the authorization to leveraged with sheet challenges. full repurchase customers our economic the as the a of the a support we the pandemic, balance share Throughout set geo-specific remaining of XX.X to February year, for fourth the of have at our as competitive repurchased

third the result, targeted geographically X.X extended decision provide and in increased payment relatively our and expectations from to to Inventory X.X times As times days days in improved our average with X sales plans. XX quarter to line days, outstanding a turns was year-over-year. flat reflecting

the and CapEx $XXX million expect X months fourth the moved construction expenditures we XXXX of the contributed were to payment first other related XXXX and increase. balances of extended include XXXX. and our quarter million be inventory footprint up million, capital in XX terms the and effect for due was other spending that in XXXX fourth million. contract than to The and $XX from to first approximately quarter quarter XXXX. in and $XXX between deals was at expanding the $XX half term the million, activity. building. The projects higher delays real least in We through new the Capital as all campus growth including average move and million between data to $XX to fourth be for less We estate enterprise center for quarter large SD-WAN $XX expenditures of months, estimate from

our regarding which for As we the beginning look forward, and slide to full-year on forward-looking XX, the review information Peter quarter subject provided call. XXXX, first of to disclaimers outlook that the summarized I’d like at is

assumes the which of seasonality quarter, to with associated operating million first in to earnings the million; XXX quarter; of range $XXX share the $XXX million. For gross XX.X%; revenue margin million; to non-GAAP $XXX XX.X% between of the first of billings revenue non-GAAP XX.X%, range non-GAAP $X.XX we share million in is to typical of $XXX per expect XX.X% a the and $X.XX, count million XXX margin reflecting of

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

guidance, on of dynamics. challenges unpredictable of the our continuing several over XXXX now the an of XXXX XXX improvements to consecutive execution non-GAAP And years of and every and profitability performance, we reported margin, year truly the average changing of of face operating have of consistent, the rapidly Fortinet total period. while a I’d metrics. team, increasing in growth and key results predictable XX%, member for been effort our Today, basis revenue and our in providing outstanding is growth year same Before third points congratulate outstanding. this unprecedented The in like and for top

Our goal growth remains the we profitability within to provided. framework and have balance

NPX $X,XXX service and of billion per and for in milestone operating represents currently which XX the X.X $X,XXX million benefit, growth increase represents midpoint growth supported XX%; XXXX, XXX for system. given growth million, several tilt gross which mentioned, the $X,XXX growth $X.XX XXX XXX earnings The of to XX% XX%; represents T&E new quarters. are XX% implies and to within of of XX% operating revenue lie margin the and growth for opportunities for in of between total product XX%; the that Ken the next range pipeline of revenue see guidance into that, FortiOS in share XXXX to $X,XXX at million, $X,XXX XX% $X.XX, chip to our XXXX, include a a billings to range many plan approximately $X,XXX of the midpoint margin non-GAAP the approximately the for product to assumes framework, basis-point capacity bias out the count range margin which we As represents quite which the of more to XXXX. When our to operating backing XXXX, opportunities of million approximately at non-GAAP heading of in revenue million expect strong Fortinet; XX%. midpoint which of With million, at in least this ahead, growth to million. our revenue towards efforts, million of we Non-GAAP sales a by development increased $X the share we

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

We expect $XX cash million. taxes to be approximately

difficult Ken, Q&A for hard to to to unique the session. also now team. back partners, times. the Fortinet thank I’ll work and customers call and team special I’d Now, welcome these like Peter their to the to like the hand our Panopta support and all a over I’d with during And begin offer

Peter Salkowski

Operator, Thank you, questions. please Keith. open call the for

Operator

[Operator line question Goldman Thank comes you. of Essex Our the first with Sachs. from Brian Instructions]

Brian Essex

afternoon. great year. if congrats you set ask, the Ken, question. a Good results. for taking you a product And could on of you’ve Thank of I different this cycles number Hi. got of Maybe, ahead

