Fortinet Q2 2021 Earnings Report

Fortinet EPS Results

• Actual EPS: $0.19
• Consensus EPS: $0.18
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.16

Fortinet Revenue Results

• Actual Revenue: $801.10 million
• Expected Revenue: $741.76 million
• Beat/Miss: Beat by +$59.34 million
• YoY Revenue Growth: N/A

Fortinet Announcement Details

• Quarter: Q2 2021
• Date: 7/29/2021
• Time: After Market Closes
• Conference Call Date: Wednesday, July 28, 2021
• Conference Call Time: 7:55PM ET

Fortinet (NASDAQ:FTNT) (NASDAQ: FTNT) is a multinational cybersecurity company that develops and delivers integrated security solutions for enterprise, service provider and government customers worldwide. Founded in 2000 and headquartered in Sunnyvale, California, the company was co‑founded by Ken Xie and Michael Xie. Ken Xie serves as chairman and chief executive officer, and the company operates through a global sales, channel and services organization to support customers across the Americas, EMEA and Asia‑Pacific.

Fortinet’s product portfolio centers on network security appliances and software, with its FortiGate next‑generation firewalls and the FortiOS operating system forming a core platform. The company extends that platform via the Fortinet Security Fabric, a suite designed to integrate networking, access, endpoint, application and cloud security. Offerings include secure SD‑WAN, secure access service edge (SASE) capabilities, endpoint protection, email and web application security, network access control, and industrial/OT security, delivered as physical appliances, virtual machines and cloud services.

Complementing its hardware and software products, Fortinet provides threat intelligence and subscription services through FortiGuard Labs, centralized management and analytics tools such as FortiManager and FortiAnalyzer, professional services, and training and certification programs. Its business model combines product sales with recurring revenue from security subscriptions, support and managed services, and it leverages an extensive partner ecosystem to reach customers of different sizes and verticals.

Fortinet emphasizes integrated security, scalability and high performance to address increasingly distributed and cloud‑centric IT environments. The company positions its technologies for organizations seeking to consolidate security functions, improve operational visibility, and apply threat intelligence across on‑premises, hybrid and multi‑cloud infrastructures.

Fortinet Q2 2021 Earnings Call Transcript

Key Takeaways

• Record Q2 results with 35% billings growth to RMB 961 million and 30% revenue growth to $801 million, led by a 41% surge in product revenue and a quarterly free cash flow record of $395 million.
• Non-FortiGate products and services grew 39% in the quarter, now representing about 30% of total revenue and on track to become a $1 billion-plus business this year.
• Introduced the FortiTrust security service with user-based licensing for Zero Trust Network Access and identity verification, enhancing Fortinet’s security services portfolio and simplifying management across network, endpoint and cloud.
• Launched the FortiGate 3500F next-gen firewall powered by the MP7 ASIC, offering up to six times the performance of competing products for high-speed internal networks and data centers.
• Raised full-year 2021 guidance with expected billings of $3.87 billion–$3.92 billion (26% growth) and revenue of $3.21 billion–$3.25 billion (24.5% growth), targeting a non-GAAP operating margin of 25%–27% and EPS of $3.75–$3.90.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Fortinet second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one on your telephone keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Peter Salkowski, Vice President of Investor Relations. Sir, please go ahead.

[Peter Salkowski, VP of Investor Relations at Fortinet]

Thank you, Catherine. Good afternoon, everyone. This is Peter Salkowski, Vice President of Investor Relations at Fortinet. I am pleased to welcome everyone to our call to discuss Fortinet's financial results for the second quarter of 2021, which we are hosting from inside of our new building. Speakers on today's call are Ken Xie, Fortinet's Founder, Chairman, and CEO, and Keith Jensen, our Chief Financial Officer. This is a live call that will be available for replay via webcast on the investor relations website. Ken will begin our call by providing a high-level perspective on our business. Keith will then review our financial and operating results for the second quarter before providing guidance for the third quarter and updating the full year. We will then open the call for questions.

[Peter Salkowski, VP of Investor Relations at Fortinet]

During the Q&A session, we ask that you please keep your questions brief and limit yourself to one question to allow others to participate. Before we begin, I'd like to remind everyone that on today's call, we will be making forward-looking statements, and these forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected. Please refer to our SEC filings, in particular, the risk factors in our most recent Form 10-K and Form 10-Q for more information. All forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation and specifically disclaim any obligation to update forward-looking statements. Also, all references to financial metrics that we make on today's call are non-GAAP unless stated otherwise.

[Peter Salkowski, VP of Investor Relations at Fortinet]

Our GAAP results and GAAP to non-GAAP reconciliations is located in our earnings press release and in the presentation that accompanies today's remarks, both of which are posted on the investor relations website. Lastly, all references to growth are on a year-over-year basis unless noted otherwise. I will now turn the call over to Ken.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Thanks, Peter, and thank you to everyone for joining this call to review our outstanding second quarter 2021 result. Billings increased 35% to $961 million, driven by solid execution and was the best it has been since 2015. Secure SD-WAN account for 14% of second quarter billings. Total revenue grows 30% to $801 million, with product revenue up 41%. Product revenue growth was the highest for nearly 10 years. Free cash flow was $395 million, a quarter record level. With strong business momentum, we remain focused on growth. Today, we announced expansion of our FortiCare and FortiGuard security services, adding a new security service called FortiTrust. FortiTrust security service offer user-based licensing that follow the user across the organization's entire security platform. This enable organizations to easily manage and secure across all network, endpoint, and cloud, which traditionally has been siloed.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Initial service levels are being offered for Zero Trust Network Access and identity verification. We enhance the current FortiCare security services, which cover all Fortinet Security Fabric products with 3 levels of services including 24/7 technical support and timely issue resolution. Additionally, FortiGuard security services has been fine-tuned for different segments with added individual services for enterprise, bundles for commercial, and packages for SMB. Leveraging industry-leading threat intelligence from FortiGuard Labs, FortiGuard security services offer market-leading AI-enabled security capabilities that regularly adjust protection across the Fortinet Security Fabric. Today, we announced a new FortiGate 3500F, the industry's first high-performance next-generation firewall with integrated Zero Trust Network Access and ransomware protection. Powered by the Fortinet NP7 ASIC SPU, the FortiGate 3500F offers an average 6x more performance than other competitive products based on our Security Compute Rating.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

