Fortinet Inc Q2 2025 Earnings Call Summary

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

Question: Brian Essex - JPMorgan Chase & Co - Analyst : Great, good afternoon. Thank you for taking the question. Maybe Christiane, I was wondering if you could tell us what are some of the maybe untapped the services guidance a little bit. It's great to see the upside in the quarter, particularly with regard to product billings and services strength this quarter. But how should we, I guess, -- what can we take away from the services guide? And what's embedded in the guidance for the year given the strength that you're seeing this quarter?

Question: Brian Essex - JPMorgan Chase & Co - Analyst : And do you have the split FortiGuard, FortiCare? And is this a component of, like if you have a refresh? Obviously, is it that customers aren't completely replacing their subscription revenue? They're just extending their subscription revenue with maybe less upside to that revenue line item? I mean so you have a new box with the same at tax revenue.

Question: Brian Essex - JPMorgan Chase & Co - Analyst : But that's super helpful color. Thank you so much.

Question: Brian Essex - JPMorgan Chase & Co - Analyst : Got it. Understood.

Question: Tal Liani - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Here we go. (inaudible), I am muted myself. Can you hear me?

Question: Tal Liani - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Okay. Sorry. The SASE, the profile of SASE customers, what is it? Meaning, are these displacements of existing vendors, let's say, a customer has the scale or how often you're displacing them? Are these -- do they purchase at the end of a contract that they had before with someone else? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 06, 2025 / 8:30PM, FTNT.OQ - Q2 2025 Fortinet Inc Earnings Call Or are these completely greenfield. They didn't have anything before. Now they're having. I'm just trying to understand where you have success with your SASE. What is kind of the profile of the deployment, the (inaudible) of the ones you're seeing? Thanks.

Question: Tal Liani - Bofa Merrill Lynch Asset Holdings Inc - Analyst : You said in the past that 95% of the customers are existing firewall customers, is still the case?

Question: Tal Liani - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Got it. If I can squeeze in one more. If not, we can move on. But I want to ask about the margins. You said in the past that you want to invest. What is the margin outlook? And where is the balance between investments and margin upside?

Question: Tal Liani - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Yeah, thank you.

Question: Gabriela Borges - Goldman Sachs Group Inc - Analyst : Hi, good afternoon. Thank you, Ken and Christian, I wanted to follow up on your prepared remarks that we are 40% to 50% through the 2026 refresh cohort. What I wanted to understand is how to think about our growth in true cycles? Because if I can pay a billings growth what you're guiding to this year, it's about similar to what you guided to and what you achieved in 2023? 2025 is a really big or larger than normal refresh cohort. So I want to better understand why are we not seeing more upside in the numbers this year from the refresh cohort? And the comment earlier on potentially consolidating down boxes. Is it possible that perhaps customers have excess capacity in their networks from a 2021 COVID-type elevated throughput environment? Would love to hear about it. Thank you.

Question: Gabriela Borges - Goldman Sachs Group Inc - Analyst : Thank you for the color. Christiane, maybe as a follow-up. The commentary last quarter on hesitancy in the sales for us and in some of the sales force conversations. I think today, you said macro didn't have an impact on the business. So maybe just reconcile those two data points. Are you still seeing hesitancy is the hesitancy gone? Thank you.

Question: Gabriela Borges - Goldman Sachs Group Inc - Analyst : Thank you for the thoughts.

Question: Rob Owens - Piper Sandler - Analyst : Great. Thank you for taking my question. Love for you to expand a little bit on the OT opportunity because I don't think I recall anything from your prepared remarks. Just in terms of what you're seeing there, both either increased competition? Or is this opportunity also playing into the refresh cycle? Thanks.

Question: Rob Owens - Piper Sandler - Analyst : And when you break down that over 20%, is that consistent internationally with domestically? Can you give you a view across the various theaters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 06, 2025 / 8:30PM, FTNT.OQ - Q2 2025 Fortinet Inc Earnings Call

Question: Rob Owens - Piper Sandler - Analyst : Thank you.

