Fortinet, Inc. (NASDAQ:FTNT) Q4 2022 Earnings Call Transcript

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Ken Xie: Yes, I think for the backlog like what I said in the last one or two quarter, it’s continued shifting to the network area, network and the Wi-Fi which is more industry standard product. I’d say probably today, most of the backlog will come from the network side and the Wi-Fi side, which has a higher cancellation rate. And — so that’s where like Keith has mentioned, we take a pretty, when it’s positive conservative, but that definitely pretty good estimate what will the impact for the whole year on all these — the backlog for the product revenue. And product revenue, definitely, we see probably going forward, the benefit of the new ASIC and also some of the new products that were helping and also some of the case, the use case — additional use case of the firewall definitely also are helping, but it will take some time.

So that’s where we tend to be more careful to forecast. At the same time, we do see long-term, we still have a huge advantage compared to other competitors because the investment we made in the product, in the hardware, in ASIC give us huge advantage of the total cost of ownership towards container keeping gaining market share in that space.

Tal Liani: And do you provide some numbers about the backlog or maybe how material it is to revenues as a percentage of revenues?

Ken Xie: I think it’s — since it’s been a large difficult to forecast at the same time, with the change in cancellation and also most of the backlog related to networking WiFi not a core product. So that’s where, since last quarter, we no longer provide detail of the backlog, we feel that could be a little bit misleading if we keep in providing that.

Keith Jensen: I think we can add over some directional comments here with it. So the headlines would be that backlog was up year-over-year, quarter-over-quarter it was down. But as you start thinking through how to treat the backlog in terms of doing your own models going forward, again, we would come back and remind you of a couple of things. We expect the cancellation rates are going to increase, and that’s baked into our guidance, as we look at things. And when we say return to historical norms in the commentary, I think we probably would have three years ago had backlog for professional services and training that may have been in the $30 million range. So maybe with growth now you’re probably looking at a steady state that could get you over $40 million to $50 million. So just a note of caution, they’ll just take all that backlog and assume it’s all going to convert into billings and revenue in 2023 given those dynamics.

Tal Liani: Got it. Thank you.

Operator: Thank you. One moment please. Our next question comes from the line of Ittai Kidron of Oppenheimer. Your line is open.

Ittai Kidron: Thanks. Hey guys. Nice quarter. Keith, I was wondering if you could do a little bit of a deeper dive for us into the enhanced part of your business, if there’s a way for you to kind of break it down a little bit for us by product. And perhaps rank order for us, categories which are growing above the average for the category and below the average for the category. I would just like to get a little bit more color as to the change in mix within that?

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