NPX. got You’ve

You’ve about SD-WAN. already talked

those potential and from are contribution XG. Can what You’ve your seeing you in talk that’s guidance? maybe yet the in and embedded got the hyperscale currently you And, penetration to exposure about what’s each of market, come? to

Ken Xie

it’s NPX, the in for think still I ramp-up stage.

our the for SD-WAN see when platform X of we to whether growth, a driver, networking like in years later also what’s and and the now middle the continue new to end are to better we or far, the in X.X SASE is SoCX. a also process contribute FortiOS high we environment from like That’s I We the security growth quarter. additional this a so beta-X The using especially product security-driven NPX, the it’s right build in also X this zero and the lot and probably trust it’s helping but this growth, is ago, XX% released -- infrastructure contribution but the year, range. call

and team the marketing. a that’s nicely of the grows low which little bit over So, in also end great And sales the towards a there. job you doing see can is the side FortiGate,

Keith Jensen

Yes.

guidance inputs really from and in even we I of think or that for I key to is want wouldn’t use the so It’s maybe deal provided above that’s or some XG conversation degree some different certainly market see think We pipeline geography But, what -- beyond. it is XX opportunity of what have it. the process away of in terms of into by SASE individual go cases. see cases some products guidance, use the to as much would you upon what opportunity, more something we thinking the firewalls. not in individual not than I as or about you walk that the or or dependent that about XX identified we cases,

Brian Essex

than follow-up. Nice little certainly about picked you a Got activity, it. up Maybe helpful. if could more bit quick deal large the in talk channel. a just Maybe That’s we the market is the is How your opportunity? customer much and end large Where of you’re dynamics I competitive from? much displacement, existing business seeing come expansion scale. guess on how that of

Ken Xie

ASIC, Fortinet definitely, Yes, or new our get function new competitor. compared our product, FortiGate to starting leverage whether from to a a more customer using advantage with partner the much the more much better, is and of OS lot the competitive whether additional

-- growth. that’s SASE we the other helping for increased that’s whether have drive we bit accelerate of little endpoint. And cloud ahead actually competitor on side, revenue gap the like So, different to a the where have product And approach or now.

the And So, none this especially level, day come together, long developed, also in integrate that’s together, difficult to we automate also, also from emphasize, to designed competitors together, also That’s of one. our different competitor, acquisition, and more of automate together term. -- from work more to that. OS integrate has is from organically manage which internally most difficult

So, now. we we the do right more in a marketplace feel have advantage and more

Operator

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

Shaul Eyal

levels. execution on margin with question. to ongoing gross related want the Congrats I strong a start

it cloud ’XX ongoing shift an to So, basis X on for understand improvement X your improvement, strategy? ASIC-driven to like gross average. guidance by some with is points to driven driven is services, indicates subscription whether i.e., more by And margins it activities, I’d more the or

Keith Jensen

Yes.

creates capacity each is in generation success capacity, is generation the of benefit It of were ASIC to more you part of speed, also more consolidate last And probably the shown features the that. the think, previously BOM the more of creating separate. has I if to that which headline, addition successive the throughput. that will,

we’ve job year two, over the I structure. cost the benefit that or a very last done of think terms retaining in good of

margin, back coming you You margin at gross benefit two-thirds in services line. what’s do a Obviously, more that are and are business the can see then the look with total, the gross into that you product get add attractive of the when happened on also much margin.

So, those as well very is two, and the us into we move very, XXXX I of think, exit XXXX. for working combination

Shaul Eyal

seasonality interest level typical Sunburst into maybe trend? any you high aside building incremental in from just year year-end, mid-December, maybe seen the on And breach. Have and the starting again, healthy

Ken Xie

see -- a including especially it’s say do the business yet. the is keeping definitely among different But later spending still concern, with kind because -- these it’s year -- definitely I’d we it’s spending much mentioned, whole security things. secure certainly chain the product, it’s all supply I of third-party changing probably going But, people the security that will infrastructure, lot side see probably this to like do be, interest, more area, forward, say we interest in our probably need -- of I’d probably not but this increase. will IT with all

Operator

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

Tal Liani

I questions. have two

your growth. going this does on margin growth to elaborate year one will it previous is, you from the be focus on on for behind year, does how statement that increase What is you’re the of increases in meaning focus you to and expenses your remarks, And prepared example? year? this differ Can that now moderate? Does a Ken, to first year that going it mean The going said it you’re mean?

