Fortinet (FTNT) 4 May 232023 Q1 Earnings call transcript

Good day and thank you for standing by. Welcome to the Fortinet's First Quarter 2023 Earnings Announcement 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] Pleased be advised that today's conference is being recorded.

to conference like Salkowski. to now would hand over the Peter I ahead. Go

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

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

limit that During the others Q&A please to question one to session, one ask participate. allow we you and followup question yourself do to

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

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

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

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

turn call now the I'll to Ken. over

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

quarter, product strong growth. service help was due revenue. security to the in With and cyber a XX% first revenue future market revenue strong being growth both company continue growth, will the to in XX% growth growth product revenue revenue service product leading For share while revenue industry. This product gain drive we

years. over a revenue XX% service large six significant Quarterly we believe quarter, first first is continued markets for value-added and services account security in Secure over In Network OT opportunity have together grew to XX% installed and become security time We upsell and couple the bookings, of years. in of next SD-WAN to our bookings to our for SD-WAN, total OT the the over firewall, base. to goal #X the

and control and be Fortinet networking applications, XX convergence that networking protocol location traditional developed years network and lacks using year larger and is of is expects of same devices, Gartner secure was content, cyber ago. than networking. consolidation. awareness security the the XXXX trend leading the market and network the by that Traditional will users, still security

achieve SD-WAN, believe, foreseeable the Fortinet’s Next we SD-Branch, expanded the networking for future. growth networking Firewalls ZTNA and secure SASE, from Generation double-digit and secure has to can internal solution Universal annually XG, segmentation, market

their consolidate while organizations management surface TCO vendors to response. that to their environment, and visibility and threat detection lower expanding costs are and deployed looking today’s In automating functions their and across are security improving real attack multiple time

better ASIC while leads faster with integration cost lowering X.X industry as the together FortiOS automation acceleration ownership. Fortinet’s total well latest release and FortiSPX with of the as

scale dynamically Fabric Security organizations security to enables the evolves. deploy network the Fortinet as FortiOS to every and to adapt allowing edge,

Many Last our networking in delivered same are to and month, SASE, features as-a-service, this Also, available Security be to security security, our we security, enhancements Fabric hybrid announced provider Universal that on with including cloud solutions, the single supports appliances offering. our are and of console. several us enables which collaborating and we all service infrastructure announced of endpoint Fortinet within partners SOAR. a SoC,

generating As XXXX consolidate are non-GAAP margin achieve operating networking an point XX% looking of at billings converge billion believe and least to target to for and we each we and of security our years. three the positioned customers continue to well vendors $XX products, while of next annual

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

and Thank afternoon everyone. you, Ken, good

Let’s our performance. from strong start highlights with the quarter first key

growth a reflect and to portfolio over results growth and strategy. quarter is first growth product Total XX%. strong demand of demand and continued broad strong revenue convergence our for consolidation accelerating the networking revenue was led that by for our solutions by XX% Our service revenue and integrated, platform delivered single of cybersecurity

Billings of of over increased accounted quarter at billings Secure XX% XX% once and eighth growth. SD-WAN our bookings. again bookings least XX%, consecutive total for OT

results and and customer highlights demand and Platform solutions, of diversification strong continued Enhanced customer top-line the Technologies, segments, our by business geographies, Our reflect across Core industry verticals. model both

profitability profitability uncertainty. strong growth and top-line We continued to and industry better deliver the balanced with despite economic than growth continued average

first records. quarterly as quarter quarter history the margin of XX-year highest a XX.X% traded in publicly margin operating cash points. first cash XX a our XX%, cash margin and flow up percentage operating $XXX The was flow represents the representing Both free Fortinet flow million, company. margin free of post-IPO Free are

one customers X,XXX firewall I’d recap deployments to convergence; and our Last themes: like month we two, the Conference at and three, environment; key consolidation. three nearly expanding very Accelerate and partners successful hosted

rapidly security of to hardware, landscape evolving network threat connectivity demands starting combination first, today's security, approach software, comprehensive So and a including and services. virtualized a and firewalls

