Hello, and welcome to Fortinet Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that this call is being recorded. I would now like to hand the call over to Aaron Ovadia, Senior Director of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. I am pleased to welcome everyone to our call to discuss Fortinet's financial results for the second quarter of 2025. Joining me on today's call are Ken Xie, Fortinet's Founder, Chairman and CEO; Christiane Ohlgart, our CFO; and John Whittle, our COO. Ken will begin our call today by providing a high-level perspective on our business, Christiane will then review our financial results for the second quarter of 2025, before providing guidance for the third quarter and updating the full year. We will then open the call for questions. [Operator Instructions] Before we begin, I'd like to remind everyone that on today's call, we will be making forward-looking statements, and these forward- looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected. Please refer to our SEC filings, in particular, the Risk Factors in our most recent Form 10-K and Form 10-Q for more information. All forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation and specifically disclaim any obligation to update forward-looking statements. Also, all references to financial metrics that we make on today's call are non-GAAP, unless stated otherwise. Our GAAP results and GAAP to non-GAAP reconciliations are located in our earnings press release and in the presentation that accompany today's remarks, both of which are posted on our Investor Relations website. As a reminder, this is a live call that will be available for replay via webcast on our Investor Relations website. The prepared remarks will also be posted on the quarterly earnings section of our IR website following today's call. Lastly, all references to growth are on a year-over-year basis, unless noted otherwise. I will now turn the call over to Ken.

Thank you, Aaron, and thank you to everyone for joining our call. We are pleased with our strong second quarter performance beating both our billing and operating margin guidance. Building on this business momentum, we are reaching our full year billing outlook. In the second quarter, billing grow by 15% and revenue grew by 14%, and we achieved a strong non-GAAP operating margin of 33%. Our strong top line results were driven by continued momentum among large enterprise customers with a total value of deal over $1 million increased by more than 50%. This growth reflects the strength and value of our innovation, the recent global demand of our integrated solution and the impact of go-to-market investment. Additionally, our recent investment in the fast-growing market of unified SASE and AI-driven secure operations are continuing to deliver strong return as billing for both grew over 20% to a combined 35% of total billings. Fortinet's strong momentum in SASE has been recognized by industry analysts as we are recently named a leader in the 2025 Gartner Magic Quadrant for SASE platform, while also ranking #1 in a Secure Branch Network Monetization case. We are the only vendor in the report that is also recognized in 5 different network security Magic Quadrant, which all run on a unified FortiOS. We continue to be the only vendor that has developed all core SASE capability in a single operation system, the FortiOS, including New-Gen Firewall, SD-WAN, ZTNA, Secure Web Gateway, CASB and DLP. This native integrate of Nex-Gen Firewall, SD-WAN and SASE has become new generation SASE firewall, making it easy for customers to adopt an upgrade while reducing capacity and operation cost, enhancing user experience and ensure integrated hybrid secure access across both on-premise and cloud environment. Our success in Unified SASE reflect the…

Thank you, Ken. Thank you, Aaron, and good afternoon, everyone. As Ken mentioned, Fortinet's growth and momentum are strong. We beat our billings and operating margin guidance for the second quarter and raised our full year billings outlook. Total billings grew by 15% to $1.78 billion, driven by 21% growth in Unified SASE and 31% growth in SecOps. Unified SASE and SecOps now account for 24% and 11% of total billings, respectively, up 1 point each. Our strong billings growth was driven by continued momentum in expanding into the large enterprise as the number of deals greater than $1 million increased by 29%, while their total dollar value grew by 51%. Among our top 5 verticals, financial services, the vertical with arguably the most sophisticated and discerning security purchases led the way with billings growth of over 30%. In addition, we continue to expand our customer base. Over 6,900 new organizations chose our unified single FortiOS platform to power their cybersecurity strategy. The robust growth in new customers is a clear testament to our strong position in the SMB market, driven by the continued commitment and loyalty of our channel partners. Total RPO grew by 12% to $6.64 billion, while current RPO grew by 15% to $3.45 billion. With regards to ARR, Unified SASE increased by 22% to $1.15 billion and SecOps increased by 35% to $463 million. Within Unified SASE, FortiSASE, our SSE solution delivered strong results with ARR growth of over 100%, while the customer base expanded by 65%. Furthermore, adoption momentum has remained strong as 13% of our large enterprise customers have purchased FortiSASE, highlighting our continued expansion of FortiSASE in our customer base. As a reminder, the typical customer journey begins with the purchase of our FortiGate firewall. From there, customers often expand to our integrated…

Thank you, Christiane. [Operator Instructions] Operator, please open the line for questions. .