Ken Xie

also said, some sales endpoint increased like internal we a and we We the do infrastructure, with the also address provider. cloud visibility, to at keeping marketing. capacity see from and also we the investment we the development, time, we we the from side, and and product, working the in And marketing, networking invest, new also made like have where the have organic service whether better building especially and same increased like will sales infrastructure

there. also So, that kind both more but model, security-driven infrastructure, itself basically, whether will service also which and do of in the accelerating, see leverage some we including XG, has SD-WAN we areas, -- is networking, infrastructure, new especially the new keeping of invest a the market some kind starting or in the

what feel. that’s we So,

both So, FortiOS much give is the more us timing this and internally quite NPX or like a the growth will whether well. opportunity X.X

it faster growth. So, the us will help drive

Tal Liani

And does it have any impact margins. on

Keith Jensen

Tal, to add just Yes. that. I’ll

is XXXX, at sorry down levels And increase the we we with we’re the the And same when up operating our Look, successful to very growth. margins as feel with we of you. the this midpoint think even I very I we that a guidance coming the seeing were to I out XXXX, adding year -- think, -- think the capacity. to have, throughout much pipeline, the think, we’re the I interrupt sales capacity maintaining our in framework guidance and as dramatically, during time, the sat think, in -- build very the at well into little I actually for and bit. pandemic, the think, good that within growing very but advantage opportunity the I still take about together tenure of the margin XX% plan

Tal Liani

similar it. to order SASE address business company the is in doing on Got is happening and behind investment What My just what’s Can accommodate it? you scene? the to question elaborate second the models. in needed about infrastructure

Ken Xie

also, one level, approach in trust both to the other Yes. The some only automated the competitors. the also do access. approach. want And zero We for more OS are network SASE have a is we SASE different than integrated and Fortinet

or much own working requirement, it’s kind own whether or to with kind better making provider GDP will Fortinet for their whether approach, or that’s their of some even compared better themselves of secure approach. develop enterprise other fit So, SASE some to be it’s privacy, customer service other much which

together. have we we’re where we our investment, service some investments, do So, like working feel -- but some also with infrastructure, provider that’s

Operator

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

Ben Schmidt

is Thanks Rob. my for on for This Schmidt questions. taking Ben Hi.

and -- the shift SASE, what connectivity you you longer the term from think remote to and for a do of much in how towards think expect attention the about you branch do And As strategy space do perspective? office? your begins cloud what

Ken Xie

branch service can branch we can both our carrier leave And whether or the SASE, for vendor the build their themselves. so provider even to leverage or can thick for we the support approach. leverage think, also, thin office in which the they technology, or can enterprise, flexibility and we the I they

So, vendors more put infrastructure. that’s automated it’s level, in much to the has we some approach, let integrated, other say, why OS which we to compared

like of this move security SASE whether level So call leave OS and integration have, lot infrastructure transition, for will a to the to or gradually want service-based flexibility us, approach. they they for of like we customer still

to So own that’s with customers whole in infrastructure we’ll the the the we the And make where like need. say, have have whether campus flexibility the select networking their security-driven or at XG secure, own environment. with on center we data approach based segmentation, same time, or whether SD-WAN, enterprise internal the

that’s build of integrated but to is we loosely we approach. a time -- and kind why feel, other result this a level approach, much take So, bit other little advanced highly better the than even more OS some more

Ben Schmidt

already added? And, guys period investment, add to a Okay. added little you to how remind is normal ramp much And of been guess, be capacity bit more year? reps? this needs has growth how you new I us for what add, the how expecting can And just more much can the the to for on time you’re much

