Fortinet (FTNT) 7 Feb 232022 Q4 Earnings call transcript

Thank you for standing by, and welcome to the Fortinet Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded.

I will now turn the conference to your host, Mr. President and Vice Relations. Senior Salkowski, of Investor Finance Peter Please go ahead.

I'm Good Valerie. and is Fortinet. results everyone for afternoon, quarter Fortinet's Peter and XXXX. to you, our Investor to call to Salkowski, at the Finance This financial of everyone. Thank discuss welcome President Senior Relations fourth full-year pleased of Vice

available Officer. the providing our and quarter the Chairman and for Ken that business. We'll operating Keith Jensen, and Speakers a call on CEO; Keith call on of webcast fourth are today's questions. then via our the by full-year. will live financial open for for Chief replay our Ken and full-year review before This first Financial our and high-level will website. results XXXX a on quarter XXXX Xie, be call Fortinet's Founder, Relations will is our Investor call perspective for the of today then guidance providing begin

and like that risks and update Before and statements, actual statements our projected. obligation in undertake most to any subject factors presentation, risk begin, forward-looking Please be the from on are particular, materially no and in which for disclaim recent Form Form filings, obligation statements. these specifically to more refer reflect remind opinions we our could forward-looking differ will date only we this the of XX-K our I'd XX-Q SEC and results statements All information. uncertainties, cause making we forward-looking those as of call, forward-looking today's to to to everyone

otherwise. call on are metrics financial to that all Also, make we today's non-GAAP stated unless references

immediately website. today's be following quarterly reconciliations release website that in and Investor the for will in of earnings Relations which earnings on Ken GAAP the accompany Relations and posted of located and Keith's Our on remarks are today's call section both posted prepared our Investor GAAP earnings are non-GAAP the the presentation call. results to remarks, press the

references otherwise. growth year-over-year on unless are to all a basis noted Lastly,

I will now turn the Xie. call to Ken over

for our you call thank and and review today's joining fourth to to Peter, full-year Thanks, everyone quarter XXXX results. outstanding

XX%. full-year, accelerated the revenue For growth to

to single integrate to continue along ownership gain approach increasingly share security the a solutions. total Fortinet return and recognizing competing customers and service security how platform cost on We delivers industry greater market a investment than in of with

$X.X making Product revenue leading strong, company revenue with of the industry very Fortinet cybersecurity of growth product was billion. XX% in total product a revenue

share growing accounted our over Our #X achieve SD-WAN market market bookings. firewall years. of and Secure over SD-WAN OT total and and bookings of OT in XX% to is for next together network keep And goal couple the security

the with XXx greater such than long-term computing and SASE, for like investments Firewall SD-Branch new For much of support has Fortinet FortiSPX. and the SoC and acceleration strategies processor, base to chip better convergence major CPUs XXx Yesterday, security and purpose the we power similar XX applications as of of ASIC to announced price our and has years, XG made rating model to general competitor Forti efficiency. for Trust, networking This our around the using fifth-generation New doubles performance FortiSecurity secure network security. the ASIC our functions average

investment and Fortinet of competitors for providing Fortinet hold the scale XX%, an firewall IDC to making entry significant unit difficult recent it and to shipped position economy own their technology is develop due as of on market to well barrier According position most shipment #X us data plants, that share required. high the with ASIC unit attractive

for security ownership better functions our and a total our lower consumption, Fortinet the of lower easier resulting competitors is integrate computing much huge a for much and than in advanced operations with power cost OS to advantages energy security much are customers. performance able applications while more offering

of recent a on with report months. investment Fortinet payback highlighted Forrester three over XXX% period a solutions eight years customers a return that example, SD-WAN For only Secure achieved deploying

Fortinet's and Product substantial product enable integrated installed base for of services, upsell, additional with Fabric Solutions. the automated and offer reach us functions to secure

services several announced while efficient operations help SoC issues. recently handling cyber-risk new that We and team their advanced and more reduce cybersecurity being

$XX and and believe networking our continue consolidate, building As security we well target achieve to XXXX positioned converge are we to of billion.

hard over and work. Before would I their suppliers employees, support partners turning Keith? the our Keith, customers, to continued worldwide thank like for to call and

good Thank everyone. afternoon, and you, Ken,

our our efforts as are look of we strategy of back system. success strong driving XXXX, to combined technology as at our in see the operating we with our financial integrated As consolidation the well lead ASIC power and these convergence Combined, results.

to explosion an the connected compute. data that cloud, devices been edge and of be must center There's

a security the and need As security with to has connectivity seamlessly the infrastructure company's expanded the no Firewalls work to must converged infrastructure. via entire top overlay center. networking distributed networking in data secure applications it is to of a longer be deployed firewalls, result, as solution. support across on feasible They

Fortinet the with firewalls, as convergence wide security, delivered software, and cloud hardware, SD-WAN, and in including a technologies, XG Secure operating of all network service. a system as is OT leading embedded trend range our single

developed announced at allows nanometer as content proprietary new which convergence solutions to Ken networking ASIC, technology line as capabilities. our an processor network Yesterday, every existing processor technology new both application-specific we combines next-generation why mentioned, of the technology CPU-based Traditional security with very and networking are FortiSPX, The and or edge. ASIC security. solution. NPX inefficient FortiSecurity supporting That's seven build speed Fortinet

in consolidation, I'll start success for ease this Our XXXX and products management strategy enhanced of is on and results, operating our integrated there. lower convergence, The customer evident full-year costs. of platform suite of demands is vendor delivering

$X.X billion growing Billings and $X mark, totaling the billion passed XX%.

