Earnings call transcript Q2 2023

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

Operator

Good day and thank you for standing by. Welcome to the Fortinet Q2 '23 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

to Salkowski, conference Finance. Senior like speaker to now Peter today, Vice would hand over the your I President of

Peter Salkowski

you, call Fortinet's and everyone. Vice afternoon CEO Financial welcome everyone I call Trace. Peter website. call to for Speakers Ken Thank Xie, the Senior live to the our Salkowski, and quarter discuss am on This pleased Officer. President results Chairman Relations Chief Investor our today's on is are, will Finance to at for financial Fortinet. and of Good XXXX. available Jensen, of Founder Keith webcast be replay that The Fortinet's the Relations Investor second

our quarter third quarter Ken providing questions. today perspective full a will the our level of guidance our then results for and XXXX for high providing year. call the for the and Will XXXX financial open operating then before second business. the updating begin review of of Keith will call

we please Q&A up others participate. the and limit to question to you follow question one session, one During to allow yourself ask to

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

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

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

section earnings be call, Keith's call. quarterly on website immediately following Relations Ken today's posted today's the of for prepared our earnings remarks will Investor and

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

Ken Xie

quarter, you run XX%, XX%, today's of subscription our Thank scription growth service, XX% Were rate, growth strong increased results. second the quarter leads driven XX% consecutive Peter. with Thanks, billion and $X for non-FortiGate product normalized in annual to weren't to the of and growth for growth row Total is existing by call revenue quarter building product second nearly which which revenue second review over more we in XXXX XX%, revenue joining XX%.

reflect addition performance the large XX%-plus uniquely concern enterprise environment product after shortage. building our growth years macro chain believe the in elevated indigestion with during We two building supply to of some

addition to over consecutive for in only platform now Based market protection Fortinet leader. IDC's named with was latest Cybersecurity the is firewall unit revenue. Fortinet having share, on According year tracker, Westland to and in latest ITOT XX leader on and quarterly but category Security report, market unit the network Advisory share the one number both security XX% in

vendor security $XX of one and XXXX. grow that top currently the OT the growing Advisor in to to expect are We the by market fastest Westland billion

dedicated we our network support universal have security cloud growth security, solution, investment security hybrid our infrastructure more IoT advantages and operating Including system, processor, a security hybrid increased to security as leverage broad ASIC And and go-to-market ability our converge our line across our setting on were we security operations. network both leading fully OS platform, success single drive our integrated and proprietary and to resource to future world. prem and the addition with in to and in in demand these cloud

and that delivers power XXG, the efficiency Today of performance, we stability new security process firewall effective flat security are FortiGate first [Indiscernible] after cost with our and announced price. FortiASIC, new function, generation next industry-leading

The greater power has times XX% our and average to secure FortiGate computing solution. XX competitors reaching of fully our than the competing up service, over integrated are with using less than security AI-power similar FortiGuard manages price model

also SD-WAN interconnection future as two service SD-WAN and facilitate service operation SBA the leverage announced technology. and installation for to expanding This our under location a deployment, leading growth. service performance showcase commitment monitoring overlay enhance digital well base our our service simplify for redundancy additional rapid new We using with to to experience of seamless FortiSASE new service

a Together single our one SD-WAN our with point. we presence global opening solution a vendor our dual installed as a investing of announced market, be service, providers. new strategy well sizable SASE where own of pops plan as significant as large We our working point in with pop with and access newly see market accelerate can leveraged deployment, SD-WAN service base to

within announced in recently of manual the six powered by and three enterprise updates. than reduction include of investment which benefits and spent next our XX% current firewall on XXX% Fortinet cost saving results back on IT-dependent surveys FortiGuard AI analysis of and datacenter, time Forrester, over years, return in pay the more months gen secure FortiGate

Group hour. respond independent Fortinet who an customer average operation addition, detect to for deployed FortiEDRand to incidents that In an time three Security FortiNDR analysis by to their established Enterprise one solution, of and weeks such reduce the Strategic the as from

and fabric the the op machine Secure learning surface. artificial have a that integration to demonstrates product Fortinet of substantial rapidly This today's secure intelligence attack expanding operations impact that ability

design can applications large hunting, developments as a areas event We network safety AI in to security. lot generative malware thread such productivity, us to AI of base significantly as engine correlation well scaled various as as and and automation, believe show technologies new can help promise customer in detection, such of a the and Finally, be troubleshooting. improve

thank suppliers employees, worldwide Before would support turning Keith. I power. for the and and Keith, over call to like to the partners customers, continuous our

Keith Jensen

Ken. And Thank afternoon everyone. you, good

of resulting service OT with SD-WAN and revenue to growth perform start well growth, these quarter. held Billings revenue well as respectively. were XX%, from as products growth growth XX% product key up XX% XX%, the Let's continue firm revenue highlights second revenue from revenue total at and XX%, the was as in

customer strength strong of our the quarter. guidance points. small the from added in to of exceeded of new XXX sign record a X,XXX the at certain of segments, Operating range Free cash a the cash flow XX.X% of million, $XXX and was by midsized benefiting end XX%, In the a basis margins high logos. we representing payments margin fourth tax deferral

led is mentioned, a run-rate. in nearing Non-FortiGate annual buildings And cloud. by NAC billings FortiGate $X.XX buildings networking billion growth, at [ph] billings driven total was billion Looking and XX% non-FortiGate VM, revenue billings. detail of by $X were representing XX% over more of non-FortiGate as Ken growth