adoption by of more prompt anticipates will hybrid of percent than XX In one will deployment, firewalls. than XXXX, fact, firewall of mesh Gartner more which organizations type that have

factors this years and hybrid delivering for Fortinet firewall firewalls been have is as capitalize on to system. operating well-positioned a expansion single we form on mesh deployments of

an of believe that expect and networking networking secure Second, the security size years will overtake ago was networking at Gartner the company of effectively they ASIC secure convergence market market the on the networking this XXXX. by technologies. over works the become industry We noting founded shares to on standard. belief XX traditional the belief scale most

its been solutions and both Since ASIC proprietary to supporting application-specific technologies CPU-based as security. inception at traditional to support Fortinet networking less has convergence efficient developing solutions are build

continue product commonplace. and vendor functionality consolidation become Third, to strategies more

here cybersecurity again, they Gartner up strategy a in organizations pursuing consolidation were to vendor Looking from XXXX, XX% note in XXXX. of XX%

allows our functionality consolidating while cybersecurity significant FortiASIC’s security functionality. and networking security and with platform FortiOS integrated cost computing converge power can to and capabilities, advantage. solutions FortiOS products Our performance maintaining more customers while functions consolidate With advantage,

application. many cases variety FortiOS with security Specifically, for applications, each including of supports WiFi ZTNA, network SD-WAN, firewall, a SASE, security use XG, and SSL VPN, security,

For example, firewall cases edges, center, North/South virtual, both use firewall-as-a-service. micro-segmentation, branches, include cloud native, and data and East/West

provides Our our and infrastructure, digital operating consolidation convergence entire their costs. while across customers’ strategy lowering security

to now let’s Enhanced quarter. solutions. closer Technology first Now billion, XX% a take Platform look $X.X the Billings by driven at grew

up over benefited least verticals, of top XX%. total In government percentage all a at growth of the better-than-expected up with XX%. utilities a as were industry services financial Construction, billings, services Billings contribution. list media, from and financial and terms backlog

our quarter-over-quarter, had forecasted was model. we rate lower increased While the it cancellation in backlog than

continue risk grew future equipment off the year. comparison backlog. for of to the double believe last growth in in of elevated We in a cancellation digits an periods quarter, is challenging networking there quarter XX% Bookings first

increasing further into to see expand increasing these to strategy of with to XX% number and the deals with the $X deals our million success billings XX%. continue over XXX We segment enterprise large on deals

XX VMs deals of FortiManager looking to solutions customer The retailer in as a with replace our year, expansion their X-figure a competitive FortiAnalyzer last an for solution. holistic locations process FortiGate purchasing quarter X,XXX upsell the One of store opportunity of after very new their firewall and FortiFlex part these this was program. at a was fourth cybersecurity selected and After retailer. Fortune point

of platform requirements. consumption customer security as deployments a substantial their is selected value other technical mesh FortiFlex unified and offered the due The hybrid solutions. Fortinet points-based our new as well a to supporting firewall significant by variety program

X,XXX them. support our investments and partners quarter, logos of made channel through investments we In approximately the the new in first the – we’ve reflecting their added

Average year-over-year was at flat X month term XX contract quarter-over-quarter. months and down

dynamics, its actions. year’s strong last XX% in quarter from difficult XX% and revenue to $X.XX of the XX%, driven supply acquisitions. increased first to million strong for Enhanced improving grew earlier demand with driven revenue, revenue despite and Core Platform respectively. XX%, and to by very growth XX% strong very our total was Product now billion, revenue increasing Turning by Platform Technologies, at Technologies, $XXX comparison growth pricing chain Product Enhanced contribution

