Fortinet Fumbles Forecast: Company Cites Sales Organization Struggles In Earnings Warning

Fortinet said Tuesday that it expects sales, billings and earnings for its third quarter to be lower than Wall Street estimates, an announcement that builds on a year of reorganizations and layoffs in the company’s sales and marketing departments.

The Sunnyvale, Calif.-based security vendor said it now expects its third quarter billings to be between $343 million and $348 million, down from its earlier guidance of between $372 million and $376 million. It now expects sales to be between $311 million and $316 million, down from between $319 million and $324 million. Fortinet also expects earnings per share (EPS) to be lower; it dropped EPS estimates from $0.17 to $0.18 a share to $0.15 to $0.16 a share.

In a statement CEO Ken Xie said longer sales cycles and ’sales execution challenges’ in North America led to the estimate changes. He cited ’macro issues’ in Latin America and United Kingdom as contributors to the shortfall, too.

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

"Though we are disappointed with our third quarter performance, we continue to feel good about our competitive-differentiating and market-leading security fabric. We remain confident in the underlying strength of our business and long-term growth opportunity, and committed to delivering returns to our shareholders,’ Xie said in a statement.

The news is the latest stumble for Fortinet’s sales and marketing organization over the past year. Most recently, the company had a round of layoffs that centered around its sales and marketing departments, including multiple vice president-level executives.

Sources at the time also told CRN that the company has been seeing larger ’turmoil’ across its sales and marketing organizations, stemming from the company’s sales force reorganization in January. At that time, Fortinet eliminated its U.S. enterprise sales team, redistributing it into two groups focusing on either global strategic accounts or regional territories. It then created a single, unified sales force led by longtime company veteran Patrice Perche. Sources told CRN that the new sales structure had caused some challenges for the company, with a particular disconnect between the company’s regional sales executives and general ’dysfunction’ in the transition to the new sales structure.

The company also notably lost Chief Marketing Officer Holly Rollo in March when she left Fortinet to take a position at RSA as chief marketing officer. Fortinet has not yet named a replacement chief marketing officer.

After Rollo’s departure a few months ago, CEO Ken Xie reiterated the company’s commitment to its sales and marketing push in an interview with CRN.

’We [are committed] to keeping the investment in marketing and sales … and at the same time leveraging the strong, differentiated product that we have, and the channel, the partners and support,’ Xie said at the time.

Partners have expressed growing concern in recent months over the company’s sales and marketing challenges. One partner executive, who did not want to be named, said he expects that ’all the turnover they’ve done along with the layoffs are now being felt in expected revenue.’

However, that partner said he hasn’t felt any sales impact on his own business from the changes. He said he's seeing the ’same increasing market awareness and opportunity for Fortinet’s products as I have for the last decade.’

’Those choices could very well be better for Fortinet and their stockholders in the long-game, but short term it could hurt them,’ the partner said in an email to CRN. He said he thinks, despite these short term drops, that Fortinet will be able to hold its own in the long term against competitors like Palo Alto Networks.

’I know their competitors are using that information against them, but it may be Fortinet that gets the last laugh if [Palo Alto Networks] or other [next-generation firewall] players don’t make hard moves when necessary to play long-game,’ the partner said.

Fortinet announces its third quarter earnings on Oct. 27. The company’s third quarter ended on Sept. 30. Fortinet stock fell more than 14 percent in after-hours trading to $29.20.