This makes the FortiGate 3500F the best protection for high-speed internal network and data centers. We continue to see the momentum and adoption of our SD-WAN, Zero Trust Network Access, and cloud solutions among the world's largest service providers. In May, Fortinet was recognized as the winner of the Microsoft Security Customer Impact Award. Last week, Fortinet was named Google Cloud's 2020 Security Partner of the Year, recognized for innovative thinking, outstanding customer service, and best-in-class use of cloud product and services. Before turning the call over to Keith, I would like to thank our employee, customer, and partners worldwide for their continuous support and hard work.

[Keith Jensen, CFO at Fortinet]

Thank you, Ken. To add to your comments, we should note that as in the prior quarter, billings growth, product revenue growth, and total revenue growth all accelerated sequentially. In fact, all three growth rates were at five-year Fortinet highs, and product revenue growth was at its highest in over nine years.

[Keith Jensen, CFO at Fortinet]

Okay, let's start the more detailed Q2 discussion with revenue. Total revenue of $801 million was up 30%, driven by industry-leading product revenue growth of 41%. The product revenue growth was broad-based across geographies, FortiGate and non-FortiGate products, and across use cases, illustrating market acceptance and customer demand for our integrated single-platform Security Fabric strategy across customer infrastructures. Our financial strategy includes a Rule of 40 target. We target the total of the revenue growth percentage and operating margin to be at least 40. In the second quarter, strong demand and execution drove this actual total to be a rule of 55. FortiGate product revenue growth was 40%. While we continue to see robust growth from our secure SD-WAN functionality, the majority of the growth was driven by FortiGate revenue from other capabilities which are embedded in the FortiGate operating system.

[Keith Jensen, CFO at Fortinet]

Non-FortiGate product revenue growth was over 40% for the second consecutive quarter and was driven by strong growth from our integrated Security Fabric products. One additional comment on our product revenue growth. The product revenue growth was a reflection of our continued strong organic growth and not the result of a few large deals drawing down backlog, nor an unusual number of delayed transactions from the prior quarter or pulled in from future periods. Service revenue of $503 million was up 24%. Support and related services revenue of $230 million was up 26%, while security subscription services revenue of $273 million was up 23%. Moving to the mix of FortiGate and non-FortiGate platform revenue. FortiGate product and services revenue increased 26%, driven by very strong demand for both branch and high-end FortiGate products. High-end products included Fortinet 10 NP7-powered FortiGate models, representing approximately 25% of high-end FortiGate shipments.

[Keith Jensen, CFO at Fortinet]

Our ASIC-driven FortiGates give customers 5x-10x more computing power than firewalls running on common CPUs. The advanced computing power creates additional speed and capacity to continue to add functionality to our operating system, further driving our price for performance advantage. The combination of the ASIC advantage and the common operating system across products can enable vendor consolidation, lowering total cost of ownership and increasing automation. Non-FortiGate product and services revenue grew 39% and accounted for approximately 30% of total revenue, up over 2 percentage points. The integrated Security Fabric consists of a complete range. Could you close that door? Bit of a rehearsal for our all-hands meeting later on today, folks. You get an inside scoop on what Patrice is going to say. Let me start again, if I may.

[Keith Jensen, CFO at Fortinet]

Non-FortiGate product and services revenue grew 39% and accounted for approximately 30% of total revenue, up over 2 percentage points. The integrated Security Fabric consists of a complete range of form factors and delivery methods, including physical and virtual appliances, cloud, SaaS, and perpetual software, as well as hosted and non-hosted solutions. Together, they provide a range of security solutions and form factors, enabling integrated protection for the hybrid environments and the expanding digital attack surface from network data centers to endpoints to the cloud. Let's turn to revenue by geo. The summary is on slide five. Revenue in EMEA increased 34%. The Americas revenue increased 29%, and APAC posted revenue growth of 24%. Product revenue growth for both the Americas and EMEA regions was over 40%. Moving to billings. Second quarter billings were $961 million, up 35%.

[Keith Jensen, CFO at Fortinet]

We saw strong growth in both the FortiGate and non-FortiGate segment of the security fabric platform. The FortiGate segment delivered billings growth of over 30%, accounting for 71% of total billings. As shown on slide six, branch and high-end FortiGates posted very strong billings growth. The non-FortiGate segment accounted for over 29% of total billings and delivered billings growth of over 45%, driving a 2-point mix shift to non-FortiGate products and services. Given the continued strong performance, we believe our non-FortiGate platform is on a pace to be a $1 billion business this year. Secure SD-WAN billings represented 14% of total billings and is a key functionality for an integrated SASE solution. In terms of billings by geo, EMEA outperformed all geos, followed by the Americas and APAC.

[Keith Jensen, CFO at Fortinet]

Europe had a very good quarter. Growth in the Americas was driven by the U.S., which was up sequentially by more than 30 percentage points. Latin America continued to recover from the pandemic-induced slowdown, posting billings growth in the mid-20s for the second consecutive quarter. The average contract term was approximately 28 months, up two months from the second quarter of 2020 and one month from the first quarter of 2021. Deals over $1 million increased from 59-79, and the pipeline for deals over $1 million continues to look good for the remainder of the year. Secure SD-WAN deals over $1 million increased from 13-19. Moving to worldwide billings by industry verticals. Billings by vertical illustrate the diversification in our business model, and importantly, suggest the current threat landscape is driving security investments in industries that may have historically shown lower investment levels.

