Fortinet Inc at Barclays Global Technology Conference Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Saket Kalia - Barclays Services Corp - Analyst : <_ALACRA_META_ABSTRACT>Absolutely. Ken, I really want to dive into some of the different segments of Fortinet's business. We were just talking about this here before. And I think a good place to start is the Secure Networking, the biggest part -- the biggest of the three buckets is Secure Networking. If we think about this market, excluding the peaks and valleys around refresh cycles with the hardware, what kind of normalized growth rate do you expect to see over sort of the medium term, Ken? And what are the main -- the growth drivers behind it?

Question: Saket Kalia - Barclays Services Corp - Analyst : Absolutely. Product revenue is a good segue maybe to you, John, for a question on that. I mean, as a general rule of thumb, I think a lot of us look at that product line as a leading indicator for services billings. There's proxy for services billings since such a meaningful portion of that services line is attached to the appliance. And product revenue has improved -- the growth rate there has improved through the year. I think it grew high-teens in the third quarter, so just really great result to see. But Christiane talked about some timing dynamics there, which might explain why services billings didn't necessarily see the same type of growth as product did. And just to be clear, I'm talking about billings, not necessarily services revenue. She talked about ELAs and some customers buying ahead of deployment. Sorry, I know this is a long-winded question, but I think it's important. Can we just maybe talk about that dynamic a little bit? And what type of visibility do we have into those services billings eventually following that strength in product?

Question: Saket Kalia - Barclays Services Corp - Analyst : Got it. So I mean, just to put a bow on that point, it really does come down to timing, right? Is that fair to say?

Question: Saket Kalia - Barclays Services Corp - Analyst : Okay, got it. I think that's an important point.

Question: Saket Kalia - Barclays Services Corp - Analyst : Got it. Very helpful. Ken, maybe back to you. Staying on the topic of product revenue growth, as we look back to some of the post-COVID years, 2021 and 2022, product revenue growth was just so strong, in part from some of the pent-up demand that we had after the pandemic and also some early ordering ahead of supply chain constraints, we all remember. If we think about a natural refresh cycle or depreciation schedule of five to seven years, it feels like some of those customers may be up for refresh starting in 2026. Now, I think the team has been very clear in saying that there are multiple growth drivers for the business. This isn't just a refresh story. But maybe just to dig into that point, how do we think about the timing of that post-COVID refresh cohort? Particularly as you've got new ASICs, you've got a new FortiOS coming, a lot of fun things to talk about in '26, how do we think about that refresh cohort, Ken?

Question: Saket Kalia - Barclays Services Corp - Analyst : Right. John, maybe just to follow up on that point, I mean, as we think about that cohort, whether or not they refresh, but as we think about those boxes kind of fully depreciating, if you will, are there any factors that could make maybe this refresh cycle different than it historically has? We were talking about the supply chain issues. I remember some customers that were ordering ahead, and those boxes were sitting, and then they would wait to sort of deploy them. So is there a factor like that that could maybe impact this refresh cycle? Maybe SASE, which is something I really want to talk about here as well, could that impact this refresh? How do you think about it from your perspective?

Question: Saket Kalia - Barclays Services Corp - Analyst : Yeah, absolutely. I mean, it's a great segue into this Unified SASE part of the business. And Ken, maybe the question is for you. I think we talked about 100% year-over-year growth in that business last quarter, and I think we said about 15% of enterprise customers are adopting FortiSASE. Maybe the question is, what types of products is FortiSASE displacing? And how do you feel about the product competitively?

Question: Saket Kalia - Barclays Services Corp - Analyst : Yeah. I mean, the firewall has always been valuable real estate, as I've thought about it. And those are great examples. John, maybe relatedly for you, can you just remind us how big the Unified SASE business is for Fortinet? And how much of that is coming from SD-WAN versus SASE versus cloud security, I think, is in there as well? Maybe we'll start there.

Question: Saket Kalia - Barclays Services Corp - Analyst : That's great context. Ken, I want to go back to your original comment because, I mean, you're one of the co-founders of the industry and firewall. So the examples that you talked about just around firewall kind of consolidating other categories like IPS and sandboxing, I think, are great case studies. But as we hear from other SASE vendors, it seems like a very cloud-focused type of tool. And of course, the firewall is kind of on-premise and it's that first line of defense. Maybe you could go one level deeper into why firewall, you think, will consolidate SASE, if that makes sense.

Question: Saket Kalia - Barclays Services Corp - Analyst : Absolutely. Great chart, by the way, for anyone that wants to see it after the session. John, I want to shift gears a little bit and talk about the software firewall market. So maybe just to level set for us, how do you think about the size of that business for Fortinet? Because there's been a lot of noise around form factor for appliance versus software. And maybe the follow-up is, how do the mechanics there work? We know we've attached FortiCare and FortiGuard to a box. Do you do the same thing with the software firewall? Maybe just get us started on that topic. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. DECEMBER 11, 2025 / 5:15PM, FTNT.OQ - Fortinet Inc at Barclays Global Technology Conference

Question: Saket Kalia - Barclays Services Corp - Analyst : Got it. Very helpful summary. Thank you. Ken, maybe zooming out on the software firewall market, I mean, you spent a lot of time with customers. What does that mix between appliances or physical firewalls and software firewalls look like in the customers that you speak to? And do we feel that FortiGate is going to be -- FortiGate obviously revolutionized the appliance part of the market. Do we think that it's going to be as disruptive as that form factor maybe moves more to software?

Question: Saket Kalia - Barclays Services Corp - Analyst : And it gives you an amazing cost advantage, I'm sure, right? I mean, that's been proven certainly on the FortiGate side, but maybe also in the SASE world as well down the road.

Question: Saket Kalia - Barclays Services Corp - Analyst : Actually, maybe just on that point, John, maybe for you, where are we in terms of that infrastructure buildout? Not to go -- I know we were progressing beyond SASE, but just to go back to SASE for a second, where are we on that infrastructure buildout?

Question: Saket Kalia - Barclays Services Corp - Analyst : Absolutely. I want to wrap up with some financial questions here. But in the last couple of minutes, have we got any questions here from the audience? Ken, maybe just on the financial side, I mean, I think we set a 30%-plus long-term operating margin target at the annual sale last year, and you've come in nicely higher than that level through the year. Maybe the question is, how are you thinking about that balance between growth and profitability from here? Given what we've talked about in terms of investing in SASE, investing in SecOps, the broad channel that you've built, but then also the sheer scale of the business, how do you think about that balance?

Question: Saket Kalia - Barclays Services Corp - Analyst : I couldn't think of a better way to end than on that note. So Ken, John, thank you so much for the time. Very insightful conversation. Thanks so much.