[Operator Instructions] Our first question will come from Shaul Eyal from TD Cowen.

Congrats on the improved outlook for the year. Ken, Christiane, one of the questions we are constantly receiving from investors is whether sales of FortiSASE potentially cannibalize the core appliance business but it would appear we are currently seeing tailwinds across both these segments. Can you help us maybe reconcile these views?

Yes, I think probably, we do see customer expanding beyond the traditional firewall and -- but also traditional firewall is still the important control point for all this traffic, especially within the enterprise, within the data center. On the other side, some supporting whether work from home or traveling or some other branch office, that's also kind of a certain SASE and especially certain like OT/ IoT use case, we see a way beyond the traditional network security there. So we don't see SASE replacing the firewall. We just see is keeping enhancing. That's what we call the SASE firewall. It's really the firewall itself need to keep adding new function like from 25 years ago, when we started Fortinet, the new generation of firewall add like application control, like intrusion prevention, like antivirus in the traditional for VPN. Now the traditional firewall also need additional like a SASE function together with some other edge device like FortiAP, FortiSwitch and also endpoint device and also the cloud deployment. So that's from the whole protection infrastructure, which is really give much better security for the enterprise user. .

Let me add to what Ken just said. In our win-loss analysis, we see very little reason codes for customers moving to the cloud and not continuing to buy. So I think it's an expansion. It's not a replacement sale.

And to your point, we see both markets growing. And then if you look at the market share, they're very fragmented markets on the firewall side. And so we can grow both by the market growing on the firewall side and expanding our market share by taking business from other competitors.

Understood. And Christiane, thank you so much for the color about where we stand in a refresh cycle. Maybe a little bit of a long-term view of kind of already touching on the fiscal '27 cohort of products that will be refreshed. Are there any specificities associated with those family of products as we think about the 2027, which is coming to a renewal or a refresh?

Yes. I think I've shared that in previous meetings potentially, that 2027 cohort is the low end of the low end. So it's not -- unit-wise, it's significant. Product revenue wise, it's not as significant but that's why we included the message in my remarks, it's significant because we can talk to a lot of customers about where the security is going, right? And so that's where it provides a lot of upsell potential for us.

Our next question comes from Brian Essex with JPMorgan.

Maybe Christiane, I was wondering if you could tell us what are some of the maybe untapped the services guidance a little bit. It's great to see the upside in the quarter, particularly with regard to product billings and services strength this quarter. But how should we, I guess, -- what can we take away from the services guide? And what's embedded in the guidance for the year given the strength that you're seeing this quarter?

So it -- the services billings to revenue conversion takes a little bit longer, right? And that's what we are seeing based on the remaining waterfall. We are pleased with our current RPO growth. But for the rest of the year, we decided to be prudent, take the midpoint down but we believe that we are not -- we are confident that the product revenue is going to be stronger for the rest of the year based on the pipeline.

Yes. Also probably last quarter, it's the first time in the last few years, the product revenue growth starting faster now. it's more like 4 years ago, like 2021, not in the product revenue growth we very fast, and then that gave us kind of benefit in the last few years, the service revenue still maintain a pretty healthy level, even the product revenue going down in the last 1 to 2 years. Now we see the product revenue sitting accelerating which will be the leading indicator for the future service revenue which we also view since starting turnaround, especially in both the product revenue and also the service revenue starting kind of instead of keeping dropping gradually probably will be starting picing up.

