Fortinet Focuses On Improving Productivity, Slowing Headcount Growth As Sales Reorg Slow To Show Benefit

After undergoing a broad salesforce reorganization earlier this year, Fortinet executives said the company is ’pleased’ with the progress it’s made, but plans more changes as the full benefits of the shift were not yet fully realized.

In January, Fortinet announced a sales force reorganization that eliminated the U.S. Enterprises team, redistributing it into two groups focused on either large global strategic accounts or regional territories, and created a single, unified sales force. The changes were designed to position the network security vendor to better handle multinational accounts and capitalize on its platform-based approach to drive profitability.

CEO Ken Xie, speaking on the company’s second quarter earnings call Thursday, said Fortinet is ’pleased with the new global sales structure’ and saying the sales organization is better able to support growth and operating margin expansion.

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’Fortinet’s market opportunity and competitive advantage is significant. Our investments have laid the path for future growth,’ Xie said.

That being said, CFO Andrew Del Matto said the ’productivity wasn’t as strong as we would have liked it to be in North America.’ Xie also referred to the slow sales reorganization results, saying ’some of the sales changes are still early and will take a bit more time to fully materialize.’

Revenue in the Americas in the second quarter (ended June 30) was $133 million, up 22 percent year over year. That compares to 35 percent growth in APAC to $64 million and 37 percent growth in EMEA to $114 million.

To remedy that, and for Fortinet to meet its 20 percent operating margin goal by 2020, Del Matto said Fortinet will be ’laser focused on productivity’ in the Americas region, which he said required more changes and therefore is slower to see results compared to international regions.

To achieve that, Del Matto said Fortinet plans to slow hiring, which currently stands around 200 net-new employees a quarter, better managing employee performance, and driving synergies around the company’s recent acquisition of SIEM vendor AccelOps.

That being said, Xie said Fortinet feels it has ’pretty much done all the change’ when it comes to a full sales reorganization and will now focus solely on the productivity initiatives going into the second half of the year.

’We’ve proven we can be more profitable…I think that we’re disciplined to control the growth and the cost to position us going forward. That’s why we’re confident about the target that we’ve set,’ Xie said, referring to the operating margin goals.

Sales for the second quarter were $311.4 million, up 30 percent year over year. Net loss for the quarter was $1.4 million, compared to net income of $792,000 in the same quarter of 2015, and a net loss per share of $0.01.

Xie said Fortinet saw particular demand in the quarter for its internal segmentation firewalls, which he said allowed the security vendor to land some key competitive wins. Fortinet also saw multiple competitive wins around cloud deployments, which he said ’competitors just can’t come close to matching.’

Beyond that, Xie said Fortinet is starting to see ’sales and marketing investments paying off,’ a key investment area for the company in quarters past. Fortinet recently lost Chief Marketing Officer Holly Rollo, who left the security vendor in March to join RSA.

Fortinet says it expects total revenue for the third quarter to be between $319 million and $324 million, up 24 percent year over year at the midpoint. The company expects earnings per share between $0.17 and $0.18. It now expects full-year sales to be between $1.27 billion and $1.28 billion, up 27 percent year over year at the midpoint, with earnings per share of between $0.69 and $0.71.