Good day, and thank you for standing by. Welcome to the Fortinet Q3 2023 Earnings Announcement. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this 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 Peter Salkowski, Senior Vice President of Investor Relations. Please go ahead. Thank you, Anton. Good afternoon, everyone. This is Peter Salkowski, Senior Vice President of Finance and Investor Relations at Fortinet. I'm pleased to welcome everyone to our call to discuss Fortinet's financial results for the Q3 of 2023. Speakers on today's call are Ken Xie, 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 our investor relations website. Ken will begin our call today by providing a high-level perspective on our business. Keith will review our financial and operating results for the Q3 of 2023 before providing guidance for the Q4 of 2023 and updating the full year. We'll then open the call for questions. During the Q&A, 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 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 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 our opinions only as of the date of this presentation. We want to take 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 our GAAP and non-GAAP reconciliations are located in our 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 today for the earnings call will be posted on the quarterly earnings section of the investor relations website immediately following today's call. Lastly, I'll reference the growth rates are on a year-over-year basis, unless noted otherwise. I'll now turn the call over to Ken. Thank you, Peter. Good afternoon, and thank you to everyone for joining our call. In Q3, we exceeded Street expectations in our operating margin and free cash flow. However, billings and product revenue fell below our expectation due to a slowdown in Secure Networking growth, along with challenges in sales execution and the marketing efficiency. In response to the slowdown in Secure Networking market, we are shifting our marketing and sales team's focus towards a faster growing secure operations and SASE market over the next few quarters, all while maintaining our consistent focus on leading innovation in Secure Networking and the convergence of security and networking, where we have been a leader for 23 years. While we anticipate limited near-term growth in the Secure Networking market, it is very important for Fortinet, as we believe it enables us, our platform strategy with a massive footprint in the market leader, as the market leader in both firewall revenue and units shipped. The Secure Networking market is valued at $62 billion and is projected to increase high single digits annually to $86 billion by 2027. Our consistent focus on innovating our industry-leading FortiOS, which support over 30 network function networking and security applications, combined with our ASIC-driven performance capability, which provide 5-10 times better performance on average than competitors, continue to drive our market share gains. Secure Networking remain a vital part of our strategy and the market that we believe will return to double-digit annual growth over time. We have been innovating for some time in the faster-growing segment of a secure operation and the SASE. Security operation, also known as SecOps, is a $46 billion market growing at a mid-teens annually to $78 billion by 2027. Fortinet SecOps platform is comprehensive and integrated, offering EDR, SIEM, SOAR, NDR, and other integrated solutions. Consolidation in a security industry demands seamless integration and underlying security tools. Fortinet's strength lies in its innovation and its ability to enable automation through a high degree of product integration. Our AI and SecOps products empower automatic response within seconds, all underpinned by a single consolidated management and analytic platform. In addition to SecOps, we have continued to increase our focus on SASE, a $17 billion market expected to grow at a 20% compound annual growth rate to $36 billion by 2027. We believe Fortinet is the only company with a SASE service solution that can perform all functions in the cloud or on-prem and hybrid, all with a common operating system, including full networking and security stack, market-leading SD-WAN, ZTNA, and the management console. Our SASE service solution is supported by Google Cloud, with over 100 worldwide SASE cloud locations, together with our own 30-plus points of presence and the data centers. For our appliance-based use case, we accelerate SASE service functions using our ASIC technology. For instance, we recently announced a FortiGate 90 G with a Security Processor 5, which supports our full SASE offering, which includes SD-WAN, firewall, secure web gateway, data loss prevention, and it boosts Security Compute Rating 6 to 54 times better than our competition. We anticipate that success in the SASE market will first come from upselling SASE service to our installed base of tens of thousands of IT WAN customers, and from attracting new customers looking to leverage our single-vendor integrated SASE service solution. Our industry leadership in both firewall and SD-WAN, the two largest components of SASE, provides us with a significant competitive advantage. We have a track record of successful execution and believe we are the only company with strong SASE service and the SecOps solution combined in the same operating system. This differentiation sets us apart and provides us with a significant competitive advantage over peers. While we expect top-line growth to be modest for the next few quarters due to challenging Secure Networking comparisons and our business transformation realignment towards secure operations and SASE, we anticipate growth rate turning to double digits by the second half of 2024. We remain committed to generating healthy operating margin of 25% or greater in 2024 and 2025. Before turning the call over to Keith, I would like to thank our employees, customers, partners, and suppliers worldwide for their continuous support and hard work. Keith? Thank you, Ken, and good afternoon, everyone. As Ken mentioned, we are confident in our integrated FortiOS-driven platform strategy, which is summarized on slides 6 through 10 of the earnings slide deck. As we look forward, we believe shifting our R&D and go-to-market investment to the faster-growing SASE and SecOps markets is consistent with near-term market opportunities. As shown on slide 10, SASE and SecOps account for 20% and 10%, respectively, of our business today. As shown on slide seven, these markets are expected