terms difficult construction Retail earlier by a verticals, total while almost topped billings, up percentage In was with the and government the and government nearly of provider manufacturing service doubled industry retail up very X% XX%, up over impacted the XX%, were and vertical were industry respectively. a compare, X% list period. down manufacturing as year as and of in

vary million year challenged over with leading, extent followed and comparisons. Europe LatAm. growth XXX GIOS by U.S. prior enterprise XXX emerging APAC $X deals. the Deals by deals increased to and from were difficult to Billings international by a lesser

and $X.XX and Turning over XX%. was of revenue billion, service XX% second growth revenue This service consecutive greater quarter than to growth. grew revenue non-FortiGate to revenue XX% the driven XX% growth margins. of Total of by

expected increasing quarterly are 'XX service Product all dating QX the to XX% XX%. and times over revenue and to to sequential continue Product normal levels a represent of subscriptions lead streak XX% growth Security backlogs to million back 'XX of revenue XX%. quarter. of of QX in $XXX at strong of increased third approach

XXX was inventory service cost in gross costs pressures and gross of driven XXX Product were revenues earlier Service and as XX% of charges. XX.X% increased product margin and certain SASE of our costs, point models. basis Total delivery pricing and labor total we gross margin cloud revenue, continue by by basis cloud were to partially expand easing Higher offset revenues margin up from points XX.X%. to margin delivery benefited gross XX.X%. actions delivered has offset increase higher

one to presence see POP SD-WAN with investing POPs, solution our as working as our market where our Ken own as single third market well base We of be vendor a can accelerate deployment. SASE our large or mentioned opening with a a We deployment, sizable in point. install strategy and our party to dual plan access point new accelerate significant leveraged providers

and grew million, performance $XXX significant was operating strong of guidance of by and high-end more XXX to points points up as of margin outpacing due the income revenue the XX gross than basis range resulted discipline XX% margins XX.X% exceeded Operating the efficiencies. operational grew leverage. in operating Operating

increased and the per $X.XX high-end Earnings the guidance. of XX% exceeded share share, per also to

million, The million. cash free Slide X cash real statement Free was cash which to estate the it flow free margin. into of payments. $XXX from million flow, adjusted flow XX% cash of Looking deferral flow XX.X% and representing free adjusted summaries investments $XXX tax approximately benefited on $XXX in excludes increased the X, cash flow cash

quarter, be the to tax paid last in quarter. mentioned together due payments these other As are with deferred payments tax XXXX fourth

by including $XX company's were billion. share repurchase real of authorization increased now million. XXX estate expenditures $X the Cash total on taxes the million recently authorization quarter available And buyback $XX Capital $XX million, share is board The investments. million. the approximately were

integrated a our I'd few quarter from to that the the of significant strength share Now wins like and exemplifies broad platform.

in leader as our pharmaceutical solution. well global aware deal without signed eight-figure AI investing OT a secure networking and Cybersecurity our as Fabric, Fortinet ops First, threat intelligence architecture, an

data a efficiencies approach security, this broad its highly through medical sensitive Fortinet market drive and automated to that integrated approach regulated operational and cybersecurity. Recognizing financial shift to global to and continues to the secure to selected platform-based platform company our

U.S. to network. datacenter had deal, with better firewalls to the its a one solution that FortiGate offers largest In to refreshed devices was network the connected its to NAC which another school seeking recently districts visibility posture the improve security of

well and to centralized capability FortiNAC's competed peers, risk superior as ease of the district's a was Fortinet fabric. multiple Fortinet to management as win tight implementation, against existing and remediation, integration did security the able

the deal in Fortinet's This high deal seven-figure largest NAC history. was

its a large SD-WAN journey, SASE in integrates its transformation X,XXX as a vendor single seven-figure workforce. the selected SASE hybrid searching in it ever, bank FortiSASE holistic and deal solution This for digital into policies users, continues was location, Finally, who strategy, for FortiSASE displacement cloud for over our ensuring of for operating with solution largest illustrate users ASIC security solution a technology our integrated while and how and wherever all transactions regardless platform delivers customers. and accessed. being proprietary their These prem, the and resonate applications Fortinet's security, systems consistent to are comprehensive on from on both

heightened discussing innovations the AI without technology, in not interest Fortinet's AI. do this call in investment and we Given could

faster, a been and power accurate leveraging enabling years, networks our at many our forefront stronger innovation for and defense more learning has learning and and to deep customers. machine for neural the security Fortinet products of AI artificial services,

of use cases first One of virtual was AI-powered the Analyst. the introduction our Threat FortiGuard

is time FortiGuard real that and machine detection malware in signatures addresses hunting. fabric. automatically time is threat threat in threats the the identified, protection with FortiGuard extensively intelligence across defense coordinated and generates updates threat used Every learning,

speed AI In learning keep critical, and and pace threats security cloud on are help multiple teams environments machine with where scale can fronts.