XX% and quarter. rate our elevated number sequentially aligned was a when services slightly XXXX. revenue recent growth contract was over average revenue deferred Service on revenue days security of the short-term activates in declined Service since subsequently highest closely million, with for up was Short-term year-over-year $XXX customer XX% a over growth fourth remained service between rate periods. revenue The a deferred purchases and growth in growth the basis. consecutive to

increases of improved a XX to margin cost margin margins Service XX.X% benefited up XX.X% centers gross offset Product investments discounting, was margin data PoPs. point earlier easing ticked XX.X%. pricing XXX or increase XXX points and basis including increased of points price and actions, as up gross in Total Presence, from product gross basis gross pressures. basis in Points of

revenue basis than XX.X% performance, higher was benefit, and a points XX due gross growth foreign XX% headcount Operating strong the XXX that was growth. exchange margin margin points up our of to

is as As XX.X% company. first a previously operating ever noted, public margin our quarter highest

summarized at as flow and CapEx the as elevated and margin, of of was year and cash receivables Statement the the fourth timing quarterly quarter Flows well Looking the a free record-setting the Fortinet and collections, projects. subsequent million cash in X operating to on record X, Slides last from Cash $XXX benefited of

margin estate since flow, XXXX XX% highest was flow free real investments, adjusted cash a Adjusted excludes million, free IPO. cash margin the our $XXX which our and representing

results seasonally free quarterly first We fourth stronger quarter expect quarter to have to with often come billings. some cash in the the variances due stronger our flow

of million February billion, taxes Capital million, approximately now the were million. $X.X real share including $XX Cash estate Board for expenditures and repurchase activities. due lower Company’s through $X authorization XXXX. The investments. available total to of by billion estate is the buyback authorization $XX were real $XX was increased the repurchases than timing share expected This

discussed forward, new about that growth we previously offering. SASE drivers excited have as our the well as Looking Universal we are single-vendor

that Our and by costs delivers the consolidating drive Universal of edge a and security operational helping comprehensive to reducing while from vendors. remote convergence SASE complexity the teams extends users solution and offering networking efficiency

offering, SASE Gartner from SASE deployments up single-vendor predicts In be fact, one-third that XXXX. on new of based XXXX, by XX% in will a

As we we bring Universal including SASE various to our expect investments make market, increasing PoPs. to

reflects guidance investments Our these estimates. margin gross expenditure both the to capital impact our of and

our guidance, beginning of call. to the summarized XX which year forward-looking I’d review Peter quarter is at second disclaimers regarding for full the to Moving and and to outlook provided that subject on XX, information like Slides the the

For revenue in $X the million the billion expect billings the growth at range $X represents to million, $XXX which million, $X growth million midpoint XXX at of of range second to the of XX%. the XXX quarter, XX%, midpoint in represents billion billion $X XXX billion which we of

XXX of to $XX XX%, payments is non-GAAP a lower to deadline share tax and quarter. to to of the XX.X%, million XX.X% than as million, XX.X%, share $XXX which $XX million, $X.XX XX.X% prior been margin non-GAAP count of the margin assumes XXX to expenditures gross a taxes for of of million, fourth operating tax of which per million between $X.XX, expectation capital earnings our Non-GAAP has extended of rate cash certain non-GAAP

quarter. quarter second The during the backlog guidance decreases assumes

the For in at expect of million, impact guidance billings $X assumes XX%. a the represents range million full growth This billion XXX growth the XXX midpoint on digit of billion to we from backlog. low-single year, billings $X which

$XXX to million year. due which of share count of at XXX $X.XX, XXX million which assumes continued Revenue between revenue Capital XX.X%, cloud, $X.XX returns XX%. growth with $XXX facilities per assume investments. XX% in million the midpoint later of Non-GAAP service midpoint backlog the range million, of quarter. earnings and $X center, million, cash and million, guidance of of taxes rate of to product gross $XXX in $XXX share year in to represents Non-GAAP to XXX estimates to the expenditures tax non-GAAP implies the billion growth revenue of million $X XX% XX%, growth $XXX The of to full approximately a range $X service levels of million billion XX%. non-GAAP The historical margin XXX the XX%, this which to fourth $XXX at billion to the data operating represents of XX%, revenue of million $X margin billion

up cycles of execution range additional and Fortinet its prepared we many the partners As very solid team observation. the a wrap consistent level offered and this remarks, in and challenges. uncertainty to have goals. one we Over economic many across level maybe of we a others, wide of a our economic and years challenge us in front other possible delivering see Like look forward on of