[Keith Jensen, CFO at Fortinet]

For example, the verticals that have historically not been in our top five combined for billings growth of over 75%. Service providers accounted for 14% of total billings and were up 25%. Moving back to the income statement, product revenue grew up at 41%, drove a 3-point shift in the product and services revenue mix, and along with it, a gross margin decrease of 160 basis points to 77.5%. Product gross margin improved 70 basis points to 61.7%. Services gross margin decreased 160 basis points to 86.9%, with data center investments in FX accounting for about 100 basis points of the impact.

[Keith Jensen, CFO at Fortinet]

Operating margin of 25.4% was at the top end of the guidance range, despite a 350 basis point headwind from the gross margin decline, a weaker US dollar, and increased travel and marketing event costs. We ended the quarter with a total headcount of 9,043, an increase of 17%.

[Keith Jensen, CFO at Fortinet]

Moving to the statement of cash flow summarized on slide eight and eight. Free cash flow for the second quarter came in at a quarterly record of $395 million, benefiting from strong revenue growth, good month one linearity, and lower capital expenditures. In the quarter, we repurchased approximately 455,000 shares of common stock for a total cost of $92 million at an average share price of approximately $201. The remaining share repurchase authorization at the end of the second quarter was $921 million, with the authorization set to expire at the end of February 2022. We ended the first half of the year with total cash and investments of $3.4 billion, an increase of $1.7 billion. The increase includes the proceeds from our $1 billion investment-grade debt issuance during the first quarter of 2021.

[Keith Jensen, CFO at Fortinet]

DSOs returned to pre-pandemic levels, decreasing sevn days year-over-year and 15 days quarter-over-quarter to 66 days. Inventory turns increased to 2.7x from 2.2x, reflecting strong product sales in the quarter. Capital expenditures for the quarter were $24 million, and we have started to move into the new Sunnyvale building. We estimate third-quarter capital expenditures to be between $65 million and $75 million, which includes a $30 million payment for the new campus building. We estimate 2021 capital expenditures to be between $175 million and $200 million. With the acceleration of the growth and a little more understanding of the post-pandemic work patterns, we are turning our attention to reviewing our facilities footprint and the needed office and warehouse capacity in the U.S. and Canada.

[Keith Jensen, CFO at Fortinet]

As we work through this process, it is possible that our estimated capital expenditures over the next few quarters will increase as we prepare for the next phase of our growth. Looking forward, our goal remains to balance growth and profitability. Given the growth opportunities that we believe lie ahead, we continue to expect to tilt our bias within this framework more towards growth for at least the next several quarters.

[Keith Jensen, CFO at Fortinet]

The opportunities we see are supported by a strong pipeline, increased sales effectiveness, the growing success of the single integrated security platform strategy and the convergence of security and networking, the response to the current threat environment, and our development efforts, which include continuing to invest in our ASIC advantage, which enables a shared operating system across the security fabric platform, drives our price for performance advantage, increase the capacity to add features and functions while maintaining price points. I'd now like to review our outlook for the third quarter summarized on slide 9, which is subject to disclaimers regarding forward-looking information that Peter provided at the beginning of the call.

[Keith Jensen, CFO at Fortinet]

For the third quarter, we expect billings in the range of $940 million-$960 million, revenue in the range of $800 million-$815 million, non-GAAP gross margin of 77.5%-78.5%, non-GAAP operating margin of 24.5%-25.5%, which includes an estimated 200 basis point headwind from foreign exchange and increased travel and marketing costs. Non-GAAP earnings per share of $0.90-$0.95, which assumes a share count of between 169 and 171 million. We expect a non-GAAP tax rate of 21%. With that, we are raising our 2021 guidance and expect billings in the range of $3,870 million-$3,920 million, which at the midpoint represents growth of approximately 26%. Revenue in the range of $3,210 million-$3,250 million, which at the midpoint represents growth of approximately 24.5%.

[Keith Jensen, CFO at Fortinet]

Total service revenue in the range of $2,045 million-$2,075 million, which represents growth of approximately 23% and implies full-year product revenue growth of approximately 28%. Non-GAAP gross margin of 77%-79%. Non-GAAP operating margins of 25%-27%, which includes an estimated 200 basis point headwind from foreign exchange and increased travel and marketing costs. Non-GAAP earnings per share of $3.75-$3.90, which assumes a share count of between 168 million and 170 million. We expect our non-GAAP tax rate to be 21%. We expect cash taxes to be approximately $90 million. Along with Ken, I'd like to thank our partners, customers, and the Fortinet team for all their hard work, execution, and outstanding success in the first half of 2021. I'll now hand the call back over to Peter for the Q&A session.

[Peter Salkowski, VP of Investor Relations at Fortinet]

Thank you, Keith. Operator Catherine, we're ready to open the call for questions, please.

[Operator]

Sure. As a reminder to ask a question, you will need to press star one on your telephone keypad, to withdraw your questions. Press the pound key. You stand by while we compile the Q&A roster Our first question is from Brian Essex of Goldman Sachs. Sir, please go ahead.

[Brian Essex, Senior Equity Analyst at Goldman Sachs]

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

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Yes, thanks, Brian. Great question. I think the industry, whether during the pandemic or after the pandemic, probably is in some kind of a whole structure changing. It's no longer the traditional border kind of firewall will be enough. You have to expand into the WAN side, like secure SD-WAN, the 5G, and also the internal, have to do like internal segmentation, replacing the switch with secure switch and the Wi-Fi to prevent all this kind of ransomware or internal attack. A consolidation also going on, and also need to have a integrate like a different part infrastructure, secure integrate together to protect the whole attack, multi kind of attack surface protection there. That's where we see it's a big change for the whole architecture of how to architect a new protection architecture to protect the whole infrastructure security there.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

That's probably different than just refresh the traditional firewall, but the new expanded infrastructure need to have all protection there. That's what we see, like the product we announced today, FortiGate 3500F, it's more go inside the high-speed network environment to do all this kind of internal segmentation within data center protection and all these kinds of things. Also we see very strong growth, whether the secure SD-WAN and also the 5G growth. That's drive a lot of our branch office, work from home solution there. That's where the unit grow probably even much faster there. We see the whole infrastructure being changed, what we call the Security-Driven Networking started more adopt by both enterprise and also a different kind of vertical.

