FTNT - Earnings call transcript Q2 2021

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Operator

Good day and thank you for standing by. Welcome to the Fortinet’s Second Quarter 2021 Earnings Call. At this time all participants 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 speaker your Salkowski, Instructions] like the to over Relations. [Operator Vice President go please ahead. Sir,

Peter Salkowski

Chief a second Ken today's Thank on and financial pleased quarter, our the Keith we inside the CEO; to Peter are everyone will be on Fortinet's will to XXXX This Officer. call Investor the you, providing which to begin are at our the financial Jensen, welcome via afternoon, third for of discuss quarter Investor our second business. and Founder, the call Financial building. President by of Fortinet's This perspective Relations will live am call from webcast Vice high-level Speakers review replay for Xie, for for our is of year. before then is our that results website. and I Fortinet. updating our Kathryn. guidance Good results hosting on operating Relations Salkowski, providing Ken call new Chairman everyone. available a Keith quarter full and

will questions. then for open We the call

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

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

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

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

Ken Xie

flow thank XX% and for $XXX joining XX% today's it XXXX was revenue Thanks, grew results. best to outstanding the new on since review our increased of driven years. focused up we for Product to revenue you highest of second a and billings. momentum business the quarter XX our Peter, have by XXXX. announced product million to second a security Today revenue called service security growth. Free Total XX%. everyone With FortiTrust. services, Billings nearly million was execution solid FortiCare adding call quarterly has remain growth SD-WAN with we $XXX XX% million, contributed cash was Secure been to quarter level. strong FortiGuard expansion and $XXX

which enables traditionally and cloud, level offer for siloded been and base Access, the manage all service across service has and that user Initial Network the been to modifications. high follow security FortiTrust have easily endpoint networks, across security This platform. secure licensing user Zero-Trust identity organizations organizations [ph]. and offered

revolution. to which two-level fabric security x with the services and FortiCare include support product cover timely insurance have Fortinet technical We all current services X security XX

competitive - [indiscernible] two advanced those adjust best with XXXF is across internal high segment industry security security leading regularly and industry's [indiscernible] just Zero-Trust products new enterprise times Additionally, services commercial Not NPX based only service network sigaoffers network the that the powered packages FortiGuard added [indiscernible] than our SPU announced been firewall, the for by next AI number performance generation for the [indiscernible] average FortiGuard [indiscernible]. the security with a other protection for speed apps Today found These Fortinet the of full make individual centers. has high the for fabric. [indiscernible] on an access protection enabled an SMB. we for different first and more security protection performance FortiGate

our the see even momentum can providers. type and the world's the was the solutions and You adoption cloud Security access across award. the largest winner [indiscernible] SD-WAN of of Microsoft service May Fortinet In among [indiscernible] as network recognized

process recognized named has and car product the Security innovative Year, service, Cloud's and Fortinet Lastly, outstanding for of services. XXXX benefiting Partner customer of thinking, Google a

the call to continuous thank on would work. their I partners our for our customer turning over like Before support worldwide to employee, Keith, and

Keith Jensen

And of your Ken. comments, growth that you, sequentially. growth, and accelerated all note should quarter, we billings to revenue growth, product revenue to Thank as add prior the total

three product all was growth highs and at nine in were fact, five-year highest its Fortinet growth revenue rates over years. In

across broad FortiGate growth use drive Total XX% cases, and was and The platform customer integrated, by and up through across was growth strategy detailed non- of let's acceptance customer through Okay revenue more discussion driven with leading revenue the based our market QX of FortiGate XX%. infrastructures. geographies, revenue. million $XXX products, fabric revenue demand single across product our illustrating product security industry

a be strategy revenue financial the second demand of of at strong of and this least actual XX target. total rule includes drove The the be the growth to XX. percentage a operating rule margin quarter XX total and Our target execution to and

growth Non- XX%, XX%, million services the subscription secure nor while was One revenue deals, by $XXX FortiGate growth, our revenue products. strong of XX%. growth system. was backlog, other few for our revenue fabric our on result product product operating down from from continued consecutive growth transactions not functionality. product $XXX revenue which up security prior million we the integrated strong comment capabilities our embedded of was the growth number of revenue and the product revenue Support by while from additional was of a are or XX% of was security the revenue over a growth was revenue quarter SD-WAN services continue FortiGate growth FortiGate pulled the to and of see up robust was periods. large Service second from XX%. driven million in from driven from in reflection drawing related Majority unusual quarter FortiGate future of delayed was up $XXX growth organic

the and mix and approximately of of revenue, High FortiGate products NPX and Moving Non-FortiGate strong platform models, XX XX% to high-end FortiGates FortiGate FortiGate included increased for very representing FortiGate XX% powered shipments. branch product end products. by driven both revenue services demand high-end

over accounted cost to XX% common our driving of operating up FortiGates system to ASIC creates total consolidation, ownership, of range, increasing on to going The combination approximately enable is driven fabric for the vendor products, our total of bit for reversal percentage more later times performance advanced revenue inside of you've services complete integrated The an functionality system, and advanced ASIC computing running revenue, advantage. than operating so across today ten customers additional add meeting our what power Patricia price a and give [indiscernible], for scoop Non-FortiGate on a to consists Our and security grew XX% say. lowering the points. automation. products two got further common and of firewalls folks, to and capacity on can continue CPUs. computing five advantage power The speed

and solutions if of expanding over fabric The total Together grew delivery X appliances, security complete revenue for provide and surface cloud. non-hosted physical accounted Let form software, and from and me of Security as to for form methods, integrated to XX% environments, factors, attack FortiGate protection the and digital and solutions. cloud, product SaaS a network consists they the Integrated for professional again centers well start endpoints a range approximately virtual Non- and points. data enabling percentage hosted factors, as may. the hybrid I of services range XX% including of revenue and

