Fortinet, Inc.

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 1-1 on your telephone, and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Erin Ovadia, from the Director of Investor Relations. Aaron?

Thank you, and good afternoon, everyone. This is Aaron Ovadia, Director of Investor Relations at Fortinet. I am pleased to welcome everyone to our call to discuss Fortinet's financial results for the second quarter of 2024. Joining me on today's call are Ken Zee, Fortinet's founder, chairman, and CEO, Keith Jensen, our CFO, and John Whittle, our COO. This is a live call that will be available for replay via webcast on our investor relations website. Ken will begin our call today by providing a high-level perspective on our business. Keith will then review our financial and operating results, second quarter of 2024, before providing guidance for the third quarter of 2024 and updating the full year. We will then open the call for questions. During the Q&A session, we ask that you please limit yourself to one question and the one follow-up question to allow others to participate. Before we begin, I'd like to remind everyone that is on today's call that we will 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 their risk factors, in our most recent Form 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 GAAP to non-GAAP reconciliations are located in our earnings press release in the presentation accompanying today's remarks. both of which are posted on our investor relations website. The 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 noticed otherwise. I will now turn the call over to Ken.

Okay. Thank you, Aaron, and thank you to everyone for joining our call. We are pleased with our strong execution in the second quarter as we successfully balanced growth and profitability. We achieved record operation margin, which increased 820 basis points to 35 percent and managed to build in revenue and high end of the guidance range, reached our full year 2024 revenue and operation margin guidance, and we continue to invest for growth. gaining market share in secure networking, and investing in fast-growing unified SaaS and secure operation market. Secure networking customers are increasingly recognized of 40OS and 40AC technology, offering 5 to 10X better performance than our competitors, while increasing security effectiveness and providing a low total cost of ownership. For over 20 years, we have been leading the shift to networking as security convergence, and the industry's projection now indicates secure networking will surpass traditional network by 2026, four years earlier than previously anticipated. In the second quarter, unified SASE accounted for 23% of total building, up one point. We expect our differentiated unified SASE offering to become the leader in the SASE market. We believe we are the only company that has built all the SASE functions organically in a single operation system. We have a converged networking and security stack, including our market-leading SC1, ZTNA, Secure Web Gateway, CASB, Firewall, and many other innovations. Our SASE offering provides flexible enforcement, delivering a better user experience, while securing access to application on-premise and in the cloud. Furthermore, we continue to build our own SaaS eDeliver infrastructure, including leverage of 4G technologies, providing us with a competitive long-term cost advantage. As announced earlier today, we acquired Next DLP, a next-generation cloud-native SaaS data protection platform extending from endpoint to cloud. This will allow us to enter the standalone enterprise DLP market, as well as integrate market with our 40 SASE solution. We also recently improved our position in the GaN magic quadrant for single vendor SASE and are the only vendor included in all five of major network security magic quadrant. Single vendor SASE network firewall, SD-WAN, secure service edge, and enterprise-wide and wireless LAN infrastructure. Each of these solutions run on a single unified operating system for the OS with AI-powered FortiGuard secure service and unified management. AI-driven secure op counted for 10% of total building in the second quarter, up one point. Our comprehensive SQL portfolio backed by over a decade of AI experience offers broadest range of sensor and advanced analytics to continuous access activity to identify signs of cyber threats. FortiAI harness generative AI to triple-charge our platform and help security operation team make better informed decision and response to threats faster by the most complex task. FortiAir is available in FortiAnalyzer, FortiSIM, and FortiSOAR, and will soon be available in other FortiAir products. In addition, we are pleased to further expand our secure app portfolio with the acquisition of Lacework, and we believe that together our solutions form one of the most comprehensive four-step cloud security solutions available from a single vendor. Laceworks' organically developed AI-driven cloud-native application protection platform will be combined with the power of Fortinet's Security Fabric platform, ensuring broad protection across the network, cloud, and endpoint. This acquisition increases our total addressable market by $10 billion and adds a team of talented engineers dedicated to cloud-native security while also expanding our sales force that can sell the entire Fortinet portfolio of solutions. Yesterday, we announced several enhancements to Fortinet's OT security platform, which already stands as the most comprehensive OT security platform on the market. Enhancements include a new recognized appliance, advanced secure networking and secure operation capability, and expanded partnership with leading OT vendors. reflecting Fortinet's commitment to security for the growing cyber-physical system market. As further evidence of our innovation and commitment to excellence in OT, we recently earned prestigious Red Dot Product Design Award for FortiGate Rack 70G with DU5G Modern. Fortinet was the only security company to receive this recognition in an industry next-generation firewall. Before turning the call over to Keith, I wish to thank our employees, customers, partners, and suppliers worldwide for their continued support and hard work.