[Brian Essex, Senior Equity Analyst at Goldman Sachs]

Got it. That's super helpful. Maybe to follow up, service provider was slightly lower as a percentage of revenue this quarter. I understand that on the product revenue side and the high end, you saw a lot better growth. Should we think about that segment, particularly to the extent that they might be selling through for SASE or you might be getting better traction with OT security? How should we think about growth of the service provider market? Is that still to come, or is that a more stable kind of mid-20s grower segment for you?

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

I think it's in the ramp-up stage, still in the early stage of ramp-up. Compared to last quarter, probably like down about 15%. This quarter grew about 25%. Starting ramp-up, like I mentioned, they're building infrastructure, whether for the 5G, SD-WAN, or SASE, which we have a different strategy. Our SASE strategy actually quite different, probably very different from other player. We have a dual strategy. We are probably the only one working with service provider to build in their SASE. At the same time, like the service revenue, we kind of lower the margin a little bit there, also investing some our own infrastructure. If some customer don't have a service provider or want to working with us directly, we also have our own kind of SASE solution there, which also integrate with the FortiOS.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Inside FortiOS, they have a built-in SASE, Zero Trust Network Access, and some other part. It's also kind of different than our competitor. Eventually, we also hope we can use an ASIC or SoC to add additional computing power to our own SASE solution there. That's where we feel it's a long-term investment, but once we have it, we have huge advantage compared to other competitors.

[Brian Essex, Senior Equity Analyst at Goldman Sachs]

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

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Thank you.

[Operator]

Yes, sir. Our next question from Hamza Fodderwala of Morgan Stanley. You may go ahead.

[Hamza Fodderwala, Executive Director and Lead Cybersecurity Equity Research Analyst at Morgan Stanley]

Hey, guys. Thank you for taking my question. I had a follow-up regarding the prior question on some of the drivers of product revenue growth. Ken, as your customers start coming back into the office or as we move into this more hybrid work environment, you talked a lot about these larger network transformation deals. I was wondering, what do you see the pipeline looking like for those larger deals heading into the back half and beyond? Do you think that some of the things that we saw in the past 12-18 months is going to be an accelerant for those more larger infrastructure type deals?

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Yeah, we see the pipeline very strong for the larger multiple product deal, which cover multiple part of infrastructure. The program growth, like 41%, is also very strong. We feel that our product is very different than the traditional or some more competitor they use in the CPU only. We have the latest CPU from industry. We develop ASIC in the last 21 years. Just like the product we announced today, the FortiGate 3500F, based on our calculation, we call it Security Compute Rating, basically for the same cost, what's the function performance compared to other competitor or industry average. We have a six-time better performance, basically because the computing power advantage is huge from our own ASIC. That's what changing the landscape of the product or whether network security product or some other leveraged ASIC.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

This huge computing power gave us much more function and better performance that can easily replace a lot of our competitors. Same time, we do see the expansion total addressable market, whether it be work from home or kind of a secure internal network inside the company, inside data center, which also drive a lot of high-end product growth. The high-end product percentage also we see probably pretty high, maybe the highest in the last few quarter or even last few years.

[Hamza Fodderwala, Executive Director and Lead Cybersecurity Equity Research Analyst at Morgan Stanley]

Got it. That's helpful. Maybe just a follow-up question for Keith or Ken. Now, Keith, you mentioned the operating margin in the back half having about a 200 basis point impact from FX. I was just wondering, just on your spending plans around hiring, what you're seeing there. It's obviously a very competitive market for talent these days, and I'm wondering if that's been factored at all into your guide.

[Keith Jensen, CFO at Fortinet]

Yeah, I think we obviously pay attention to our recruiting and to our attrition rates. I think the metric that we gave was that our overall headcount increased 17%. I would offer that the sales headcount actually grew significantly more than that. I think that we're in a bit of a sweet spot, and it kind of relates to what Ken was saying just a moment ago in terms of the success that we're having. I think you could read through to the high-end FortiGates as probably being data center deployments and probably taking advantage of some competitors that are going through a refresh cycle. At the same time, some of the branch FortiGates maybe even reflective of digital transformation. I think that the audience of salespeople understand that, and they see the opportunities there.

[Hamza Fodderwala, Executive Director and Lead Cybersecurity Equity Research Analyst at Morgan Stanley]

Thank you.

[Operator]

Sir, our next question from Sterling Auty of JPMorgan. You may go ahead.

[Sterling Auty, Managing Director of Equity Research at JPMorgan]

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

[Keith Jensen, CFO at Fortinet]

I think that we've tried to make the point in the past that some people think about the firewall somewhat simplistically. We probably track close to 12-15 different firewall use cases, whether you want to talk about micro-segmentation, IPS, et cetera. All of those, the totality of those, the growth there was contributed more, if you will, than SD-WAN. SD-WAN itself still obviously contributed very nicely at 14% of our total billings, which probably puts it close to about 35% or probably 55% growth. I think there's a long list of things that a firewall is used for, and we were very pleased with the success that we saw throughout that suite of offerings.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Especially the FortiOS 7.0, we are building Zero Trust Network Access and building SASE there. We see very strong interest in this area, both from the service provider for enterprise, for work from home solution there.

[Sterling Auty, Managing Director of Equity Research at JPMorgan]

Understood. Thank you.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Thank you.

[Operator]

Sir, our next question from Rob Owens of Piper Sandler. You may go ahead.

