Fortinet, Inc.

the day and thank you for standing by. Welcome to the Fortinet Q3 2024 earnings conference 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 1 1 on your telephone. 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, Aaron Ovadia, Senior Director of Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. This is Aaron Ovadia, Senior Director of Investor Relations at Fortinet. I am pleased to welcome everyone to our call to discuss Fortinet's financial results for the third quarter of 2024. Joining me on today's call are Ken Zee, Fortinet's founder, chairman, and CEO, Keith Jensen, our CFO, John Whittle, our COO, and Christiane Olgaard, our CAO and sales operations leader. 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 and Keith will then review our financial and operating results for the third quarter of 2024 before providing guidance for the fourth 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 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 and uncertainties which could cause actual results to differ materially from those projected. Please refer to our SDC 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 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 otherwise stated. Our GAAP results and 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 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 following today's call. Lastly, all references to growth are on a year-over-year basis unless otherwise noted. I will now turn the call over to Ken.

Thank you, Irene, and thank you to everyone for joining our call. We are pleased to report another quarter of strong execution and continued growth momentum, record growth margin and operation margin, with the operation margin increased by 830 basis points to over 36 percent. Total revenue growth of 13 percent as we return to positive building and product revenue growth. Unified SASE building growth of 14 percent, secure operation building growth of 32 percent, and secure networking return to positive growth all driven by our continued share gain in our total addressable market of $284 billion. As highlighted on the slide 11 of the investor presentation, Fortinet continues to be the only vendor to leverage a single operating system for the OS, delivering solutions in five secure networking dynamic quadrant reports, Secure Service Edge, SC1, single-vendor SASE, network firewall, and enterprise wireless LAN infrastructure. 4GOS combined with the proprietary 4G ASIC technology significantly boost secure computing power, delivering 5x to 10x better performance than our competitors, while lower customers' total cost of ownership and energy consumption. In the third quarter, unified SASE building was 23% of our business. up one and a half point, driven by secure service age building growth of 220% with pipeline up 130%. Fortinet is the only vendor offering all SASE functions in a single operation system and providing a unified networking and security stack on-premise and in the cloud. This allows Fortinet SASE to be deployed within minutes from our SD-WAN customers. Our single OS-based 40 SASE also enables sovereign SASE for service providers and large enterprise to deploy 40 SASE with their own data center for data privacy. In addition, we were recently recognized as a clear leader in the 2024 Garmin Magic Quadrant for SD-WAN for the fifth consecutive year and notably are positioned highest of all vendors in ability to execute for the fourth year in a row. Leveraging Fortinet's leading position in firewall and LC1, and our integrated FortiSASI within the same FortiOS, Fortinet provided the easiest and most secure path for migration from traditional firewall to secure LC1 and a unified SASE. We continue to invest in our global infrastructure. Over three million square feet across office space, briefing center, operation facility, and data centers. Our own hosting capability will give us a long-term cost advantage while allowing us to use our own 40-stack for better security and management. AI security operation was our fast-growing pillar, outpacing the overall market with a 32% building growth, accounting for 10.5% of our total business, up two points. We have expanded our security operation portfolio with the launch of Lacework 40 CCAP and 40 DLP, which together represent a new $20 billion market opportunity. And we expect to cross-sell both solutions to a large install base of customers. Our commitment to innovation and investment in R&D has enabled us to rapidly expand in 40 AI, our Gen AI system, into seven key solutions. for the analyzer, for the manager, for the SIEM, for the SOAR, for the DLP, and recently announced for the NDR and for the CMAP. More GenAI enabled for the AI product will be announced in early 2025 as Fortinet's AI-based secure operation business accelerates. 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.