XX% Let's turn geo. and by Americas EMEA XX%. was to revenue revenue XX%. on Americas both over of EMEA revenue growth increased To Product summarize, the APAC revenue Slide for posted increased The XX%. regions revenue growth X, and in to

billings. to Moving

billings saw growth FortiGate of up both FortiGate billings of segment platform. million over We XX%. Security segment total Fabric The growth a were for in of XX% strong accounting the delivered the billings. and quarter XX%, non-FortiGate $XXX Second

billings branch for end of accounted very growth delivered X-point XX%, total As shift to and billings a and services. shown billings segment strong over non-FortiGate The driving of Slide X, XX% mix on high non-FortiGate and growth. over posted FortiGates products

believe and integrated SASE platform on non-FortiGate Given to our $X a billion is key strong for of SD-WAN we a performance, total functionality year. this billings represented the Secure an is a solution. be pace continued business XX% billings,

slowdown, was continued by for States, consecutive Europe growth a had In posting good XX percentage the mid the and geo, up was from quarter term to for good from was year. XX XX. more growth in the outperformed EMEA which first APAC. $X driven from Americas by the XX contract for months one of followed Billings than the the of from The induced increased points. by to quarter terms to XX, the look America recover geos, sequentially up pandemic XXXX. in $X the and the XX XXs all very million second United pipeline Americas Latin average the approximately to quarter. second by billings of over million and XXXX deals million over Deals two increased of the over remainder Secure in and continues month quarter deals $X of SD-WAN months,

and by vertical suggest illustrate by have diversification Moving shown current importantly, is our security threat industry to model, the historically driving industries levels. billings investments Billings the worldwide investment landscape business lower verticals. may that in in

XX% have billings XX%. billings over For and not our example, for top-five combined the were accounted of growth total verticals that been of in up for XX%. providers Service historically

Operating headwind and dollar, increased FX weaker increase a event ended margin Moving income a XXX cost. decrease and to from margin the points product XX.X%, shift Product of margin revenue XXX basis investments travel points about accounted total basis gross with of the of Despite to of with of impact. a XX.X%. XXXX, We point datacenter gross range. mix guidance XXX a X-point basis a top was points services end basis headcount to the margin marketing statement, gross margin the XX.X%. to it at XX% decreased quarter Services along gross the the improved growth and XXX now an XX.X% product of drove for XX to points basis of with in US XX%. and and the revenue decline,

summarized million Free came cash growth, X. quarter revenue X expenditures. one benefiting a of quarterly flow statement linearity record and of flow from the capital in to cash second at on good for lower month Moving the strong and Slide $XXX

remaining returned of includes total For of have between new was to expenditures average set move approximately the of XXX,XXX We $XXX. authorization XX for second expenditures and $XXX the in of million, share of authorization half increase pre-pandemic a million, sales cost first $XXX new year-over-year, end $XX to year the capital cash price which be to billion. the at the repurchase X.X days estimate the times $XX days. $X.X third quarter. to to the quarter the quarter capital into were expire approximately strong common of to grade The the end building. We of $XX quarter-over-quarter for The reflecting million $XXX, a quarter turns billion, levels, quarter, million. $XX we February XXXX. for We XXXX the XXXX. estimate to issuance decreasing X.X and million million, of expenditures payment of billion an stock campus product during investment our and at increased shares first started seven investments DSO's with quarter proceeds we the building. Sunnyvale the from from $X.X share debt and repurchased $XX between includes XX total Inventory an the times, with ended and days Capital and $X increase

to the a attention growth understanding turning in needed U.S. patterns, office and and acceleration our more pandemic With and the the are facilities little post reviewing the capacity footprint, we work the Canada. warehouse of and of our

As we will for expenditures we phase is growth. increase possible of next quarters the prepare work through this for as next capital few that the estimated our process it our

growth balance to remains goal and our profitability. forward, Looking

your security that add our our advantage continuing shared within framework, are bias believe the least expect drives give which information is features increased we next we threat efforts towards enables we a forward supported tilt current the networking, I'll convergence at which and points. looking sales strong the disclaimers that price increased for functions the success call. of strategy, of of response Slide And and quarters. Security more system see the price capacity to for at several to to growth by single I our The provided integrated development include and of Peter platform to effectiveness, maintaining Given while which the to opportunities on outlook operating continue invest growing had, X pipeline, security the growth this ASIC environment, opportunities a for the and Fabric third now the the beginning quarter across performance in advantage, our regarding summarized platform, subject the