And do you have the split FortiGuard, FortiCare? And is this a component of, like if you have a refresh? Obviously, is it that customers aren't completely replacing their subscription revenue? They're just extending their subscription revenue with maybe less upside to that revenue line item? I mean so you have -- with a new box with the same attached revenue.

Correct. So that's part of it. I think there's part of it that the devices that they're using to replace, they may use a higher box, but they can consolidate 1 to 2 boxes, right? So it's different components that, that factor into the service revenue attached to the boxes, and this is where it's so critical for us to upsell not only SASE, but all our other revenue streams that benefit the customer. And based on the customer journeys, you can see -- the customer journeys work, right? The upsell is working. It's just not necessarily at the same point in time when they buy a firewall.

Next question comes from Tal Liani with Bank of America.

Now I have unmuted myself, can you hear me?

Yes, that's great.

Okay. Sorry. The SASE, the profile of SASE customers, what is it? Meaning, are these displacements of existing vendors, let's say, a customer has Zscaler or Palo Alto and you're displacing them? Are these -- do they purchase at the end of contract that they had before with someone else? Or are these completely greenfield. They didn't have anything before. Now they're having. I'm just trying to understand where you have success with your SASE. What is kind of the profile of the deployment, the types of deployments you're seeing?

Both. From our current customer base, a lot of them, they do see the new operation system gave them a SASE capability, both the software and hardware. So that's where they start to enable the SASE. You can see the Slide 4 in the presentation, that's how we did in the SD-WAN a few years ago. Now the SASE become a fast-growing part of the business there, especially come from the current installation base. But we also see quite a few very successful case replacing competitor because we also -- because we offer all these kind of integrated SASE solution, and some of our partners, especially service providers also like this kind of a single OS solution. So starting to call SASE firewall basically, just like how next-gen firewall starting replacing the traditional firewall. The SASE firewall was starting to replace in not just next-gen firewall, but also on the SASE. Because a lot of customers they view SASE, just like a few years ago, like sandbox like 20 years ago intrusion prevention starting from separate solutions, now they want to have integrated solutions with whatever the network security infrastructure technology they have. So once the integrated solution in place, the single solution starting kind of lost their edge and also starting kind of huge disadvantage for actual management cost for all the actual costs basically. So that's we see a lot of customers love the -- love all this SASE firewall solution without the integrated solution together. So that we see both the current customer base and a lot of other customers from competitors to quickly adopt this new solution, and this is the fast-growing part of our business right now.

You said in the past that 95% of the customers are existing firewall customers, is still the case?

Pretty much, yes.

Yes, over 90% come from the current customer base, but we do see some other customer, which using our competitors' solution also changing to our solution now.

Got it. If I can squeeze in one more. If not, we can move on. But I want to ask about the margins. You said in the past that you want to invest. What is the margin outlook? And where is the balance between investments and margin upside?

Yes, we like to play the long-term game. Same just like the SASE, as we did in the firewall market, which we are the only 1 building ASIC chip. So for SASE, we also invest in the infrastructure, which has a much better cost advantage also more secure compared to leverage some other third party. So that's where we do believe if a long-term SASE kind of -- if our own infrastructure, like 70% of traffic, then 30% in certain locations still using third party. That will be the best cost model, even in the first few years, many more investment. But long term, both customers or partners ourselves will benefit, so that's where we do believe we have a very healthy margin. And this model, long-term game will also benefit both ourselves and our customers, both short term and long term.

Our next question comes from Gabriela Borges with Goldman Sachs.

Ken and Christiane, I wanted to follow up on your prepared remarks that we are 40% to 50% through the 2026 refresh cohort. What I wanted to understand is how to think about your growth rate through cycles? Because if I can pay a billings growth what you're guiding to this year, it's about similar to what you guided to and what you achieved in 2023? The 2025 is a really big or larger than normal refresh cohort. So I want to better understand why are we not seeing more upside in the numbers this year from the refresh cohort? And the comment earlier on potentially consolidating down boxes. Is it possible that perhaps customers have excess capacity in their networks from a 2021 COVID-type elevated throughput environment? Would love to hear your thoughts.