XX% billion, to over to increased fabric strong revenue security $X.X and While or our totaled technology with XX% for growth more. Driven billion enhanced consecutive cloud $X.X platform revenue $X.X revenue of by year fifth accelerating growth billion, demand XX%, and and solutions, the billings of both respectively.

at product in annual revenue environment, came global years. rate highest product a supply XX%, over despite And growth in our XX challenging revenue growth chain

the of firewall consecutive our outpaced at new three use the product the was and XX% cases resulting by accelerating over Our of growth -- growth initial was record new revenue Gross high expectations, and billion, addition growth increasing strong XX.X%. Fortinet our XX,XXX revenue a margin service operating combined driven Service $X.X revenue customers. basis to XX.X% up of continued to was rates. years margin in XXX of points by

our one is operating public the margin of and XX% continued industry, GAAP company. of highest GAAP history as our being Our of we a year the in XX-year every profitable streak of

contract for a Free cash XX% margin flow estate $X.XX cash billion. per free year, repurchased margin at to shares at cost revenue Earnings Quarterly $X.XX flow $X at XX%. billion. and XX cash record including billion. at year deferred with fourth adjusted million throughout billion. for to share Short-term was Free periods, were to $X.X increased the of Total in approximately earlier months. consistent the increased we XX% was real XX a XX% the $X.XX. revenue the the deferred increased And terms quarter came XX% flow year investments,

increased record success highlight deals into the segment on further like results, increased XXX these of million from our enterprise and over deals large XXXX. saw during with over to billings by great to the deals the and success QX our on to as deals strategy number few figure over year $X our enterprise XX%. a summarize I'd to a seven moving We expand XX% Before

the worldwide by at of a consolidating Fortinet deal, purchased If XX large secure look security start on of vendors displaced let's previously deals a we wholesaler the different year, This to SD-WAN our functions with customer's FortiProxy. Fabric. few our and the competitive Security upsell network

and on customer to chose a XXX solution could be selectable Fortinet the locations. integrated across data center from perimeter segmentation. This anywhere, scenarios, a network centralized Next that including Security was Fabric list and global and solution managed deployed work multiple its security for security

manufacturer a remote included spun switching. platform authentication, separately. deal, another protection and and strategy SD-WAN, suite. infrastructures delivery up the and of application our Keys access, included e-mail to Zero off to our In had convergence a upsell stand networking integration capabilities, infrastructure and security SD-WAN was win endpoint, our newly created global Trust ease and control, the cloud-first across The leading

locations This win, of glass large of consoles the Lastly, on customer WiFi to of they replacement, of platform. struggling replacing security in filtering, their the multiple single architecture. anticipated a reported competitors' and legacy over the years. new over with delivering were pane using cost and firewalls ownership our Keys were five URL total savings router U.S. million with a a XXX $XX security, FortiOS our with versus retailer integrated delivering this logo unified included win edge FortiGate's, all and

reflects billion. $X.X platform both Fortinet new of strong results, enhanced revenue XX%. revenue fourth and customer technologies. billings and both of over Both core and billings delivered Turning $X.X demand to solid metrics across QX quarter performance records The billion with increased revenue our

In we partners, logos, the base. our leverage support over of the reflecting and channel new the quarter, fourth worldwide the customer new bring another of Fortinet they X,XXX added our breadth record

security billings. XX% quarter, a for technology look Total product for of accelerating enhanced to revenue Service technology XX% XX% $XXX and total XX% XX% of core quarters which up Product growth XX%, was by fourth closer XX%, in platform over growth by increase the demand driven a revenue consecutive our increased enhanced growth to platforms, revenue of and driven Taking XX% subscriptions. at rates. Short-term of revenue strong grew represents by growth billings a deferred strong million. strength grew was one-third driven respectively. in billings, was accounted and revenue and which million, $XXX eight

supply up was high services related costs. basis basis Service product pressures year-over-year margin to XX.X%, strong due increased the basis points XX.X% Several to XXX of ticked XX.X%, the record to to margin, product gross of and down gross margin in quarterly and easing margin of driven pricing cloud XX.X%. labor points and drive by improved Operating XX our legacy cost a in factors due discounting. actions, point margin FX performance XXX including was margin gross Total gross expansion benefit. cost hosting and converged increase gross chain our

and impacting cash cash flow year-over-year expenditures to a sequentially Slides investments. taxes million, $XXX capital was Free XX real adjusted million, $XX flow, million, free excludes XX% Looking $XX days increased flow was the million, representing growth. were days, $XX $XXX million cash real summaries for which on service flow to Cash XX estate also XX. estate including revenue adjusted and cash XX DSO of free statement were investments margin.

we guidance. can of believe deliver ownership innovations to continued increasingly in a and single and digital Ken are transformation solutions. customers approach journey. security integrated platform competing recognizing as to than noted, Moving a enables is cost building investments on We greater how total our Fortinet platform the made customers' lower And our return

on summarized provided the to XX, XXXX, I'd for forward-looking at information beginning which the is regarding Slide that subject Now review Peter to like our outlook disclaimers of call.