to grow in the mid- to high teens annually. Secure Networking, which currently accounts for 70% of our business, is expected to experience slower growth following two years of very robust growth. As a result, for the near term, we expect to deliver healthy profitability along with more modest growth. With execution and continued investment in the SASE and SecOps markets, we believe we can return to delivering mid to high teens top level growth, top line growth, and while continuing to deliver operating margins of 25% or greater. In other words, a return to balanced growth and profitability, which has led us to achieve the Rule of 40 status in 12 or 15 years, as shown on slide 19. In a moment, I'll expand on the strategic shift by sharing a few of the tactical steps and investments. But first, I'd like to review some highlights from the quarter. We continue to add new logos at an impressive rate and saw top line performance in small enterprise and software was strong, while operating margin and free cash flow were above expectations. We added over 6,400 new logos, supported by small enterprise customers, which grew bookings by 19%. Our efforts to manage personal, personnel and other costs drove our operating margin to 27.8%, 230 basis points above the high end of the guidance range. Free cash flow was strong at $481 million, representing a margin of 36%. Looking at billings, starting from the Q3 of 2022, we saw a three-year compounded annual billings growth rate, or CAGR, of 26%, illustrating our ability to drive strong and sustained growth over an extended period. In Q3, however, billings of $1.49 billion represented growth of 6%, as we experienced one month shorter contract duration, and importantly, lackluster appliance demand resulting from elevated product growth in earlier periods. In terms of industry verticals, education and government billings were strong, while service provider and retail billings were weak. Small enterprise billings growth was strong, while growth rates with larger enterprises disappointed. Billings growth varied by geo, with international emerging showing strong growth, while our much larger geos of Europe and the US were weaker. Turning to revenue and margins, total revenue of 16%, pardon me, total revenue grew 16% to $1.33 billion, which compares to our three-year CAGR of 27%. The three-year CAGR was largely consistent with our 14-year CAGR, illustrated on slide 18. Product revenue of $466 million, representing a three-year CAGR of 28%, was down 1%, reflecting product lead times and backlog aligning with historical levels and the lighter levels of network security demand Ken referred to. Service revenues of $869 million grew 28%, representing a three-year CAGR of 27%. Service revenue accounted for 65% of total revenues, driven by 34% growth in higher margin security subscriptions, which represents 57% of total service revenue. We mentioned the three-year CAGRs to illustrate how consistent they are with these same CAGRs starting from our 2009 IPO, which were illustrated on slide 18. Key to the three-year CAGRs, billings, product revenue, service revenue, and total revenue are within five points of the 14-year CAGRs for the same top-line metrics, adding to our confidence in returning to higher growth levels. Product gross margins were down 310 basis points as we saw margin pressure related to inventory levels. Service gross margin was up 60 basis points, as service revenue growth outpaced higher levels of cloud and hosting costs. Total gross margin of 76.9% was up 70 basis points, driven by the increase in service gross margins and the 6-point shift from product revenue to service revenue. Operating margin of 27.8% exceeded the high end of the guidance range, and operating income of $371 million was $33 million higher than consensus, and $20 million above the high end of our guidance range, reflecting our efforts to control spending. Looking to the statement of cash flow, summarized on slides 15 through 17, free cash flow increased 22% to $481 million, representing a free cash flow margin of 36% or 9 points above consensus. Operating cash flow increased $68 million to 41% of revenue. Capital expenditures were $70 million, including $50 million of real estate investments. Cash taxes paid in the quarter were $26 million. As a reminder, free cash flow benefited from regulatory relief in the form of deferred, estimated, and other tax payments in the second and Q3 s, totaling $192 million and $18 million, respectively. In the Q4, we expect cash taxes to total $345 million, including the $210 million of deferred tax payments. We repurchased 10.4 million shares of our common stock for an aggregate cost of $605 million in the Q3. In October, we purchased an additional 7.7 million shares for $444 million, and our remaining share repurchase authorization stood at approximately $980 million at the end of October. Now, I'd like to share a couple of key SASE wins for us in the quarter. In a seven-figure upsell win, an existing financial services customer initiated their single vendor SASE solution for 50,000 users. Fortinet was able to displace another incumbent as the customer continued their consolidation journey with us, supplementing their earlier SecOps, cloud, and network security purchases. In a six-figure deal, an existing SD-WAN customer continued their strategic transition to SaaS and cloud-based applications by adding our SASE solution for 2,000 users. We believe existing SD-WAN customers, such as this one, offer a rich cross-sell opportunity for our SASE solution. It's worth noting these deals closed before our recently announced partnership with Google Cloud, which significantly expands our POP coverage by adding over 100 locations, and prior to Gartner's release of the inaugural single vendor SASE Magic Quadrant, where we were named a challenger. By 2025, one-third of new SASE deployments are expected to be single vendor. I should also note Fortinet is recognized in 9 Gartner Magic Quadrants, as shown on Slide 3. Now I'd like to expand on Ken's strategic commentary with some of the tactical investments we're making to increasingly focus our efforts on SASE and SecOps. In the areas of research and development and solution delivery, in addition to the new Google Cloud partnership I just mentioned and our own data center investments, we're continuing to integrate single vendor SASE features into FortiOS, and continuing to expand our SecOps capabilities with AI technology and additional functions and enhanced integration, and finalizing co-development agreements with existing large enterprise customers