Fortinet, Inc.
CEO : Mr. Ken Xie
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2023 Q2 | 25.5% YoY | 42.9% | 54.5% | 2023-08-03 |
Keith Jensen says,
Key Highlights from Q2 2023 Earning Call Transcript
- Billings growth of 18% and total revenue growth of 26%
- Product revenue growth of 18% and service revenue growth of 30%
- OT and SD-WAN revenue up 60% and 40% respectively
- Record 6,500 new logos added, indicating strength in small and midsized customer segments
- Operating margins of 26.9%, exceeding guidance range by 140 basis points
- Free cash flow of $438 million, representing a margin of 34%
- Non-FortiGate billings growth driven by networking FortiGate VM, NAC, and cloud
- Manufacturing and government were the top industry verticals in terms of billings
- International emerging GIOS led in billings growth
- Total revenue grew 26% to $1.29 billion, driven by non-FortiGate growth of over 45%
- Total gross margin of 77.9%, up 140 basis points
- Security subscriptions represent over 55% of service revenue
- Significant wins include deals with a global pharmaceutical leader, a large U.S. school district, and a large bank
- Investment and innovation in AI and machine learning technologies to enhance cybersecurity
Guidance for Q3 2023
- Billings in the range of $1,560 million to $1,620 million, representing 13% growth
- Revenue in the range of $1,315 million to $1,375 million, representing 17% growth
- Non-GAAP gross margin of 75.5% to 76.5%
- Non-GAAP operating margin of 24.5% to 25.5%
- Non-GAAP earnings per share of $0.35 to $0.37
Guidance for Full Year 2023
- Billings in the range of $6,490 million to $6,590 million, representing 17% growth
- Revenue in the range of $5,350 million to $5,450 million, representing 22.3% growth
- Service revenue in the range of $3,350 million to $3,410 million, with product revenue growth at 13.5%
- Non-GAAP gross margin of 75.25% to 76.25%
- Non-GAAP operating margin of 25.25% to 26.25%
- Non-GAAP earnings per share of $1.49 to $1.53
Ken Xie says,
Total Revenue Growth
- Total revenue in Q2 2023 increased by 26%.
- Service revenue grew by 30% for the second consecutive quarter.
- Growth in existing subscriptions and non-FortiGate product subscriptions was 34%.
- Product revenue growth was 18%.
Market Share Leadership
- Fortinet is the market share leader in both unit and revenue in the firewall category, with over 50% market share.
- Fortinet was named the ITOT network protection platform leader by Westland Advisory on Security and Cybersecurity.
Future Growth Opportunities
- Fortinet is one of the top and fastest-growing OT security vendors in the market, expected to grow to $33 billion by 2030.
- Increased go-to-market investment in IoT security, cloud security, and security operations.
- New FortiGate 90G next-generation firewall with industry-leading security features and performance.
- New SD-WAN services to enhance digital experience and facilitate rapid deployment.
Cost Savings and Benefits
- FortiGate next-gen firewall and FortiGuard AI-powered security services offer over 300% ROI over three years and payback in six months.
- Fortinet Security operation solutions reduce time to detect and respond to incidents from three weeks to one hour.
AI and Future Developments
- AI technologies, such as generative engines, show promise in areas like malware detection, threat hunting, event correlation, and automation.
- AI can significantly improve productivity and be scaled to a large customer base.
Q & A sessions,
Impact of Manufacturing and Government Sectors
- Manufacturing sector performed well in Q2 and continued to spend heavily due to the perceived threat environment.
- Government sector also showed strength and had budgets despite a slowing economy.
Impact of Retail Sector
- Retail sector experienced negative growth in Q2 due to a digestion period and a slowdown in the economy.
Guidance for Q3 and Q4
- Q3 is expected to have low-single digit growth sequentially, similar to historical trends.
- Q4 is expected to have lower growth compared to previous periods, cautioning about the tough comparison to the strong Q4 of the previous year.
Impact of Duration and SASE
- Duration slowdown has affected year-over-year growth, resulting in a decrease in growth by 4-5 points.
- SASE product is not impacted by duration, only services are partially affected.
CISO Spending and Budgets
- CISOs are facing budget constraints but cannot neglect their infrastructure and security needs.
- There may be new use cases for firewalls, opportunities for on-prem and cloud security, and increased focus on infrastructure security in a hybrid work environment.
Long-Term Growth and Market Share
- The company aims to keep gaining market share and believes in the long-term convergence of network and network security.
- Product revenue growth remains strong compared to competitors.
- Some timing-related issues and inventory levels have affected product revenue growth.
No bad stock 