[Rob Owens, Managing Director and Senior Research Analyst at Piper Sandler]

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

[Keith Jensen, CFO at Fortinet]

Yeah. Rob, I think you did a very good job of laying all the dots to connect there. We're looking at industries or verticals such as manufacturing, transportation, energy, utilities, or what have you, and to see the dramatic growth that we saw in that segment of the business. We've historically talked about our top five, financial services, government, service provider, tech, and retail, and they've been very consistent about that 65%-66%. We saw a significant shift this quarter to those others, and it was just the sheer growth that we saw in those others. The point that you alluded to, OT. OT performed very strongly in the quarter, and I think that's consistent with what we saw with that vertical growth and those other verticals that I just mentioned.

[Rob Owens, Managing Director and Senior Research Analyst at Piper Sandler]

Thank you very much.

[Operator]

Our next question from Shaul Eyal of Cowen and Company. You may go ahead.

[Shaul Eyal, Managing Director and Senior Equity Research Analyst at Cowen and Company]

Thank you. Single question on my end. When we look at the billing up-side, revenue up that you've printed, can you unpack for us the mix between new logos and the current installed base? Any qualitative color and discussion will be appreciated.

[Keith Jensen, CFO at Fortinet]

Yeah, this is Keith. New logos were very strong in the quarter, probably up about 50% year-over-year. I've given numbers in the past to kind of suggest that 5,000 customers that we had in the quarter, obviously a very strong quarter, is going to be north of that. First part of the response. Second part of the response, you would not normally expect to see that the new customers in the initial quarter would be significant contributors to revenue, but rather contributors to revenue growth over a longer period of time. There was a very strong performance from the new logo segment in terms of customers that signed up with us in the quarter.

[Shaul Eyal, Managing Director and Senior Equity Research Analyst at Cowen and Company]

Thank you.

[Operator]

Our next question from Saket Kalia of Barclays. Saket, go ahead.

[Saket Kalia, Director and Senior Equity Research Analyst at Barclays]

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

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

We do see, going forward, especially like work from home or remotely, the per user license, which can cover multiple device, including a mobile or bring your own device to work from home, and also internal inside enterprise company there, like cover multiple, not just the FortiGate, it goes through to the Zero Trust Network Access, but also some other, like a web or mail, some other application or kind of some part of infrastructure data center they need access. That per user license will make much easier for the user, for the customer to really using all these security service in the multiple part infrastructure, cover multiple product there.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

That's where we feel this is also very important add on top of the current FortiCare, which cover all the product we have, and also the FortiGuard cover the product need real time update on the subscription, all these kind of things there. We feel this Zero Trust is probably the trend in the future, but still need some time to ramp up. Especially we see the Zero Trust Network Access starting to have a pretty quick growth opportunity, with which the FortiGate already have all this built in. Also the identity, how to make sure the identity across multiple part infrastructure can easily be managed by the user. We feel all these two service also kind of starting to get very important. It still needs some time to ramp up, but we do see there's a huge interest and demanding from the customer.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

That's also the reason we launched this new Zero Trust service.

[Saket Kalia, Director and Senior Equity Research Analyst at Barclays]

Got it. Thank you.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Thank you.

[Operator]

Our next question, sir, from Michael Turits of KeyBanc Capital Markets. You may go ahead.

[Michael Turits, Managing Director and Senior Analyst in Enterprise Software Equity Research at KeyBanc Capital Markets]

Hey, everybody. Huge quarter, of course. I think for both Keith and for Ken, a lot of people have been circling around and trying to understand the strength and the upside. I guess I'd like to just try to compare where the demand was last year during 2020 to where it is this year, and why it seems so much stronger. Has there been a shift, say, from remote access focus to more breach, or what has changed both qualitatively and quantitatively that we're seeing this acceleration?

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

I think last year they probably more like in the rush supporting whatever can make it working remotely. This year they definitely see the infrastructure need to be, hardware need to be changed to more supporting this long-term. That's where you see a lot of new infrastructure design and how to support and not just work remotely, but also secure the whole infrastructure, different part of infrastructure from the WAN access to the internal segmentation, and also even the 5G or SD-WAN or internal Wi-Fi. There's just a lot of new secure architecture covering multiple part of our product. It's very strong interest. Also, Saket mentioned the OT, some other is because of whether the 5G or OT. That part also very strong.

[Keith Jensen, CFO at Fortinet]

Michael, I think I would agree with Ken completely and maybe just add, if you think back about Q2 2020 specifically, at least for us, it was a quarter that was characterized probably by a lot of software. We did very well with our software in the second quarter last year. On the flip side, anything that required somebody to be on premise in a data center or taking on a large deployment or phase deployment or something like that, Q2 of last year, there really wasn't much of that. Obviously, today, I think it's a year later, it's a very different environment in that regard. I do think you're also seeing the threat environment and things like the OT part of the business do very well.

[Michael Turits, Managing Director and Senior Analyst in Enterprise Software Equity Research at KeyBanc Capital Markets]

Great. Thanks, Ken and Keith.

[Operator]

Our next question from Jonathan Ho of William Blair. You may ask your question.

[Jonathan Ho, Partner and Senior Equity Research Analyst at William Blair]

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

[Keith Jensen, CFO at Fortinet]

Jonathan, I'd love to say that we're completely immune to chip shortages and such, but I can't say that. I do think that as we talked about last quarter, the fact that our inventory turns hover around two, suggested that we have six months of inventory on hand. We do, and some of the chip manufacturers, we're pretty focused on a 52-week lead time. I think I feel very good about how the manufacturing and operations team executed in the second quarter and how they're going about things for the third quarter and for the rest of this year.

[Keith Jensen, CFO at Fortinet]

I would offer that as part of the forecasting process and the guidance setting process, that has become a more significant input, if you will, into that process and making sure that we've accounted for it in terms of our estimates of any challenges that we may have as we move through the rest of the year.

[Jonathan Ho, Partner and Senior Equity Research Analyst at William Blair]

Thank you.

