Financial Data and Key Metrics Changes - Total billings grew by 15% to €1,780,000,000, driven by 21% growth in unified SASE and 31% growth in SecOps [12][13] - Total revenue increased by 14% to €1,630,000,000, with EMEA leading growth at 18% [15] - Non-GAAP operating margin was 33.1%, exceeding guidance by 60 basis points [20] - Free cash flow was $284,000,000, with adjusted free cash flow reaching $428,000,000, up $104,000,000 [21] Business Line Data and Key Metrics Changes - Unified SASE and SecOps now account for 24% and 11% of total billings, respectively, both up one point [12] - ARR for unified SASE increased by 22% to $1,150,000,000, while SecOps increased by 35% to $463,000,000 [14] - Product revenue increased by 13% to $509,000,000, benefiting from upgrade buying and strong growth in operational technology [15][16] Market Data and Key Metrics Changes - The Americas and APAC both grew by 11%, while EMEA led with 18% growth [15] - Among the top five verticals, financial services led with over 30% billings growth [13] - The number of deals greater than $1,000,000 increased by 29%, with total dollar value growing by 51% [13] Company Strategy and Development Direction - The company is focusing on the fast-growing markets of unified SASE and AI-driven secure operations, with investments yielding strong returns [6] - Fortinet aims to maintain its competitive advantage by owning and managing its infrastructure, ensuring better customer experience and cost efficiency [9] - The company is recognized as a leader in the 2025 Gartner Magic Quadrant for SASE platform, highlighting its strong market position [6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the cybersecurity market despite macroeconomic uncertainties [24] - The company raised its full-year billings guidance by €100,000,000, reflecting strong performance in the first half of the year [25] - Management noted that ongoing upgrade cycles for firewalls present valuable opportunities for customer engagement [22] Other Important Information - The company announced the expansion of its Forti Cloud offering with three new services: Forti Identity, Forti Drive, and Forti Connect [9] - Total RPO grew by 12% to €6,640,000,000, while current RPO grew by 15% to €3,450,000,000 [14] - The company has invested around $2,000,000,000 in building and operating a global infrastructure [8] Q&A Session Summary Question: Concerns about FortiSASI cannibalizing core appliance business - Management clarified that SASE is enhancing rather than replacing traditional firewalls, with both segments experiencing growth [29][30][32] Question: Specifics on the 2027 product refresh cohort - Management indicated that the 2027 cohort consists of lower-end products, which are significant in unit numbers but less impactful on product revenue [34] Question: Insights on services guidance - Management noted that services billings to revenue conversion takes longer, but they remain confident in product revenue strength for the rest of the year [39][41] Question: Profile of SASE customers - Management stated that over 90% of SASE customers are existing firewall customers, with some displacing competitors [59][60] Question: Margin outlook and investment balance - Management emphasized a long-term strategy, investing in infrastructure for better cost advantages while maintaining healthy margins [62] Question: Growth beyond the upgrade cycle - Management highlighted the new SASE firewall as a significant growth opportunity, addressing new infrastructure security needs [95][96]

| . | | --- | | . | | = . | | . | | . 1 ロ | | ロ . - | | . | Q2 2025 Earnings Presentation August 6, 2025 Safe Harbor Statement Information, statements and projections contained in these presentation slides and related conference call concerning Fortinet's business outlook, the third quarter and full year 2025 guidance, and future prospects and expectations are forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding any indications relate ...

Core Insights - The cybersecurity landscape is rapidly evolving, with network security being a critical priority for enterprises globally. Fortinet (FTNT) and Check Point Software Technologies (CHKP) are leading providers of network security solutions, offering comprehensive platforms to protect organizations from sophisticated threats [1][2] Group 1: Company Performance - Fortinet is experiencing exceptional growth momentum across multiple business segments, with a unified SASE strategy gaining traction, leading to security service building growth exceeding 110% and unified SASE representing 25% of total business [4][6] - Fortinet's Quantum Force appliances have driven product revenues up by 14% year over year, with 73% of large enterprise customers adopting their SD-WAN solution, facilitating FortiSASE expansion [5] - Check Point's Quantum Force appliances show strong demand, with revenues exceeding the midpoint of guidance ranges, and the Infinity platform demonstrating over 15% of total revenues with strong double-digit growth year over year [8][11] Group 2: Leadership and Strategy - Fortinet is well-positioned for growth with a record free cash flow of $783 million and a margin of 51%, benefiting from an anticipated firewall refresh cycle in the second half of 2025 [6] - Check Point is under new CEO Nadav Zafrir's leadership, implementing a transformation strategy focused on growth and enhancing go-to-market capabilities, including a strategic partnership with Wiz for cloud security [9][10] Group 3: Financial Metrics and Valuation - Fortinet's Zacks Consensus Estimate for 2025 earnings is $2.48 per share, indicating a growth of 4.64% year-over-year, while Check Point's estimate is $9.91 per share, reflecting an 8.91% growth year-over-year [7][12] - Fortinet's shares gained 11.6% in three months, outperforming Check Point's 5.8% return, with both stocks trading at premium valuations; Fortinet has a price-to-sales ratio of 11.5x compared to CHKP's 8.91x [13][15] Group 4: Investment Outlook - Fortinet is identified as the superior investment choice for 2025 due to stronger revenue growth momentum, a better-positioned SASE strategy, and clear catalysts like the firewall refresh cycle [19] - Check Point offers stability and transformation potential but faces execution risks and a slower growth trajectory, suggesting investors may consider holding existing positions or waiting for more attractive entry points [19]