to accelerate continuous improvement of our integrated enterprise-level SASE solution. For our go-to-market strategy, our investments include actively promoting our challenger position in Gartner's single vendor SASE Magic Quadrant, focusing on third-party certification of our broad and integrated solutions, including SSE and SD-WAN, and aggressively marketing Fortinet's competitive advantages and the key components of SASE, SecOps, and network security, as summarized on Slide 10. Certifying 5,500 Fortinet sales professionals in SecOps solutions after already certifying these same sellers in SASE, which is the largest sales enablement motion in company history. Investing in sales comp plans to include incentives to sell SASE and SecOps capabilities to existing and new customers. Expanding partner roles deeper into channel partners, specializing in SASE and SecOps, and developing channel training that is focused on differentiating Fortinet's comprehensive and integrated SASE and SecOps capabilities. We believe Fortinet remains well positioned in the cybersecurity market, and the market shift to platform strategies is in early stages. According to Gartner, 75% of companies are pursuing a vendor consolidation strategy, reflecting the evolving landscape of cybersecurity in a highly fragmented industry with thousands of vendors. As shown on Slide 9, Fortinet brings consolidation across SecOps, SASE, and network security, the three key growth drivers in our strategy. Organizations are recognizing that an integrated security solution with a single operating system is the best method to improve their security posture, as this approach allows each security solution to share data and communicate with each other, reducing complexity and improving security effectiveness. Attempting to piece together best-of-breed solutions from multiple vendors can result in slower AI-driven technology adoption, significant security gaps and a slower pace of identifying, reporting, and resolving security incidents. Moving to guidance, we continue to see increased deal scrutiny and longer sales cycles, which is constraining our near-term results. We expect these longer sales cycles to continue, along with the associated budgetary scrutiny, and our Q4 guidance takes this into consideration. As a reminder, our Q4 and full year outlook, which are summarized on slides 20 and 21, are subject to disclaimers regarding forward-looking information that Peter provided at the beginning of the call. In the Q4, we expect billings in the range of $1.56 billion-$1.7 billion, which at the midpoint represents a decline of 5%. Revenue in the range of $1.38 billion-$1.44 billion, which at the midpoint represents growth of 10%. Non-GAAP gross margin of 75.5%-76.5%. Non-GAAP operating margin to 27.5%-28.5%. Non-GAAP earnings per share are $0.42-$0.44, which assumes a share count of between 780 million to 790 million. Capital expenditures of $40 million-$60 million, a non-GAAP tax rate of 17%, and cash taxes, as I mentioned, of $345 million. For the full year, we expect billings in the range of $6.095 billion-$6.235 billion, which at the midpoint represents growth of 10%. Revenue in the range of $5.27 billion-$5.33 billion, which in the midpoint represents growth of 20%. Service revenue in the range of $3.355 billion-$3.375 billion, which at the midpoint represents growth of 28%. The service revenue guidance implies product revenue growth of 9%. Non-GAAP gross margin of 76%-77%. Non-GAAP operating margin of 26.5%-27.5%. Non-GAAP earnings per share of $1.54-$1.56, which assumes a share count of between 790 million and 800 million. Capital expenditures of $220 million-$240 million. Non-GAAP tax rate of 17%, and cash taxes of $430 million. As we look forward to 2024 and transition from a period of elevated product growth, we can offer a few thoughts looking forward. In the near term, we will continue to focus on improving profitability. We expect product growth, gross margins to be pressured in 2024. Nonetheless, we expect healthy operating margins that are 25% or greater. We expect to gradually increase billings growth through the year and approach double-digit growth by the second half of 2024, reflecting the progressively easier comps due to the easing of the headwind from backlog draws in the first half of 2023 and the benefit of our SASE and SecOps focus. We expect contract term to remain below our high-water marks of 2022. Consistent with prior years, we expect that the timing of service revenue growth trends will lag product growth trends. Longer term, we remain confident in our solutions and our ability to adopt our strategy to shifts in the market, taking market share as we increase our investments in SASE and SecOps, ultimately returning to balanced growth and profitability. I look forward to updating you on our progress in the coming quarters. And with that, I'll hand the call back over to Peter to begin the Q&A. Operator, as a reminder, during the Q&A session, we ask you to please limit yourself to one question and one follow-up question to allow others to participate. Operator, you can open the call for questions. Thank you. We will now conduct a question and answer session. To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while I compile the Q&A roster. Our first question comes from Hamza Fodderwala from Morgan Stanley. Please go ahead. Thank you for taking my question, and good evening. Ken, maybe just for you, to what extent are you seeing SASE start to eat into firewall and network security budgets? Because clearly there's a bigger focus there. There is a dedicated go-to-market effort there. So do you think that SASE is starting to cannibalize the firewall market to some degree? I think it's a little bit different business model. SASE is more the service OpEx, compared to the networking, maybe more CapEx. During the slow economy environment, customers are definitely more towards service-based OpEx. So we will be also I see some of our service provider kind of a little bit slower to adopt some of the SASE. That's what we feel. We have been involved in SASE for a long time, and some of the service provider kind of slower than we expected. So that's where we kind of changes some of the strategy more aggressively going SASE ourselves, at the same time, still working closely with the partner. Okay. Thank you. Thank you. Thank you. One moment for our next question. Our next question comes from Brian Essex from JP Morgan. Please go ahead. Hi, good afternoon, and thank you for taking the question. I guess maybe, Keith, for you, as we look at the trajectory of product