hand now to Peter to the call session. the I’ll back over Q&A begin

you. Thank

reminder, we the followup that one allow please for question to question and ask limit to you open call a the yourself session during to Chris, Q&A As questions. participate. others please one

from JP you. Instructions] first [Operator question Thank Essex from Brian Morgan. Our comes

open. is line Your

tough more your changes the congrats much on services revenue nice quarter? I due about value services Maybe base. effectively know for Keith registration to increases policy and services talked this Ken selling was quarter pricing a you, in quarter, added secure services, or Hi, or rate install you secure nice of and versus in selling for better a good into afternoon. particularly in attach acceleration question How the in macro. taking Thank that

I when in the see growth which of Yes, Brian business FortiGuard. think we that filings next we SEC was XX% we, security you'll this the part looked and and week, question back was services back in saw peeled the FortiGuard, for our engine great when

And there describe more were call if cloud as SaaS Certain will, like those to point, we offerings, were Pay-As-You-Go looking and a deeply that products being as we customers. the growth. offerings areas Ken's are to So what well. attached that we saw I to to and started attached significant existing what would at driver you it

some two in three I slot registration number benefits the slot would changes then the the think be take number behavior. price the probably and would

that that registration By the an first call in in first customer we the specifically that but out did would I one. bit implemented not faster register really we quarter, first that expect quarter, change having impact the nor policy did is quarter, mean, a in really little or the lag I

it and selling into registration of increases I install kind in in was order, light So some think behavior. the the then base improvements price

a enable new more customer X.X for customers. more new both to Yes, function. and with started FortiOS new service also the base We that can also launching, forward current installation started we for much have going also the

expect maybe extent backlog what for quantify the by the you be to? be cancellation Got billings on you are, end helpful. assumptions particularly talked as of and it. I given about a the That's contextualize at to some know your follow could piece, training know you up in question from I Maybe you're I but you year, think able you normalized commented impact rates if on macro? the to of lower will see that or rate. backlog than the asked, what expected that

think of has to for customer figure backlog. for think year, to or at it by think which if somewhat or that full the increase. to the out month the increases seems as that that, cancellation look to to up continues backlog, But deliver cancellations is exactly like think low the year end that I or that a guidance about only a going I less to on in they're risk cancel. going from longer and mean the that quarter kind the week a probability it's of in backlog year, digit in there the progresses, coming talked we takes the I some that risk be difficult been we single would Yes, something I do growth I canceled. be particularly But backlog full as

job year. point end helping backlog, a middle, a Also the the but to customer secure unload also great the rate. you did team end, of say could normal operation towards is year, very, more I'd mentioned in this we reduce back go later could and be the which see cancellation be is some It QX

Got you very it. Thank both Very much. helpful.

question. moment from line This Thank for Goldman Gabriela question of Borges comes the with you. next Sachs. the One

line is open. Your

potentially cycles. product the you've true you and and you. of very faster Good do about followup a of for much around How demand going demand and Ken supply we've afternoon. or heard given you. the is, so couple Keith, expected, forecasting, industry noise have years? for which Thank planner COVID all Thank think risk had catalyst one I a chain on it's in question than strong

solution opportunities is and secure our think I the broader but growth, and of our existing enterprise see firewall. traditional a enterprise, expand some we enterprise, also also traditional much also market security, new the the refer customer. expanding customer deployment will probably to that much use has strong of see continue them case to network helping IT/OT the than do both the And bigger current also drive some one