Ken Xie

[ph]. few all take [Indiscernible] X channel like within things. the X a then rep, probably to new like like the little X vertical, a that months the for and time bit probably each XX frame, like months the For carry enterprise years different X probably months, to second

internal, we other with I think on opportunity I the try and pandemic, also us new also progress more will how market definitely based the growth. differentiate, match to going driving plan say, the the -- opportunity the like see whether more we’re help also capacity when how going to do market the we so I’d and So, kind product there. investment there But, think and SASE of opportunities, the into keep like increase the

Operator

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

Fatima Boolani

Ken, with you. maybe I’ll start

of billings comprising and drilling your of -- seen. government some talked Just fifth levels about a the in vertical the your you quarter being performance, highest into the global we’ve that vertical-based

in more about Keith. positioned, the us exposure? if wondering cybersecurity perspective what Fortinet we a U.S. both federal, Biden then, public billion a from spending new within And so, think And $XX and is protocol your that government And I’m is the from remind you exposure I have the as then, U.S. how sector go-to-market for sort can of specifically, quick product especially administration? follow-up

Ken Xie

base, of government business our ago, the for And XX% The few XX%. service right Fortinet’s years is about business compared like is for a Yes. number global over us it’s total provider to X the now. carrier

Now, like are XX%. they

see For lot thing the the a of the and still we government, same U.S. opportunity for market. U.S.

second so, in to increase and the larger. take And the and capacity question? we’re and going faster building to What’s team keep opportunity and this grow

Keith Jensen

our we’ve add to that. digits think, fed that before I business, talked U.S. the is business -- of low single of our nothing government

Fatima Boolani

acceleration to what sticking very the XQ the Got theater, of Americas, you. XXXX. performance Keith, saw geographical nice the maybe was just an course against in for a Americas in we helpful. and U.S. over Very uneven

that finer Americas. the drivers types the of the And really if in key point the and went things wondering you on for it I’m me. So can put things of particularly and a of in that the quarter, went on right the just that’s strength, types

Keith Jensen

Yes.

So, think I good a question, lot a of different answers. but ways,

we’re Canada the you that far, the would pleased you did right with probably America of how the best I the put U.S. very Latin and back. has at middle. come if three, continues I to If do in U.S. be, the look think will. geographically, challenged, most by the

a on a a And also that The out quarter we and about felt that of, business. QX, think kind QX recovery been there’s picked for part QX, of in QX. and are -- the since was that up looking second quarter, all steady we Company -- progression second low business the of QX, It’s of for lack that at of U.S. the what pretty the experts total, pandemic obvious watermark, now to the but term, of I expect out both this that for coming you’ve point, better in

Operator

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

Brad Zelnick

congratulations have. just play year. curious, that do be a you to a a perspective, is over Thank great for two that time relationships? base you I installed My you you really to entire in to important have you, end think said out? to much. market competitors what the happen aspire basically so I on your team this your first great comments, And How was your needs take share what that to you question get can largest goal there? the from Fortinet which SD-WAN, And in leader Ken, share significant from And

Ken Xie

I think, security also a unique cost power, we SD-WAN together, ASIC for we us, build we lower computing a to of competing lot. advantage have increase leverage like and with

our two big the that’s change So, probably slower acquisition, come dynamic also that’s be going they on competitors innovation And there. whether the none leaders, where they will from not. market forward, of have of other the

the So, you additional see can X.X SD-WAN, increased the that’s from We function, what other see release. did FortiOS parts. XG and the whether the

So, need SD-WAN market going majority half security. will we the also of like believe, forward, do or

So, huge we advantage a have there.

what side, bigger that’s where keeping a the product, driving from the the share. the base, have from have cost So, be a from installation advantage but will market think -- huge, I and even we function, us have

to And doubled so business in the we almost compared year-over-year, the SD-WAN far, like XXXX the ‘XX.