quarter and XX.X%. range point gross million. per of XX.X%, third $X.XX we the an million, assumes of costs, million, $XXX $XXX a margin billings share This margin million of non-GAAP basis operating to non-GAAP to in headwind exchange increased $XXX includes and earnings which count marketing the $XX.X share million estimated travel XXX revenue of the $XXX foreign and XX.X% to to For from non-GAAP $XXX between in to of the $X.XX, range expect $XXX of million

revenue range of $X.XXX Revenue growth billion, range $X.XXX tax approximately our in billion million. which XX%. share to to travel XXX non-GAAP billon, margin of a and growth estimated and in an in range gross midpoint of exchange to million billion expect XX.X%. point revenue to approximately and of expect assumes operating share of which the the XXX headwind $X.XXX guidance billings With XX%. XX%. marketing midpoint to represents are per XX% Non-GAAP foreign XX% of count implies of basis approximately includes of which that, to and the $X.XXX service margins of XXX Non-GAAP earnings represents Non-GAAP $X.XXX billion, $X.XX, at the product cost. XX%. which approximate growth between XXXX of growth we from $X.XXX XX% raising billion year rate Total the a full which XX%, at We $X.XX is of increased represents and

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

the with in the the of team our expect Ken, to Hey call session. all thank I'll XXXX. to open for partners, be the we Fortinet Pete, hand hard success and for please. like to million. ready cash and Peter, work, questions call now half $XX are execution, Along first their Q&A taxes the back operator We approximately I'd Kathryn customers, outstanding for to over

Operator

Sachs. Sure. Goldman Our Sir, question first from Essex is go [Operator Brian Instructions] of please ahead.

Brian Essex

three to final product the the having cycles you quarter maybe know revenue quarter. revenue see performance? to growth little on about results, an not Great, thank on of business. Are set and starting a us bit this you unpack quarter? to bit results a the rip maybe Ken, expansions? or I taking you've your more and nice cycles little off you talked Is congratulations refresh behind perhaps what's to guys for really Maybe of within in infrastructure going the refresh years Maybe start can Could this exposure some this understanding others? give of of upgrades replace you exposure product the if [ph]

Ken Xie

a no firewall whole longer the have I of kind be border probably good of pandemic some said after changing will Brian, the structure kind enough. question. during traditional thanks whether the Yes, the in pandemic, industry is

expand with also to internal like replacing of it do of WAN to attack. have to and the switch a Wi-Fi internal kind and segmentation maybe internal security secure the is [indiscernible] now the WAN program have XG switch You kind the into

attack whole that's protect security have a also going make structure consolidation of attacks together to and a there. kind powerful more the on So [indiscernible] protection also different everywhere maybe where also and to

we whole security that's how new architect will infrastructure to change architecture where for the So whole big protection the protect a a of to architecture see is there.

is there. own fresher to actually expanding the need than protection new firewall different probably have that be the traditional that's our infrastructure So

speed [indiscernible] very faster the there. have what and of what today, we [indiscernible] kind the secure XG And of phone much there. that's mobile [indiscernible] announced that's to these lot growth and the environment kind strong inside also [indiscernible] whether even work high C-band see the all doing these is program to on probably we segmentation, also and internal see of all solution That's do protection like we So then things.

the maybe also [indiscernible] and infrastructure kind whole boost more being working price on of by [Indiscernible] different So now coming the is the changed. this started vertical.

Brian Essex

a extent that's should revenue it, that provider that service growth in slightly they of or Maybe SASE you better on with mid think you? the saw getting might should think service come or to we the is super high OPAQ. I product market, followup, quarter. better but Got XXs end provider d kind percentage to as that still be this for more might selling that we side and grower growth, about Howe revenue about through you stable that it of lot be segment lower was understand the helpful. to a segment the particularly is, for is traction

Ken Xie

in down in early up I about probably stage last grew this compared ramp quarter the think like of up, quarter XX percentage, to about the stage, ramp XX%.

[indiscernible] like dimension, from strategy the and a which SASE, different quite [indiscernible] infrastructure building or different, different we faster of now our right So actually probably it have strategy is here they a XG, player. kind for are other very

have solution And with data revenue the like and hoped of also [indiscernible] that that own could margin will provider there. to SASE don’t they a are new trust additional we are come time so customer they be have the inside own have if a a building service in working some to and also a strategy the which no -- other be also for have they we solution to Also some infrastructure, kind and or build there, at to OS, a in use also provider of of service for they is will in of SASE part. SASE service same with the we can access and competitor grade is we power working kind have no some OS, we SASE seen want the own kind there. without low their kind plus the ASIC continued eventually They to there our different, them

So that's have term investment, long huge to once where is feel other advantage compared it, we we a we a but have competitors.

Brian Essex

you and right, very congrats much All helpful color. that's Thank again.

Ken Xie

Thank you.