Core Insights - Fortinet is enhancing its enterprise cybersecurity position through a unified Secure Access Service Edge (SASE) strategy, integrating next-generation firewall, SD-WAN, secure web gateway, and Data Loss Prevention (DLP) into a single operating system, FortiOS [1] - The company is experiencing strong momentum, with unified SASE billings growing 18% year over year, representing 25% of total billings [3] - Fortinet's share price has gained 9.8% year-to-date, underperforming the Zacks Security industry's growth of 23.8% [9] Company Developments - Fortinet's SASE journey typically begins with FortiGate firewalls, expanding to SD-WAN and FortiSASE, with 73% of large enterprises expected to adopt SD-WAN by Q1 2025, and FortiSASE penetration rising to 11% [2] - The company is strengthening its SASE architecture with cloud-native solutions to secure hybrid and multi-cloud environments, including updates to FortiCNAPP and new services like FortiAppSec Cloud [4] - Enhancements to FortiMail and FortiDLP are expanding protection to browsers and collaboration apps, which are crucial for SASE [5] Competitive Landscape - The cybersecurity market is highly competitive, with key rivals including Palo Alto Networks, Zscaler, and CrowdStrike [6] - Competitors are driving growth through strategic partnerships and acquisitions, highlighting the intense competition Fortinet faces [7][8] Financial Performance - Fortinet's valuation is a concern, with a Price/Book ratio of approximately 40.40, significantly above the industry's 24.95 [15] - For Q2 2025, Fortinet expects revenues between $1.59 billion and $1.65 billion, indicating a growth of 13% at the midpoint, with non-GAAP earnings per share projected between 58-60 cents [18] - The Zacks Consensus Estimate for Q2 2025 revenues is $1.62 billion, suggesting a year-over-year growth of 12.94% [19] Investor Sentiment - Despite strong SASE growth and new cloud-based offerings, tough competition and cautious guidance suggest limited short-term gains for Fortinet's stock [22] - The company has consistently beaten earnings estimates, with an average surprise of 23.83% over the trailing four quarters [21]

Core Insights - Palo Alto Networks (PANW) is experiencing significant growth in its Secure Access Service Edge (SASE) business, with annual recurring revenue (ARR) increasing by 36% year-over-year in Q3 FY25, outpacing the overall market growth by more than double [1][9] Group 1: SASE Business Performance - SASE is the fastest-growing segment for Palo Alto Networks, driven by the success of Prisma Access Browser, which accounted for one-third of all Prisma Access seats sold during the quarter [2][9] - Since acquiring Talon 18 months ago, Palo Alto Networks has sold three million license seats, representing over a tenfold increase from the previous year [2] - The company now has approximately 6,000 SASE customers, reflecting a 22% year-over-year increase, with 40% of new customers in Q3 being net new to the company [3][9] Group 2: Market Trends and Competitive Landscape - The rise of artificial intelligence (AI) is pushing more applications and data into the cloud, positioning the browser as a new interface for work, which aligns with Palo Alto Networks' SASE strategy [4] - Key competitors in the SASE space include Zscaler and Fortinet, both of which are expanding their offerings in browser-based security and SASE solutions [5][6] Group 3: Financial Performance and Valuation - Palo Alto Networks shares have gained 8.9% year-to-date, compared to a 20.2% growth in the security industry [7] - The company trades at a forward price-to-sales ratio of 12.69X, which is lower than the industry's average of 14.52X [11] - The Zacks Consensus Estimate for fiscal 2025 and fiscal 2026 earnings indicates year-over-year growth of 15.14% and 11.19%, respectively, with upward revisions in estimates over the past 30 days [14]

Core Insights - Fortinet has been recognized as a Challenger in the Gartner Magic Quadrant™ for Security Service Edge (SSE) and has maintained its position as a Leader in the SD-WAN category for four consecutive years, indicating strong performance and execution in the unified SASE platform market [1][2]. Company Performance - Fortinet continues to show strong momentum and growth in the SSE market, with positive customer feedback and an aggressive roadmap that includes monthly releases [2]. - The company has been recognized with the Gartner Peer Insights™ Customers' Choice Recognition for Security Service Edge for two consecutive years, highlighting customer satisfaction with FortiSASE [3]. Product Differentiation - FortiSASE is noted for its unified, flexible, and intelligent solution that enhances user experience while reducing complexity and strengthening security across hybrid environments [3][4]. - The architecture of FortiSASE is built on a single operating system, FortiOS, which ensures consistent security policy enforcement and streamlined operations across various environments [4]. - Fortinet's investment in global cloud infrastructure aims to enhance performance, scalability, and control over its SASE services, particularly in regulated sectors like finance and healthcare [4]. Customer Experience - Customers have reported a highly positive experience with FortiSASE, emphasizing its ability to provide secure access regardless of user location and its robust security features [5]. - The solution accommodates a growing user base without compromising performance, providing web filtering and compliance checks for secure internet access [5].