Question: Junaid Siddiqui - Truist Securities - Analyst : Thank you for taking my question. Just had a question. Ken, your SASE business continues to show a lot of momentum. Could you just talk about how your sovereign SaaS solution is tracking? And how that's different from some of -- from what your competitors are doing in that space? And how important of a differentiator you think that is in furthering your competitive moat in SASE?

Question: Junaid Siddiqui - Truist Securities - Analyst : Great, thank you.

Question: Patrick Cook - Scotiabank - Analyst : Oh, terrific. Thank you for taking my question. I guess, Ken and Christiane, I just want to circle back to the firewall upgrade comments. I mean very helpful disclosure that we're 40% to 50% through the 2026 upgrade cycle and that the 2027 end of life cycle is kind of lower throughput devices. I guess the question we're getting from investors in our inbox over the last half an hour is what should we be excited about beyond this upgrade cycle? What is going to continue momentum when these tailwinds, which are clearly benefiting numbers now and you guys are executing very well in a tough environment? But if we look beyond 2026 upgrade and '27 upgrade, what can continue this kind of rocket momentum.

Question: Patrick Cook - Scotiabank - Analyst : Okay. Very helpful. And I guess, I mean, Ken, you've been a thought leader in security for many, many years. When we think about agentic AI security, I guess how are you thinking about that domain and Fortinet's position as a vendor that can help in agentic AI security?

Question: Saket Kalia - Barclays Services Corp - Analyst : Okay, great. Hey guys, thanks for taking my questions here. Christiane, maybe for you, 40% to 50% through the upgrade cycle, can you just talk about sort of what that cadence is going to look like this year? I mean I think that intra-quarter, we were talking about sort of a 20% type of number maybe the real question is, where do we end '25 in terms of the percentage of that of the cohort that we're through?

Question: Saket Kalia - Barclays Services Corp - Analyst : Got it. That makes sense. Maybe the follow-up is, I think you're hearing the question just about sort of what's the growth going to look like here after the upgrade cycle? And of course, it's FortiSASE, it's SecOps. I'm trying to think if we've talked about this before, but have you -- can we touch on sort of what percentage of the services revenue kind of comes from those two businesses versus attached subscription because just to the earlier point, that's really that mix shift that has to happen. So any color that you could sort of give on and where we are in that kind of mix shift within services?

Question: Saket Kalia - Barclays Services Corp - Analyst : Yeah. Well, maybe more specifically, attached sort of subscriptions and maintenance versus FortiSASE and SecOps. So maybe firewall versus non-firewall in more late terms?

Question: Saket Kalia - Barclays Services Corp - Analyst : Very helpful. Thank you.

Question: Shrenik Kothari - Robert W. Baird & Co Inc - Analyst : Hey, can you guys hear me? All right, So just a quick question on the go to market. You guys have been pushing towards platform adoption and multiproduct. You can you thought a little bit about how the channel incentives are moving towards kind of achieving your internal targets? I mean, in terms of the rewarding models that are favoring platform cross-sell or pure volume. Can you just give us an update on what's been most effective in driving that? Where are the areas where you're still working on? Yeah, I would really appreciate that.

Question: Andrew Nowinski - Wells Fargo Securities LLC - Analyst : Okay, thank you for squeezing me in. I'm wondering -- still a little bit unclear on my services revenue growth is decelerating so much. Looking back over the last, call it, four quarters? And then also going forward. And I'm wondering if you could just provide any color around what's really driving that deceleration? And then related to that, why is your unified SASE has so much momentum right now. Why would that be flat sequentially in Q2? Because it looked like it was about $1.15 billion in Q2 and the same thing that you had in your slide deck in Q1. So just wondering if you could comment on -- I know on a year-over-year basis, it was up, but sequentially, why would it be flat? Thank you.