Brad Zelnick

and for for this sales levers to just And in headcount, about, maybe think the are what light plans quickly year? of Great. the Keith. Keith,

Keith Jensen

I -- towards understand performance. us. into is capacity question, into platform the one look And to the I’ll think share think that use well we’re feels coming the of is this positioned the that has pivot NPX new for advantage not it and that been -- have the talked TAM tenure very, The talking of but sales feels if maybe very is a Ken feels advantage, coming The growth this cases, model coming the to the about. shift what we I’ve pipeline a we good that that FortiOS, good. as at don’t good. cost about. this the year level sure I The to have as I very I’m fully point we very out, data give have quite I shot Brad, plan versus year,

again, in good about think position And very talked execute it framework the are within that I maintaining we’ve this. to that we’re previously. we a

Operator

JP comes of the Our with Morgan. Sterling from question Auty line next

Sterling Auty

a from raised, position broad that side. industry you gauge areas bolster to fewer platform that about Just would approach. customers improve prepared With on is more that your like vendors, think, of in you Fortinet moving I would the forward? to what you in talked remarks, finally platform move to mind, the one question and Ken, consolidation the where are my your the

Ken Xie

has like because a that, double see secure to can growth FortiGate call That’s nice growth, these fabric the want also automated pretty solution. there. compared infrastructure whole security have almost customers the You we integrated all to

there. -- to gaining we’re continuing share keeping where we’re that’s So, see

of also side. So, part, provider security-driven on side, that’s FortiGate involving part the products. see with integrated on networking, the probably we opportunity XX, SASE we the whether lot other FortiGate the XX call other and some a different carrier, closely service the SD-WAN, the with within And and that’s XG working now

we on it, that’s together, so we like And also the we under itself much share. keeping related fabric -- on the based the connectivity see grows grow and And the FortiGate gaining some both, both the far, faster So, which in the where the and if broad we to -- cloud can like are on we FortiOS and the is all than the involved call do this and endpoint XX%, market market FortiOS. keeping the networking altogether. see approach, -- integrated

Operator

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

Adam Tindle

and just your and healthy start I some of to the how on on Ken, investing marketing some sales and comment margin initiatives. you’re growth more wanted focus

guide. a broader and just the as about industry pressure case yesterday. the seem margin outsider We an heavily of in of from make certainly competition doesn’t investing And full implications be maybe could on competitors that your greater competitor also thinking marketing, that pricing are industry based message a major a the similar to and enter heard we sales period year case

on scenario out? why not does thoughts some that play maybe So,

Keith Jensen

company on at mix Ken, business that think, probably behalf? to at rates I you. you’re can product a looking I in very is different Whether very, jump or has the model. you’re what have a answer or growth and your reference service looking

comparison. that that I know draw So, would that don’t straight-line

I it business think, model expect to executing successful, here extremely we’re be will the I been and has that continue so.

like around. but opposed In as other days I that that as -- our terms it, to I milestone oftentimes, RFPs leader, view way to competitors is I that for we’re the that carrying really there’s we’re forced are and of react the don’t performance being the think price into to the discounting, brought pricing think, to opportunities set

If discounting and execute mean for you often been that to period. the a has us I headwind. you it in define ability pressure lower back in by at offered discounting, tailwind And pandemic, even the prior throughout the in a more that quarter opposed our not, to than as that, look discounting, than will, comments XXXX, we’ve go against if

So, the have I think there. concerns have described don’t been we that may

Adam Tindle

helpful. quick And a That’s just Okay. Keith. follow-up, maybe

in down mid-teens digits weeds the sequentially down at start a low the COVID, billings XX% sorry, was this And about bit and XX%. guidance double that so, But, the typically or at it’s of in one. on for down midpoint year, it range. little QX, Last the

items. of the the is, You of just than part environment COVID, with question be those entered during pipeline, to disconnect having a in on we about the year? Maybe sequential billings last the worse you. between strong some So, would QX desire decline invest. supporting when Thank the talked help two the why color

Keith Jensen

Yes.

about seen and that shift, is you’ve XXXX. us of some QX think then sort on from fourth which it. fourth going quarter nothing ‘XX to I performance, And was QX year. top of progression tremendous you’re is -- this of talking the know of the the of the thereafter. that typically is -- I start one part it’s new from and just see quarter QX good in Historically, XXXX for and to smallest I performance you XX a in but quarter quarter, think XXXX a

Operator

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

Keith Bachman

question my wanted first to of ask I you. Ken,

XG. Why And do from in talk when benefits think about what this? XG? talked why could You’ve you get is little And that instance does that that you’ll deployment Fortinet just an opportunity? of bit about customer? of a your if some the win Who’s you --

Ken Xie

new we also security a which need the risk. connect XG We a edge lot Internet, I of see of attack to to call do lot new there’s think a be service, increased devices a covered.

