Fortinet Sees Sales Slip As North American Restructuring Takes Hold

Fortinet reported a 23 percent drop in third-quarter net income as its North American sales realignment is taking longer than expected to yield results.

The security vendor announced in January that it was reorganizing its U.S. enterprise sales team, redistributing it into two groups focusing on either global strategic accounts or regional territories. Fortinet CEO Ken Xie said Thursday that those sales force realignment changes have led to "execution challenges in North America that further impacted our performance."

"All this still needs some time to ramp up … We are much better positioned than a year ago with the marketing machine and the team that is on board. We just need some time to keep improving and keep executing," Xie said.

[Related: Sources: Fortinet Lays Off Multiple VPs, 100 Employees In Sales And Marketing]

Fortinet reported sales for the quarter of $316.6 million, up 22 percent year over year, and billings of $347.5 million, up 16 percent year over year. Fortinet's net income was $6.3 million, down from $8.2 million during the year-ago quarter. The numbers reflect the lowered expectations that Fortinet announced at the beginning of the month.

"We are laser focused on resolving this execution issue and remain highly confident in our competitive advantage and long-term opportunity," Xie said.

In particular, CFO Andrew Del Matto said Fortinet's sales force productivity in the region was affected by a longer sales cycle due to a shift towards enterprise accounts, efficiency challenges and a newer sales team – with 40 percent of them at the company less than a year – that is taking longer to ramp up productivity than expected.

Xie said Fortinet's sales numbers were also impacted by macro forces, including a more generally moderate spending environment, slower sales cycles and Brexit.

Del Matto said Fortinet has "aggressive plans" to address these challenges, including an increased focus on marketing and lead generation, reallocation of marketing budgets, sales onboarding training and enablement, a "frequent and disciplined review" or productivity and pipeline, and deeper partnerships with systems integrators and solution providers.

"Fortinet has the best technology in the market and technology the market wants. We made the investment and have the sales people in place. We are laser focused on making them more productive," Del Matto said.

From a marketing perspective, which is an area Fortinet has been pushing aggressively for the past year, Del Matto said the company would look to shift its investments to get more bang for its buck. Xie said the company still has not filled its vacant chief marketing officer position.

"We are still very aggressively looking. We are keeping investing and improving the current marketing engine structure there and enhancing the digital marketing and lead generation engine," Xie said.

While the changes are taking longer than anticipated to take effect, Del Matto said the company is confident that the sales reorganization "helped lay the foundation" for share gains, profitability and increased productivity down the road.

"Our third quarter performance and what we're seeing in the market has given us some pause. We expect the sales execution to take a few quarters to fully resolve and productivity to ramp up over time as we execute on our improvement plan," Del Matto said.

Fortinet expects its fourth quarter billings to be between $424 million and $432 million, up 12 percent year over year at the midpoint, and its sales to be between $341 million and $347 million, up 16 percent year over year at the midpoint. It expects earnings per share to be between 20 and 21 cents a share.