declines this quarter in billings growth, and I guess guidance implies that this is a billings trough this quarter, what observations might you have from other, we'll call them, spending cycles, where you've hit negative product or low single-digit product revenue growth, and the degree of recovery that you've seen after those spending cycles? And what gives you the level of confidence in your ability to, you know, I guess, I guess, return to double-digit growth for either product or billings or both in the second half, understanding you're going to have easier comps as well? Yeah, Brian, great questions, questions I should say. One of the slides that we added to the investor presentation for this earnings call actually maps out the, what you can see is a cycle, more cyclical nature of the business than maybe we've talked about in the past with product revenue. For example, 2017, I think we had product revenue growth of 5%, and that was somewhat of a low watermark. The market may have been due, and I think there's some analyst studies out there from other members of Wall Street that have kind of suggested that the market was due for a little bit of a pause in firewalls. And I think we're seeing that now. Perhaps there was some delay of that pause because of supply chain issues and so forth, something that may have more naturally occurred in 2021 or in 2022. I think in terms of confidence, broadly, you know, I think that was the intention of looking at the CAGRs and the success of the company, that Ken has led the company through since its IPO, and what those CAGRs are. If you look at that, combined with that new slide in the deck, you understand that there's going to be, there has been in the past, been volatility in the industry and in the company, but over the longer stretch, you see some very attractive CAGRs in that. Yeah, long term, we still believe the convergence of, networking to network security, will be happen, which also validated by like Gartner. They say by 2030, the network security, Secure Networking will be larger than the traditional networking, especially in the campus environment, in the enterprise. So we do believe, it's a huge market opportunity. We have a unique advantage with our integrated operating system, with our ASIC acceleration. We're keeping gain in market share in both Secure Networking and also in the, in the SASE market. Got it. That's helpful. Thank you. Thank you. One moment for our next question. Our next question comes from Fatima Boolani from Citi. Please go ahead. Good afternoon. Thank you for taking my questions. Keith, in your prepared commentary, you specifically called out the service provider and retail verticals, perhaps exceptionally weak in their buying. And Ken was just sort of alluding to some of the challenges that are stemming from service provider buying behavior. But I was hoping you could provide a little bit more detail as to why have the spending patterns in these particular verticals become so dramatically weak? And you know, was this in the scope of your assumptions as you were thinking about the pipe? Just wanted to get a better understanding of you know, how and why the buying intentions have sort of rolled over in these two areas specifically. Thank you. Yeah. I think the service provider commentary has probably been reported by a number of other companies through this earnings cycle. I don't think that's the headline itself is not a surprise. I think the significance of the slowdown, the service provider, at least for what we saw in our business, was a surprise, particularly because it's a worldwide service provider number and not just in the U.S. But as I also noted in the prepared comments, you know, we saw weakness in both the U.S. and the European markets, and that applies to service provider and to the retail sector. I think the retail sector probably is perhaps a little bit more prone to some of the digestion of SD-WAN projects that they're still working their way through. Maybe that's a little bit different, as well as some of the economic headlines were probably a little bit disconcerting to the retail sector in the earlier part of the quarter. Thank you. One moment for our next question. Our next question comes from Tal Liani from BofA. Please go ahead. Thank you. I have two questions on the same topic. If you go back to the last two years, you talked a lot about non-appliance sales, meaning upsell SD-WAN, which is an add-on service and then non-FortiGate. And when things start to slow, quote unquote, "We only blame the appliances." So the question is: In retrospect, when you look at things and you look at the other parts of the business and you look at the add-on sales and the other features, are they all based on you, the ability of you selling appliances? Meaning even if it's a non-FortiGate, it's being attached to a FortiGate sale, and that's why it's going down with it and, or an SD-WAN, et cetera. So first, just to understand kind of the total exposure of the company, from all the successful products that they were-- you were able to sell over the last two years, and now in retrospect, just to understand how, you know, how is the exposure to appliance? And the next, the second question, which is related to it, is if really it's about appliance sales, what is the outlook for 2024 when it comes to do you have any big refresh cycle? What could drive outside of easy comps, that our comps are getting easier through the year, is there anything that you're planning on your end to drive some kind of replacement or refresh of the appliances? Thanks. Yeah, it's Ken. I think for SD-WAN, they do need our appliance to be in place, to deliver all these SD-WAN function there. We usually offer SD-WAN as part of the FortiOS, FortiGate function for free, and we started launching the SD-WAN service last quarter. So it's still in the ramp-up stage. We do believe long term, all these surveys will keeping accelerating, like this, like, the SASE market will be grow faster than the Secure Networking market. I think that's where for certain, like, I think it's a- there's a chart on the presentation, shows some of the product and service, which I think is on page 19. You can see some of the cycle up and down there. Also, some of I do believe relate to the new ASIC and also product launch because we just starting the new cycle of the new SP5, which we have one or two products just starting launching, which gave us like 5-10 times better performance and more function and the same cost. Which also combined with the supply chain kind of elevated shipment or building in the last