So, lot all that’s where devices especially, a in service lot we’re and the XG the service of space. for a enterprise these different working providers of with OT/IoT to connect

opportunity. do huge we that see as So a

with the we end our service the us it for of carrier XG And and could towards the year. position and can with growth see -- so, year be one be do of provider factor the driving driving this the material

a huge very huge, also infrastructure, and opportunity, whole -- it’s it’s also. forward, secure this of part very, to providers in of starting which service carrier our whether even fast the area grow Going have lot investment

Keith Bachman

interesting. Okay,

then, And one you. Okay. Keith, for

about For puts the you you CapEx. to about relates guidance operating ‘XX, want of think and us to Any talked or flow? other it as takes OCF cash

Keith Jensen

No, the of had think not strong quarter, product fourth turns that The fourth the made point direct revenue we for inventory. in the about I pretty really. the in quarter. mean, the that’s but reflection I us success I in line came a in

better I era probably that a to during maintain somewhat we pandemic higher do think continue inventory. expected. than we’ll this was bit that levels little of So

The wants in and to I term that that fast it to as interest. best CFO down every wants payment that’s as think for life. distributor possible I program, our wind think every on hold extended to

be that ongoing battle XXXX, So, throughout think. us I will for an

Operator

question comes line Bollin Ben Our Cleveland Research. from the with next of

Ben Bollin

My SASE pretty intentions see with first and little you zero your how a positioned? in trust, aspirations made SD-WAN. share clear move us you’ve Could aspirations, bit as into about yourself question, you you

Ken Xie

or little is price build do all of that’s cloud service whether also can competitors. FortiGate, which infrastructure FortiOS, lot or And of connects part than of X.X gives SASE be new different the offered, software a SD-WAN part We where physical a is on FortiOS the bit and kind of Yes. within the flexibility the offering. security What together. based the delivering. virtual a this other we

come we’re So, additional much, at And new also the We -- market which the up, we good do the offered believe for SD-WAN keeping growth keeping be grown we’ll driver keeping XX%, probably it XX% continue growing probably X.X, same the also gaining could have. time, year. by a already pretty in other we XG that’s year-over-year -- this opportunities to FortiOS where see the and share. like was

Ben Bollin

footprint rolling out, it you’ve if the how historical at over, backwards how appliances? How through refreshes, as the And Could does you legacy for also OS Thank available? the bit will base? little to it once a talk FortiOS compatible you. about X you long of roll rolls some envision take be looked this

Ken Xie

It’s customer. really on dependent

whether service large this the also SD-WAN, of additional which channel reacts a all of I to part, -- of opportunities. business sometimes take is approach, little integrate tightly additional service, together and also -- have do to SASE, we to they edge a and then have little then new faster say, why see we additional have a offer bit That’s enable you say, there’s like Because different kind Some enables protect kind we that. edge. automate lot some the probably call But to they different together security each of a integrated bit And driven different product, a this the enterprise, in and service providers, automate. providers time. for difficult of networking, to which need protect the do vendor them instead integrate and support

of this this the see see see function. we we to a do quite we’ll they time huge where see, it’s some need it. huge of like customers XXX for in do that’s new function. train, benefit and see half new from the a up new to that But towards features But, area. where like second them, year, opportunity we lot of So, us. cover gradually of this the that’s And broad benefit a pick response of updates on the OS lot probably And a

Operator

Capital Markets. Our next Turits from with Michael line comes of the question KeyBanc

line Your open. is

Unidentified Analyst

Eric Hi. This on is Heath for [ph] Michael.

in And side? for product you that one hardware the headwinds. expected, you did Keith, snap billings in that XXXX? end, seemed you than XQ, see How some deferrals the especially on Just for like in guided play of macro might differently out it me. refreshes did XXXX back assuming

Keith Jensen

Yes.