Gabriela, good points. I think we need to look at it by FortiGate model. And the large firewalls that are end of support. We have a really good reporting and handle on because we know where they are. These are always with enterprise customers, right? We have a good handle on the lower end of the firewalls where it's with enterprise customers in retail or other scenarios, OT scenarios, where it's harder for us to predict. And we can only track registration rates and similar is in the lower end. And there could be some excess capacity from prior years that has been replaced or -- that is replacing some of the EOS models. We are comfortable with our guidance. But yes, the expectations by the Street might have been a little bit higher, but we said we are outperforming the market, and it was baked in, right? So we've been consistent in our messaging here.

Yes. Also the -- the refresh upgrade of the product go out next year, is the product really been like 12 to 15 years after we introduced the product. It's not a product like 4, 5 years ago when the supply chain issue happened. But if you compare to like a 10, 12, 15 years ago, the business size probably like current side is probably 5x, maybe even 10x larger. So that's where the upgrade refresh, we do see is very different than the supply chain issue a few years ago. It's a much older product. We really -- after we introduced a new product, they -- usually average selling maybe like 7, 8 years. And then after we stop selling we still supporting 5 additional year for the service. After 5 additional year stop shipping, but we do support service, then the customer reach to the end of service. So that's early probably average maybe like 12 to 15 years after the product being introduced. So that's the sense we kind of try to help customers to upgrade. And so like I said, even we have a large number of products, but that's usually the size of business we have like 12, 15 years ago.

I would also say we have additional incremental TAM to address going forward with SASE and SecOps where those are becoming meaningful parts of our business. So if you look at historical results, they were more focused on the firewall but those are becoming real growth drivers for us.

Christiane, maybe as a follow-up. The commentary last quarter on hesitancy in the sales force and in some of the sales force conversations. I think today, you said macro didn't have an impact on the business. So maybe just reconcile those 2 data points. Are you still seeing hesitancy, is the hesitancy gone?

I would say that we've seen that we are resilient despite macroeconomic uncertainty. And -- the pipeline for the rest of the year and the sales confidence is good. So that's where we are confident to raise our billings guidance.

Our next question comes from Rob Owens with Piper Sandler.

Love for you to expand a little bit on the OT opportunity because I don't think I recall anything from your prepared remarks. Just in terms of what you're seeing there, both either increased competition? Or is this opportunity also playing into the refresh cycle?

Yes, that's in my comment there. The OT growing over 20%, continue to be one of the fast-growing area for us. And also, we are the only leader in the Westland and the OT/IoT security report. So that's where we see huge potential and OT need to have a special product, even special software to handle. We invest in this year for like more than 10 years. We don't see much other competitor invest as we are so early, so broadly in the OT security. So we do see -- we do believe this is a strong growing area going forward.

And when you break down that over 20%, is that consistent internationally with domestically? Can you give you a view across the various theaters?

I think it's pretty consistent.

Yes. We are strong in OT across the board. EMEA has always been leading in OT for us. And that's where you also -- I mean, it's aligned with the strong revenue growth that we see in EMEA as well, right? So -- you also, I think, asked whether it plays into the upgrade cycle. It does. We have a number of Rocket devices that are part of the 2026 cohort benefiting from that. But we just see expansion and also the thought leadership that we've always had in OT and bringing this to the forefront of our customer as an important security area, I think, has helped us a lot.

Our next question comes from Junaid Siddiqui from Truist.

Just had a question. Ken, your SASE business continues to show a lot of momentum. Could you just talk about how your sovereign SASE solution is tracking? And how that's different from some of -- from what your competitors are doing in that space? And how important of a differentiator you think that is in furthering your competitive moat in SASE?