two, three years. I think all this combined together, I feel have an effect our clients sales in the last few months. But I do believe these things will go back to normal, probably second half of next year, after the new product being fully launched, after the supply digestion, inventory digestion kind of goes through. Because we do see the long-term convergence story is still holding well, and we have a big position with a better integrated OS with the ASIC acceleration, and the appliance is a part of the whole solution, is a hybrid solution, both on-prem and cloud, especially we call the Universal SASE. So that's where there's some kind of cycle. If you refer to the page 19 of the presentation, we kind of are probably go through that cycle right now. Yeah, so I'll maybe add to Ken's comments. I think you're correct in that, your inference that the vast majority of time, our first sale to a customer is a firewall. It can be a virtual firewall, or it could be a physical appliance, and really that is the beachhead to then go sell these other security functions and products. I think what you're seeing is in part of the shift of strategy we talk about making the investments in not only SASE, but also SecO ps. It's really that SecOps product family, like EDR and SIEM and SOAR and such, that you're seeing us doubling down on the investments there, because while it's not the largest of the three market segments, it is the fastest growing, and I think we have the opportunity to participate in those markets more, particularly now that some of our products have reached a greater level of maturity. Got it. Thank you. Uh-huh. Thank you. One moment for our next question. Our next question comes from Saket Kalia, from Barclays. Please, please go ahead. Okay, great. Hey, Ken. Hey, Keith. Thanks for taking my questions here. I'm gonna, I'm gonna ask two together. So, so maybe for, for the first one, Ken, for you, just maybe thinking about the long term, and, and specifically in the SASE part of the business, when do you feel like Fortinet will have a solution that can compete head-to-head with other SASE solutions? Maybe the answer is now, right? But just want to hear how you think about it. And, and how big do you think this part of the business can be longer term? Right, so that's the first question. The second question for you, Keith, is, it's great to see the, the operating margin beat. Maybe you could just talk about how you're thinking about sort of midterm profitability, because clearly the business can generate higher margins than 25%. How do you sort of think about that balance now, kind of given some of the changes here? Yes, the first answer is yes, it's now. We are head-to-head competing, and we also believe we have a much better solution, better integrated, and, at the same time, much better cost ROI compared to other competitors on the SASE. And also, the Universal SASE is very unique, because they offer, both in the cloud, on the appliance, on-premise, all the same solution, which a lot of customer, more like our solution, instead of, sometimes you have to deal with the traffic, whether in office, the office have to forward to the cloud, because our solution, you can process some traffic locally on campus, within the, their appliance. Yeah, and Saket, you made a great point about whether you're talking about free cash flow or you're talking about operating margin. The company does very, very well on the bottom line. You know, the strategy has been to continue and reinvest that back robustly in both innovation in the form of R&D spending, but also in go-to-market, whether that's marketing or whether that's selling. You know, I think as we're looking at right now with this lower firewall market, obviously, we're trying to bring new solutions or better solutions to our sellers to sell when the firewall's a little bit slower. But I do think it's a worthwhile conversation. I'm looking at, you know, the sales coverage, if you will. We've talked for several years about how many in North America, for example, how many accounts do we want per rep? We started with 65, I think, four or five years ago, when we were talking about that. That number is now down to 10. And at 10, you're probably reaching a point of where you're on the enterprise side, you're probably reaching a pretty good coverage model for our business. You could probably go a little bit lower, but that, that feels pretty good. I think there's another opportunity right now immediately in front of us in terms of, you know, how do we continue to support our channel partners, be they distributors or be they resellers, and make sure that we're getting the right level of, of mind share from them. So I would suspect there'll be some some investments in that part of the business as we go forward. At the same time, you know, I think there's some opportunities here, and Ken's talked about it with us, about, you know, how to be more efficient in how we're spending our money, whether that's in selling or marketing or, or back office functions or what have you. So, you know, we're not trying to guide to 2024 today, obviously, but we did think that it was important to provide at least some early thoughts in terms of maybe a floor for what 2024 should look like for us on the bottom line. Got it. Very helpful. Thank you. Thank you. One moment for our next question. As a reminder, if you would like to ask a question, please press star one one and wait for your name to be announced. Our next question comes from Brad Zelnick from Deutsche Bank. Please go ahead. Great. Thank you very much for taking the question. I appreciate that as you lean into SASE and security operations, your most obvious advantage is in having an industry-leading installed base. But for those of us that have always viewed Fortinet's distinct advantage as the price performance of your purpose-built hardware, and you've also had a go to market, both direct and indirect, that know how to showcase that. I'm just trying to get my head around all the changes in distribution, both direct and indirect, which I appreciate, Keith, you made comments about sales enablement. But how do you think about the investment in dollars and time needed to get distribution properly ramped? And can you ever achieve the same level of sales productivity that you've enjoyed when the motion was more box-centric? We do believe in this faster growing in SASE, SecOps market, the sales training, sales restructuring, at the same time, more efficient marketing is very, very important. And also, we are continue working closely with our channel partner, with