Operator

Our Fodderwala is next question Hamza from Morgan Stanley. of

go ahead. may You

Hamza Fodderwala

Hey my of drivers regarding for thank question. I product the question a you growth. of on had guys, some prior taking followup revenue the

network lot coming talked the what as like into and or move Ken, looking hybrid back wondering see these So about customers larger you we back deals for pipeline into And are a you think I environment, larger and those heading deals. infrastructure saw the this the more was or past things as that do into work office the you that we beyond? the going and accelerant half more larger those to deals? to months an be of type do some XX in is the transformation XX

Ken Xie

the we know, product the have the only part strong. of feel that products are competitors We I infrastructure our and different traditional all the pipeline strong covered the multiple [indiscernible] very like also is You than XX% are some products see for like deal, grows larger also which were multiple using approach, only. mean we of

in have industry, we also in ASIC the years. latest developed we the but the So XX last

competing our competitor Just same was from product we so our better have own ASIC. time it call like -- for huge basically compare because the we performance of other cost the part will performance today, the function, announced but region, -- [indiscernible] a based is the like on industry six average, to the [indiscernible]

and plan maybe work a now will of security the replace did that's see some can internal highest leverage years. [indiscernible] also expansion also of the or the a At high it in landscape gave a of so be kind center function competitors. home basic few the hugely we or we what's whether a [indiscernible] what putting time, product company product inside us a better inside data even product our product a see product huge better and of And security other last lot is changing loss, market last hybrid as the same from end so lot per few high is which quarters the that power performance public the much like the

Hamza Fodderwala

or that's a right, helpful. followup And Keith Ken. maybe just question All for

talent Now mentioned was there, into very point half just hiring you're obviously spending wondering from back your all Keith plans competitive the a having margin around in factored basis the what you market on a your operating I'm XXX seeing these days if FX. I for guidance? impact wondering about and that's just it's been

Keith Jensen

pay we recruiting our rates. I attention our and obviously Yes, to to attrition think

the metric sales we our significantly was think grew that I I headcount that. headcount the increased would actually XX%. more than overall gave that that offer

I of the saying you advantage competitors and of having FortiGates kind just a that and data are that And in probably they some Ken the transformation. a think through refresh see center some I deployments sales spot bit it was of we're what maybe of and So end a relates to at the think a and probably read FortiGates of of understand to that moment and same think cycle [indiscernible] that success terms we're going I taking could branch time the people ago in audience sweet opportunities the being there. through was that visual high the

Hamza Fodderwala

Thank you.

Operator

And JP Sterling next Auty Morgan. is from sir, question our of

may go You ahead.

Sterling Auty

thanks Yes, guys.

if and capabilities that from your the of you were by there? particular other onion I could wanted my revenue referring that system. mean in question, driven the the I capabilities operating remarks the wondered FortiGate into Keith, one to growth in the prepared embedded were peel that you What comment kind For back was made in to majority you dive just demand of in quarter? what does

Keith Jensen

to of at contributed than XX%, billings, we SD-WAN. of close will saw total our nicely there or if found very growth. Yes, the in tried the was about totality We about about point if growth XX% track firewall some segmentation, et XX complicically. the to of all more talk think obviously use probably to XX it people close IPS, different the you to still I that those, a firewall cases. want micro SD-WAN contributed which think those, XX% that cetera, puts we past make Well somewhat the probably you

and a that were of for there's saw things of is suite So we we the with a success long firewall I pleased throughout use that that very think list offerings.

Ken Xie

Also, [indiscernible], service the access, area. for provider Both your especially there and SASE beauty by solution a cosmetic working of the enterprise on strong interest in there. your found we and a Forti see beauty this

Sterling Auty

Understood. Thank you.

Ken Xie

Thank you,

Operator

of is Sandler. next sir, And Rob from Owens question Piper our

ahead. may go You

Rob Owens

nature like you thank on are ask question starting my of taking like for and verticals there? we're a little starting bit Auty, to in to that and that comment time were issues spend, or guys verticals your some Thanks. success elaborate question. of non-traditional maybe OT every of the in a just is the Great, some the following and strategy meaningfully Mr. commentary that you lead to these in more around about your bit could you around day? your these to Could wake And one one I'd up little security to tick up reading this media

Keith Jensen

such growth in manufacturing, dots job Yes, there. all laying the looking did energy to And business. or what a you. see Rob, as we're of talking, good at we and have dramatic think connect the I saw We're transportation, that verticals, very then or of segment you that to industries utilities,

that's To retail, to saw I significant those we with in performed quarter. OT we growth sheer this historically we government provider, XX%, the service XX% very they've a in and our tech, that I alluded very, on the mentioned. We about saw services, financial just that about just consistent others, vertical very think that have, And been shift was top-five, we've what talked that and but other you quarter. the those those point strongly verticals growth consistent And that toOT, others. that saw

Rob Owens

much. very you Thank

Operator

of is Company. Eyal Shaul Cowen Our next and question from

go You ahead. may

Shaul Eyal

the my upside installed will your can mix on be appreciated. billing single When the qualitative unpack and Also, you. you've Thank printed, revenue look and discussion at the end. question you base? between Any us color upside, for we logos current

Keith Jensen

is Shaul this Keith. Yes,

XX% response. of New obviously And is quarter, logos strong very that north be the a to in we up to quarter, strong were I've in very had of XXXX that customers first past given that numbers kind year-over-year. of the quarter part suggest the going about the probably

response, to quarter there us the in normally revenue, a of period over quarter. contributors the part time. logo segment but Second that with strong customers initial contributors would very expect of to the growth in rather be new have in But not performance see customers signed revenue new longer from to the the significant you terms up was would

Shaul Eyal

you. Thank

Operator

from Our question is Please Barclays. go Kalia of Saket next ahead.