Revenue For the the billion the quarter, which XX%, $X.XXX at at billion, XX% XX% increase billion of growth basis the represents in XX%. margin operating range the $X.XXX gross of non-GAAP we midpoint of represents billion billings range $X.XXX XXX of expect represents the margin midpoint in at Non-GAAP of to midpoint to an of first $X.XXX to of points. XX%. growth XX%; to which which

to non-GAAP taxes note per during earnings $XXX should first XX%, And backlog tax $X.XX million of of cash capital million, expenditures quarter. million. share $XXX $X.XX, slightly quarter which that count guidance Non-GAAP decreases and million $XX of the assumes assumes also of between a $XX million, $XXX rate of share to

in revenue billings expect we of to of the XX%. XX%. $X.XXX at which at of growth. represents revenue which range of service billion which billion, $X.XXX growth of at it Total service growth a growth full-year, of $X.XXX the in the billion, represents XX%, midpoint midpoint billion consecutive in year range of to implies billion the the $X.XXX $X.XXX Revenue midpoint fourth to represents the accelerating the range $X.XXX For billion

$XXX guidance million of $X.XX, per The to assumes to of $XXX service of which and between of growth also Capital gross operating XX%, of earnings $X.XX million count product due non-GAAP share revenue XX% million to to share $XXX a XX%. $XXX year. the XX%, data expenditures of first estimate million. margin non-GAAP margin to implies clouds, assumes reflects revenue Non-GAAP XX%, $XXX historical effective XX% levels the increase of end in investments approaches of full-year the taxes and second The million, in capitalization amortization facilities. R&D cash and taxes evenly half between recently the by Non-GAAP backlog requirements. split year. centers cash rate and tax of somewhat of The continued

gains are will flow margin safe history targets, and confident $X high billion, but slowdowns our share with that strong a the of operating adjusted achieve billion, of track to we immune least Cybersecurity, financial to XX% to not market continue. of is XXXX. economic in billings expected revenue free remain business harbor. non-GAAP XXXX cash comparatively in range execution, And our on of model We a which at include and to XX%, $XX mid margin remain

begin with that, Peter hand call to now session. the I'll And Q&A over to the back

the Thank you. you, for open call, [Operator call please. Keith. up Operator, Open Instructions]. please Thank the questions.

Thank Brian Essex comes you. from [Operator Our question JPMorgan. Instructions] first of

Your line open. is

Good perspective, on to peers enterprises in from taking market conservative or last what in they pan some and question. the Thank quarter the out scrutiny What we spending. elongating you're you understand demand, your cautious side? guess, relative are from we're and are solid were congrats for to and changes for macro how guess with to one afternoon thank any sales hearing does you. a and be. Maybe us seeing that cycles. guide. on you I initial on you about your We're could budget Great. seeing of regard you cycles markedly seeing Ken expectations solid macro sales the and help how night I And the given results seem more And Keith, heard than a ongoing.

customer other solution also of OT ownership solution SD-WAN cost a cost better pretty which this some partners. broader this before, tight, at Fortinet I total and we a And the saving for some kind the some even much, time, network security, firewall OT same took see secure much may of a of of some do only use I'd cost to for the question feedback budget area, -- solution. especially security from say, Their like is has expanding Secure case be than area. but

strong. So where see that's is still we the demand pretty

this probably And well in market. gaining so -- market keeping we're share we fragmented more

also we in call macro environment [indiscernible]. even all spot is we pipeline we growth a in of we I and of add, versus year-ago, Ken. may terms some in pipeline the growth and compare up numbers, look think it's even and when it's But the think this cases, that. internal The ROI we studies would and and I that the what with are that on provided the look, Yes. today Thanks, I provide to use that. I sensitive we're from what the examples rates. is overhang our at that offer environment, growth mean whether the there percentage savings that case of if

see I think we're even continued gains market continuing environment. to this benefit from that, and opportunities in we that do share for

it. for Got follow-up Keith. quick then, just Maybe a

the there. XXXX on As in you out? stronger billings. 'XX seeing confidence mean, I in that I'm going as question hitting you tomorrow to you're at to know your from market change of much the guide, targets level strength any think kind of kind particularly is your with think of performance, in I about you of expected. look regard then that the And the some here how get I fiscal conservatism conservatism gives level had in What than, to

Yes.

of think take, the but the environment. and prior timing that is pipeline of middle deals around half consistent making I the we with up this we if what's or the even to the that pipeline teed start with macro and in we it have year. may the added sure done and perhaps of to with and time with the pipeline of there the the conservatism and growth approach what for kind that you at year looking the will, second reflect in are certainly we've foremost, happening first And years, what happen the that

there. So opportunity there's ample

productivity I you've sense that got I sense. make going capacity sales sales numbers down. You burn that benefit commented that will which be numbers comment from that the to backlog, there want it some make we're Yes, and get to think tailwind the that also in make sure some from continues as to on

seen tailwind it's think some have and that this the mind we're in a really it's Again, added around in us and cost pipeline, environment. in keep advantages we there rates, so ownership the that amount total cancellation of offering cancellation conservatism it that the about take significant I have and But think we we've changes I of rates.