Also space the ICE B greenfield. in is a relatively and [ph]

which We probably pretty than growth the faster even traditional is enterprise, replacement. faster see more healthy also

to healthy, digit for think I see future security space. growth all I pretty whole keep saying the this contributing double in the I

barrier of get more Yes, at is, of security, the in the competitive that, networking plus start convergence to more how networking on become vendors and look classic competitors, sense. when for limitation security networking that the convergence which you selling or the or the for do classic time? is into convergence as you. execute more the you, networking budget think makes you over the about Thank into followup to Ken And the you

networking traditional network needed protocol and security. company, some based because quality from process some data handle say would which unstructured handle, company security less it's data fixed power to the with very complete needs compared much more power probably lot to structured the and much the on architecture mix different the data, I of more

where, that's the come leverage and also networking have So to function ASIC the that's and and keep of company would improving then enhancing, that. new year don't every software function in performance and we see we up implement doing first some also,

new They supporting come now kind space, probably all up a on for the to bit where architecture secure the security. needed of for security really slow the computing maybe function different have to

to the see since too new have acquisition, on really demand did don't I company -- on infrastructure come far, also traditional seen be close. So some that's and the service, they the not -- up May the a come far but really on so customer from so function they meet both change. networking much

for the Thanks the Congrats on detail. quarter.

you. Thank

the you. the for from moment Boolani Fatima Thank One The next comes line Citi. question of question. next of

Your line is open.

Thank you taking question vision appreciate technology a you. just for Good afternoon. questions. you. my I Ken

universal You at your and strategy please. of your was a team and why to conference competitors the and apparent that quick as on the deliver follow hyperscalers? build third the points bullish SASE the to are then as I'm well. are very, data relying out very up, opportunity maybe maybe very And have who curious I to effort centers versus of presence But is taking peers you're SASE on some providers and Accelerate party

Yes.

of a First SASE of infrastructure. of believe depend different current even expanding their keep leverage universal, of huge from both our And working a need like competitors. solution. of need inside be We provider to service appliance. whether home a also to little other be our SASE, But leveraged, of onsite It's some a mother all, a of model, path there's we service secure kind of side, environment there's and cloud some out using some only is do do deployed definitely, here. SASE vision on base and as to a, need hybrid more kind provider some customer their broadly on service kind of infrastructure of because on bit more or traffic user a lot to SASE than there's

helping And the SASE the [indiscernible] our of where there. a also are traffic for all for to this traffic process so that's kind Forti see agent in FortiAP point certain have and to we FortiSwitch

other side So that's both on brand CASB DLP, function put all in like the kind security [indiscernible] where, things. of the a OS, that's plus SASE the service, of like reason [indiscernible] networking single we these and strategy a

also PoP. certain the can more infrastructure that's time also also more will provider a different a and provider even view So cloud solution leverage to we that, point bit there. and build some the beginning potentially do will from to have than to provider long-term some self, build sure our we whatever more profit healthy see the from to for offer take ecosystem, where integrated, with little other cloud distributed because other build reason bit It's the so a continue model, benefit. That's a both be we with of service also we our the size little but so hyper the and leverage broadly on better more have PoP investment we be some make we the [indiscernible] investment partner I long-term have a so margin SASE

that you, Keith, outlook. just detail, quickly the Ken. appreciate for on question kind a I of billings tactical

than less You're think about year half I by half. full of the first beat the and raised raising when the

from of perspective, terms you're you can And walk thinking can this the to guide through considerations macro you. in of tangible getting maybe billing jittery, appreciate Thank can year? I of us for that up what conservatism? on give up perspective more underpinning a is you so but some that kind whole about if us bottom a sort bottom

headlines some think probably message there's would and extent market. and feel half little be at would our good of of bring trying we we're what of the more the more little But to in gives about level continues one execution rigor year. the the the full and year, year. I Yes. to more looking look that second we to in well as for strategy half kind very of And a for specifically about, we that the I a second we're still at. say anything a growth effort, very, the talking that just with two One pleased that coming the think above the tactically that thought, through as can raising The company to we're I probably if you general see rates that pipeline it I probably pipeline. you will, you the give look is a bit that we

that's close the that a into use we longer, but But in, lost, close nuance the is to level it's it losses, getting even and taking in not the pushing close have we I continual suggestion play the simple and coming same really about rates. more not are It's nuance you're that now in pipeline maybe think that's been deals that they out just that term a going push. taking when but rates, were were are rates continual assuming increase your particular not this there's the at where as deals that It's pushes. not in as cycle larger to an be of they're lot seem a of prior periods, some enterprise and