Saket Kalia

some there that pricing may broader like of feel sort you FortiGuard what is those what of the and portfolio taking talk for question announced the Okay, of Ken, on was pricing demand about thanks you access FortiCare little early sort remarks, you, for Hey, little the my just maybe Specifically, options? feedback great. you to per bit user that prepared for new in of options here. your kind can this bit for and as you be you tested a touched a but do recently?

Ken Xie

see enterprise going mobile application multiple and also just a inside especially The trust cover internal which home device, do access, work through company can like or now producer works devices, also some other remotely. license data some center, the from or forward, for We but need like XX-K a there multiple, not that cover kind mail home, other like a a web goes they or infrastructure compiler network to access. the like a of including

to the license module customer security multiple that product for use So will cover all per in infrastructure part for a in the much servers multiple user there. make really easier these user

of need very is the update current have kind parts we things would product that a time certainly on of on And important that's and real cover these also the the top this where FortiGuard we we all FortiCare, So part. all cover the subscription, there. feel also the

also is quick are some we pretty see the services but a fully we demand of how and trust ramp across the which the launched So we increase still built future, the very identity important. to sure time reason we and have Especially we needs paid of front management two a we That member It user opportunity setting growth service. probably access infrastructure like, see but also this customer. with of the these have identity of kind easily up, the ramp all make new needs kind feel huge kind trend up. this also do out deal And feel some to there's is FortiTrust time multiparty to don't get this in all in FortiTrust in.

Saket Kalia

you. Thank it. Got

Ken Xie

Thank you.

Operator

KeyBanc. next question, sir, of from Our Michael Turits

go may You ahead.

Michael Turits

Hey, huge quarter everybody, of course. a

the I in to this last stronger. have both a like been seems just for we're XXXX, upside. or for to to a been so lot Has where was seeing Keith around say strength And Ken, the quantitatively is I would qualitatively demand compare try understand acceleration? that to it to where more year, of trying focus what from both the think and circling it and people and But this breach and has why year. access changed shift, remote just there much

Ken Xie

in supporting supporting they Last be long-term. the work like to year, this can did year, it changed definitely to But remotely. make rush upgraded more the be in more this whatever working the probably need see to infrastructure

the infrastructure secure own segmentation. supporting And my infrastructure, also we where I when their remotely, of new Wi-Fi. the of or not work just their access So to and to the lot from whole see infrastructure even see design that's XG a how different own but internal part also internal

whether architecture is because that's more moderate there's also mentioned security OT Xg Keith also So of the covering product the is also strong. interest. And of part a a the rather IoT strong of new OT, a lot multiple

Keith Jensen

second a a really on year. did the well. large But think very, that be think like the completely. think characterized And maybe back Mike, a a center data quarter year last flip about QX very was Obviously that. different agree at part for also threat very, do side, and to the quarter environment add, business our to it it's with do the things regard. seeing later, that very you And I just software environment by OT, of Ken us, I with the it's today, in deployment probably very specifically, you're least premise year, We of that, taking QX XXXX, or I on Yes, or was like or that last of phased in lot in anything requires wasn't think well of I somebody something much a on a deployment software. if there

Michael Turits

Great, thanks guys.

Operator

question Blair. next of from William Our Ho Jonathan

You may question. your ask

Jonathan Ho

potential around Hi, to issues into afternoon. this if I lead running to just supply good all? understand chain does order shortages. any cadences potential impact you're chipset any wanted or And the to your at

Keith Jensen

We I'd that hand. XX last six love such, and but fact around we about the completely turns that shortages of to lead talked do then chip quarter, to suggested pretty say say that are run, as do on we I on inventory we're our to, that. of can't a I hover focused we the and that manufacturers week inventory some think have months time. chip immune

quarter going very I year. team of feel think very, how second this executed of about process in I good forecasting about for and the I quarter and offer manufacturing significant operations process challenges the input, that how may the third was year. would as any more the we and the they're That the things of rest that of have sure moved for through process. of accounted become estimates has our in it making that setting if guidance that will, a for the into terms you rest we've the part

Jonathan Ho

you. Thank

Operator

is question Our Sir, Ben Research. go may ahead. next of you Cleveland from Bollin

Ben Bollin

what when see afternoon, little deploy you how learn channel the potential future? Ken, everyone. little or bit are the consume risk in a sales that broader and you where thinking in how accelerated a taking Thanks supply, fabric for just bit the on Could inevitably there's either and this, bit customers into the a as behavior about purchase they a the Good one is or a addressing organization, will, fact, you digestion after talk of if about of to periods question. historically, there purchased. period like

Ken Xie

we the fabric, call Yes, more make more products, with I which ultimate together. see think of customers definitely to it fabric we on the multiple and benefit

billion year. the dollar billion making the this also dollar, faster do that's than will over So Non-FortiGate a FortiGate grow a over be a simple

it of already this like customer beyond and so is on test product whether customer, a the or pod, just there. they And what's the initial most our the then already, keep are purchase them them buy expanding multiple

installation because these the the forecast. to within more of and than have. fabric which base integration, often least Non-FortiGate part different cost enterprise. at see guide the also higher vendors, much That's So FortiGate, current have much that products platform it faster get from They also stronger that keeping like, of FortiGate the from using to see the we and enterprise a infrastructure interest important consolidation do quite the big the products whatever Gartner multiple can starting for manage we compared expanding more the to flow the keep approach, which different big multiple the kind and stronger also

