Fortinet CEO: Partners See Advantages Of Our Product, Better Margins

Fortinet is focused on providing stronger financial incentives and training programs to its SMB partners and distributor-led business to further extend its reach in that segment of the market.


Fortinet founder, chairman and CEO Ken Xie said the company's technological and go-to-market edge is prompting partners and customers to switch away from the competition.

"Competitors are starting to limit some of their channel partner programs," Xie told Wall Street analysts Thursday. "And we see very strong feedback from our partners that they see the advantages of our product and also a better margin that we're starting to share with them."

Xie said Fortinet's increased traction with partners and customers was reflected by a 37 percent increase in attendance at the Sunnyvale, Calif.-based platform security vendor's annual Accelerate conference, which was held last month. And the centrality of partners to Fortinet's overall strategy will only grow going forward given the vital role the channel play in servicing products, according to Xie.

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Fortinet has different strategic priorities for each segment of its channel, according to CFO Keith Jensen. The company is focused on providing both financial incentives and training programs to its SMB partners and distributor-led business, Jensen said, and is looking to extend its reach further and further into the SMB.

Jensen said investments are additionally being made to support VARs that are looking to provide more MSSP-type services as well as partners that are aiming to deliver private cloud services.

"The partners are very, very important to us," Jensen said. "It's a critical part of our business, and it's a way in which we have access to end users that oftentimes we wouldn't have access to."

Fortinet is continuing to see very strong growth from the investment in its channel, MSSP [managed security service provider] and SMB business, Jensen said. The company is then investing profits in excess of pre-defined expectations to fund growth in the enterprise segment of the market, according to Jensen.

Specifically, Fortinet is closely tracking the number of accounts assigned to individual reps in the enterprise space, and Jensen said the company hopes to deliver continuous improvement around its coverage ratios.

"We continue to believe it's a very worthwhile investment to continue to push into the enterprise," Jensen said.

Fortinet's sales for the quarter ended Mach 31 skyrocketed to $472.6 million, up 18.4 percent from $399 million the year prior. That edged out Seeking Alpha estimates of $472.1 million.

Net income soared to $58.8 million, or $0.34 per diluted share, up 41.3 percent from $41.6 million, or $0.24 per diluted share, last year. On a non-GAAP basis, net income jumped to $80.8 million, or $0.46 per diluted share, up 41.8 percent from $57 million, or $0.33 per diluted share, the year prior. That smashed Seeking Alpha's projection of $0.39 per share.

Fortinet's stock fell $4.03, or 4.4 percent, to $87.48 in after-hours trading Thursday. That's the lowest trading price for Fortinet stock since April 9.

The company's growth was largely driven by success in its services business, with sales climbing to $309.9 million, up 21 percent from $256.2 million the year prior. Fortinet's product sales also jumped to $162.7 million, up 13.9 percent from $142.8 million the year prior.

From a geographic standpoint, Fortinet's sales in the Americas rose to $201 million, up $14.2 percent from $176 million the year prior. The Americas accounted for 42 percent of Fortinet's revenue in the quarter, down from 44 percent last year.

In the coming quarter, Fortinet expects to see diluted non-GAAP earnings between $0.49 and $0.51 per share on revenue in the range of $505 million to $515 million. Analysts had been expecting earnings of $0.49 per share on sales of $510.7 million, according to Seeking Alpha.