the second year a that And this amount our think mind, rates on in really be close what full looking I the think at year. for so of half with of guidance fair of attention may we

you. Thank

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is open. line Your

that combine, you breadth Thanks of Fortinet just afternoon particularly great here. Okay, start everyone. sales see about anything within the you for maybe talk was great. whole an the other of a to Could enterprise. taking it Ken, Hey, or platform, with spending sort the questions my any Whether good you, maybe of vendors, just to agreement consolidate customers license make talked I for that thing enterprise with those easier about to makes consolidate it think theme Fortinet? was which earlier? to do easier can that's to

see some But of working of also I consolidation, security channel some of And also their our consolidate ecosystem build security. closely not connection, traditional network from infrastructure also agreement. definitely their they go Yes the the And beyond see product, enterprise resource but expanded leverage provider partner to grow level, with definitely. see a together. our service also just on growth the also enterprise also we with we're healthy healthy benefit to

see do So you also that's cure, million could healthy also, wise see healthy the growth. we healthy side enhanced force accelerate dollar the can growth on of X building total Yes, we a pretty growth number also, grow like a continue we the to see and pretty pretty and has growths. technology sales has number both the and that beyond deal the also on

going that's, a we healthy helping see So consolidate. to pretty customer forward trend that's

Yes. And is just I'll along give what talking this a maybe deeper Keith, and quick to Saket, maybe about there, just, Ken level go four on is examples. you

very think So yes, we've now track We some into I different important agreement years. something a the growth been successful been rates as of probably that couple for of and it. we've in terms ways doing enterprise the in we've is a as with be enterprise, been those line it's business moved very particularly to there and

management think offering, we're it well I we're, of not but that we when the it customers way, also the on them of call an of sell, retailer making board we customers make and overhead or just products. I another example was is And the consume we today. more appliance trying think what costs Which the proposition gave that program, in our for on trained illustration the points then on to value And get think, means salespeople right? are the well. costs for easier I or the the easier performance, and sure the cost as about to the of to large also to, sometimes talked throughput the

consume of customers products. here to going those I what more are Ken about types so And it to things easier all into support play for think is making talking about,

Right? to done fully the and see Maybe cumulative that base your for yet. take seen will Like it. question clearly that base what been great the increases followup maybe for base, how of well? think the helpful. the price pricing you That's portion subscription on product Got long how but of for you, have acceleration do price super baked, realize the XX% it revenue. increases you've as is, fully or subscription much hasn't to in existing of Keith, how my maybe about services growth impact that

if at in and did the couple didn't to coming months, the could not, quarter this question terms months, keep are contracts great do I mind, and think Yes, we XX that are year look really some all the closely average of things last it are call one quarter. renewals are math, the XX that in it term, some if A contracts they're numbers three through. contract you

in year me, contracts. pardon five one So,

Peter. you Sorry, that. for Thank

how or that long quarters back for a to have x something we uplift we that provide X about years. tail from was came again, X continued support does seeing several how it x talked benefit So a to to the many X and when that converted a refer few I'll XX you that years

think as the further gets obviously you tail go I out. smaller

I are majority XX% contracts the what's existing the of of more the under -- new think than pricing.

Very guys. helpful. Thanks

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Your line is open.

us Thank Congrats color comment, you, about afternoon. provide starting quarter? performance can the you. guidance some with vertical you Keith Good you this on tough with maybe in macro. and can financial results

was really it large were deals there was quarter. the you, some I Thank it in always time. of have been there But that famine number Peter. number. -- the quarter. for don't been this always to be future particular that our, a in large top long it and Yes, deals think with can They two any a is drove well, one in three don't bit I was there say, I were financial services like think that very anything

internationally, I growth we it in not think but only the also and Europe. particularly U.S., success was, in saw

was area. in strong it think I so a quarter for us And that

entry mix perspective, got reflection? macro From also eight digit a the mix end. versus quarter? performed so And, have this any a the the level high Is or it. you just that did a product best and it, wins Got

So about talked we yes, we did. it,

Okay.