Okay, you helpful. that's super much. Thank very

moment you. Thank please. One

line Citi. question comes the Boolani next Fatima from of Our of

is open. Your line

segment Hey, of just this their course delaying over my for And year. input Thank And Keith, good embed you, afternoon. of with for I difference taking of questions. at of 'XX. revenue we cadence you customers registrations to the your because revenue That's for not running I'm the the the you've that curious subscription have sort services dynamic respect you? some been a at XX%. material guidance ask from what

also having the you've last then XX your dynamic the have realized expected XX not months. lot the And to of we that customers of increases in pricing a

So those better -- please. as growth. conservative services you with what of quick then follow-up, about And things we why I'm being a sort there? curious you're to And that positive inputs, wouldn't see

Yes.

goes line of I for caution a year think of this back macro XX% of top I that right the I a what that's guidance. And at that room don't much point of the it the terms of and think for where with much pretty for that At And think kind be in this services forecasting. the know environment, us conservatism I in place versus a to number, -- Brian's get from that's is I'm the a great to ago consensus guide. on full-year. street that's level I question what historically, of full-year I in good often complained the I've in think moment the --

compression profitability are that to it But certainly maybe anything see mindful follow-through operating and year, profitability? on a performance be margin you. operating into there items it onetime me. And just on to are not peeling commentary basis. that's relates out for because of perhaps why as next in better any seeing And quarterly Thank Understood. we

of is much what I suggesting inferring think to really, when historically you in for at big assumptions rest look this think think XXXX, always about from of FX the had what expected Yes, economic a with if nice at the what and think it's reports in lot time number. end of what the benefit the XXXX. point XXXX. may you XX% guidance I a about talked from dollar FX, terms do. Yes. pretty is year. And or compared forth the out I the pulled we banks XXXX our of But and so sync we by in And are the We consistent to I like and you read this be we in our is all are we've benefit really where margin that people, -- will,

not to really you're year-over-year so see that And going the in comparison.

you. One please. Thank moment

Barclays. of comes line question next Kalia of Our from the Saket

Your open. line is

great. bigger SD-WAN guys, for questions question for here. business too Okay, rates. of part and a Keith. higher a thanks both Hey my the and maybe for are Maybe OT with and Ken growth becoming taking first that Clearly,

folks think that's want well. question been $XX of you the the separately business part total about about curious the that billion together, how growth for the SD-WAN but maybe really two as so is, couple the doing think and or equation And so growth about or in next part goal, of however OT it, to or do of you businesses the of growth part either rate years, over runway those

two there parts. think is I

solution side, believe agree totally the to huge has other growing you other SD-WAN with said that than network I market the and And on the compared our First, average. OT do advantage competitors. we security faster

is leverage SD-WAN, to both integrated and market for ASIC So growth company and compared our power. home the OT pretty and fragmented still solution

huge mostly lower speed, the cost the much from So other time, have and acquisition. they to consumption. don't competitors, to compared quite the help ASIC come at same And some advantage increase the power

be it's a market feel there we're market research a the the cybersecurity is potential rate. market, agree of compared will the lot about forward. going above so why market a how above that's to we different I There's So space keeping and growing growth growing. do fast-growing But the

you're maybe specifically just Keith, we're given curious like just duration helpful. just thinking Very here follow-up the how billings been for whether you. duration in? Actually, stay anecdotally that's just to or about if great roughly customers that interest 'XX? quick talk the it. around billings Got a feel on it. something I'm have you that in you Got similar. rate see pushed And could environment

months payment Yes. the I really we've with had discounting certainly of than is they don't were even we focused -- think XX more extended the think term. keeping think will, we've where been I been customers that thing. conversations seen customers if which on months, But in cash push were historically. of perhaps flow, and that do of quarter, fourth terms kind that on Obviously, in XX I on you terms sort at

the it if were that, a I look do what of about partner I were come But hearing or might back five-year I'm to with I obviously, -- cash numbers our customers, like in So trying felt didn't given was deals to all lot pressure. more business the something I and at the if that, of assume our footprint, mix from really. protection. SMB through And have

to Yes, guys. Thanks absolutely. Great see.

moment Thank please. you. One

Fodderwala the Morgan Stanley. of Our next line from question Hamza of comes

is line open. Your

taking you for the cancellation I evening. clarify questions. to Good wanted Keith, rates. about Thank Hi, you guys. my said something

some it's that I bit? I Can think you there. few seeing X%, little the you're X%. you been on think a elaborate around mentioned like that quarters, maybe changes past

any could that provide color you more if on comment? Just

fourth the network Yes. significant and equipment, firewalls. anticipated QX, particularly call backlog, switches pickup it access high-single-digits we in in of really -- now it firewalls the still but as the it we want the amount fourth And we've tilted mid-single We in to in saw up the a has quarter tick starts points. its did see as if There's shift the backlog to mix the a this, to quarter. digits to towards

see may fairly in cancellations. as convert And to -- beginning comment there'll the year that backlog some the what in exists that, mix that cancellation expect, impact also be you offer on the well approach so conservative would pick-up the we rates, expecting the we've in as of I the would the as part as I setting all shift way, in we process, guidance of or another last they as think the they the XXXX said a taken at how we're cancellation not on think XXXX rates because backlog to one

And just for a it. Got maybe follow-up Ken.

$X you curious think SD-WAN is come I nearly What it, to ago. refresh. for points. a whether I started that? quite you I'm is about business for which because do up just that for now how curious remarkable I'm base increasing are billion as be it other selling you're more starts Fortinet think, services thinking drivers the of monetization maybe or price see four SD-WAN, years attaching perhaps more

service, enterprise overlay or see things. of some At more the working these our traditional from whether security SD-WAN. from We lot of with case function additional time, more under their has the also the for of we -- that's offer because us, starting anywhere a all Definitely core whether and the provider of kind additional work SD-WAN the cost service helping service SD-WAN lot all together networking service see reduce supporting quite beyond need. do same they deployed -- service a total also

much more drive also that's helping going forward. service So

Thank you.