We really the that have think I we of don’t refreshes, despite product deferrals such long list. a asset concept. saw

in think mean, I was think, other normally don’t budget QX the you I unusual was element with through. there -- the some terms flush And by typical of probably think what I of I that, see, years. flowing

think I -- was some there of that that simply point a really also hard salespeople think, pushed. And on working a of think Ken I earlier some bit. build made was little there don’t good to accelerators. probably to I element element hit of deals kind

that companies. going at event of for wins importance awareness the impact in for quarter, many think, quarter. to and doubtful least solar because late the probably point other that of and on security security activity the seems December the that that think, events It of so raises that of this I really security large, do in like us for that, on much it last happened Ken world it the I certainly focus it. unfortunately, matters the two keep and weeks people made and suffer are at had

dynamic will, of of guidance be beginning impact of setting QX. if the setting, through you saw back once learning question the and your both think caution, you rates. that process second there to to we close the guidance cautious, don’t I of was saw and going the how element come I in in know So, an do terms that the came and QX out And quarter in

Ken Xie

a in still -- whether have leverage, cybersecurity. see the but That’s nice network security where SMBs or retail. pretty growth we overall, SMB, low including Also, very percentage the

a see have So still a over growth huge we there. that’s -- where opportunity there’s

Operator

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

Andrew Nowinski

just you. starting a Thank Maybe nice with the on question. congrats And quarter. high-level Great.

firewall do perhaps you mix think the about attack solutions? of think and it of subscription more the SolarWinds or do customers revenue, positive as your your tailwind think So, a spending your spending the create pressure in market, as you cloud-based shift growth we some will product will towards for

Ken Xie

integrated drive more they infrastructure would said, probably and a have security. I to bigger

the side. where sort it’s definitely, of -- probably when that’s from kind come more of it’s network So, like

this trying a of On security also the That’s need. like the other is, IT to overall pandemic definitely increasing on probably is why from kind and increased trying also say, few of the that’s things, will the target The just importance keep a this drive. of what��s case SolarWinds years it’s other whether the where security what like side, home, cover there’s to spending spending which they and like cybersecurity. a digitalize there’s helping year, other the of lot are process, ago, also business awareness during work I the

Andrew Nowinski

follow-up. just Great. Ken. a then, And Thanks,

the has SIM this wondering you phase certainly here subscriptions playbook growth using phase, strategy years, few your via deals are look to growth, As to growth, come drive I’m just that if go-to-market and been firewall. over last year and you’re perhaps other growth we in think are your about your or changing seeing you back you your strategy to entering virtual growth? this the go-to-market and and to the same new more with your drive playbook your lead that the you accelerate solutions products the the

Ken Xie

going parties it different automated this we security network endpoint, industry and also, probably or here. fast-growing compared need growth integrated acquisition just of the changing from not of working It’s you and XG, also keep That’s product also some more you on like from integrate some there’s few is market, make we parts But have to a to day forward. develop one quick to the to That’s infrastructure the to with important, other is whole In SD-WAN come call security. it’s just center automated innovation home, together. the any which -- whether market, the competitor, some other cannot still organic because -- the the little we the security network security other integrated, respond keep the only, together. network connectivity, dynamic challenging market but work solution bit next cloud, biggest that’s also infrastructure, with years, keep the to and where also part, some to other why also more closely

Operator

BTIG. line the from comes question with next Our Gray Powell of

Gray Powell

on results. good Thanks taking questions. And congratulations the for the

cycles, back then? looking through in So, at the did did to past XG long too In you back telecom the XG how then, tailwinds maybe kind how that of upgrade XG but Fortinet? XG play maybe see ago, was on does cycle, the And feel What comparison? upgrade circling questions. like cycle