was a think I was I'm a Yes number. in ago commented eight without specific the I think one don't and right, deal, that a a second deal mistaken, not figure script we eight there recall moment talked about second. an just there if if if was and we figure giving I

more more growth. is security. network healthy the do the more need pretty their and see Like I from more On of SMB it's enterprise service. more on attack. the [indiscernible] ransomware SMB said, a our kind Yes. comes We a especially bigger kind maybe and also a we're protect security a Also how of greenfield of business, to because network the some SMB replacement and enterprise [ph] for dependent other had lot

low that also middle would range benefit of other IC most I the of one some towards the most range. high And say of the So is OT low middle impacts and the are some deployment end. and end, some really the maybe for

Thank it. it. I Got appreciate done. Well you.

you. Thank

And of This One from thank the comes Sandler. question moment question. for next you. Piper Rob Owens

Your line is open.

I to you margin for and question. first operating it quarter from and watermark you've was back QX around go the mentioned start results much operating OpEx never here, an standpoint. Thanks I I the been been very strong very QX high a that taking margin think through since my you've good want since the If Thank afternoon. strongest or correlated really had public, has public. you you're

through ahead? So out year as of aberration just that some thought QX in as rest look drive walk was plays we or of process that conservatism really me this lot there the helped a your

then that out margin strong the focusing think continues a the we margin we and et moment. on on a I then Yes, and we cetera. elaborate tailwind. one, three And also provide I'll More the challenges as had a into and two; product margin, maybe that supply in commentary FX, things called about in gross move gross gross the through, to inflation, very particularly quarter chain

last margin gross XX% or years, think try that our around talked product was we've so. the of I to the couple and publicly goal keep Over

low. time in, very came that anticipate obviously quarter price not We did and the to able increases we'd be our perfectly. fourth The increases cost

So first with to you they I And then quarter. in so think kind of quarter, it bit went the the quarter the little through in saw pressure statement that, in the same fourth of income speak. saw you revert and a

And talked in to an that we be look costs the of we'll of commitments first at longer-term, margin, to band that saw opportunity I that in I above the margin is that us some quarter about. mind, see to new think looking gross sometimes about. and certainly we just with product also invest And for think products, gross as as I well an we while in talked growth. equation, think maintaining the moving growth certain out that margin I make there to and opportunity in there start we the investments introduce at terms of we've continue

did excited little large then the there's standpoint from you are there out strength to programs, on touch a talk go-to-market Thanks. Great. a it as And like some you're a partners the opportunities? and Can very because channel there? seeing seem I the bit some new of does business that channel the want followup, about and OT

some advantages we OT space I particularly thereafter I look that meet have in we technologies have Europe that are at that, trying names and to Yes, then are yes, with force not geographies, And organize and you're doing the there made technology, in what verticals, really sales opportunity in decision you. or some you that probably us. as at, the in large a that followed and if opportunities we when to your separating sales U.S. always do conversations quickly providing and to OT out very started some that. got see first look think think that we technology, think that around to but I receptive, security are mover and I that to Ken by separate been several do mean, function years a having by specialize start space ago, Patrice people OT, will, the And

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and cash talked you was pay And great are Just seeing consistent given contract I up. record the the year-on-year, collections obviously strong macro, also free then see for Ken by I terms Keith, any a around or you flow. pushback it's just though, have and about follow upfront? to to willingness customers being And the curious tougher just

the the payment an a in a got let want in but customers way deal. And cycle, revel I've quarters, gone the will, and been things know think in to more environment of a up, to the our Yes. more, lot million where if of it have which in rates I'm doing always, quarter. certainly $XXX the like some for you part sales I trying all, that there's that. Well, of exist, There's one-year, first -- of people three-year, that conversation terms in lot fell around a of the free conversations interest I things cash five-year flow, rising many more

we believe balance form and COVID in may that just how second payment appropriate when quarter it's balance just as the the and do sheet that, about strong you, of, about I a us have obviously talked as or to the of be in want that, of for at look to our in have hit, what to sheet. strong We growth. we leverage XXXX to very terms have and margins, income we discounting opportunities that extended form sometimes go and very our supporting statement