moment you. please. Thank One

Our question of line comes Brad Zelnick the Bank. of next from Deutsche

Your open. line is

is ASIC impact remind around blow guidance, you nice new job. just results Great, Thanks. out patterns I've and and might terms risk customer in we what demand the question it and/or Can maybe FortiSPX. thank and what expect the follow-up. you a first us you've and if effect? on much of just the any got the congratulations of seen My can extent trade-down past in purchasing drive And perhaps a accelerated very

very, don't leverage of the take is refresh time, tend new of long, be will whether Probably every release more At some a also we security quarter, of like one I down design, of the smooth will and to a or to product. And long significant maybe where want years the tend cycle. it impact new same to transition. quite result the industry. ASIC be the a that's and time, take also one cycle deployment chip and CPU the to two kind network in seven to deploy Because long sales to to time -- product Smarter evaluate, or life say, XX feel the up years. I'd two be products, very

that's ASIC help in advantage to huge So general-purpose using time the CPU. will the generation definitely at where each and a compared same has

it short-term. switching we also where keeping we're also, to thus see that's few cycle, So the I months, consider cycle. of instead But put a share. gaining three and a deployment six sales consider long-term And time market the a taken into long cycle new also costs, which do be in need will to ASIC like months, product, more positive impact

again only Brad, offer for context. Yes, I would

through chip Fortinet of processors really ability what bit difficult smooth It's a have at now if Ken I plays. that time, you to processors shown is has execute chips. think here And chip. in the These little a look those number that back period this XX think of a think systems-on-a-chip. for spike a and is the And years. actually And year it's network probably a of Fortinet, think I much generation. content a we are saw been fashion of -- I and transition new the generations over financials, find the and more think to long-term because approach Michael that I to

you Any be you on of in impacting DSOs I comments and the up Is great. around change for policy Keith, just that, would can Thanks. to a there also expand had that around help and Thanks impact services year-on-year sequentially being your reminder related the activations. subscription recall revenue? services And revenue.

the policies started February change week, believe, Yes, X. I activation last February in

DSO, is -- insights to right? linearity, to my to the that's start start forward. how it's see DSO and increase gives of and call there it, by through you the is we'll see going can referring in math kind I So XX or a if quarter. from, the really what it about in see XX, XX came all That's was go doing linearity that And driven you What days really to. I XX%

starts lose revenue to the sales activate. service that opportunity linearity that would when And gain early normally much, shifting from the we quarter in

deals didn't service way from linearity. we lift have revenue we of expected a So would because get that really in-quarter the in

Thank One please. you. moment

comes Our of the question of line Shaul Eyal from Cowen. next

open. is Your line

the you. Thank great we first the be and revenue, lower-than-expected Keith, guidance. should about service service on the congrats performance And afternoon thinking XQ growth? slightly and good how revenue given quarter

Yes.

truthful the providing kind or I leave going the to of service forward. full-year that guidance numbers from of work for notion the Street revenue remain faithful the point kind to out think we that and of

I need on. and consistent year internal the certainly, the hard macro revenue. think our we didn't and at between I we that service we're think as laying the of kind the about, concerned is where allocations quarter our with with we push on in I at too we think product to really look look the push backdrop to wanted of don't ended And pretty up metrics that when with we that consensus all some out of

maybe And one more. Understood.

of average the to performance, of the margins or be we should about over years? non-GAAP period XX% sort thinking be an think floor of the over the of we great really the a of As target few and operating course next XX%

those above life XX% think about the to -- one by going I that taught Look, you two driven think being few we're have of the margin, yes. operating full answer I ones last right? years of surprises. should be Yes, is ways. I'm us thinking

business clearly, And is little floor. if so But into the a a commitment challenging we the bit it's locking fixed as manage sometimes.

so Understood. Thank much. you

moment you. One please. Thank

Adam the of Borg line Stifel. comes Our next of from question

Your is line open.

so Keith, been have on guys headcount Maybe for for headcount. the you talked just see growing sales to about. enterprise much years, and in you taking Obviously, marketing Ken recent it's questions. Thanks or the aggressively nice sales success and

in a Just about growth sales we And and And overall curious have in where even growth productivity. sales are headcount 'XX? should follow-up. we think how headcount force I

to there's time, continuing marketing. and investment, efficiency Yes, efficiency the the the we at not long-term continue to same in we the supporting, want sales and some the R&D, keeping will we need at are same to And infrastructure is hiring. make. the time, whether for dropping But

expect the rate why that few that's last line just the it the keep So like increased, will years we the top be total head will probably count increase. do but below

Yes.

Ken's productivity building do the about here been tenure. be months. notes it have quarter. would as than have commented Tenure up, last now. been see I of was as go to kind comment actually we forward. points. last just more talked tenure I we -- back key quarter, is think [ph] eight component say, historical And I tenure people for, that that We we six It's And a of here think, one of track moved the people norms

the high. Got entry FortiGate follow-up at interesting strong it. just end mix since quick see and just is midrange growth a XXXX. really by was nice the and math high on mid And my maybe It's the to leased lowest

Just anything there. to Thanks curious so comment if much.

That on products sometimes depend or certain backlog. like

from have sometimes but little the pretty don't similar. I is probably a We that's think say much, still pretty same. the see the much total may still quarter-to-quarter, mix change it to But bit. average I

Yes.

give the orders challenges distortion in some one delivery, don't we you taking that's numbers, there into we billings doing you was and the of upon that think have environment in, and get the if chain of insights lot current to we what's based will, simply just available. things, you but supply you really provide a I were funny

And in came of that product. you're which seeing saw products, we in the and it. just significant if that you are of it Specifically, described you fourth a the amount midrange availability availability mix way quarter, shifted will, XXXF the a

moment One please. you. Thank

question next line Tal of comes of from America. Our Bank of Liani the

open. is line Your

no be going is There's be that to name, my you. call going day things. butcher and I'm very Thank going to one to I two to ask one you But Hello. happy. wanted

And you year the question, or the next First backlog of to ask second backlog other trying your XQ bookings? on And more there's growth. product the year provide to hand, and product right, the great. you from to about The last a year. math to if about commentary growth to going activity, I'm a on color bookings from people would is want year. for growth you few product it? for more the there's It's anything services year my the any happens calculate be asked this to what sales. all, XX%, I about is next for positive. XX% -- is could And

So can you connection, and the of also services between take growth product and products. us through dynamics the the relationship Thanks.