Keith Jensen

and our forward. get get that firewalls, you you number look how is But we maybe I services comment, will, that will or if And Keith right? go we'll know on. progresses time, as in opportunity to and new at expect we the more the they look buying as installed to they customers the sell I if current products just and what to them understand added, we If their quarter, This suite. integration those that and one the of period expect come the fabric are and business that over we is in see install products the customers have guess of our Ken's strategy think base will add, adoption are of and But more, on build digest that have terms additional they of certainly firewalls. them our to the fabric then things, two understand and and kind in to you I and back we as we would those of continue from largely, if strategy, product

Ben Bollin

Thank you.

Operator

of Powell Gray from question BTIG. next our And

question. You may now your ask

Gray Powell

like and with Okay, of just and to great, and fabric so thanks. Non-FortiGate the been fabric Yes, cloud Within you've I'd the and the, topic there. seeing most longer demand like components about term? that that -- cloud, sustainability momentum? of have biggest think that then the we the the what have just And product how should the that strength stick of are sort

Ken Xie

have products, see any also much super is others. and we pretty internally of gave XX almost Non-FortiGate, because to now all contribute and I The up. and with them kind one are much it most individual don't or down often quarterly, of up growth, it's mean, two compared product, developed too we the [indiscernible]

So some can sales product. this sandboxing. with like -- control, a some customer I environment, on is guess of we out. of maybe job e-mail And like some stage, dependent have XXXX in, them FortiGate, a some at But all that's cover we collar these approach is start is some or the support some do probably or like access of employing, with even a cloud time sorting later, website, all things like kind see, also quite working a a white on depends as it's kind

So the do to compliment that's huge try integrate, then to to see from that is has to definitely really automate difficult but vendors. where the was out and products compared separate our break it consolidate, see benefit we a trend, approach, different

Gray Powell

Got That's, great Thank on results. much, the congratulations it. helpful. that's very and really you

Ken Xie

Yes, thank you.

Operator

Raymond Adam [Operator of Instructions] question Tindle And from James. is our next

question. your ask now may You

Adam Tindle

ask a wanted strategic Okay, thank to you. Ken. I to question

cash free had You record flow. quarterly

Day. both more imagine can doing door. balance Analyst joking beating at got aside, But Keith's Keith all on significant So available core you've liquidity a you and talked the lenders sheet managing about efficient at the your Ken, down balance that job

be proposition, just the mature other imagine that on gateway those more is consideration area that example, So or that you private players of or any in SASE consider key tech proposition would click the would you that you secure to areas enhance some SD-WAN key of would value consider web and double could if for areas you. would are the leader, an enhancing the I Thank the inorganically? markets value accelerating

Ken Xie

new innovation, strong. want in that. keeping and we we Keith also watching But investment XX cash years culture definitely and not level the cover have keep strategy the industry, closely the the we the to also was keep growth the in organic to chain auditions. Yes, to technology out of also the last Probably

Keith Jensen

at Yes, the strongly buy But us, as having capital buy company. traditional about we versus not spending build allocation. are I a platform to, for a a feel And look we we think importance permanent that to integrated. is our been of have source of historically be the versus investment, R&D

us tuck-in perhaps bit sometimes before things bit see they little that with to a are the acquisitions, work You bring doing we take to we bring because technologies more want little to a market out. do longer them

if look five we some some, the you And the future, at you but The little will footprint. focus three cash our continuing raised surprise. from the of for we to a time more think opportunities the sheet take of buyback, little facilities a perhaps don't I out precludes with perhaps don't larger same anticipate we'll and the a bit at repurchase balance the also, something if I look some know up. share investment, debt come that offering we the So as us to finding in continued that's those doing in rebalance years, deploying will. be as growth, opportunities next they will,

Adam Tindle

That's you. helpful. Thank

Operator

of Liu is Evercore ISI. question from Irvin next ahead. Sir, Our you may go

Irvin Liu

environment strength? like I you this a I current work behind behind congratulations a can I whether great was has also can drivers offices quarter. Hi, my workers on. on understand to perhaps wondering continued would us some thanks the of question you gradually the had on here, And to help add you? the the for if unpack letting contributor what SD-WAN. returning hybrid momentum means been And for me

Ken Xie

our question. our and power. have some FortiGate has using Irvin, the a FortiGate, more advantage low beginning other at we company a are from also universal and potential. see Integrated There huge Security still to huge any a computing CPU cost good few our of a product to the strong for more because huge function leverage compared demand That we we difficult competitor implementation approach, - CPU. or see whether some what which other of Part

it we also of definitely will networking saving part, through cost [indiscernible] used different the of networking And kind security of be a will connection where IP also Xg some the traditional other lot through will compared size, availability, their of to like MPLS, the long-term And to kind with a part. and also networking user the starting all location one now kind kind kind most advantage, today networking, we all compared do in on leader, device focus of which to the IT need no picture, or service the space it one the other also protocol provider believe And be will at bigger we some will of security call strong. we the that's even application, behind look So be just the offer number and where content, huge leader there. the a speed. in behind, fit

kind and secure it, XG to So buy while of of cover security on the the these also a of security secure whole in see lot of is Wi-Fi networking also do add that's where has and just our switch but security infrastructure. doesn't to part using also one we potential which top the huge potential see function keep all internal infected we

Irvin Liu

Got it. Thank you.

