Fortinet Inc at Morgan Stanley Technology, Media & Telecom Conference Summary

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

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : <_ALACRA_META_ABSTRACT>Maybe to start out with, Ken, I'd love to get an update from you on like the platform story of Fortinet. From sort of the earliest days of Fortinet, we've been talking about the convergence of networking and security now that purview has opened up a lot. We're talking about SaaS, we're talking about security operations and a lot more consolidation of that security footprint. How is the Fortinet story evolved to encompass that kind of broader purview?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Okay. Got it. I want to dig into that answer in a couple of dimensions. Like one, in terms of the market's willingness to adopt these more consolidated solutions to look more at a platform type of acquisition strategy. Security has traditionally been very best-of-breed focused and a lot of customers have bought what they perceive as the best product for each sort of channel -- each potential vector, do you see any shift in that buying pattern of that customers are more willing to buy a consolidated solution and try to consolidate the number of vendors that they're working with for security?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Right. And on the other side of the equation, is the market seems to kind of be coming to fortunate in terms of -- you guys have always had this kind of platform ingrained within your solutions. The FortiOS is common across kind of the solution portfolio. You leverage a common ship sets, whether it's be process security processor within multiple solutions. How does that enable Fortinet REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 5:15PM, FTNT.OQ - Fortinet Inc at Morgan Stanley Technology, Media & Telecom Conference to outperform, if you will, in terms of that consolidation? What is it about your architecture that enables you to will expand into these adjacent categories?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. Got it. I want to touch base on the demand environment more broadly. One of the remarkable aspects of Fortinet is how globally diversified your businesses, I think it's over 70% of your revenues come from outside of the US and a broad diversity of countries that you sell into. There's also a broad diversity of sort of macro conditions out there. How are you guys feeling about the spending environment? And the degree to which security demand can sustain sort of well even in a more mixed macro environment?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : And the other disruption people are worried about is [dog]. But if I recall correctly, I think it's low single-digit percentage of your business in the US federal and a lot of exposure there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 5:15PM, FTNT.OQ - Fortinet Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. Got it. And when it comes to Fortinet in particular, I think one of the things investors are excited about is a product refresh coming up within your firewall base. I think you've talked about an unusually large kind of percentage of that base seeing end of life over the next year or so. Can you talk to us about the magnitude of that opportunity? And does that -- is that just a product revenue? Is that just a firewall opportunity? Or does that give you sort of more potential to go in and sell the broader solution. Is that an opportunity for SASE attach, if you will, on a go-forward basis?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. Got it. And then, Keith, any help you can give us in terms of helping to sort of model investor expectations on how this is going to flow through your product revenues when we think about 2025 versus 2026, just to make sure that we stay appropriately conservative, if you will?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. So as we go through this refresh opportunity, is there a particular playbook from Fortinet in terms of go-to-market to improve sort of the services attach on the refresh to make this more than just a [BOSS] refresh? And if so, have you seen any early indications of how effective that's going to be on this refresh cycle?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. You recently revamped the business model and the go-to-market strategy to capture more SaaS and security operations deals. Can you talk more about the revamped strategy? And why is now the time to sort of undergo that transformation?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. And where are we in that build? I think you guys have talked about over 150 points of presence in terms of building out the cloud infrastructure for SASE solutions. How big does that have to get? How much further do you have to sort of expand that network on a go-forward basis?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. So is that where like the partnership with Google Cloud comes into play?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. Got it. I want to talk about the security operations side of the equation. You have a portfolio that goes into 40 XDR, 40 SIM, 40 EDR. And I think it was about 11% of billings in Q4. Why is this a natural extension for Fortinet? Like the movement to SASE makes sense leveraging kind of the same network at the same equipment. Why is it a natural if an upsell for Fortinet to sell the security operations side of the equation?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : I mean can you give us some examples of how Fortinet is embedding AI, how that's improving sort of the solution? Are there any sort of use cases or sort of particular functionalities that you're seeing making a big difference for your customers?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. Got it. So I think from an investor perspective, I think a lot of us focus on the ability of AI to help solve the security analyst problem, if you will, right, the fact that there's not enough security analysts and that sounds like part of the equation. The part of the equation of the customer support the complexity of -- for the home user to be able to actually do networking and do network security. Well, I think that's gone under the radar, but could be -- like how do you think about sizing that market opportunity on the consumer side?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. And you guys talked about OT security sales approaching $1 billion in 2024. It's been a big part of the Fortinet growth story for a while. I think one of the things that has made operational -- OT security difficult is the heterogeneity of what needs to be protected out there, especially when you go into manufacturing environments or factory floor and the likes. How does Fortinet deal with that? How does Fortinet take what is a very complex environment and find an appropriate route to market or an efficient route to market for OT security?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. Got it. Got it. I want to shift gears and talk a little bit about sort of the FY25 guidance. Maybe to start out with, how do you guys think about balancing growth priorities between the traditional network security business, you have a refresh that you're taking care of but also making sure that there's the right amount of focus on some of those high-growth areas and the new emerging opportunities like SaaS. Like how do you guys think about managing that balance?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. So as we think about the dynamics of a sort of a big product refresh coming on a go-forward basis, but still big opportunities when it comes to some of the newer growth subscriptions like SASE and SecOps. How should we think about the cadence of growth on the subscription and service side of the equation versus product revenues?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. And if we think about demand drivers, I'm thinking back to kind of when we had all the SaaS transitions, we started using a lot more kind of external applications. It was a good tailwind for overall network security a lot more network traffic going on. It feels like we're coming into a build-out cycle around generative AI, a lot of new applications, people want to build out, utilizing that can that provide similar tailwinds to Fortinet in terms of more surface area to protect more network traffic that has to go through the boxes?

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. Got it. And then to touch on the margin side of the equation, Fortinet has always been a very efficient company. How much operating leverage is there left in the business? And how should we think about -- the balance -- you started talking about this a little bit before in terms of what can flow through to the bottom line for investors versus what you guys are going to take to kind of reinvest in the growth opportunities on a go-forward basis? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2025 / 5:15PM, FTNT.OQ - Fortinet Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Keith Weiss - Morgan Stanley & Co. International Plc - Analyst : Got it. Got it. And maybe just one last question to kind of wrap up the conversation. You guys have -- at the most recent Analyst Day, you guys talked about a three- to five-year CAGR of 12% plus on a go-forward basis. Can you give investors a framework of the equation, if you will, of how we should think about what drives that growth on a go-forward basis? Or you're confident in the durability of that growth on a go-forward basis for Fortinet?