Yes, I'll start you will. with the last one first, if

we think we terms the of I cognizant certainly for is there's of opportunities I bake really around macro opportunity coming front in concerns an in and executing. very -- it excited in also very macro months may us guide of But the the that how of company environment. the the quarters. how about manifest in are And in the unknown think I think the here we how to coming full-year of terms are just

be think on you're because tough been historically, kind I me and that I of so earlier somewhat So that, visible. a revenue seeing comment for cautious service made to it's it's

the short-term at conservatism and deferred oftentimes product looking We're in revenue ends revenue. up

there's element this think conversation. still that in an I of

from the impact revenue. rate. product conservative, Wi-Fi backlog for year the the estimate said will and network And side, two of Wi-Fi Keith like Yes, come to definitely will which or good say area, the shifting more the what all for backlog most so what one like quarter, that network I the probably I mentioned, I'd has that's pretty, continued product. but standard positive the the these and it's on has for cancellation think take in which a a -- -- industry where we side the backlog whole when it's network higher the today, is the last pretty

of -- see that will helping, new revenue, but some case some additional going of definitely, the also and use the the time. it new probably definitely And and of are the firewall we take also product case benefit helping also case, were the forward, ASIC products some of the use

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

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

it's at same since been large networking product. a WiFi also change I related not the time, core cancellation think forecast with it's most and difficult the in -- a to to of backlog the

that. since a we that detail where, keep in feel misleading if quarter, that's we last no longer backlog, be little of we could So the bit providing provide

some think directional I over it. add here can comments with we

doing models headlines the quarter-over-quarter that would a start in be of back of things. thinking again, forward, But as come would was treat couple going up through to So down. you and backlog backlog we year-over-year, terms was your own how it you remind the of

expect the baked to increase, going things. we cancellation and as rates look We at our that's are into guidance,

say we backlog to the years training norms commentary, for and range. $XX think I ago had may the when in And return three services million historical probably would have we have professional in that been

to get over million $XX state that So you're now million. probably $XX growth maybe could you at steady a with looking

just XXXX take all to those So dynamics. all in convert just that note of it's revenue into and a given billings caution, backlog and assume going they'll

Got it. Thank you.

please. moment One you. Thank

Kidron question next of the comes line Our Oppenheimer. of from Ittai

Your line open. is

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

know I've will. in you if mix, the a seen really don't I Yes. change that

-- the you -- FortiManager, looking the the virtual what when start at we very the certainly, then are machines at call well. FortiAnalyzer. products of and and very, the think And areas dollar doing SIM look growth And you I as in on so -- totals, of fabric and and dramatic the that the they're rates. exciting sometimes so forth, smaller monitor I EDR very on but think the and tail

painting -- about great I their too everybody contributing. careful light bit So contribution to because a little getting in terms is want anybody in be a of

Certainly, and story of the component networking and is probably talked of key about one-third that done the remains business. fabric business very, this about, equipment very it a the this part we've well, convergent has of

I less much this. Excellent. of supply chain, it. meaning And understand in better product. in line supply too for is is How How ahead into just getting issue? back then this the an and this? is are in Customers factor Is it just longer that interested going to rate, waiting availability getting Got far of of sure no a cancellation chain? perhaps make to tied much

functions improvement just customer, cannot is of pretty multiple some some wait. for product. customers environment can equipment for WiFi. add in a a to vendor lot standard a The do order WiFi supply have may chain quite us, networking definitely have security networking where the for That's we they Even there. a sometimes at deliver which sometimes because see But

rate chain I we think overall a see the right -- with is that's supply bit higher I think environment, cancellation where So little now, improving.

Yes.

went conversation of out the around of pushing mid to that the see. it and guidance, And and multiple to suppliers actually cancellation said it a a we in vendors the what fourth into is then high single-digits. and our our it, the from that. We talking rates, dealing guidance saw shown about Ken we'd component indeed, quarter. we the backlog there. down so with And that we'll has reason But successful get thought firewalls knew think we few is as advantage we built it in I things cautious we that of just we what about. an had be mix single-digits be is first. in We with What the built

the I in firewalls think on and firewalls now networking XX%, order about equipment still mix. something of the it's between XX%

pointing little through cancellations out be this go But out that networking we elements backlog those Ken as equipment continue for of risk move we its is as may with to a age more bit process. a forward, as deal and particularly there

not continuing I'm of But challenges, -- closely length really backlog. comments, making a this backlog quite year our I the historical we number get impact our I have more that's the as aligned that. guess said supply build to was to on don't in much continuing by we chain that of to terms would of an the norms. sure end expect In I with on

luck. good. Good Thanks. Very

One you. Thank moment please.

Our next Andrew question Wells of comes the Fargo. line Nowinski of from

is line Your open.

you. Thank Okay.

Just two quick questions.