[Operator]

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

[Ben Bollin, Partner and Technology Sector Head at Cleveland Research Company]

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

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Yeah. We definitely see more and more customers see the benefit of the Fortinet Security Fabric, which cover multiple products and integrate, automate together. That's also making the non-FortiGate grow faster than the FortiGate and will be over $1 billion. We believe simple be over $1 billion this year. When customers buy these multiple products, most of them are already, whether they are customer or already test some of the parts, and then just keep expanding beyond what's the initial purchase there. We do see the interest gets stronger and stronger and the non-FortiGate also keeping grow much faster than the FortiGate, which keeping expanding from whatever the current installation base within the big enterprise. That's also the Gartner forecast.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

You see the integration, the consolidation starting more and more important for these big enterprise. To manage multiple products from different vendor is much higher cost compared to the platform approach which can multiple product, cover different part infrastructure, also integrate, automate together with the Fortinet Fabric approach that we have.

[Keith Jensen, CFO at Fortinet]

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

[Ben Bollin, Partner and Technology Sector Head at Cleveland Research Company]

Thank you.

[Operator]

Our next question from Gray Powell of BTIG. You may now ask your question.

[Gray Powell, Managing Director and Security and Analytics Software Analyst at BTIG]

Okay, great. Thanks. Yeah. I'd like to stick with the topic of non-FortiGates and Fabric and Cloud and just sort of the strength that you've been seeing there. Within Fabric and Cloud, what are the biggest product components that have the most momentum? How should we think about just the sustainability of that demand longer term?

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

The non-FortiGate, we have almost 30 product, most of those developed internally. It's super, we have not give up any individual product because up and down quarterly and also pretty much all contribute to the growth. We don't see any one or two too much kind of outstanding compared with others. That's probably, maybe sometime later we can sort things out. At this stage, it's also dependent on the customer environment, depend on the sales supporting. Like some of them like to have an email working with FortiGate, some is a website, some is endpoint, some is like a network access control or some kind of sandboxing and cloud approach. It's quite a wide coverage of, or kind of even cover all these, like 20, 30 product. That's where it's very difficult to break out and then try to see the trend.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

We do see the common message, really, the consolidate, integrate, automate approach definitely has a huge benefit compared to have a separate product come from different vendor.

[Gray Powell, Managing Director and Security and Analytics Software Analyst at BTIG]

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

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Yeah, thank you.

[Operator]

And everyone, as a reminder, to ask a question, you will need to press star one on your telephone keypad. That is, again, star one on your telephone keypad. And our next question from Adam Tindle of Raymond James. You may now ask your question.

[Adam Tindle, Equity Research Analyst at Raymond James]

Okay, thank you. I wanted to ask a strategic question to Ken. You had record quarterly free cash flow, Keith's doing a poor job at managing that more efficient balance sheet he talked about at the Analyst Day. All joking aside, Ken, you've got significant liquidity available both on the balance sheet, and can imagine lenders beating down your door. If you could double-click on the key tech areas that you would consider to enhance the value proposition. I would just imagine that SASE is accelerating. You're the SD-WAN leader. For example, some of those secure web gateway players in the private markets are more mature, and would that be an area of consideration or any other key areas that you would consider enhancing the value proposition inorganically? Thank you.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Yeah, we're definitely keeping closely watching all the change in the industry and also new technology, all the things. Also we want to keep the innovation, that's the culture we have the last 21 years, and also keep the organic growth very strong. I'd probably leave the cash level investment strategy to Keith to cover that.

[Keith Jensen, CFO at Fortinet]

Yeah. I think for us, we look at our R&D spending as a source of investment, not a traditional capital allocation. We have historically been a build versus buy company. We feel strongly about the importance of having the platform to be integrated. You do see us doing tuck-in acquisitions. Sometimes they take a little bit longer to bring to market, perhaps because the technologies are things that we want to work with a little bit more before we bring them out. I don't think that's a surprise. I don't know that that precludes us from doing something larger in the future, but we'll look at those opportunities as they come up.

[Keith Jensen, CFO at Fortinet]

The continuing focus will be finding the opportunities to rebalance the balance sheet with a little bit of the deploying some of the cash that we raised from the debt offering, perhaps to repurchase some share buyback, if you will. At the same time, also, as we look out for the next three to five years, and we anticipate continued growth, perhaps a little more investment, if you will, in our facilities footprint.

[Adam Tindle, Equity Research Analyst at Raymond James]

That's helpful. Thank you.

[Operator]

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

[Irvin Liu, Vice President of Equity Research at Evercore ISI]

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

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Irvin, good question. The SD-WAN, we still see very strong demand and also a huge potential. The approach we have is integrated with security from our beginning leverage. The FortiGate has a huge computing power part of FortiOS, FortiGate. We see a huge advantage compared to some other competitor, whether using the universal CPU or some other approach, which are difficult to add any function because the computing power limitation for the low-cost CPU. That's where we do believe we will be the number one leader in SD-WAN space. If not now, definitely will be soon. SD-WAN offer huge advantage, like availability, the cost saving compared to the traditional networking protocol MPLS or some other part.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

A lot of service provider also starting more focus on the SD-WAN or 5G, some other part, which also fit in our long-term bigger picture we call Security-Driven Networking, which will be, compared to today, all the networking just do the connection and the speed, then the Security-Driven Networking also need to look at application, the content, the device behind, the user behind, and even different location there. That's where we see all these security function add on top of a networking has huge potential. Which SD-WAN, but the secure SD-WAN also just one part of it. The secure 5G and also internal secure switching, secure Wi-Fi, we do see a lot of potential to keeping using security cover the whole infrastructure.

[Irvin Liu, Vice President of Equity Research at Evercore ISI]

Got it. Thank you.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Thank you.

