Keith Jensen: Yes. I would say that, while we just deal with actually giving guidance for the fourth quarter, Absolutely. 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 5 years here for context. And they’re obviously lower than what I saw in the — what I used for the first half of the year. And I think that — I would say there are indicators that the pipeline quality is better in the fourth quarter. But in given light of what we’ve done for the last 2 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 are not really giving guidance. I think that, again, we’re talking about buildings here and I know we’re all aware of it but really 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.
So you’re really going to see comps change I don’t know that we’re necessarily assuming a dramatic growth 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’s really part of what you’re hearing there is really getting clarity on how the backlog impacted 2023 numbers.
Ken Xie: Yes. it’s a very good interesting question about the AI and the security. I have to see definitely AI, we’re starting kind of getting the security more quickly, both by that good guy bad guy. But in the genetic AI side, I feel, in some degree, the back a probably more leverage some of that one and the Protect side, 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 type of not blocking traffic but also to generate — also helping the porting cost and also helping the secure operation. So it’s definitely the AI, we’re keeping driving the security growth and both in the cloud and also our appliance. We do see our plans also long term very healthy growth, especially we cause convergence of networking to networking security, especially in enterprise, in the compass environment.
And we see that trend will continue to grow well and our unique advantage leverage integrated ASIC will continue to lead in the market and keeping gaining market share. So long term, I don’t see any slowdown of the appliance to get into the cybersecurity space.
Operator: Our next question comes from Gray Powell from BTIG.
Gray Powell: All right. Great. Thank you for working in here. I 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 secured 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 been more — that may have benefited more from like supply chain and budget flush and things like that?
Ken Xie: Yes. Actually, we do give the market growth for these 3 segments going forward. And we also believe we’re growing faster than the market growth, gaining share in all the 3 segments. Related to the firewall FortiGate versus some other AP switch. We do see more headwind in AP switch for the AP switch because a lot of supply chain issues kind of pretty much over. And so it’s — so that’s probably more headwind compared to the firewall secure networking for side.
Operator: Our next question comes from Eric Heath from KeyBanc Capital Markets.
Eric Heath: Great. And thanks, Peter, for getting me in here. Keith, just for you, curious how the economics to the top line for Fortinet change when a customer is kind of doing an apples-to-apples switch over from kind of the firewall customer over to SASE. And then secondarily, with the shift away from farewell, that probably means more of a shift to annualized billings. So curious how you’re thinking about duration and that impact to free cash flow going forward?
Keith Jensen: Yes. The second one is probably easier. I don’t — we have such a large footprint right now in the firewall business that it’s going to take a while for any significant changes in the SASE billings if you really think about it coming into and having an impact on our total term. I don’t know that we gave the number but we know that we’ve come back to a more. We’re coming down about a 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. And you saw the impact in the financials. We’ve talked about that will one month impacts the billings number. I think it’s going to take a while for SASE. As I mentioned, we’ve already done several under SASE deals.
We expect to be more successful early on with 1 in SMB spaces and two, with our installed base. So I would imagine that but it’s going to take a while to really have an impact on free cash flow.
Ken Xie: Yes, we also will be keeping salaried training for internal sales force also to our partner for this new SASE SecOp operation which is a little bit different than the traditional secure networking side. So that we also feel the — with a huge installation base. We have SD-WAN firewall which we’re leading. We’re number one pretty much in all this area, we feel the huge potential to upsell cross-sell the SASE and secure up once the sales force unevens the partner for the train.
Operator: At this time, the Q&A session has now ended. I will now turn the call over to Peter Salkowski for closing remarks.
Peter Salkowski: 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 fourth quarter. Partially chat webcast link will be posted on the Events and Presentations section of the Fortinet Investor Relations website. If you have any follow-up questions, please feel free to contact me. Have a great day today. Thank you, Bo.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