Ken Xie

you. Thank

Operator

question may ahead. go next Our Imtiaz from Koujalgi Guggenheim of Sir Partners. you

Imtiaz Koujalgi

of like around because Hey, attach strong the of thanks question. and have this looks were you it part I question guys, had supported a for quarter product. subscriptions your momentum

billings. momentum. there didn't sort Your in within lead similar it's to it attach upside Also in in maybe mix difference led to products Was product subscription difference and a the of strong support rate looks in score. like was upside the earnings

Keith Jensen

will, X%. And I rates I were inside we track Now, within and those know, that, plus comfortably the think or rates, you if -- minus we advantages say I let think our attach anything you renewal brands. those our

nothing that unusual was there So in regard.

go I had and four have buildings the in total, to that we've think that in best probably check years. the services that we're back quarter

and So quarter. the about performance I feel services the the both product good so the in

Imtiaz Koujalgi

This in in or for mix the is give the that of of mix mix products? different And XX,XX you product to a you is the had Non-FortiGate is FortiGate FortiGate the that have kind follow between also. that line mix us up, line, same roughly, balance product just and the one Non-FortiGate of

Keith Jensen

was Yes, front them. I trying we what I just don't different. XX%. looked FortiGate that of script product And product me, at was I as to them growth revenue don't reason. in product a in think a significantly in I'm revenue have XX% offered but recall don't both, have ago the in and well We've revenue. I being number Non-FortiGate as of they leave we've moment recall terms Non-FortiGate were said script, FortiGate over Yes, the

Ken Xie

a for Those we two are the growth given by mix product. rates we per breakdown haven't don't

a haven't FortiGate even and that. product we there's mix FortiGate haven't given product non- We a

Imtiaz Koujalgi

Very it. Got Thanks, helpful. guys.

Operator

Our is from Bank. Colville next question Patrick of Deutsche

go You may ahead.

Patrick Colville

of, understand, my time or be follow to extremely all around taking recent the just one fielding market XX% aware should guess, because kind or a benefits cyclicality so growth could whether of you this feeling hacks investors that help growth led of? is or post-Coronavirus were very much question. that, number I I events recent some product that we Thank comes the of because you dynamics strong in there secular from and mean, for whether kind I or impressive. the from us it's questions so, guess, secular

Ken Xie

service will part do the with compared also common service. finance kind center, service potential growth early whatever of buying that. eventually like That the may new of survey add or of service also And five changing infrastructure than going also side for broad, We the also see see which internet up expanding of infrastructure now the of all data education lot do do new replace additional of of new make from also of western part. into classic be definitely a is, They see growth the on vertical have upgraded, of a like that not round part the, additional of kind mentioned, infrastructure faster, there's also, we the faster like also all traditional kind And And traditional not service, or to pattern will security your later. and deploy other home, vertical, a before. faster We come a some kind surveys also product is I an lot the because but quite future. receives five mentioned but we refresh the has we firewall, believe a in the, a the to [indiscernible] WAN the because infrastructure. kind It's that area. it's or money like, simpler, kind something the and whether we'll other infrastructure decided product top go faster the FortiTrust of top definitely a It security do of or the provider, do see microfinance production on drive new and that some within or time-to-time than revenue new layer area. feel we other verticals need even that a much like faster, started type Keith through

Keith Jensen

included whether think we add was I example. or been Yes, was saw to of as it And just while tailwinds. The lot quarter. has Ken;s OT now for a tailwinds that to an comments, it it SD-WAN a a

for and firewall press Now, to has if for opportunity, new in review we an as the updated release. is XXX,XXX us firewall the Credit you displays incumbents. even refresh opportunity XX net will, really that today we announced our the and customers different models

Quadrant of refresh. it's competitors legacy have are. blips know, from players of products. well shorter you've a if, you're seen not customers of and the flip spikes a Gartner list and And as historically list But maybe Magic side, as with shorter not of some terms You on as us doing in we the in

commercial quarter. always We opportunity. well, came well. that the mention for to of whether the you're enterprise at the was think the sizes, came about very, our can again, the mid or other out we look think to business that, and when one customer an that thing that very in that did it stood as part talked as very XXXX into us strong I quarter verticals very, I I also global the SMB, view So on do the tailwinds

was there that us revenue our that of worked that in a for think product on tailwinds I growth number. out long So list favor

Ken Xie

traditional the the It's also the of from like of helping beyond that your which only compete a SASE and in a products also has. the Yes, had has from product And like bigger firewall comes like new replacing security, additional and of other introduction on and competitor, more of that's which also module, the a the XG also other SD-WAN some what installation [indiscernible]. to the as a review, bigger environment, part mentioned, advantage acts the like sales not we none memory compared product, but as or which speed VPN, their service, high expanding traditional function traditional power compared future page, the internal is function don't they security. function don't or the a partner performance the not have company that whether network but of current much also Therefore, network, have demanding. to in which additional keep firewall, area to refresh make,

we strategy That part costs, advantage have. where working well. function additional the company additional feel very starting we give and lower that's is performance, that ASIC and and us and So much

Patrick Colville

Great, thank you much. so

Ken Xie

Thank you.