Yes, that's a great question. Thanks a lot. That's also kind of -- my thinking in early days. I do believe a SASE long term, the service provider carrier will play a more important role, just like how they did like 15, 20 years ago in the network security but somehow, they're moving kind of slow in the last few years. That's the reason we started to launch our own SASE almost 2 years ago. But we do working with a lot of carrier service provider. They do starting launch their own kind of SASE service now. Leverage both their infrastructure, their close relations with local customer there. So we do believe that will be the long-term trend because a lot of customer if not the most, they do concern who will be process their data where the data being secured processed. So that's where leverage the local service provider kind of Sovereign SASE solution, that's all the service provided special telecom service provider, they love a lot. Even they're a little bit slow on adopting all this SASE solution there, but I do see the very strong supporting the Sovereign SASE. That's one of the key advantage we have because we can have all the SASE function in same OS, which they can deploy locally, whether in their own infrastructure, sometimes also in the customer premise there. So that's a huge advantage than some other SASE players. So we do see that momentum starting to accelerating now. That's including the telecom area starting to kind of also go back to grow probably above average now. So that's a strong area. I do believe probably in the next few years in the SASE market, the Sovereign SASE probably can be taken almost half the market share compared to this global cloud-based SASE. So that's I still believe, long term, that's the long-term direction. Even short term, there are some kind of change in back and forth, but long-term Sovereign SASE will be the long-term solution.

Our next question comes from Patrick Colville with Scotiabank.

Terrific. I guess, Ken and Christiane, I just want to circle back to the firewall upgrade comments. I mean very helpful disclosure that we're 40% to 50% through the 2026 upgrade cycle and that the 2027 end of life cycle is kind of lower throughput devices. I guess the question we're getting from investors in our inbox over the last half an hour is what should we be excited about beyond this upgrade cycle? What is going to continue momentum when these tailwinds, which are clearly benefiting numbers now and you guys are executing very well in a tough environment? But if we look beyond 2026 upgrade and '27 upgrade, what can continue this kind of rocket share momentum.

Yes, I believe the excitement will be the new SASE firewall. So it's very different than the traditional next-gen firewall. So the customers do need a new function and also address the new infrastructure security need. So that's the huge opportunity and not just additional product but also additional servers on top of that, give them kind of a securelywhole infrastructure. So that's we're starting to train the sales force, train the partner and also customer for this new SASE firewall solution which is where they gave them better security and also kind of much better total cost of ownership also.

And let me add to that. I think when we talk about the refresh cycle, we are only talking about the force refresh due to end of support. But as Gabriela pointed out, there's the COVID cycle as well that it's not end of support yet but is going to be 5, 6, 7 years out in a year or 2. So that with security and with the additional functionalities that are part of the firewall and also the additional network requirements that you have with running ChatGPT, AI, you name it. We believe there is -- there are going to be enough tailwinds for us to continue to grow.

Yes. I think to Ken's point, cloud services, that's growing really, really fast, and we view that as largely an incremental additional total addressable market for us. And like Ken said, it's what we have in SASE right now, and you can layer on additional cloud services over time. So that should be high growth. And we really like our model of the common operating system between firewall, SASE, SD- WAN. And we think that firewall market will continue to grow naturally as well, and we'll take market share there, too. We've got all these other additional growth drivers in terms of SASE and SecOps, which are new TAM and really becoming meaningful to our business and our high growth.

Yes. Again, a few we're probably a little bit over discussed about this refresh upgrade because this device has been there like 12 to 15 years ago. And that time, our size is probably 1/5 or 1/10 of our current size. Even all this product being in refresh or upgrade within like 1 or 2 years still not much business impact. So that's a few -- the more important is really we leveraged the opportunity to introduce customer with a new FortiOS, new hardware, upsell cross-sell. So to measure the percentage of some old device been there like 12, 15 years ago, probably much less important than helping customers to upgrade to the new security infrastructure. And also the business impact for the old device is also a much smaller percentage than the total business we have today.

Okay. Okay. Very helpful. And I guess, I mean, Ken, you've been a thought leader in security for many, many years. When we think about agentic AI security, I guess how are you thinking about that domain and Fortinet's position as a vendor that can help in agentic AI security?