our distribution network, to reach in more broad customer base. So we also think in the upsell, cross-sell opportunity is huge and, especially goes through our partner network there. So I don't feel the investment we made in the past will be any issue or kind of any slow us down. We do believe will actually helping us to expand in this more service-based SASE market and also, a more consolidation secure approach. Yeah, and I would just build on Ken's comment, Brad, and, and all good and fair questions. You know, it's, it's not by accident we're talking about SASE. If you go back and think about it a little bit, we've been talking about it in a number of different ways. You know, Ken's talked about the, the POP strategy, which now you see, you know, us accelerating that POP strategy with the cloud providers to come to market more quickly. You know, the Gartner Magic Quadrant, I think, is a catalyst, you know, for the single vendor strategy and having us in the challenger quadrant, you know, gives us the bona fides, if you will, to have a lot of conversations. You know, the single vendor strategy, that installed base that you referred to, you know, we went back and looked and, you know, over the last two quarters, we've done several hundred SASE deals already. And to be quite honest, that was without any real wood behind the arrow in terms of marketing support or sales support. It was really just how it grew. And it's interesting, you know, while I would have expected those first sales to would have been clearly dominated by SD-WAN, they were not SD-WAN customers. They were oftentimes just as many brand new customers coming to us with a SASE solution as there were SD-WAN customers, or in some way, the third part of the pie were customers that are buyers for other firewall use cases. So I don't, you know, the expectation that we're gonna be successful initially in the smaller part of the market. I don't think we disagree with that. When I look at that same mix of SASE customers, nearly 50% of those SASE customers that we've signed already would be in the SMB space. And then the remainder was kind of divided up between the larger enterprises and the mid-enterprise. So I don't think we got here by accident. We may have chose not to talk about it as publicly, but I think we're well positioned now because of the investments that we've made in the data centers, the POPs, the operating system, the Gartner Magic Quadrant, the fact of the single vendor and the install base. You know, I think this is the right strategic shift for us to make at this point. Thanks for that, Keith. Just a quick follow-up, and I know it's a topic we've spoken about in the past, but as SASE increases as part of the mix, and I know strategically you've partnered with Google to help deliver the infrastructure, how should we think about the CapEx required to do this in a competitive way over the longer term? Thank you. We do have a good partnership with Google, and same time, some other service provider, like Digital Realty. And we also build some of own, like a data center POP, over 30, owned by ourself, which is really give us a more cost advantage. So we're continuing that strategy, but that do need time to ramp up. So the Google is a very quick solution, for us, for customer. And also we feel we separate, we kind of realign the, the market into three different segment, Secure Networking, SASE, and secure op is much clearer, much better line up with the customer need and also meet different customer demand. So that's much better, more clear compared to the pre-previous one we have, whether the FortiGate or some other, like, enhanced nano FortiGate product. We feel this is a clear three segment, line up quite well with the customer demand. So we're starting tracking based on this one. Also, we're starting compensate the sales and the trend sales and marketing along all these three separate, segment of the market. We feel that will be more clearly to us, as internal, for customers, to our partner, to valid kind of, like, what's customer really need, in the current environment. Yeah, and Brad- [crosstalk] Next segment. I'm sorry. [crosstalk] To Ken's point, to Ken's point, like I, y ou know, we were last quarter, we were talking about 20 POPs because we were building them ourselves, right? Now, you're talking about over 100 locations, well over 100 locations. So I think there's a go-to-market opportunity there that this brings to us. I think longer term, and we know that one of our competitors, this is the approach they take, and we have pretty good visibility, obviously, to what their margins are and their investments there. And there's another player in the space that's much more, you know, building their own POPs, if you will. POPs individually are not huge things, right? I mean, there are single-digit number of racks where they have a POP, I think. So, you know, I do believe you need some forward-stage data centers, and I think that's consistent with our strategy that we've talked about, about increasing more and more hosted delivery services, and particularly in SecOps. So I think this is not something that we're gonna surprise people with in terms of our CapEx spending. Makes perfect sense. Thank you. Thank you. One moment for our next question. Our next question comes from Adam Tindle from Raymond James. Please go ahead. All right, thanks. Good afternoon. Keith, it sounds like you're confident in profitability and free cash flow, which makes sense. Obviously, the model has proved itself over the years. So I wanted to ask about capital allocation. The balance sheet's already very healthy. You've got a lot of capacity. Right now, the market's pivoting towards Universal SASE and SecOps, as you mentioned. Curious how the conversations have gone internally to potentially accelerate your pivot towards that with larger M&A. And conversely, you know, if we look at the after-hours action here, the ROI on share repurchase is looking potentially very strong, you know, the opportunity to potential step up share repurchases. Just in general, how you're thinking about using the balance sheet as a weapon during a time where the business and stock is pressured? Thanks. Yeah. I think we included a comment in my prepared remarks that the available. We still have, as of the start of the month, start of the week, I guess, we had $980 million of available authorization for the buyback. And I think you saw some of the numbers that we provided in the prepared remarks about, you know, being fairly aggressive during the quarter itself as well, in terms of buying back stock. Ken doesn't