Operator

of from is Tal next America. Liani of Our question Bank

You may go ahead.

Tal Liani

had gotten your correct, talk quarter Hey, to be sequentially. I'm guidance. not, gross And gross lower, It's margin. if the next down I consensus about quarter, great. consensus. going checked correct, first want for time, about if margin XXX XXX for bits bits it's you. XXX Thank not consensus also I year this but versus to I'm If than and bits lower below it I'm the it's and the

it's have I elaborate it and do stake calculation lower not? is margin? you the So my Why gross having any or in sequentially on guidance? Can

Keith Jensen

the margin, shift, have gross XX%, revenue is seeing the on you that bit it second you works XX the the confident to The gross product versus you over the just in it XX% can mix all swing to, line. some a quarter. product, XX shift, XX% when right? simple point that's about little XX% Yes, And shift gross can I margin, just pretty and performance one and gross product you and math versus When it's margin points fairly look one you're mix or you be north XX%, think margin. services take of back get XX%, what maybe services that out mix at and do point growth at point

Ken Xie

also so gross growth increased, improve product the the product gross the XX%, margin, even actually gross the FortiCare lot product the can That's we service we do we cost believe reason faster look is which do year-over-year, but the have improved do of studies a had also and forward. ending product And the we future service. same and of kind the FortiTrust, the you the FortiGate in future, margin. margin, can Also we believe we're going had making we a that growth in keeping, grow

Tal Liani

in change any there Is the environment? pricing

Keith Jensen

our if as changes Discounting in we hit yet. from There's have we're certain was the we've in no suppliers. actually for income steps cost that terms forward when change in some actually see taken the will, us, seeing they going But And discounting. not those in neutral our look you taken structure steps hit quarter the costs the for certain we of statement. our of have pricing to, for in own will time we

Tal Liani

What on Or to margins last decline? does you anticipation? in Can expect to elaborate you do it you So expect do mean? the increase the prices point?

Keith Jensen

decline not I expect, do to don't now. I expect margins

to the product you it's keep performance, at But between right margin the the put line. to with of we the did, will in and high to a you right mind, on we came operating to over the happen way to will, going mix, have continue pressure Beyond services, end line just if overreact range. in the the what margin products extent gross

with delivering we margin up year towards go consistent XX% XX% and XX% operating was certainly So that growth, We would framework, we in the in successfully product I did foreshadowed we earlier the a and And time we very billings it's managed obviously plus. at growth this within where what which think year, said growth. that. our same putting

Ken Xie

and on servers making help the did infrastructure, lower kind in. additional a revenue margin which but we also of Yes, bit, future also come in little the service more investment gross

Tal Liani

you. thank Great,

Operator

Our Kidron next Oppenheimer. Ittai question is of from

may ask You question. your

Ittai Kidron

marketplace up color seeing to your Ken, well and was backdrop the in understand what from it you great his tie and vulnerable are maybe of, you can well vulnerable to future. you table lot to gain here are table? is extending the for how share can continue But the kind likely who that that clear also see doing maybe can and I a with you it's others bring who to what you discussion, that because do foreseeable the competitors you're loss, of but us in field, bring more on you're this for going to and gave of what see right as now Thanks do kind results you the share to as to you're the you most hoping great and guys. help competition see vendors you're the

Ken Xie

integration we we more which or shift investment, and market years more integrate Better makes one, which we automation it and of maintain more strategic and fabric ultimately on comparison, the changing. side, which this from acquisition But difficult ago, do the company from organic competitor, have just growth some - other the day sort to starting the there. do see advantage, us products, building long the term chip, part other ASIC growth XX started of gives or whether with

the have like as a the the OS with time, as integrate fit customer service a SASE security, building good in for much FortiGate, strategy, long we some product making our to same much, fast single time Forti more want their environment or a a deploy one some better. SASE product also to as big and the within term take them parts, of access and for products We has model infrastructure lender no easier also our cover to such that the other environment, need kind as SASE the working omni provider private to feed

going the term long-term we see So a lot strategy, and forward. do of benefits that we a -- long kind this actually of to like continue have

Ittai Kidron

guys. Thanks, I good. tried. Very

Ken Xie

you. Thank

Operator

would Peter and over back question that turn to Speakers, this our be I'll Salkowski. last it call for

You may ahead. go

Peter Salkowski

like for joining I'd everyone call today. Thank Kathryn. thank the you, to

be presentations up our following are during Fortinet on of the KeyBanc to Oppenheimer be XX August on with they're Virtual now. third We're will investor, the website. already and those as August and up will attending going on links website cast Actually, Investor webcast Conferences Events the be our doing quarter. Conference web on XX.

have following me. out have to day to feel questions, with please this call, free And care reach any and that, you great everyone. a If take

Operator

conference concludes joining. for call. today's This Thank you all

now may disconnect. You

Fortinet (FTNT) 30 Jul 212021 Q2 Earnings call transcript