EMEA. First, I a to on want question ask

consistently that quarters growth seems we five of had macro trends about the and now to Europe, You've Europe. defy hear in accelerating that in

if wondering growth that might driving that there's in be Just your Europe? portfolio strong something in specific

in case there. a pretty time, good a at I firewall And case, quite there. team and definitely the the Europe, the expand well have long countries also tenure in same think we some

new the to of ahead some some including bigger they bit SD-WAN. on service carrier, And service some a U.S. more some XG were solutions, moving provider compared are provider the little

we that's to some So continue where growth see good there.

especially how importance to compared retina surprisingly see are do SMB Also, they cyber to ownership, starting their the were now. the in some we even SMB, they recession, Enterprise during margin. of kind the targeted protect kind of profit strong right enterprise. sector growing of more some cost SMB quite of more But about own the security, lower

see that's strong in Europe. we and some so SMB growth also helping quite So regions do in

Got it.

Okay. to ask And margins. then I wanted about gross

and margin look factors pressures you do you levers I easing lower that to margin. think are And we you ASIC, those earlier guess, how discounting then drove launched number sustainable gross is some gross that about talked the as 'XX? cost that into new today, headwind when one, like better-than-expected a as of initially? you So fiscal did

Yes.

talked then I supply and of a the easing discounting the benefits, we chain. think the of things impact price about few some

us price in with that something will is stay I obviously think the benefit the future.

from a that. tailwind so should get still And we

price really inflationary being down However, watermark to of reached kind increases discounting we -- a I our kind slowed think normalized start And increases. pattern lack call it, supply still to Meaning covering those and more that of we down forward. relate we'll that but price for what maybe settle the terms we've have a the benefits, better history savings back that's having will a increases. cost and price chains, high in of increases, going costs, term, the of very of to price

So may and net-net, price continue, supply increases not. benefits chain discounting

Thank it. you. Got

moment Thank you. One please.

question from line the comes of next of McDonough Guggenheim Partners. Our Raymond

is open. line Your

And growth, saw Ken or we be is to But last least the I a back Keith. how and it years does and growth obviously lot different mid-teens growth. had product over of there the followed macro point similarities, Maybe you Hi, was believe you time implies it, The I deceleration understand then, 'XX for two was relates to XXXX seem than accelerate reiterate product some at for results which back it environment your guys product next years. was and well. to quite 'XX, but you two two by navigating the pretty in growth of macro years the guidance, that did thanks. strong your really a business sharp

should as consolidate is specifically it customers if to cycle it comparisons contrast So time Any relates just that of have I broader Is be versus, or it you you security acceptance provide is, think to will, this a solutions? willing can significantly question Is networking different? why growth product larger portfolio from previous would you functionality. we guess helpful. and the the

upgrade to connection-based of the lot XXXX, from I think which other last to some things. target so and outbreak of traditional including the a weather a prevention tried the which XXXX in many case, firewall, next-gen firewall enterprise the

like of it's where So in enterprise refresh the that's area. more kind more

severe So strong growth some we there do the issue. after see

we is SD-WAN, supporting pandemic, the there's convergence, At see keep One seeing the industry. during a a WiFi broadly hit another same the the attack and whole really internal time, like which build segmentation. few we infrastructure this quite anywhere. ransomware And homework part, there's by the the on then XG, also things. new a And time, is the

case connected. more OPG, used firewall broader also a the devices being much a deployment and that's of lot of including So

time firewall of really is kind whole is kind years last different case it's a So time bit the kind of we convergence little used nine apply it That's this what broad the infrastructure. than more of eight, ago. the a to we feel more like emphasized

probably this feel we the be why not transition more whatever traditional smooth will will away. that's go firewall, So time because

the more at growth we're and convergence to used keeping additional same into that's OT revenue. expanding driving revenue followed And product some area, networking the other time, the case traditional service then the the by helping area,

So that's chance the we're planning.

maybe That's helpful. And if a I could, follow-up.

compare end? the be -- from could you're deal the to maybe end bit spectrum. of deals little more and on at a you more the seeing the the upmarket, customers or delays given and those more consolidate Ken Are you contrast momentum Keith talked in any enterprise macro behavior maybe in and about functionality seeing deals But You propensity 'XX. larger large lower color Anything helpful. smaller would environment,

lower competitors. the customer and of which both on cost have on management the Yes, cost we total the it's the cost, product the definitely also ownership, service here over an helping advantage

-- integrated So where see that's they cost platform a we see total want of single time, at to of the additional offer infrastructure, leverage a protection lot like do the a security they better see networking this to need same how platform, when see automated we this a enterprise to the for when all customers. add definitely have big together. renewal, ownership They to -- better and

and security networking traditional also security converge together of network stock making to team trend together team not to and Even operating traditional combined the a together. the kind and merge operating there's and the on

we kind in mean, So the of for technology enterprise see and developed stating the some the trend. we see. and starting to benefit do investments trends I big long-term happening which

Great.

ahead. go Yes,

about I the to we get moving is across this. and as through mean, going else, were And about reading Keep you're stretch as so everybody I immune we're more don't the the longer imagination. of and taking in approvals deals by mind any think that Like world talking forth. line to people finish through

expanding At we just more Fortinet's deals. correctly, talked kind figure or number. I about seven huge deals seven figure remember think And time, I the if same a from of last XXX year,

eight Now adding more deals. and figure more

works and our with process. how that team, we're to think we're customers probably huge also I our getting manage sales how process exposed through but we that approval So opportunities, seeing

results. on the Great. strong Thanks color congrats the and for

you. Thank moment One please.

Our next Raymond the question Adam from of Tindle line comes of James.