Yes, I do believe like keep being saying this for probably 10 years, whether the agentic AI or the device security starting to get more and more important than some people -- human security, which people access. Right now, the device, even the agent probably already like a 10x more than the people access all these information, Internet, all the data there. So that's where we invest in this area for more than 10 years and has multiple angle to address the AI security, including agentic AI, including all these OT/IoT device security. So that's where we feel will be huge market potential but also kind of need to address this instead of like bolt-on some of the old need to be integrated together. So example, whether agentic AI you want to check the identity or you want to check the access control, they need to be part of the infrastructure just like a part of the firewall, part of end point, part of the edge device instead of a separate solution. So once this solution be integrated together, customers have a better management and also better secure infrastructure to address all these agentic AIs, or smarter ITO -- IT/IoT device security there. So that's where the integrated solution address the whole infrastructure will be much better than like a separate solution which bolt-on some of the current solutions. So we do believe this long- term integrated solution will be the key to address this agentic AI the same as like IT/IoT solution security there.

Our next question comes from Saket Kalia with Barclays.

Okay. Great. Christiane, maybe for you, 40% to 50% through the upgrade cycle, can you just talk about sort of what that cadence is going to look like this year? I mean I think that intra-quarter, we were talking about sort of a 20% type of number maybe the real question is, where do we end '25 in terms of the percentage of that -- of the cohort that we're through?

Good question. We've -- if you look at our updated guidance, you see that we believe there is strength in product for the rest of the year. Where we exactly end is hard to say because -- of course, it's not only upgrade refresh product that we are planning to sell. So -- but I think we will get through those cycles faster than we expect.

Got it. Got it. That makes sense. Maybe the follow-up is, I think you're hearing the question just about sort of what's the growth going to look like here after the upgrade cycle? And of course, it's FortiSASE, it's SecOps. I'm trying to think if we've talked about this before, but have you -- can we touch on sort of what percentage of the services revenue kind of comes from those 2 businesses versus attached subscription because just to the earlier point, that's really that mix shift that has to happen. So any color that you could sort of give on and where we are in that kind of mix shift within services?

Mix shift between FortiCare and security subscriptions?

Yes. Well, maybe more specifically, attached sort of subscriptions and maintenance versus FortiSASE and SecOps. So maybe firewall versus non-firewall in more late terms?

The nonattached subscriptions are growing faster, for sure.

Got it.

Yes. Also on the attached part, the service is also starting to have a more high percentage because we offer more service whether the SD-WAN, SASE definitely there's more service, more function behind. So that's also starting at a higher percentage compared with the hardware. So that's both sides. There's some additional service like we launched the 3 FortiCloud service, FortiIdentity, FortiDrive, FortiConnect, that's a new service on attached but there's also attached service which has a more higher ratio percentage compared with the hardware side of it.

Our next question comes from Shrenik Kothari with Baird.

Can you guys hear me? All right. So just a quick question on the go to market. You guys have been pushing towards platform adoption and multiproduct. Can you talk a little bit about how the channel incentives are moving towards kind of achieving your internal targets? I mean, in terms of the rewarding models that are favoring platform cross-sell or pure volume. Can you just give us an update on what's been most effective in driving that? Where are the areas where you're still working on? Yes, I would really appreciate that.

Yes, traditionally, we are a more channel-focused company. Now in the last few years, we're more starting to invest in like direct marketing, direct sales, especially all these big enterprise. So you can see the -- whether the bigger deal and big enterprise sales grow very strong, like 40%, 50% -- that's all come from all this direct touch approach and also integrate solutions, selling platform like multiple products instead of single product. That's also needed to train the sales, need to train a partner, how to sell this multiple solutions -- multiple products together into an integrated solution there, including whether the SASE, SD-WAN, including the SecureOP. So that's also kind of leading to the AI part of story, which we believe is a fast-growing part of our business there, even we only introduced for a few years but that's AI kind of based SecureOP and also like a security AI infrastructure to the -- FortiAI-Assist, FortiAI-Protect as well customers see the benefit of this AI-driven operation so -- operation center there. So that's where we see is kind of an integrated solution with all this AI-enabled kind of SecureOP, that's become a fast-growing part of our business right now.

And to answer your question on the channel incentives, they are exactly aligned around multiproduct. So we make sure that the channel introduces new products and for that, they get higher back-end rebates.

