Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fortinet Inc (FTNT, Financial) reported a record gross margin of 83.2% and operating margin of 36.1%, indicating strong financial performance.
- Total revenue grew by 13%, driven by a 19% increase in service revenue and a return to growth in product revenues.
- The company added over 6,000 new logos, showcasing the resilience of small enterprise customers and the strength of its channel partner ecosystem.
- Fortinet Inc (FTNT) continues to lead in the Gartner Magic Quadrant for SD-WAN for the fifth consecutive year, highlighting its strong market position.
- The company is investing in its global infrastructure, including over 3 million square feet of Class A office space, which provides a long-term cost advantage.
Negative Points
- The billings guidance for the next quarter came in below Street expectations, indicating potential challenges in meeting market forecasts.
- There is a cautious outlook on large deals maturing in the final month of the quarter, which could impact financial performance.
- The competitive landscape is seeing increased discounting and bundling from larger vendors, which could pressure Fortinet Inc (FTNT)'s pricing strategies.
- The company is facing challenges in the European market, with no expectation of outsized performance from the region.
- There is a risk associated with the timing and magnitude of the expected firewall refresh cycle in 2025, which could affect future growth.
Q & A Highlights
Q: Can you elaborate on Fortinet's approach to Sovereign Sassy and how it differentiates from competitors, especially for highly regulated verticals?
A: Ken Xie, CEO: Fortinet has invested in Sassy for over five years, integrating all functions into the same FortiOS, both on-premise and in the cloud. This offers a significant differentiation as competitors typically focus only on SaaS. Our Sovereign Sassy allows service providers to process data locally, keeping it within their own data centers, which is crucial for regulated industries. This is supported by our single OS and multi-function capabilities, providing an easy migration path from traditional firewalls to Sassy.
Q: Could you provide more insight into the firewall refresh cycle and its expected impact?
A: Keith Jensen, CFO: We anticipate a significant refresh cycle starting in 2025, as a record number of FortiGates will reach the end of their support lifecycle in 2026. Historically, customers begin the refresh process about a year before the end of life, which suggests a substantial opportunity for growth. This cycle is expected to be larger than any in the past five to six years, with a notable portion involving mid-range firewalls.
Q: How is Fortinet addressing potential cannibalization as customers migrate from SD-WAN to Sassy?
A: Ken Xie, CEO: The migration from SD-WAN to Sassy does not cannibalize our existing security deployments. Instead, it complements them by adding additional services and margins. Most of our Sassy business comes from existing security and SD-WAN customers, leveraging our single OS technology to provide a seamless transition and additional functionalities.
Q: What are the key drivers for Fortinet's SaaS solutions ARR growth, and is this growth organic?
A: Keith Jensen, CFO: The ARR growth for our SaaS solutions is organic, driven by offerings like FortiEDR, FortiClient, FortiWeb, and FortiSOAR. These solutions have been developed internally and are seeing strong adoption, contributing significantly to our overall growth.
Q: Can you discuss the competitive landscape and any pricing pressures Fortinet faces?
A: Keith Jensen, CFO: The competitive landscape remains stable, with discounting levels similar to prior periods. We have ample margins to invest in growth and are encouraging our sales teams and channel partners to leverage this. Our focus remains on providing cutting-edge solutions and maintaining strong customer relationships.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