All XXX happens than ecosystem. more and every Fortinet Today, of and deliver behind average to our scenes. the and platform the this X fabric updates daily day, seamlessly billion billion Guest across security events over Analyzer security on

competitors vendors. our from different many OEM of security their While security

their which threat in evolving in cyberattacks, across playbooks different Adversaries increasingly threat which allows FortiGuard intelligence AI-driven Our use AI using us the built to rapidly cybersecurity landscape. drive increase are to only sources. house, been AI has

AI continue simplify our and automate natural other across invest to machine and and our learning security AI, to implementations including products, for customers. in models, generative enhance, technologies We language

the I'd offer about guidance, observations industry. to the like to and moving second some about Before quarter

we enterprise average of the elevated quarters. Regarding second half certainly deals the the quarter, of performance and second billing believe June, impacted in future pushing our contract duration, and and macro the to level

Having change quarters, creating We Normalizing the not average contract with future billings with to point duration, enterprise billings level saw year-over-year. X some months billings XX a contract it's growth in in pushed to shorter range. decreasing duration, X.X low-XX% deals of growth headwind by yields the a term months, to X unusual.

periods. Cyber however, From see regulations. regulatory 'XX new stringent their Resilience announced -- we cyber with in in and by SEC tailwinds earlier recently this continue recently their to that further EU QX and In CIOs We to securing unusually market threats. June, invest face rising announced those large requirements, the as expected of provide to to perspective, the announced such future market organizations They organizations continue volume cybersecurity instead new to an will cybersecurity the in deals a of as close the investments push Act increase comply year. prioritize

highly within cyber remains CIOs as industry spending relevant overall the prioritize budgets. cybersecurity IT The

Fortinet very term solid. drivers the net for longer such, demand As remained

in said, That's of supply That as see driven we And more the seasonality tailwind cycled to back half return normal price the such increases. growth Fortinet period a we for do chain subsides. year. the prior

guidance. to on Moving

a that are XX, reminder, beginning which the call. Peter our summarized outlook, the As information third on full of the are and subject quarter year forward-looking XX, disclaimers at regarding to provided Slides

at billings For third the $X,XXX prior in pandemic. the our range which $X,XXX at the midpoint which the seasonality with represents $X,XXX at of million million we to quarter to midpoint consistent XX%. of in XX% growth represents range million quarter-over-quarter expect the the to of million and is growth $X,XXX Revenue

of share of assumes to to count between of Non-GAAP per to tax XX.X%. And operating rate of Non-GAAP previously to million. share million is Non-GAAP XX.X%. XX% million $XXX and normal a taxes gross $X.XX Capital $XXX non-GAAP XX.X% approach cash or margin in $XXX This earnings of million. margin QX. $XXX $X.XX. mentioned, of expenditures expected backlog XX.X% $XX million as of levels

revenues midpoint which with at million, below the revenue billings range million million The the year, at expect represents growth midpoint the of of the midpoint the slightly represents the product at million, $X,XXX implies to to revenue growth of $X,XXX $X,XXX XX.X%. Revenue Service full XX.X%. QX. in XX.X%. range normal $X,XXX to For XX% and $X,XXX in represents growth of growth range in at which in million $X,XXX we seasonality the million of guidance apply service

of $XXX investments. XX%, million between to with facilities share million cloud $XXX of approximately margin expenditures to XX.XX% cash a million. our million tax rate and to XX.XX%. $X.XX of and to gross XX.XX%. data of operating in Capital due the million XX.XX% count of to $XXX million Non-GAAP center earnings continued share per $XXX quarter. which margin $XXX Non-GAAP Non-GAAP taxes fourth of $XXX Non-GAAP assumes of $X.XX,

solutions. We continue confident in to the execute remain our our and and long-term strategy strategy

a trough. little providing early we performance it's would next short near be our a While term expect or year, to represents guidance for term

Given as in expect of account our by the early solutions, approach ease and that fourth comparisons our that into taking through high-teens -- we move confidence billings would this stage quarter XXXX. offerings growth to we our XXXX will growth

the to hand Q&A over that, with And now back I'll the call session. Peter to begin

Peter Salkowski

up Operator Thank question call. the the doing you, open if Operator, limit one Q&A, -- can you before just please quick to reminder you Keith. yourself one question. and one can follow

Operator

Thank you. Instructions] is [Indiscernible]. [Operator from question first Our

Your line open. is

Unidentified Analyst

guess, macro Good for billings reflects guidance well, more and the that what you a afternoon. -- commented a from Ken, Keith I macro. little you Thank Could think it you -- taking as on concern noted question. I there the and enterprise reflected perspective? to give about performance color saw you the bit

And pointed I provider service a think weak you business. to

Juniper be carrier how side. a if week see? at what have saw there might what different on similar to they on last regard investors few with could dynamics include Maybe a you you then to follow-up. thoughts And I may think I parallels or draw the

Ken Xie

Sure.

try SASE, and security so from function these still But them kind the market I share the the them they're which service is to think the -- market. bit It's help comes provider, in closely a behind, like about nowadays, see you do ago, service of for if carrier accelerate behind service working years probably offer XX-XX service like we're service provider, all carrier some our look need we some provider. additional surveys XX% with carrier provider back SASE, service. because on biggest the little function

to also, beyond we self, also their invest lot starting a drive going new in service new the some which to we're security in service. invest time, and accelerate we like kind more help security forward new with same will bit space, of also service, in of together service little a infrastructure the that security announced the in of helping service traditional feel providers today, service At two SD-WAN the the certain