[Operator]

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

[Imtiaz Koujalgi, Director and Senior Equity Analyst of Software Equity Research at Guggenheim Partners]

Hey, guys. Thanks. One more question. I have a question on the attach of support and subscription to your product this quarter, because it looks like you had strong momentum in product, you had strong billings momentum also, but it looks like the upside in product didn't lead to maybe sort of similar upside in billings. Was there a difference in product mix which led to a difference in attach rate between subscription and support this quarter?

[Keith Jensen, CFO at Fortinet]

I think we track our attach rates and our renewal rates, if you will, within those bands you see in the analysis of ±2%. I think that we were comfortably inside those bands, so there was nothing unusual in that regard. I think that the services billings in total were probably, I'd have to go back and check, the best quarter that we've had in four years. I think we feel good about both the services and the product performance in the quarter.

[Imtiaz Koujalgi, Director and Senior Equity Analyst of Software Equity Research at Guggenheim Partners]

Got it. Just one follow-up. You gave us the mix of billings between FortiGate and non-FortiGate. Is that the same kind of mix you have in the product line also? The 70/30 roughly, is that the mix of non-FortiGate and FortiGate in the product line, or is that mix different for product?

[Keith Jensen, CFO at Fortinet]

Yeah. I don't have that number in front of me, but I don't have a reason. I don't recall them being significantly different when we've looked at them, and I'm trying to recall what we may have in the script just a moment ago in terms of product revenue. Yeah, I think we've offered FortiGate product revenue growth in the script as well as non-FortiGate product revenue. We said they were both, FortiGate was 40% and non-FortiGate was over 40%.

[Peter Salkowski, VP of Investor Relations at Fortinet]

Yeah. Those are growth rates. We haven't given a breakdown by mix for the two, per product. We haven't given FortiGate product and non-FortiGate product as a mix. We haven't given that.

[Imtiaz Koujalgi, Director and Senior Equity Analyst of Software Equity Research at Guggenheim Partners]

Got it. Cool. Very helpful. Thanks, guys.

[Operator]

Our next question's from Patrick Colville of Deutsche Bank. You may go ahead.

[Patrick Colville, Director and Senior Equity Research Analyst at Deutsche Bank]

Hey, thank you so much for taking my question. I mean, 41% product growth is extremely impressive. I guess the questions we're fielding from investors around the cyclicality or I guess whether it's secular growth. Could you just help us understand, were there one-time benefits?

[Patrick Colville, Director and Senior Equity Research Analyst at Deutsche Bank]

Because of recent hacks or because of recent events or post-coronavirus that led to this very strong number, or are you feeling that the firewall market, there are some secular dynamics that we should be aware of?

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Yeah, we do see the lot of products starting to go into the new part of infrastructure or a new area. That's also, like Keith mentioned, beside the top five vertical, we do see the other vertical grow much faster than the top five verticals, the government service provider, finance service, education, high tech, something like that. Also among infrastructure, we do see whether deploy on the WAN side, on the whatever, the smart city or some other kind of internal infrastructure within data center or even work from home. There's a quite a broad buying pattern compared to before. That also, we do believe eventually will drive the additional service because once the product revenue go up, and usually service revenue will come in later.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Also past the introduction of the new FortiTrust service, we feel it's also add additional layer of potential service for the future. It's definitely the secular, like I mentioned early, we feel it's the changing of the security infrastructure. It's not refresh or replace the traditional firewall, which also from time to time need to be upgraded, because network get faster and faster, but also expanding into the new infrastructure part and also a new area, we can see all grow faster than the traditional micro finance surveys or some other part.

[Keith Jensen, CFO at Fortinet]

Yeah. To add to Ken's comments, I think it was a quarter, and it has been for a while now, that we just saw a lot of tailwinds. The tailwinds included whether it was SD-WAN or OT, as an example. The refresh opportunity, if you will, we view as an opportunity to displace the incumbents, as compared to Fortinet that has 500,000 customers and 70 different firewall models, and even today, we announced a new firewall in our press release. It's not as if historically you've seen blips with us in terms of spikes from refresh. On the flip side, some of the competitors, the legacy players, have a shorter list of customers and a shorter list of products, and maybe are not doing as well in Gartner Magic Quadrants as we are. We view that as an opportunity.

[Keith Jensen, CFO at Fortinet]

I do think that other tailwinds that came into the quarter, we talked about the verticals, Ken mentioned it again. Also I look at our customer sizes, whether SMB to all the way to the Global 2000 did very, very well. I think one thing that stood out for us was the mid-enterprise or the commercial part of the business. That came on very, very strong in the quarter as well. I think there was a long list of tailwinds for us that worked in our favor on that product revenue growth number.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Also with the introduction of the new product, the computing power advantage come from ASIC. It's get bigger and bigger compared to other competitor, which not only helping replacing some of their installation base, but also expanding the new area, like the internal network in a high speed environment. Also has a much more function beyond the traditional network security like our VPN. Like we mentioned, whether from the Zero Trust Network Access or some other like SASE or other part like SD-WAN and the 5G security, which none of the traditional firewall have. That's also what drive the additional sales and on the product and also the future service, which is not refresh, compared to the traditional firewall, which they don't have that function or don't have the computing power to keep adding additional function or meet the current performance demanding.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

That's why we feel the strategy we have, we leverage the ASIC computing power advantage and give us additional function and additional performance, much lower cost, and starting working quite well.

[Patrick Colville, Director and Senior Equity Research Analyst at Deutsche Bank]

Great. Thank you so much.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Thank you.

[Operator]

Our next question from Tal Liani of Bank of America. You may go ahead.

[Tal Liani, Managing Director in Equity Research at Bank of America]

Hey, great. Thank you. I want to talk about gross margin. If I'm correct, and if I'm not, it's not going to be the first time, but if I'm correct, your gross margin had gone down about 140 basis points sequentially. I also checked it versus consensus. It's 100 basis points lower than consensus this quarter, next quarter, and 200 basis points below consensus for the year, for the guidance. Do I have a mistake in my calculation? If not, can you elaborate on gross margin? Why is it lower sequentially in the guidance?

