Fortinet, Inc.

third quarter earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1, that's star 1-1 on your telephone, and you will then hear an automated message advising you that your hand is raised. Please be advised that today's conference is being recorded. And without further ado, I will now hand the conference over to your first speaker, Peter Salkowski, Vice President of Investor Relations at Fortinet. Peter, please go ahead.

Thank you, Eric. Good afternoon, everyone. This is Pete Salkowski, Vice President of Investor Relations at Fortinet. I am pleased to welcome everyone to our call to discuss Fortinet's fiscal results for the third quarter of 2022. Speakers on today's call are Ken Zee, Fortinet's founder, chairman, and CEO, and Keith Jensen. our Chief Financial Officer. This is a live call that will be available for replay via webcast on our investor relations website. Ken will begin today's call by providing a high-level perspective on our business, then follow with a review of our financial and operating results for the third quarter, providing guidance for the fourth quarter, and updating the full year. We'll then open the call for questions. During the Q&A, we ask that you please limit yourself to one question and one follow-up question to allow others to participate. Before we begin, I'd like to remind everyone That on today's call, we'll be making forward-looking statements, and these forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected. Please refer to our SEC filings, in particular the risk factors in our most recent 10-K and Form 10-Q, for more information. All forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation and specifically disclaim any obligation to update forward-looking statements. Also, all references to financial metrics that we make on today's call are non-GAAP unless stated otherwise. Our GAAP results and our GAAP to non-GAAP reconciliations are located in our earnings press release and in the presentation that accompanied today's remarks, both of which are posted on the Investor Relations website. Ken and Keith's prepared remarks today for today's earnings call will be posted on the quarterly earnings section of the Investor Relations website immediately following today's call. Lastly, all references to growth are on a year-over-year basis and less than noted on the lines. We will now turn the call over to Ken.

Thanks Peter, and thank you to everyone for joining today's call to review our outstanding third quarter 2022 results. Revenue for the quarter grew 33%, significantly outpacing the energy growth rate. We believe that customer recognition of the exceptional value proposition we provided by our high performance 40ASIC technology and an integrated 40OS operation system is driving our ability to take cybersecurity market share. Product revenue growth was very strong at 39%, extending our position as a product revenue leader in the cybersecurity industry. Our product revenue performance reflects the strong demand we have built over the past 18 months across our security solutions, along with the successful execution of our internal team in managing the supply chain challenges. Three growth drivers, the heightened threat environment, the convergence of security and networking, and the consolidation of security functionality and vendors, together with the opportunity to upsell additional security services to a significant installed base, are expected to drive future growth. First, the threat landscape, including ransomware, continues to expand and evolve in targeting companies of all sizes, locations, and industries. To counter the threat landscape, We are implementing our unique universal ZTNA across a wide range of customers, driving triple-digit growth for this product and delivering a comprehensive approach to zero trust that is consistent for any user anywhere on any device and supporting today's hybrid workforce. Second, for years Fortinet has lead strategy around convergence of a networking and security We estimate the total addressable market for networking and security will increase from $54 billion today to $73 billion in 2026. Convergence accelerates digital transformation and substantially reduces operation costs by combining networking modelization with dynamic security that seamlessly spans every part of a network, especially now that many companies are merging ICOC and IOC operation together. Fortinet is leading the convergence trend with a wide range of technologies, including network firewall segmentation, secure SD-WAN, OT security, and 5G in a single operation system, which can be deployed as hardware, software, cloud, and as a service. Fortinet continues to gain secure SD-WAN market share, as our integrated Secure SD-WAN solution delivers better security, performance, and efficiency over more traditional offerings. In a quarter, SD-WAN and OT bookings grow over 45% and 75%, respectively, and together accounted for over 25% of total bookings. We believe we can achieve number one market share in SD-WAN in the next couple of years. Today, we announced the FortiGate 1000F, our latest innovation in converging networking and security. Powered by our new MP7 SPU, the 1000F delivers five to ten times higher performance across six major network security functions by consuming 80% less power, much as competitive solutions. The lower power consumption was a contributing factor in our top 2% ranking in SMP global corporate sustainability assessment. Our third growth driver is the consolidation of our vendors and the product functionality. With FortiASIC's huge computing power advantage, FortiOS can integrate more secure functions than our competitors, together with over 30 key products ranging from endpoint to network to the cloud security. Fortinet provide our customer with easier operation while lower the management costs and the total cost of ownership. Additionally, we were focused on upselling value-added security services to a significant customer base. According to IDC second quarter union share data, Fortinet hold a number one market share position for union ship and 43%, up 210 basis points. We expect to reach 30% market share in the next few years. This leadership position and the substantial installed base create attractive economy of scale and an opportunity to upsell additional security services. Before turning the call over to Keith, I would like to thank our employees, customers, partners, and suppliers worldwide for their continued support and hard work.