Keith Jensen

about did and environment, to lessons probably from, the of we are verticals feel as -- providers they would and particularly see there And I the the you think I I that talk some well some Yes. see for segments. them which comments, customer they're in we think They service Ken's manufacturing, example, extremely have It's so add under pressure to other quarter. continue richly. fairly surprise, in threat a spending still can

broadly. end they Ken that which strong of If the the is slowing governments you Ken a spectrum, sector look concept also, be in indicator -- think of retail, of government people this the at a And more But one industries aware also really comments, to sometimes the was purchasing in retail his service reference also, digestion. provider, is and that slowing very economy by about lot some made other are at and the around clear vertical they of the budgets a don't. there that of maybe think other of have A can But of economy. this story I technologies have talked I on that SD-WAN the first impacted implementations.

going very, A in year saw high the period, it's point growth And vertical. that year digestion a retail ago, ago. such actually you through negative now the as a growth very

Ken Xie

started confused customer. some We're also getting kind interested of in also also some in space, enterprise the the which cloud provider security of

solutions. So take to little sometimes that's a they time more our different also evaluate

it's customers. but expensive in average cloud to even probably to will So more best be best is Xx Xx believe will probably the cloud compared combined more that the be altogether a solution do much an expensive for -- approach on-premise, about customer, this hybrid the on-premise cost we or the for

Unidentified Analyst

you high talked maybe target billings of $XX helpful. billion follow-up and year. guess, out reinflection think thrown And for there? the that the Keith, How impacted billings rest growth XXXX, does teens a quarter outlook That's about quick to previously performance this it. next I your for a Got I year you've

Keith Jensen

Yeah.

I for output and targets. to XXXX, I of our we're the in think year we that into time seeing our think will half we as that enter through what think be in second go cycle of the terms at point normal XXXX planning logical that through a

Unidentified Analyst

Okay, Thank you. helpful. that’s

Operator

for much very question. you Thank your

Our Gabriela with Borges from GS. next question comes

is line Your open.

Gabriela Borges

thought growth Maybe comment your medium-term how Hi, say kind and good Keith, And I of trough? the six-month are to I through billings heard when about us talk the Thank derisking you. are just on the you. looking right. if some outlook? afternoon. you you and XX-month billings to revenue of leading it want will what Thank XQ outlook, high-teens product on 'XX, the by determine indicators growth

Keith Jensen

Ken, want XXXX, guides about if and [ph] talk know, industry now that. avoid don't you the to if do I in trends for you longer-term

Ken Xie

pretty Look own a between good we back want network have still industry, of -- XX% like unique, very a with And feel have we we to pace advantage to -- yes, a on to huge only ASIC. build the solution, average in the our growth, years. like XX% certainly, security last which we probably XX

You less can less see solution the product XX% much better and averaged probably function to energy XXx performance, like consumption. we announced a competitive today, energy which consumption, has compared about probably more also

networking That's agreed growth, drives we see product it may than the also convergence helping announce -- plan huge of which advantage also X. new XXXX, double in the probably more network new there. SPX have version. is few product, security, -- each will the traditional quarter, drive long-term than So the actually that's and security can a previous XX every larger then compared to you application announced by which be to probably ASIC to engine the the quarter we chip, next network where That's a the network can integrated the a actually that first

side So continue that's what growth. to network security

different the other of side, of the part other strong, because growing part a allocation because few see also On It's it so mentioned we also security kind of side. allocated to consolidation, be can to That's part areas. We how to other security. XX%. certain budget vertical like pretty spending kind non-FortiGate balance. like cloud some the manage also, try and certain also also kind on inventory of of we some part And to

because it's quarter strong believe will of last next years, is the things two average be the that year. second normal. revenue quite will growth, not a But in to pretty about once over more XX%, do We later be we product years, is part the much so quite which XX%. -- last And get which -- recovered return XX-XX we see in the XX% to normal,

Keith Jensen

as I and I amount of opportunities that Yeah. a and and I'll years saying QX last process bit environments guidance of in. for get -- a or commentary in QX. off start fair I by pull about various suspect over little setting say, talk And guess I and QX take certainly it the would the QX, kind forward chance seen to we've and been three we've two

in your assumptions You got to of and nimble be terms pretty for. what looking you're

QX June. And the that comments, second and a as new would It and some the rates, of deals in more terms mind, with think results maybe and deals and would push. development. assumptions look to things I in the think you look actual see offer QX see rates a that is the push. comment And in in say, higher called have earlier X were deals you for saw setting roll-up, of part the always on. look we pushed close rates the was QX with what that level the better We we linearity I to closed I I I the -- that saw like to than nature that out I lot the as of assumptions guidance of for

will. So some built that, if into I there's think you caution

seen that think of sequentially. at that QX again. in kind QX at in would and I much in pretty growth is you historically, where digit growth you range can we the line low-single to the look that's if guidance QX results, up, expect the top look where the QX we've also ends And think of I versus

level and fourth made comment fourth a a falls little year to seasonality the I applied is assumption more and full in suggests the quarter where that number acknowledging certain out of -- quarter caution one, pretty other Offering and compare. periods. quarter of just the year was the earlier we've QX growth seen degree maybe strong that last a lower fourth a for but in tough than quarter in also of guidance again, actually the a very then caution, And that the

Ken Xie

see Also, some growth the SD-WAN start area best OT, we in grew billings. product new the XX% XX%, for we XX% do total new of on And strong also like the come quite yet, have and which all so XG solutions. these all growth not

So that's keeping the right, as additional we're growth, developing.