than is see from this customers, of the And a ability those of Ken channel from lot three well, at question years? around seeing back do If a but always we has to and the a think some more seen point that kind we the in lot things. Is we've go function. strength years and what look I to offered that the we've on the is the gave thing. again, it as I'd we five that deals of data terms, do maybe, enterprise financing So not the Sure. payment have are we seeing term that of a kind had, contract past? say

we payment to channel the then I think making available I to financing prefer function capital through provide by support terms. the provide financing and they think to function the to them

up just a up head helpful. followup, was quick maybe over as And quarter-over-quarter count XXX little bit year-on-year. a people, XX.X% really over That's

growth macro? how in curious the given XQ we're Just or later thinking either again, this headcount again. just year, about Thanks

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Great. Thanks again.

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product So could around responses interest you what interest about your of SASE just some the so current the current more a bit and around SASE far? or are the customer around share little this

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profitability. it. Got more one just Thank around And you.

leverage? about guys you -- where next and see the years, we do us are how thinking down that few margin over So growth slows to

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are those and longer-term So, that's, contracts.

something groups, think the states, that's, business the have time for was landscape. that's there I industry. if we react So cetera. But see to really think the the is bad the that you'd model part crime And actors, sort on in the such the of dramatic probably that to have in I to of nation happened we'd don't that of shift behavior organized see some et happen,

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we to your you or financial the, mentioned Ken peers Keith from hearing surprisingly Keith, about for which So think I XX%, and competitors. the is over up services strong contrary and what are

I you touched drivers? underlying I the about but you So upon elaborate I is guys in or it can it benefiting kind diversity increased can know on if have that expand follow and for impetus consolidation you So you vertical? to then bit just up. upon the expand a that just of a vendor wanted geographical is quick

would above. geographically. I all Yes, say it's happening the It's

and think additional additional expanding that with additional we as or security that down us, are customers well. services with firewalls happening took I earlier it's with

up time, the the and about they're what's contracts vendors legacy that renewal are services, the if several market, specifically there over there, for happening period you firewalls this a step there's exposed. years, look talked at two and if will, think I last financial you back of now probably long for when they're we've

an the sure, creates it placements? comments today or other for it I And to harder displacement. difficult a I And got it happen. to think environment opportunity is mean, more that lot this make is, to in some work competitive a competitive questions for of come you in

I again to But proposition got expansion. I value make it's more think You known. your think, well

to specific opportunity one any particular incumbents think think I it's geography. don't and to it's displace I

a technology One we from for of secure Yes. data Also internal advantage. center. segmentation is the two angel, huge have

advantage deploy there. lot ASIC which find of because environment the we segmentation their So speed the provider, in can they kind very a high secure we of service internal us need do have,

a this together. also approach large other SD-WAN finance to like small broad other work XG, with remotely, our network home, also security working kind really from like supporting with starting we part, of ASIC have The a the some solution super and of supporting combined appliance from XG our service which that, based infrastructure or

from So angle. that gave us huge the advantage product

Thanks of lot, upon opportunity Got course, Keith Ken, follow-up. a it, guys, just in a the got the expansion started it. form you quick factors. And

seeing Of course, about to have drivers just of your upsell Just expansion like the Can form given talk you imparted solution. some upsell in clarification broadly how peers that examples of versus of kind factors you about holistic replacing – firewall growth and like the kind with is get expansion a and this unit expansion units? are mostly there. spoken product X-figure But opportunity and and parties unit expansion pressure normalizing. wondering, give

upsell product. Fabric, of Probably also for unit we do has see Security the expanding and both. which Yes, entire XX the cross-sell the both the of

more the lot keeping setting because force the So also shipment unit our the starting for that's networking combine across and partners were also together fabric. [indiscernible] we security nicely. At which quite also function where sales whole case, grow multiply both internal same time,

I appreciate Got Ken, it. it. Thanks a lot.

you. Thank Yes.

Peter concludes I'll the it That Q&A over closing back segment. you. to now Salkowski for Thank remarks. turn

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