Core Insights - Fortinet (FTNT) and Cisco Systems (CSCO) are significant players in the network security market, with Fortinet focusing solely on security and Cisco integrating security with broader networking solutions [1][2] Market Overview - The network security market is projected to grow from $24.95 billion in 2025 to $42.93 billion by 2030, reflecting a CAGR of 11.47% during the forecast period [2] Fortinet's Performance - Fortinet has shown strong momentum in network security, maintaining its position as the leading firewall vendor globally and achieving double-digit growth in FortiGate hardware revenues [3][4] - The unified Secure Access Service Edge (SASE) platform has been a key growth driver, with 18% year-over-year growth in SASE billings and a 73% penetration rate in large enterprise SD-WAN [4][6] - The launch of the FortiGate 700G series has enhanced Fortinet's competitive edge, delivering 5x to 10x performance over competitors [5] - Fortinet's sovereign SASE solution is gaining traction in regulated sectors, ensuring compliance while maintaining performance [6] Cisco's Performance - Cisco's network security business reported strong results, with security orders rising in the high double digits year over year, driven by product innovation and customer demand [7] - The company added over 370 new customers, benefiting from partnerships that enhance its AI-ready secure infrastructure [8] - Despite strong performance, Cisco faces challenges with historical growth comparisons and uncertainties related to tariffs and macroeconomic conditions [9] Stock Performance and Valuation - Year-to-date, FTNT shares have returned 10.2%, outperforming CSCO's 7.7% gain and the sector's decline of 1.5% [10] - FTNT's forward 12-month P/S ratio is 11.16X, significantly higher than CSCO's 4.38X, reflecting investor confidence in FTNT's growth potential [13] - The Zacks Consensus Estimate for FTNT's 2025 earnings is $2.47 per share, indicating a 4.22% year-over-year increase, while CSCO's estimate is $3.73 per share, showing no change year over year [16][17] Investment Outlook - Fortinet presents a stronger investment opportunity with consistent double-digit revenue growth and expanding SASE adoption [19] - Cisco, while promising, faces delayed revenue realization and macro uncertainties, making its near-term outlook less compelling compared to Fortinet [20]

Core Viewpoint - Fortinet's valuation is a concern for investors as it trades at a significant premium compared to the broader Zacks Security industry, with a Price/Book ratio of 53.65 versus the industry's 25.04, indicating high growth expectations from investors [1][2] Valuation Concerns - The current Price/Book ratio of Fortinet is 53.65, significantly higher than the industry average of 25.04, suggesting a stretched valuation [1] - The Value Score of F indicates that Fortinet's valuation is currently stretched [1] Competitive Landscape - Fortinet operates in a highly competitive cybersecurity market, facing strong competition from companies like Palo Alto Networks, Zscaler, and CrowdStrike [5] - Competitors are rapidly innovating and making strategic acquisitions, which could impact Fortinet's market share and technological relevance if it fails to keep pace [6][7] Macroeconomic Pressures - Fortinet is experiencing pressures from macroeconomic uncertainties, including trade tensions and economic instability in key markets such as Latin America, Mexico, and Canada [8] - The company faces potential disruptions in the U.S. federal market due to staffing issues, which could negatively affect sales [8] - Broader stock market weakness and high interest rates are also impacting Fortinet, making its elevated valuations more risky [9] Earnings Estimates - The Zacks Consensus Estimate for Q1 2025 earnings is 53 cents per share, indicating a year-over-year growth of 23.26%, with revenues expected to reach $1.54 billion, reflecting a 13.54% year-over-year growth [11] - Fortinet has consistently beaten earnings estimates in the past four quarters, with an average surprise of 24.76% [11] Stock Performance - Fortinet shares have gained 10.3% year-to-date, outperforming the Zacks Computer and Technology sector and the S&P 500 index, which declined by 10.7% and 5.8%, respectively [13] - The company's outperformance is attributed to its strong position in the SASE solutions market, which is seeing accelerated adoption [14] Growth Drivers - Fortinet's growth is driven by its Unified SASE strategy integrated into the FortiOS operating system, providing seamless networking and security [16] - SASE Annual Recurring Revenue (ARR) has grown by 96%, and FortiSASE deals have increased by 60% in 2024, indicating strong customer interest and adoption [17] - A recent partnership with Vodafone Business aims to expand Fortinet's reach in European markets, enhancing its growth potential [18] Conclusion - Current valuations suggest that investors might benefit from waiting for a better entry point, as Fortinet's strengths are countered by challenges from increased competition and macroeconomic uncertainties [19][20]