Gabriela Borges

that That billings just XQ, all sense. assume Thank the for or it makes you. to is clarify, safe are be growth? And assuming that billings will trough you to XQ

Keith Jensen

Yeah. billings look in is I the the don't timing QX up and because of because QX compares bookings actual growth want year compares and I I'd and that go -- easy the strong. of the and very, this QX QX of at back in a bit were to have But think mix different. in this and to start year billings little last very conversation

Ken Xie

#XX ago. to we IPO-ed back to refer we XX can years which you Also, finance the presentation since XX go years page,

kind of some a some margin kind there's So information. of growth,

Gabriela Borges

out. like you Slide that for XX. I Yeah, that do calling Thank

Okay, thank you.

Ken Xie

Thank you.

Operator

much. very you, Thank

with Liani will from of question next Tal America. come Our Bank

Your line open. is

Tal Liani

my you. with together, Thank going I'm two to your questions Yes. ask permission.

that are positive the expected, And for is than evening, I remember you bad a call Friday The which Palo calls. quarter. last for weaker reporting posting then you their always historically although one first were is quarter. is very quarterly sign Alto

it in the So is source does issue for before? I'm we Palo kind customers the of Alto, what it are deteriorated, meaning And mean to environment successful is that three the backlog Or comments. it? the last two of out? companies trying were if both understand Meaning, deteriorated to with that that is the not and it you months? environment drawdown push deciding buy, concerned the

billings why were out back we And -- question your XX% remarks, XQ a your is XQ. into from if were deceleration The and would pushouts second But guidance, out, it out, from in I have pushed Keith, pushed push and XX% see it do that is, a deceleration you can in a XX%. half recovery Because seen XQ? was we out. if projects second continued XQ to from the to then declining said

versus how your pushouts you do numbers So to guidance? connect to the cancellation Thanks. comments about the

Keith Jensen

and then to down Ken his first, his go can doing, about or talk street not what friend the doing is I'll knowledge. Yeah.

I pushouts kind yes, concept As on of pushouts QX going QX. quarter. quarter the alluded to, with in retained suggest of closed, I that to July not in -- happy I'm to I'm deals saw there's I've a but of not I recovery getting in what in terms and had I'm that. here continuing be

digestion going is that take this be on. bit think economy I to little -- normalizes this and process this goes a longer through kind of

year. I'm pretty the up something we What's QX QX you QX from move in he to compares, QX, put attractive anticipating it's last on are go at also see QX QX yes, And back in up in So QX think going but billings things to? and picking the look and also from to line, up of numbers I'm those and that really I some if -- QX.

Ken Xie

company, early know don't is year, But basically is the quarter, take Palo large of question. I especially which why one some not afternoon, at be Alto like to see do industry, probably companies, to on want the I'm the starting we answer Friday of is It's pretty not more sign just that closing. also that tight one. much time budget, this on little a there some to kind this long bit and --

nearly few starting probably up quarters. they will after but say, last? an the tough a How basically be then security it's It's long go will -- is underspend, back to to probably

then on product, try service, the On other the tight, to service, service big new they current they the have you whatever see also tough offer like current tend net we buy be or to more more and more we on kind of announced if hand hand solution help SD-WAN the starting when today. which environment side, to customers

starting few market growth, revenue of network which of is the XX% whole product service and over or #X The we doing the share, also revenue be let's kind So, well, market the share. product last see, XX% already kind years. which revenue in the space, over is security shipment in the unit leverage

in we'll like today. new So we focused the I -- technology solutions, long XXG keep to more it's But leading space for term. continue announced with on the and FortiGate us, think

challenge. believe short-term product of technology network have we market we convergence to to an see best gaining we network So do we keep time, that long-term the And feel share. security, environment, tend to meet as the be to same also at the opportunity the

Tal Liani

-- this. question example, Got about versus can trends 'XX, for to year. you -- supported don't of environment much last can digits? about backlog quarter, itself? about double are of provide instead the what the We how quarter, through all half end we you get it. but You can the of quarter single-digit the whether talk backlog looking growth is by The you is this I we're backlog, next talk know of first still It's seeing talk and the

by you backlog. of how understand trends asking guidance half, first supported current for not for are much I'm So to but trying

Ken Xie

of That's of the before before the normal Yeah, some up chain addition. back The to network-related year this see backlogs FortiGate. are the already the you supply most that the Backlog half of towards now, that majority will first We last eased products. chain And issue. year. been the back normal we already come middle back can already to of also issue. in the to solved the from kind to supply end, see

the cancellation, And they digit? probably certain do have Ideally cancellation. double

Keith Jensen

Yeah.

he's not numbers their still viewpoint, you about accounting we numbers, can the through giving a company version knows it. done backlog pick -- that From is Ken worrying the and that the think CEO some it, up. answer way backlog he but on have that will I we manage

backlog very Some to low out benefit point, a largely, single-digit then think we'll have get to back to QX, -- you QX. be close that we'll of Ken's normal in numbers. And we as

Tal Liani

Thank Great. you.

