Fortinet, Inc.

Good day, and thank you for standing by. Welcome to the Fortinet Q2 23 earnings call. At this time, all participants are in a 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 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Peter Salkowski, Senior Vice President of Finance.

Thank you, Therese. Good afternoon, everyone. This is Pete Salkowski, Senior Vice President of Finance and Investor Relations at Fortinet. I am pleased to welcome everyone to our call to discuss Fortinet's financial results for the second quarter of 2023. 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 the Investor Relations website. Ken will begin our call today by providing a high-level perspective of our business, key to our financial and operating results for the second quarter of 2023 before providing guidance for the third quarter of 2023 and updating the full year. We'll then open the call for questions. During the Q&A session, 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 will be making forward-looking statements, and these forward-looking statements are subject to risks that 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 Form 10-K and Form 10-Q for more information. All forward-looking statements reflect the 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 today on today's call are non-GAAP unless stated otherwise. Our GAAP results and GAAP to non-GAAP reconciliations are located in the earnings press release and in the presentation that accompanies today's remarks, both of which are posted on the Investor Relations website. Ken and Keith's prepared remarks for today's earnings call will be posted on the quarterly earnings section of our Investor Relations website immediately following today's call. Lastly, all references to growth are on a year-over-year basis unless noted otherwise. I will now turn the call over to Ken.

Thanks, Peter. Thanks to everyone for joining today's call to review our second quarter 2023 results. Total revenue in the second quarter increased 26%, driven by strong revenue growth in service, which topped 30% for the second consecutive quarter, with 34% growth in security subscription and a non-affiliated product growth over 45%, which is nearly 2 billion annual run rate. Building growth of 18%, leads to more normalized product revenue growth of 18%. We believe our building performance reflects large enterprise concern with the macro environment, in addition to some inventory digestion after two years of elevated 30-plus percent product building growth during the supply chain shortage. According to IDC's latest quarterly security tracker, In addition to having the number one union in firewall category for 10 consecutive years with over 50% market share, Fortinet is now the market share leader in both unit and revenue. Based on the latest Westland advisory OT security and cybersecurity report, Fortinet was named the only IT OT network protection platform leader. We are currently one of the top and the farthest growing OT security vendor in the market that Westland Advisor expects to grow to $33 billion by 2030. Fortinet's success lies in our broad, integrated platform, our proprietary ASIC security processor, and our ability to converge network and security both on-prem and in the cloud across a single FortiOS operation system. To leverage these advantages and drive future growth, In addition to our leading network security solution, we will increase our go-to-market investment in Universal SASE, SD-WAN, OT security, cloud security, and security operations. And we will dedicate more resources to support hybrid infrastructure and hybrid work. Today, we announced a new FortiGate 90G, our first next-generation firewall and secure SD-WAN appliance. with the new Security Process 5 ASIC that deliver industry-leading security functions, performance, scalability, and power efficiency at a cost-effective price. The 4890G is fully integrated with our FortiGuard AI power security service and has a secure computing rating that is up to 16 times greater than the average of a competitor's similar-priced model. by using over 90% less power than competing solution. We also announced two new SD-WAN service under the performance monitoring service to simplify operation and enhance digital experience, as well overlay service to facilitate rapid deployment, redundancy, and seamless interconnection of location with 4G SASE using SPA technology. This new SD-WAN service showcases our commitment to expanding our service, leveraging our leading installation base for additional future growth. We see a single-vendor SaaS solution opening a large new market and one where our sizable SD-WAN installed base can be leveraged as a significant market access point. Together with newly announced SD-WAN service, we plan to accelerate our global point-of-present POP deployment with a dual strategy of investing in our own POPs as well as working with service providers. Fortinet recently announced the result of an independent analysis by Forrester of the cost-saving and business benefit of deploying FortiGate next-gen firewall and FortiGuard AI-powered secure service within Enterprise Data Center which include more than 300% return on investment over three years, payback in six months, and 90% reduction in time spent on manual updates. In addition, an independent analysis by Enterprise Strategy Group established that customers who deployed 49 security operation solutions, such as 40 EDR and 40 NDR, reduced their time to detect and respond to incidents from an average of three weeks to one hour. This demonstrates the substantial impact that artificial intelligence, machine learning, and the integration of a Fortinet SecureOp fabric product can have on organizations' ability to secure produce rapidly expanding attack surface. Finally, New development in AI, such as generative engine, show a lot of promise to various applications in cybersecurity. We believe AI technologies can help us significantly to improve productivity and can be scaled to a large customer base in areas such as malware detection, threat hunting, event correlation and automation, as well as assisting network design and troubleshooting. 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. Keith.