Ken Xie

And as the that because will Compared of the whatever, of auto certain devices more industry is phone, a of lot XG, at city device. increase of connect that’s much whether connection be more also XXx XG need, more number may connect addresses more the probably XG to together, Yes. to whether smart be infrastructure. there’s lot drive also or is kind people, bigger it the and a or connected, least, to

the couple we a a a That’s going smart the more more help -- of of forward. there. different and far, It’s can BXB be the So, the a on business towards right? connection the security we connection years network of with have towards application, towards opportunity just so SD-WAN application that’s So dynamic, like business ago, drive compared see because in lot lot consumer opportunity, SD-WAN, will a based see part. do side do huge

is to there. additional which be best also which service So a have that’s we of provider, but a lot definitely lot bring cybersecurity quite opportunity protected. of play service provider the XG there, the to has see other need relation where among role we risk probably there, the vendors And also carrier important business

lot do potential a in So we this area. see of

Operator

line Liu Our Irvin last ISI. from the come Evercore with will question of

Irvin Liu

one and one have follow-up. question I

perhaps calendar you size, business up this wondering mix was see through I SMB. if you’ve or trending your First, ‘XX? customer And a do maybe how seen down a commercial enterprise, update or can mix shift And by you us whether by market? on breakout

Keith Jensen

Yes.

mid, I in MSSP end them. November very, And one-third, you one-third. in our Analyst small much of then, that’s Day bit answered up one-third; that enterprise, that. think, a a little XXXX gets slide one-third. it to business, But, explain Small something enterprise, like basically we between had one-third, one-third; allocated with very

very surprise a pleasant pandemic the enterprise the the the segment small It XXXX how in business throughout of enterprise us held did the -- was been really well. thing has I up. to that very well think,

Irvin Liu

Got And current do you customer it. anticipate a one shifts assuming into environment? return the of normal back follow-up, now any or year ‘XX, And things calendar for in patterns, or demand changes the we’re pandemic. assuming buying normalize in my half to

Ken Xie

especially but during to of customer, to in the current us, customer think, like -- keeping pandemic, especially down some we’re enterprise I it’s the But the for whether developed country. the gaining vendor, turned market share. these hold or the in U.S. countries,

lot a new infrastructure. difficult pandemic us, Once meet windows there’s or see new customer, of people certain it’s with So, hardware, more to the there. during because new open, effort more open OS the probably do take we do it’s new more do we especially for the testing will into get which opportunity, and

least. at bit quarters in also us forward growth us going leads that towards a So, of for the to investing kind in little few next the

Keith Jensen

Yes.

that. spot is Ken on with think, I

quote kick think, vaccine year. in forward half need sometimes destined the looking think to, lot are pandemic the a some nice towards second I pandemic country I and the gross I we have here throughout think and thing that in to point be I time, and at expect and about of we is the a at this business then of of drivers us other our seems And to what all unquote, in, understanding about think Fortinet, that quarters.

numbers and of But, are X%. positive where most further. from GDP I when that dramatic up swings and think going the some come the seeing Those those negative X% very think, expectations numbers. to opening or we’re year-over-year that’s to that of we’re start I all aware pretty economies countries the X% are they people’s

Peter Salkowski

this We’re point. close going the to call at

press for everybody in conference release, to Xth U.S. Fortinet’s to like be read today’s held you As point I’d that out virtual on XXXX will Accelerate March the

be conference, Day. an that of part As Analyst we’ll doing

register, analysts. you in well up to website can register investors link as there’s for the So, and release press on as a the

that morning please in do to prior if March event. attending that you’re interested Xth, So,

going addition be Goldman In -- Thank be page be Sachs our available on next conference your Investor hosting Morgan XXth attending February to on Events those addition, our Relations to of webcasts Accelerate, very the Stanley much the Investor time will on website. you in the and we’re conference March hosting Links to website today. also Xnd. week -- Relations on Investor we’ll for

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

Operator

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

disconnect. now You may

Fortinet (FTNT) 5 Feb 212020 Q4 Earnings call transcript