Operator

Deutsche your Our with Zelnick question for is you Brad next Thank [Operator Instructions] from Bank. question.

open. is line Your

Brad Zelnick

lot A little always price questions tougher Tal's a shared market advantage of and I Thanks take enable very a to differently. performance strong, should that in of my much you suggests actually remains for you environment. the share taking thought architecture what your position one questions. we've ask want maybe your to of bit

it's Fortinet, win in I you for it's rates or what there? the out many And if is market? you're you're that guess seeing perhaps that figure implicitly out share for there on that dynamics anything maybe is tougher tough trying mean others be does to can helpful pricing would competition,

Ken Xie

at the we the solution chip. level have think do I best ASIC special of

XX%, minus feel to, market revenue grew other keeping and is the digit single still I we XX% of checkpoints So think, still product share. so vendors believe, by low we're some compared I gaining

see, the On see you the sell. finance or products probably the see years base. on product But helping the on is consolidation, statement revenue here. some Because installation see you X? two can Page in go of other X other last growth, of quarter, side, years. two the XX%, we some last XX% revenue We two in are [Indiscernible] the our XX% growth timing-related kind some so the other maybe probably but we like leverage over product side, it's of Page also if that issue kind other when on

held we're XX inventory partner year, kind this March that April. believe inventory like kind can -- certain of is or help instead other in tighten they partner some certain early service the of to being So in kind like changing policy, days, or service of some year, some service, the some do give policy there. provider we the channel. enable can customers in Which channel which think, one up I grace period of I also or by And of level reduce

early products do and performance cost. partners, year, for side leverages And the the first on customer also the new certain so that the do and kind the ISP and same of waiting time, based same certain is times be at also accelerated, time, maybe it's we -- the has new this the product impact. I of like technology, kind available At five which some certain being four today application SPX same believe of better may times, more announce ASIC probably

Keith Jensen

change win When competitors, Yeah. with great the and on kind a improved firewall cases the Brad, really quite rates, seeing consistent, in that the rates. of the for, the a are -- say, not top we Ken right, our know. of market, three look rates I it one follow in at was loss I'm they maybe win They names of were X in question there. that

that think couple of to on what weeks did the is not last we of what teed path a quarter deals the -- was that that they and for I close specific had to we is don't know we're much up how close. us

in it the -- we the spending macro inspection detailed the We'll reprove are plays at is own how that that that we internal about need and forecasting right? So bit? enterprises to little time about at and area more on out. out a question Or our as look how pushing terms and of go is something the deals, comes some that know

Ken Xie

now yet, not to is is because more up strong ramp years up slow Yeah, ramp the double, very ago, regional carrier we of going service growth it's will soon. so when and still slowdown provider they do almost The hope down.

Brad Zelnick

the color, my And for follow-up, Keith. Thanks just Ken.

us we guide year been what's constraints for as last any billings Can which tailwind years. next? your supply you think, and As market, now give whole embedded are pricing, what think supply given couple has I your And the eases? of for your update the about across this in a of trends on over the assumptions

Keith Jensen

Yeah.

-- we about you we many XXG approach look and when at a for new go what that think back heard introduced we've product, our had years I the today.

its we Our et lines throughput, of is has capacity starting though is along price that generally cetera, the superior point predecessor. even it functionality

this half think as to move cases. actions that seeing some I one of thing the take, we year, around into targeted maybe opportunities some second use pricing we're

far offer For franchisee if maybe that to down and channel some the incentives market. there in participate models, would really opportunities the some get example, you partners of low-cost some we take dealing our maybe where you're such to low to market perhaps end with

product margins think and So have the I the are side, obviously there. we very, that very strong benefit on

it certain or to gives channel discounts to do year, think I incentives price opportunity you less of this it in us partners. call or the the half or rebates to So whether make investments want second the

Brad Zelnick

very you, helpful. Thank

Operator

Thank you for call. your

Our next Stanley. with question is Song from Morgan Eunji

Eunji Song

question today. guys you, Thank Hi. much so taking for my

of terms what's have a directional follow-up us color cancellation cancellation assumed And And give rates? you in any rates, your In guys on could backlog guidance year-end? I after. by

Keith Jensen

I continues quarter, digits out whether double to right? said not of going it's Ken mid-teens pointed subside double And it's or to make quarter, really XX. from as ago, a maybe Last was moment low that a we cancellation high or cancellation single low, rate even say we backlog as digits, digits? something, think to low much difference that This goes

Eunji Song

just Got of SD-WAN it. what a security you. percentage from came OT this And as revenue Thank quarter? and follow-up,

Ken Xie

over together see pretty last XX% growing quarters, to also SD-WAN, pretty strong, XX%, We similar XX% OT. few but

Peter Salkowski

We have I over revenue the think number. we've number XX% given for that. of bookings don't a

Operator

Thank you.

comes question Barclays. Saket me, from next -- excuse from Our Kalia

Saket Kalia

do seeing market? competitive how like wondering questions, you're Okay. -- Hey, one segment. up. decisions impacting backing traditional rates I'm little guys. very all? Meaning, SASE growing Keith, network SASE is just versus in you prevalence question Ken, other the appliance look you But like bit, of the the in a competitive helpful on trend maybe at firewall feel SASE, on when you providers. security Thanks just for taking on feel how to zero the win at comment the here. my maybe double-click but do this vendors

