Fortinet Inc (FTNT)

Firewall Refresh Cycle
Q: When will the significant firewall refresh cycle occur?
A: The end-of-life of many products starts in the second half of 2026, and we don't expect customers to wait until the last minute. The upcoming refresh cycle in 2026 is projected to be more than double the size of 2023 and will include a significant portion of mid-range firewalls, which is unusual and positive. - , - , -

Billings Guidance and Large Deals
Q: Why is billings guidance below expectations for next quarter?
A: We are seeing some large seven-figure and a few eight-figure deals that are set for the final month of the quarter. These deals need to mature further before we can include them in our guidance. It's prudent to be cautious as the maturation of these larger deals is slower compared to prior periods. - , -

Margin Sustainability
Q: Is the recent high margin level sustainable?
A: Excluding a one-time benefit of about $15 million, product gross margin would have been approximately 68.4%, and operating margin around 35.1%. This benefit is unusual, but we feel confident about the profitability of the business and have ample room to invest in growth. - , -

SASE Growth and Strategy
Q: How is Fortinet approaching SASE and differentiating itself?
A: We have been investing in SASE for 5 to 10 years, integrating it into the same FortiOS for both on-premise and cloud, offering huge differentiation. Our SASE pipeline is growing strongly, with the SSE pipeline up over 200% and business growing over 100%. We believe we will be the #1 leader in SASE in the next few years. - , -

Potential Cannibalization from SD-WAN to SASE
Q: Will migrating SD-WAN customers to SASE cannibalize refresh potential?
A: No, as SASE supports remote environments, whereas traditional firewalls are deployed in offices. Most of our SASE growth comes from existing SD-WAN or firewall customers who require hardware firewalls and SD-WAN layers to support SASE, adding additional services and margins without cannibalizing existing products. -

Competitive Landscape and Discounting
Q: Are you seeing increased pricing pressure from competitors?
A: Discounting remains similar to prior periods. We have ample margin to invest and are encouraging our sales team and channel partners accordingly. We offer incentives to both channel partners and customers to buy more Fortinet solutions, and expect discounting to remain stable. -

Progress in Go-To-Market for SASE
Q: What are your learnings from focusing on SASE go-to-market?
A: Over the past year, we made significant progress in SASE go-to-market. Customers are excited about our architectural design, and the response has been very positive. We leverage our own data centers, offering cost advantages, and support both cloud SASE and sovereign SASE. Our infrastructure can deliver SASE functions at less than half the cost compared to colocation, and only 10%–20% compared to some cloud providers. -

ARR Growth from Solutions
Q: What is driving the strong ARR growth in solutions?
A: The reported growth is an organic number, excluding ARR from acquisitions like Next DLP and Lacework. Including them, year-over-year growth would be 150%. The growth is driven by products like FortiEDR, FortiClient, FortiNDR Cloud, and FortiWeb, comprising both acquired and internally developed cloud solutions. - , -

Outlook for Europe
Q: How are you viewing Europe over the next quarters?
A: Europe is performing well; international EMEA was number one, with the U.S. at number two and Europe right behind at number three. Although there are pressures, we aren't expecting an outsized performance but will see how the quarter unfolds. -

OT Growth Sustainability
Q: Is the OT business growth sustainable?
A: Yes, we are very bullish on the OT market and see a leadership opportunity. In some reports, we are noted as the only leader in OT security. We see a huge opportunity as most connections in the next 5 to 10 years will come from devices that have difficulty deploying agent software, requiring network security solutions like ours. -

Virtual Firewall Performance
Q: How is your virtual firewall performing against competitors?
A: Our virtual firewalls have performed very well. They are a component of Unified SASE and our network security portfolio. There is a strong relationship between customers buying both physical appliances and virtual appliances, showcasing our competitive positioning. -

Hardware Appliances Performance
Q: How did high-end, midrange, and low-end hardware appliances perform?
A: Mid-range and high-end appliances have continued to be stable but did not outgrow. We had a little bit more unit shipment in the low end. Overall, performance is steady without any significant jumps. -

Government Vertical Performance
Q: How did the government vertical perform, and what's the outlook?
A: Government vertical, particularly U.S. Federal, is a smaller focus for us. Our government business is more aligned with state and local, as well as international governments. Therefore, we don't see the same impact from the U.S. fiscal year-end as some other companies might. -

Sustained Growth Plans
Q: Can you provide more details on your sustained growth expectations?
A: We'll discuss our growth plans in detail at our upcoming Analyst Day in ten days. We plan to provide more information about our total addressable market and how we aim to grow faster than the market in each sector. -