[Keith Jensen, CFO at Fortinet]

I think what you're seeing, Tal, is the mix shift, right? The product mix shift versus the services mix shift. You can do some pretty simple math in the second quarter, you can get to when you have 41% product revenue growth at 61%-62% gross margin versus the services that's fairly constant at 23% and 88% gross margin. That 25% swing in gross margin, when you take that back and you look at a 20-point or 25-point overperformance in product, it works out to be just about 1 point, maybe just a little bit north of 1 point on the gross margin line.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Yeah. Also, you can look on the product gross margin. We actually improved year-over-year. Even the cost kind of increased, but we do improve the product gross margin. Also, we do believe with the product growth 41%, we can drive a lot of future growth in the service. That's also the reason we enhanced the FortiCare and the FortiGuard, and same add FortiTrust, which we do believe will keep making the future, and that the service starting to grow faster going forward.

[Tal Liani, Managing Director in Equity Research at Bank of America]

Mm-hmm. Is there any change in the pricing environment?

[Keith Jensen, CFO at Fortinet]

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

[Tal Liani, Managing Director in Equity Research at Bank of America]

Can you elaborate on the last point? What does it mean? Do you expect the margins to decline, or do you expect to increase prices anticipation?

[Keith Jensen, CFO at Fortinet]

I do not expect margins to decline, no. Beyond what will happen with the mix shift, if you will.

[Tal Liani, Managing Director in Equity Research at Bank of America]

Got it.

[Keith Jensen, CFO at Fortinet]

Between product and services, right? To the extent we continue to over-perform in the product line the way we just did, it's going to put pressure on the gross margin line. Keep in mind, the operating margin came in right at the high end of the range. I think we successfully managed that, and it's certainly very consistent with what we foreshadowed earlier in the year, where we said, within our framework, this was a year in which we would tilt towards growth. We obviously did that, putting up 35% billings growth and 41% product growth, and at the same time delivering 25% operating margin plus, right?

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Yeah. We also did more investment on the infrastructure, which kind of making the service revenue gross margin low a little bit, but also helping the future additional service come in.

[Tal Liani, Managing Director in Equity Research at Bank of America]

Great. Thank you.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Thanks, Tal.

[Operator]

Our next question from Ittai Kidron of Oppenheimer. You may ask your question.

[Ittai Kidron, Managing Director and Senior Technology Analyst at Oppenheimer]

Thanks, great results as well, guys. Ken, You gave a lot of great color on the backdrop and what you're doing and how you're executing well in the field. Maybe you can tie it up also with the competition discussion. Maybe you can help us understand what you're seeing from your competitors right now, and who do you see is most vulnerable for share losses? It's clear that you're going to continue to gain share in this marketplace for the foreseeable future. Who do you see as the more vulnerable vendors here that are likely to cede to you and others that bring to the table what you can bring to the table? Go ahead.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

All the competitors are good. We just have some long-term strategies investment, which give us more advantage, whether from the ASIC chip, which we started building 21 years ago, or started building other part of fabric product, which integrate ultimately from day one. Compared to some of competitor, more come from acquisition, make it a lot difficult to do the integration and automation and maintain the organic growth there. On the other side, we do see there's certain market shift changing. We also want to take the time, like our SASE strategy. We have a product-only vendor working with the service provider to fit their SASE need long term, build product for them. At the same time, building some infrastructure as a model to integrate within the FortiGate, FortiOS, as a single OS product can cover both the SASE, virtual access or some other part, such as security.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Making the product kind of more easy for customer to deploy and fit in the bigger environment, fast environment much better. That path, we continue to have this kind of a lot of long-term strategy, and we do see that will give us a long-term benefit going forward.

[Ittai Kidron, Managing Director and Senior Technology Analyst at Oppenheimer]

Very good. I tried. Thanks, guys.

[Ken Xie, Founder, Chairman, and CEO at Fortinet]

Thank you.

[Operator]

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

[Peter Salkowski, VP of Investor Relations at Fortinet]

Thank you, Catherine. I'd like to thank everyone for joining the call today. Fortinet will be attending the following virtual investor conferences during the third quarter. We're doing the Oppenheimer Conference on August 10th and KeyBanc Capital Markets on August 11th. Events with presentations will be webcast, and those webcast links are going to be up on our website. Actually, they're already up on our website as of now. If you have any questions following this call, please feel free to reach out to me. As with that, have a great day and take care, everyone.

[Operator]

This concludes today's conference call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Keith Jensen, CFO
• Ken Xie, Founder, Chairman, and CEO
• Peter Salkowski, VP of Investor Relations

Analysts

• Adam Tindle, Equity Research Analyst at Raymond James
• Ben Bollin, Partner and Technology Sector Head at Cleveland Research Company
• Brian Essex, Senior Equity Analyst at Goldman Sachs
• Gray Powell, Managing Director and Security and Analytics Software Analyst at BTIG
• Hamza Fodderwala, Executive Director and Lead Cybersecurity Equity Research Analyst at Morgan Stanley
• Imtiaz Koujalgi, Director and Senior Equity Analyst of Software Equity Research at Guggenheim Partners
• Irvin Liu, Vice President of Equity Research at Evercore ISI
• Ittai Kidron, Managing Director and Senior Technology Analyst at Oppenheimer
• Jonathan Ho, Partner and Senior Equity Research Analyst at William Blair
• Michael Turits, Managing Director and Senior Analyst in Enterprise Software Equity Research at KeyBanc Capital Markets
• Patrick Colville, Director and Senior Equity Research Analyst at Deutsche Bank
• Rob Owens, Managing Director and Senior Research Analyst at Piper Sandler
• Saket Kalia, Director and Senior Equity Research Analyst at Barclays
• Shaul Eyal, Managing Director and Senior Equity Research Analyst at Cowen and Company
• Sterling Auty, Managing Director of Equity Research at JPMorgan
• Tal Liani, Managing Director in Equity Research at Bank of America