Ken Xie

I different market. little think a bit it's

service the the the telecom the provider, are to behind last in or we provider, XX five a years. provider bit little service traditional service Somehow

some I so So of service we're them. the advantage provided additional the offer that cost service, a gave SASE closely lot cloud on But provider, security service. they which with telecom working a the have believe advantage and infrastructure the to opportunity provider, also do huge to offer

model. which the which also the at same the profit other or triple FortiCare similar lease infrastructure infrastructure, the to some compared whatever, to beyond we're whether of infrastructure. more double, SD-WAN, SASE the service cost-efficient model, tend invest making own need and some cost of owning the our Compared like SASE -- providers, additional service kind our a some [Indiscernible] time, they lot would because FortiGuard, And we to also, the like have service of other also to

the by provider. of But in enterprise offered started need, we do SASE new We invest it's service to area. mid this see which also more the sort

Saket Kalia

my for in billings Got the it. Keith, helpful Very it. duration you follow-up. the commentary quarter. maybe for Got on just

what on billings for duration second maybe with about But billings think that thinking you I QX. this the line the way don't forward, bridge I how And would have if original to in know, do a of helps with been definitely the like exercise, looking gap guide at in plan? your of there would year? kind half least are have is duration the billings been same the

Keith Jensen

second the of that Saket. for question spreadsheet the mean, I part

will I So back come ---

Saket Kalia

it No, no offline. problem. take We can

Keith Jensen

No, that's fine.

a we seen last, there's X bounce little four slow And or duration. quarter, think in say, that conversation I would over slowdown been month duration but of a kind some around we would commented three it the had Not quarters bit. about down.

of The X growth. point or works I'm to making X be which is we points duration, when points you're X.X measuring year-over-year out lost about growth,

a factor you're when growth there. making really is basis, it a So the on comparison

that is And the of part then so by in if not you impacted are, services you only SASE it, want a to impact. product partial get get duration, remember,

saw the reliance what few quarters process or or and that for guidance heavy setting QX, saying you're what and in at QX, I we those a of made that point, things. I've looking been I and I the forward, other assumption terms think in -- as QX of on we term of those assumptions from pool whether prior look deal's metrics whether bucket a if that say, push I that at looked actual I is that, duration the differed things and place into as saw would in QX some go a results of what the in a how very

without question that going way. would So into answer probably that specifics, I

Saket Kalia

helpful. Very

Ken Xie

especially additional office. SASE companies -- to work, starting point return to very some Yeah, is of a return of lot

to sense. the because work traffic forward office, then we So see SASE make lot in office all of a office in part process, both do like, provided you office SASE, it, is not the home which of to from and universal the on-premise of much and call if the back back supporting also

the SASE. vendor call leadership the the also lot solution. a or company see leverage try And SASE And of the they SD-WAN private do bigger lot see We same at some a single time, we do of to required there. also,

to So a be in traffic forward. instead of want process the infrastructure, own part, big potential believe they service will market datacenter which own provider in kind do also their of SASE we process going

Saket Kalia

Thank guys. you. Thanks,

Ken Xie

Thank you.

Operator

Thank you.

with TD comes next Our Cowen. from Eyal Shaul question

is line open. Your

Shaul Eyal

you for quarter? Thank your that top the go-to-market about it your taking this maybe afternoon. as you've the Good relates you Was there to sellers? non-balance anything Keith seen question. performance talk with can Ken, or

Keith Jensen

try I'm the quite Or distribution -- get sure -- I'm are follow for looking you of question sure the Shaul. you're not quota? to not at, salespeople hitting I

Shaul Eyal

So the actually, one, notable ones, or whether I'm even biggest resellers, your performance your quarter? was looking not, value-added the balanced and for during or

Keith Jensen

have data be that don't you. I handy, honest to with

Ken Xie

which network, of one probably exclusive from release some see do we picture Yeah, biggest also.

on, a top bit business XX% probably --- distributor, biggest more little their want they're also We but

Keith Jensen

I'm don't resellers sorry. Sorry, I know.

You're answering the yeah. question. right [Indiscernible] distributors,

Ken Xie

it's Yeah, seeing. similar a I common, as are we think

Keith Jensen

quarter. out We you and there the top of our that top that's shifted really think look in if That our three saw concentrated just we or mix all at I us. will, all we're regard. distributors, point -- at fairly doesn't at that six that That much, in business, that wasn't change significantly. our something Yeah. don't X maybe

Ken Xie

back a also Also, also of going similar pretty even to the history Yeah. forecast, forward, kind go believe. I

Keith Jensen

Yes.

Shaul Eyal

Thank you.

Operator

Thank question. your for you

Our with next Gallo Jefferies. question comes from Joseph

open. is line Your

Joseph Gallo

guys. Hey, question. the for Thanks

have relative are you where the CISOs, you where you the in And Given resistance? platform, point is your than cyber breadth When most of budgets? better most. vantage seeing the talk a the health to

'XX, any confidence to that? there this that lends Is only optimistic period? support context to two quarter on a one And comments historical digestion is then your given what

Keith Jensen

now, CISO terms what a sit that's of AI things SASE down you. spending, we or out In that some that about something the suspect we getting of with it. Whether were have technologies, I -- obviously, CISO the media there with there's that attention talking

use infrastructure. still are need get use and on-prem knitting, the CIOs with will. cetera. having care their in don't for new cases But will, secured. cases cases if tending I away firewalls. of take -- cloud, that if new obviously Opportunities, Edge, to their There's think the exists There that CISOs you to from you be et be There's to

with to them. a very CISO be position difficult budgets that think now and career at after threats right the are I it's