let me go shopping for companies very often, so I'll defer to him in terms of his thoughts on that. We're definitely keeping looking. I think right now, the multiple probably more reasonable than the last 1-2 years. And also we do realize the market is also changing pretty quick. We're continuing to the internal innovation. We feel we are the strongest on the internal innovation engineering among all the space player. But on the same time, we also are open to looking for some other company which we can working together, drawing together. Okay. And one quick follow-up, just to make sure Peter kicks me off the call next time for this one. But, it'll be in the weeds, Keith, sorry. I wanna ask about supply. We've been monitoring inventory commitments. They've been elevated for a little while now. Obviously, demand is deteriorating faster than expected, and we're just trying to think about how to manage inventory and future inventory, given this new state of demand. You know, where that might manifest itself in results. I think you mentioned product gross margin pressured. I wonder if that was related to that. But any comments on kind of managing this, oncoming inventory, relative to the current demand? Thanks. Yeah, it is related to the inventory levels, and I think we've been managing it for the better part of the second half of this year. And that's some of the commentary that you're getting as we look into 2024 in terms of where the pressure may come from. Any way to quantify it, though? For 2024 No. Yeah, we feel still in a healthy level, and we tend to keep about six months inventory. That's where, like, when two, three years ago, the supply chain issue happened, we are in market position because also a lot of time, our customer need some urgent delivery of certain products. So we probably still keeping a similar policy there. But also, we're in a refresh cycle of our new product, especially on the low end. So I think so far we, I think it's we, we also kind of repriced in the last two, three years. Now since starting to stabilize and supply chain from a shortage, little bit more towards even some year oversupply. So we are feel we are in a pretty good position because we more handle this operation manufacture directly, so we handle it better than most of our other competitors on the inventory right now. Very helpful. Thanks, Ken. Yeah, we also don't see a big issue about the current inventory level. Thank you. One moment for our next question. Our next question comes from Adam Borg, from Stifel. Please go ahead. Awesome, and thanks so much for taking the questions. Maybe just on the sales execution issues that you talked about in the script, maybe go a little deeper on what exactly, what exactly happened and a little bit more about the steps you're taking. And maybe just as a follow-up, just on the SASE partnership with GCP, I know it's obviously just been a couple weeks, but maybe talk about early customer feedback from initial conversations. Thanks so much. Yeah, we, if you look in the last two, three years, we grow a lot of business, also hire a lot of salespeople. In the last two, three years, we probably double the business, and at the same time, during the supply chain issue, somehow certain sales feel kind of too easy to get deal, because there's always a shortage of certain product there. So that's where we feel we need to enhance the training, enablement, and at the same time, also need to be more disciplined about the performance. So that's, at the same time, we also when we're shifting this to more like a service-based SASE or kind of consolidation, cross-sell, multi-sell of SecOps, the sales also need to keep learning. At the same time, the marketing need to be kind of more efficient and also kind of positioned to the new growth opportunity. That's the focus we have right now. We are definitely keep looking to be more efficient in both the sales and marketing going forward. Great. What about the early feedback on GCP? On Google side. Oh, yeah, it's a very good that gave us a very quick start to match any other competitor on the location, number of location, number of POP. And, they also have very broad coverage, so it's a good partnership. At the same time, we continue to working with some other partner, and we also continue to build, ourself. And the long term, we feel we have more advantage than, some of our competitors because, we always have a strategy, invest in some long-term, kind of, long-term investment strategy, including some real estate, some other part, which give us a much better, long-term return. Great. Thanks so much. Thank you. Thank you. One moment for our next question. Our next question comes from Patrick Colville from Scotiab ank. Please go ahead. All right. Thank you so much for taking my question, Ken, Keith, Peter. My question's about the, I guess, kind of, qualitative guidance you guys gave for 2024 billings. If I'm -- if I remember correctly, last quarter, it was expect kind of high teens billings growth, exiting fiscal 2024. Was the commentary of this quarter expect double-digit growth exiting 2024? Not sure I'm following them asking you. I'm just trying to so last quarter, you guys gave some kind of like a forward look for 2024 billings, and if I remember rightly, the kind of forward look was expect exiting billings growth to be in high teens. Earlier in your kind of prepared remarks, there was a comment which was expect double-digit growth in the second half. I guess, you know, are we going from high teens to double digit? Is that the change? Yes. Yes, and I think that's prudent given what we've just seen in terms of the Q3 performance. Okay, very clear. Thank you so much. Uhuh. Thank you. One moment for our next question. Our next question comes from Joseph Gallo from Jefferies. Please go ahead. Thanks for the question. I've got a two-parter, one for each of you. And Keith, as a follow-up to that last question, appreciate the commentary on bottom line floor for 2024. Can you just talk about the methodology of top line guidance? Is this a rip the Band-Aid off guide, or what underpins the confidence and visibility in a re-acceleration of billings? Is it SASE turning on or just hardware digestion only taking 2-3 quarters? And then, Ken, given what you're seeing with AI, do you believe adoption of AI workloads eventually shifts workloads back to on-premise and drives a higher need for firewalls long term? Thanks, guys. Yeah, and I wasn't quite sure if the question was about the Q4 guide or the 2024 commentary about numbers. More for next year, but both. It has the methodology for your top line guidance change, following the past two quarters. Yeah. I would say that, well, if we just deal with the -- we're practically giving guidance for the Q4. Absolutely. I mean, I think the assumed close rates, if you will, are dramatic. I think they're the lowest assumed close rates I've seen that I've used in over five years here, for context. And they're obviously lower than what I used for the first half of the year. You know, and I think that I would say there are indicators that the pipeline quality is better in the Q4, but in given light of what we've done for the last two quarters, I don't think that should put much stock in that. So I'm content to just assume a much lower close rate than I have more recently. 