Our next question comes from Eric Heath with KeyBanc.

Can you hear me?

Yes, all good.

Great. Just come back to the comments on the refresh cycle one more time and sorry for belaboring this point. But if I'm understanding this correctly, you've done well in excess of $100 million in refresh activity in the past 2 or 3 quarters, which would suggest product revenue, excluding this refresh benefit has been flat to negative in the last couple of quarters. So can you just help me understand why the underlying firewall demand isn't stronger?

I would not say it would be negative, it's continue to refresh, but because it's such a small percentage of the overall business, that's the reason we gave additional like billing guidance for the rest of the year on top of what we already overachieve in Q1 and Q2. So that's just keeping -- we believe, whether the market and also our solution is much better. We're not too much counting on the refresh. It's a very small percentage. We're just using our view to calculate whether internally or incentive the channel to helping customers to upgrade and especially for the new SASE firewall. So that's where we kind of -- we do give a much more number measurement, sometimes could be confusing, but I do believe it's the way we try to helping the customer partner to upgrade the new SASE firewall instead of have too big business impact because, like I said, the end of service, that's the product been there 12, 15 years ago. It's a pretty small percentage of our total business.

Our last question comes from Andrew Nowinski with Wells Fargo.

I'm wondering -- still a little bit unclear on why services revenue growth is decelerating so much. Looking back over the last, call it, 4 quarters? And then also going forward. And I'm wondering if you could just provide any color around what's really driving that deceleration? And then related to that, why is your unified SASE -- it has so much momentum right now. Why would that be flat sequentially in Q2? Because it looked like it was about $1.15 billion in Q2 and the same thing that you had in your slide deck in Q1. So just wondering if you could comment on -- I know on a year-over-year basis, it was up, but i don't know, sequentially, why would it be flat? .

Go ahead, Christiane.

To answer your second question first, sequentially, it's flat because there are a number of products, some of them have not been growing or turning a little bit while Unified SASE -- while SSE has been growing nicely and is offsetting that. So that's part of this. On the service revenue growth, the -- I think that what you're seeing is that we had significant deferred revenues that were sold during the COVID period, and they have come. So we've recognized service revenue over the last couple of years, benefiting from that growth. And now the product revenue and the service revenue are aligning more with our billings growth. And so we need to grow faster, and we are planning to grow faster to drive that both revenue streams up.

Yes, the service revenue -- service line, if you look at like 3, 4 years ago, the product revenue grew like 30% 40%, some quarter, maybe even close to 50%, that drive the service revenue because service term unit average may be like 30 months -- 29, 30 months. So that's need to be recognized during that like 2.5-, 3-year period. On the other side, keeping refer back to the presentation #4 -- Slide #4, which is really the SSE part of SASE growing very, very strong because Unified SASE including SD-WAN. Because SD-WAN, we already have a pretty good penetration reading enterprise. That's where customers were starting to adopt beyond SD-WAN starting quickly adopt SASE now. So that's where the growth is still very strong. So we do believe -- so we are the #1 firewall, #1 SD-WAN we do believe we are the #1 SASE within the next few years because -- we believe we have a huge advantage on SASE in a single OS and also can very easily for the current customer base to upgrade to the SASE, which not other SASE player has a huge customer base. And also our own infrastructure give us cost advantage. So how this 3 advantage of SASE in not our competitors had, that we do believe we'll be the #1 SASE player in the next few years.

So I'd say we focus on the value to the customer, and we've got 800,000 customers and that path to value from firewall to SD-WAN to SASE with the integrated single operating system approach, is really pretty straightforward. And so we see a huge opportunity both there and with new sales of SASE, and that will be a real growth driver for us.

This concludes our Q&A session. I will now hand it back to Aaron Ovadia for closing remarks.

Thank you. I'd like to thank everyone for joining today's call. We will be attending investor conferences hosted by Deutsche Bank, Citi and Goldman Sachs during the third quarter. The fireside chat webcast link will be posted on the Events and Presentations section of our Investor Relations website. If you have any follow-up questions, please feel free to contact me. Have a great rest of your day.