Your line open. is

Okay. Thanks. Good with afternoon. start Keith, I wanted pricing. to

demand? you got picked -- in touch early another if on could pricing right, response effective where announced Wondering reduce of the in ultimately you up think January if obviously, elasticity the And we would rationale would normalize, model. hopefully, and What are the margin? or increase thinking in be strategy your you I are that price in to February. we we capture costs for to normalize, costs going this once Thanks. forward,

think continue seeing part the that's we'll I but there. make history, inflation to I probably happened the it something Yes, I on a I happen, guess. don't backwards go adjustments it's first. that appropriate in lot not market and mean monitor could

most almost In non-event that increase we fraction terms interest point. extremely growth the a it's it's an of of about, and me. to recent single-digits a talked low discounting, price It's after

it. Got

main SASE competition. Web When your that on to they've They're maybe across force now. said ask offering has particular. entire pushing in then competitors as And Ken. just follow-up for Okay. sales I with integrated SASE SD-WAN Secure motion Gateway a wanted and sales their the

competing force? perhaps strategy. Gateway SD-WAN, As Thank strong forward and pushing we not not but unit in you. market share differentiating your or your across but to that as think thinking really just sales is clearly present, SASE Fortinet, a entire now in piece prevalent that competitor the Secure at obviously, that proxy very motion about impacting different Web or It's

we few OS, the or strategy, [indiscernible] in think we SASE first, last our same seeing years or SASE I a all Yes, like -- is; same have SD-WAN the the function. in integrated the including the system, want to

to SASE. be a more provider working So to can their leverage broader and making offer with service SASE easily also deploy infrastructure

the it's So different some market. right SASE than little players of the bit a now in

and highly efficient So secure. will system this be more more integrated the time will as we do is same believe single be

And of so FortiOS all and new the solution. development [indiscernible] reported kind what FortiASIC new we're we keeping the reflect that's building into and the this whether also

little keeping cloud closely other much together. player. carrier the strategy pretty And that's to to we're time, different service all SASE working some SASE provider offer even a provider, compared At with also the same bit

the which difficult believe losing do So infrastructure, some much more lot solution service than to will own money, model telecom compared last a of had provider leverage long. be of profit long-term efficient of the or player our be will we SASE provider to kind

space be will be player And in this R&D we keeping internal that's in also, we innovation invest space. want driving we'll area. So what also this keeping to a and long-term this and keeping

Thanks and helpful. congrats Very on year. the

you. Thank

you. moment Thank One please.

question of line Bollin next Ben from the Cleveland of Our comes Research.

line is Your open.

question. about then what the Could Good you little infrastructure you is what afternoon. little cloud taking happening of a response far? I the a with bit and in follow-up on the share us Thanks doing, a customer respect build-out. bit category. the had where for you're networking to progress are And Tell thus

Yes.

in building center Quite investment ourselves like real more Also our estate. in the strategy made the to costs. that little cost than the infrastructure, build of estate continue also some different rental the see like XXX benefit we give we benefit the kind a of investment bit of also much that cloud. you out infrastructure a can players cost, long-term of tend We early we better just to just how the -- real keeping go like data including -- and some our us office --

keeping the a do more into real this estate. long invest that's saving from So cost rental some the keeping we're we that see We company where long-term time. benefit infrastructure using get we're

said, the I working have infrastructure. also managed their service that's of time, at strategy like But we providers some car same partner with other

win-win a strategy also have. profit. So the benefit make both we be That's also party that's or or will

What's is is it? And the -- cost is of closer speak strategy within narrative? latency you it could broader your it the within this that, Ken, part to, customers? to Is being purely

of customers, they solution Not to just, manage some to I but may had easy themselves. also it scale. some Even do the will be the to make bigger even SASE easy

a or successive to can system. integrate if the So same same the function you more into

with of also strategy is that's we for service important us. the and have providers sort working So long-term very, very

networking one. you. are market? on share it think more there? wallet How do ability last WLAN displace about my the thoughts your Thank what opportunity then and the you to That's campus opportunity of me. in traditional And the incumbent Ken, for the

There's of network traditional of XX have kind That's XX, and security. networking, like thinking networking years the over we a really. convergence

a I very example. think good very, is SD-WAN

So offer not yet. But other there or are more solution can to the is whether be WAF SD-WAN, kind apply service we lot free of will thing more efficient, and additional a which same web secure for we technology. secure, a of of there's lot

one And company so has we feel of come back doing a not which -- ASIC what investment will in XX of networking see years also long a security which return from that's that's take kind potential. investment, need also we in comment but huge we environment And the to huge the power, from a time ago. made, day

security need So when we together. all start and of with of kind to invest or we really planning these long-term networking convergence

we our lot mine content with which ASIC investments SoC processor some including network is of new of is the the generation made also CPU. our of seven-generation and multiple the in generation fifth example together of chip, a the So process one

the continue deployed more we eventually will beyond broadly be develop network So security. traditional to technology and

like Salkowski Peter remarks. you. to call Thank for to any I'd the turn closing over back

Thank you, Valerie. for call. thank I'd to like everyone joining today's

Investor be section will the of Stanley & Morgan for hosted Fortinet's Fortinet Relations webcast first conferences the the posted be investor A Stanley during will quarter. attending Baird by on fireside Events Presentations Morgan conference. and link website

any me. day. have please rest great questions, you contact free a If to of Thank your feel follow-up Have you.

conference. conclude Ladies today's Thank and for you this gentlemen, Thank participating. you. does all

now great disconnect. a Have day. may You