2024, not really giving guidance. I think that again, we're talking about billings here, and I know we're all aware of it, but really, you know, focus perhaps more on the impact of backlog and what it did to billings in Q1 of last year and Q2 of last year, and how that eased throughout the year. And so you're really going to see comps change. I don't know that we're necessarily assuming a dramatic growth or ramp of bookings, if you will, at this early stage for 2024. We do expect it's going to improve as we bring SASE online more successfully and secure operations. But I think it really, part of what you're hearing there is really getting clarity on how the backlog impacted 2023 numbers. Yeah, it's a very good interesting question about the AI and the security. I have to say, definitely AI will start in kind of get into the security very quickly, both by the good guy, bad guy. But in the generative AI side, I feel in some degree the protective side are still more using what we have been doing in the last 10, 20 years, more like a precision AI and make sure we block the attack, but not block any good traffic. But also, the generative AI also helping lower supporting costs and also helping the secure operation. So it's definitely the AI will keeping driving the security growth and both in the cloud and also our appliance. We do see our appliance also long-term very healthy growth, especially we call it convergence of networking to networking security, especially in the enterprise, in the campus environment. We see that trend will continue to grow well. Our unique advantage leverage integrated OS ASIC will continue to lead in the market and keeping gaining market share. So long term, I don't see any slowdown of this appliance getting into the cybersecurity space. Thank you. Thank you. One moment for our next question. Our next question comes from Gray Powell from BTIG. Please go ahead. All right, great. Thank you for working me in here. Really appreciate it. So, maybe a clarification and a follow-up. So you laid out the breakdown for billings, or the new breakdown, between Secure Networking, SASE, and SecOps. Did you all talk about the relative growth rates that you're seeing today for each segment? And then within Secure Networking, is there a way to think about how much of the slowdown you're seeing there is related to the core firewall business versus some of the networking components, like switches and access points and stuff that may have benefited more from like, supply chain and budget flush and things like that? Yeah, I think we do give the market growth for these three segments going forward. And we also believe we're growing faster than the market growth, continuing sharing in all these three segments. Related to the FortiGate 40F, plus some other FortiAP, FortiSwitch, we do see more headwind in FortiAP, FortiSwitch for the FortiAP, FortiSwitch because now supply chain issue kind of pretty much over. So that's probably more headwind when compared to the FortiGate Secure Networking firewall side. All right, fair enough. Thank you very much. Thank you. Thank you. One moment before our next question. Our next question comes from Eric Heath from KeyBanc Capital Markets. Please go ahead. Great. Thank you, and, and thanks, Peter, for getting me in here. Keith, just for you, curious how the, the economics to the top line, for Fortinet change when, when a customer's kind of doing an apples to apples, switch over from kind of a firewall customer over to a SASE. And then secondarily, with the shift away from firewall, just it probably means more of a shift to annualized billing. So curious how you're thinking about duration and that impact of free cash flow going forward. Thanks. Yeah, the, the second one's probably easier. I don't... We have such a large footprint right now with the firewall business that it's going to take a while for any significant changes in the SASE billings, if you really, you know, think about it coming into and having an impact on our total term, term. I don't know that we gave the number, but, you know, we've, we know that we've come back to a more. We've come down about 1 month year-over-year in terms of contract term in 2023 compared to 2022. We went from 28 months, roughly last year, to about 27 months this year. Maybe I could be off by a month, but and you saw the impact in the financials. We've talked about that, you know, how much 1 month impacts the billings number. I think it's going to take a while for SASE. As I mentioned, we've already done several hundred SASE deals. We expect to be more successful early on with, one, in SMB spaces, and two, with our install base. So I would imagine that it's going to take a while to really have an impact on free cash flow. Yeah, we also will be keeping a salary training for internal sales force, also to our partner, for the new SASE SecOps operation, which is a little bit different than the traditional Secure Networking side. So that's we also feel the, with the huge installation base we have in SD-WAN firewall, which we are, we're leading, we're number one pretty much in all this area. We feel with a huge potential to upsell, cross-sell the SASE and secure ops once the salesforce, once the partner get fully trained. Thank you. At this time, the Q&A session has now ended. I will now turn the call over to Peter Salkowski for closing remarks. Thank you, Anton. I'd like to thank everyone for joining the call today. Fortinet will be attending investor conferences hosted by Barclays, Stifel, and Wells Fargo during the Q4. Fireside chat webcast links will be posted on the Events Presentation section of the Fortinet Investor Relations website. If you have any follow-up questions, please feel free to contact me. Have a great rest of your day. Thank you. Bye. This concludes today's conference call. Thank you for participating. You may now disconnect.