Fortinet Inc at Goldman Sachs Communacopia + Technology Conference Transcript

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

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Keith, I wanted to start at high level as you anniversary 4 years as CFO. Fortinet today is larger scale than it was 4 years ago. So talk a little bit about how some of your internal proceeds have evolved as the company has scaled. And how is your forecasting process different today than it was 4 years ago?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Yes, Absolutely. Please.

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : It's a great segue on the forward-looking statements to how you're thinking about the supply chain. And so maybe we can pick up on the comments on backlog and tell us a little bit more about how you've navigated some of your supply chain challenges over the last 12 months and (inaudible) as to where you are today?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : The comments on backlog lead a little bit into a question about visibility. And so maybe I'll start on the cancellation part piece of this, which I think you've been very consistent in talking about the 4% to 5% that could potentially be cancelable. So maybe a little bit more on that, how do you know that the 4% to 5% doesn't go up over time?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Peter, you mentioned earlier the idea of demand outstripping supply and continuing to outstrip supply. On the demand side of the equation, Fortinet has a uniquely diverse customer base. You've got smaller customers, larger customers, good visibility into international versus North America. So the question for both of you is, compared to trust for us what you're seeing in terms of demand in the pipeline. Are there any nuances internationally about North America? Are there any nuances verticals that you can show in...

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. The other question I'll ask on EMEA is a relative FX pricing question, which is given that you price all of your products in U.S. dollars, are you seeing the higher relative prices in EMEA for Fortinet products having an incremental impact on customer willingness to purchase or ability to purchase?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Excellent. And Keith, you made a comment last week at an investor conference about having visibility into the end user as opposed to aggregating visibility from your channel partners. So maybe just a little more on that. How do you aggregate a better sense of true demand beyond what your immediate channel partners are telling you?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : I wanted to move into your discussion on the product side and the platform side. And so one of the metrics that you all have been providing is platform extension billings, up 44% year-over-year, accounting for 31% of total billings mix in 2Q. You've talked about the split being 1/3 networking, 1/3 cloud, 1/3 other? Maybe just taking a step back as an investor, what are the 1 or 2 biggest growth drivers that we should be aware of when we think about platform extensions?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : The customers that you see embracing the Fortinet platform approach versus those who are perhaps earlier on in their education on their understanding of the platform. How would you describe the difference between those 2 cohorts? And I guess the more specific question is, what can you and your sales team do to (inaudible) across the spectrum towards embracing the platform or (inaudible)?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : What about convergence and consolidation between the networking budgets and the security budgets. Talk to us a little bit about what you're seeing in terms of customers aligning the networking and security strategies and then we can segue a little bit into SD-WAN as well.

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : The idea that covered was a catalyst for some of these network transformation, digital transformation, reconfiguration stories at your customers or journeys by your customers. Help us bridge from that to SD-WAN bookings being up over 60%. And I guess the question would be, how do you think about durability of some of these transitions?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : I'd like to move the discussion into some of the comments you've made on product growth versus services growth and the moving pieces in the model. I think you've talked about seeing services revenue accelerate into 2023. I think you've already seen product revenue growth accelerate over the last 12 months. Maybe talk to us about the delta in those 2 pieces of the business and why haven't we seen the services acceleration sooner? And what is driving acceleration next year?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : And leads into the forward-looking question on how to think about normalized product revenue growth? There are industry estimates for single digits. You're gaining share within the industry. Help us bridge some of the moving pieces to what you think normalized product growth could be going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 12, 2022 / 5:45PM, FTNT.OQ - Fortinet Inc at Goldman Sachs Communacopia + Technology Conference

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : I'm going to ask 1 more question on margins, and then we can pivot to the audience. So please do raise your hand if you have a question. We'll get a microphone to you. On the margin guidance and the longer-term margin guidance specifically, give us a sense of how to think about incremental puts and takes to margin leverage from here. And then maybe just a little bit of a commentary on how you're thinking about sales capacity assumptions and sales capacity planning? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 12, 2022 / 5:45PM, FTNT.OQ - Fortinet Inc at Goldman Sachs Communacopia + Technology Conference

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Questions from the audience. Unidentified Analyst I guess a question for the service provider market. I understand it's a pretty big part of the SD-WAN strategy. And I remember even back in early 2021, you guys released a lot of big partnerships with AT&T and the like. I guess -- just given that metric has been relatively flat as a percentage of your overall business, what would you have to see incrementally kind of confidence that movers continuously go up? And is it about deepening the relationship is there some strategic component that could be but helping drive that number. We'll have to have any color there?

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Right.

Question: Gabriela Borges - Goldman Sachs Group, Inc., Research Division - Analyst : Thank you so much. Thanks, everyone, for being here. Thank you especially to Keith and Peter for taking the time this morning. We appreciate it.