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Fortinet, Inc. (FTNT)
UBS Global Technology and Services Conference Call Transcript
November 17, 2011 11:00 AM ET
Ken Goldman – Chief Financial Officer
Brent Thill - UBS
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Ken, as many of you know is an industry veteran in the technology industry, prior he was the CFO of Siebel from 2000 to its acquisition by Oracle in 2006. Prior to that time he was at Excite@Home, Sybase, Cypress Semiconductor and VLSI Technology. So, Ken thank you very much for being with us today.
Yeah. Hi, I hope there isn’t echo here, plus is the webcast working okay and all that stuff?
Good to go.
Great. Good. Okay.
I guess just –
By the way, let me just make the courtesy disclaimer, but to the extent that I do talk about forward-looking statements, the various risk factors, fully covered in our public filings including our latest Q for the third quarter and K for last year and so forth, so all there and nicely laid out for you folks. Great to be here.
Ken, maybe if you can just start at the high level. Fortinet is one of the fastest growing companies in our space and certainly in the security space, you are outpacing your peers by a pretty material rate, plus 30% growth this year. What are the demand drivers that you are seeing in the high level that are enabling us and what is the real competitive advantage from your perspective?
I think it’s actually – really going through and thinking through what’s going on right now and I think from a macro point of view you certainly have a lot of changing networks and infrastructures which in various threats they keep on increasing, given the internet and the mobility and the folks that try to sort of find way into the network. So, in some respects, you have that going on.
I think the other thing that is happening, honestly is normally you have this world that is changing and mobility and virtualization and all of that, but I think interesting enough, I think which really drives an industry is the innovation cycle has come back. I think there was a period of time when perhaps, a few years ago where there wasn’t a lot of change in innovation, but if you look at what we are doing with the UTM, you look at the firewalls and the activity there and you look at various application controls, there is a lot of innovation. In my experiences, when you have innovation, that sort of – just oppose it really accelerates the growth. And so, in the UTM space, generally the growth has been in the low teens. We have been growing 2 to 2.5 times of that. But I think you have an environment where security is front and center of any data center manager or CIO, it is front and center of the retail industry because of various regulations they have, front and center of healthcare in terms of PCI – in terms of HIPAA in various requirements there, you have the governments all focused on it, you have the education environment.
So this is an industry that is pervasive in terms of whom we can sell to, in terms of various verticals, it’s pervasive across the world and so you also see today it is not a US centric or European centric but it’s a global environment. But I do think after watching a little bit, I think one of the things that has fundamentally changed in the last year or so, there is a lot of innovation going on which is propelling this industry even further from a growth point of view.
You have obviously been dominated – the revenues were dominated by the ATM appliances. When you think about some of the other solutions that you’re selling, can you just give us a sense of what you’re excited about and what we should be watching?
Yeah, I think the FortiGate story still represents – you can call it 85 to 90% of our business. We do so with that which is becoming more and more important to sell is the FortiManager and the FortiAnalyzer because as the environments get more complicated and comprehensive as they go higher up in the enterprise there is no question you seem to need now more and more so for the ability to manage this and having an user interface easier.
The other products we sell, whether it is the FortiMail, FortiClient, FortiWeb, FortiScan, a variety of products, in the main probably add them all up, it’s around 10 to 15% of our business. It is an important part of our business. We are trying to grow it further, it’s a focus of ours but at the end of the day FortiGates are still certainly the bulk of our business and will be for quite some time.
Wall Street got focused last quarter on Europe and I think you proved that that was a short-term hiccup. I guess from your perspective maybe give us your view kind of after you are digesting what went on and what you see now going forward, kind of how do you look at that and what is happening with Europe?