As religiously think I cycle do pardon it the second to XXXX, as whenever year. half our me, relates through XXXX, -- more planning we'll we the go of

a the we so I as think we forth, really, more is were supply to normal making and chain that's the the what that Ken would able back be and pandemic get will. been has have move back move we'd to if historically every point sweet and that buying through in after you I in pattern we the expectation industry spot, that

as -- that, in a quarter every compares by easier note mean as not through And And comparison. static XXXX. go that also the get the would I you I it's

Ken Xie

shortage The so work to can leverage they kind CISO, environment, to the why hybrid a for this certain little try approach. or bit that's work a to they people tend of we and more supporting use to service of in have home certain talk to

companies, but kind That's there's to make like also the office see or so need some sure also commit tech like like back of On service the versus spending. that the universal and of because process they SASE new cloud kind [ph] many infrastructure, whether security. starting they because security to budget, it do certain certain environment, the area other this new we supporting OT impact supporting side, call T&A we --

commit case. see spending also of some not security, is for that that we certain Sometimes

happening. what's that's So

of inside of also of them. kind there. AI, also supporting hybrid help infrastructure. ahead fuel for issue the which So priority security them kind CISO environment. and supporting situation and that's And -- high some the also also pretty also of to technology more deployed also operation kind It's -- solve work leverage to help is a broadly help the the big is where we helping It's some keeping most network a quite the new

Joseph Gallo

hiring? first of then, You've outperformed doesn't versus your should that. I half debate And should billings helpful. classic a we in digestion on this Thanks the think Where moderate? guide of but very how profit, through and from we period, That's growth the incremental necessarily think work as investments Thanks. the continuation reflect here guess, as about in investments profit we

Ken Xie

two-three still also, we also certain sure We're the to do review bit which low the to will through probably which try we the kind improving to -- in kind need behind and kind also, growth. be disciplined certain But be little productivity efficiency. hygiene probably pandemic, but quite of the hiring certain a process, of the high of we're more enhance We -- during performance. last will top-line keeping probably -- of not the performance have participant. years Make on

Keith Jensen

kind question to a to, think, of back Shaul's and that Yeah. make come I points. of would couple I use

sales I operating think that. have of XX% above think margin, we've and kind in a pointed you we've -- to salespeople. very faithful certainly At coming that deliver been see same we out, had as lot on capacity Ken of I about to We us when the numbers. the talk time, continually

So to more. we have the invest opportunity there

the right the And distributors. more channel There's with conversations levels detailed sharing much than the at we're on think a now informative, the lot distributors cooperation partners, that I years more with that I having, think the they two they're information note, were that ago.

us maybe this partners to a opportunities as that invest months. next there's -- channel is for And I six think to we of to byproduct go our variety some XX different through think XX in a probably of ways in I

Ken Xie

years, of XX The margin. kind keeping gross Page last the XX. I to the refer Yeah.

margin, that's So GAAP where the profit IPO. since three we've and we of the been have years

in do both on keep a and that. margin. the side, to we growth on healthy margin if But have we the the need to want care invest healthy, and definitely take to model So the other we also growth,

Joseph Gallo

you. Thank

Operator

you. Thank Nowinski Andrew And Mr. with Wells from question our Fargo. comes next

is Nowiski, open. your line

Andrew Nowinski

want I geographic demand the about you. to trends. Thank ask

behind they strength in of the So regions? two seeing do quarters wondering U.S. terms macro? regions maybe in just one you Europe. think saw how -- was demand I those to in impact sustainable international think in you that saw the I is from the just Or are you

Keith Jensen

Yeah.

competitive look advantage that when think parts you have the international we as viewed the to incumbent we have emerging, share. and one number I at of being a market Europe where oftentimes are

start they do recent the seeing currently, on budgets So environment is maybe in seeing Europe what are they an in more surveys. not Europe budgets in which suffer IT IT than are lower the some in to the we're we're Currently, U.S. the U.S., in than which based right? in

prepared better dominant that to our we're think I of in work way through in Europe because position that our market.

Andrew Nowinski

the in I I just you against, I at seeing logos. against it are Got about wondering, can how it. Okay. guess that SMB maybe market? as then to solutions segment, relates about SASE targeting if Microsoft's about your talk Entra universal And new talked X,XXX you solution, all, you're think was new strength adding competing that

Ken Xie

on But seeing the is addressed we in definitely, technology, not the more security. Microsoft more base our enterprise And the network huge which we're we enterprise, the installation have area. security, have address which any have also to some beyond the side. customer security product, Yeah, network of also of there. Microsoft some kind good advantage and leverage solution sort address network base the definitely

an for there's companies. we do opportunity So believe both

Andrew Nowinski

Thank you.

Operator

would Thank back Peter now session. you. for closing That concludes our to question-and-answer turn Salkowski I like to call remarks. the

Peter Salkowski

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

investor in the the Fortinet's of posted be attending third section and will hosted Goldman Sachs, Deutsche webcast Bank, Relations and be Oppenheimer, Rosenblat Events quarter. Fortinet by chat conferences website. Stifel will links Presentations during Investor Fireside

a follow-up me. your If rest contact Have any you. day. questions, you have of please feel to free Thank good

Operator

Thank today's conference participating. concludes call. you for This

now may You disconnect.

Fortinet (FTNT) 3 Aug 232023 Q2 Earnings call transcript