Fortinet (FTNT) 6 Feb 242023 Q4 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Fortinet Fourth Quarter 2023 Earnings Announcement.

[Operator Instructions]

Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, Peter Salkowski, Senior Vice President of Investor Relations. ahead. go Please

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

Chairman Officer; on Whittle, and today's Founder, our Ken Jensen, Keith Chief Xie, are me CEO; our Officer. John Joining Fortinet's Operating call and Chief Financial

Relations call live high-level in financial webcast that and will Ken then for open full call available our call quarter for fourth via providing year. for Investor operating business. perspective Keith the the guidance a a be on questions. will our replay results today our XXXX then for is website. the first our year first providing the begin will and XXXX -- before review This full by We'll of year on the of quarter

we and yourself session, limit ask please question Q&A to others follow-up the allow X During participate. you question X to to

we remind projected. to our will the like XX-Q cause are filings, and results on could and to more and from statements, materially factors risks risk that to to our forward-looking subject Form these for which everyone I'd making Form forward-looking in we and XX-K be actual call, Please uncertainties particular, today's refer recent differ those Before begin, SEC statements in most information.

the presentation, make to are reflect date references forward-looking All we today's this that Also, update only any no of otherwise. unless metrics stated we of specifically statements. forward-looking statements financial disclaim obligation to non-GAAP, call obligation our as opinions undertake and on and all

the presentation press in GAAP located Investor reconciliations our Relations are remarks, on which in non-GAAP the our today's release earnings Our accompany of posted both GAAP website. are results and and that to

section the immediately prepared remarks the posted call. following the earnings Investor earnings for call today's website be our of quarter will in The Relations

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

will to over Ken. turn I now the call

you, grew our to market X and for thank to everyone secure X X-figure by cloud integrated secure by you verticals. total It's our We our billing to SASE, industry for as networking and these execution X.X% including SecureOps billion, and and solutions. of networking putting all $XXX on our team. transactions, for XXXX. Peter, across billion of X treating billion advantages, across sales driven increase of secure joining $XXX SASE X QX, closed improved our SASE focus deals of ASIC as Thank on-premise All secure $X.X ups, across call. XXXX In and from total value expect in technology addressable and well a our span platform to increased

Fortune XX% manufacturers the X Our XX X the of XX including top technology X of customer base top XXX, consists XX of companies, top care. health the of of and

threats. Our automatically total SIM, performance with respond strong and from secureops to several investigate to billing NDR detect, EDR, XX% accounted grew including security billing and for e-mail XX% solutions, of

including a Web on-premise Secure with believe for market-leading New for Gateway, CASB cloud. into consisting is stack set single XX% firewall-as-a-service unified grew total only of FortiOS of designed and billing. SD-WAN, all company networking SASE the a and We billing accounts TLA, solution XX% for full Fortinet security that integrated and

XXXX. addressable ability In first SASE to expects Our QX, to SASE X-figure ] -- to represent of including market. for networking networking huge market the device. attach see overtake networking our of and features the support location for XXX-part momentum [indiscernible] tens accounts XXX thousand over traditional our CT as protect we market closed fultisize of to and is gaining largest new We opportunity our solution Garner the added SD-WAN worldwide by solution solution, we XX XXX quickly XX% for deal to a seats. customers. [ billing secure XXX,XXX

security #X firewall global is deployment. half network vendor Fortinet over with the the

operation virtual firewall, ASIC by cloud [ firewall power X XX physical and more function product operation together. to [indiscernible] required FortiGate FortiGate we XG ASIC a XXx traditional with The every ] latest XX technology networking [indiscernible] as for new based release. to FortiOS than power addition in consolidate native computing and In format more Converged -- based device service delivers regards with on and the secure security rating system, security [indiscernible] over performance offer secure our on FortiGate specialized networking within solution, environment. our computing networking all SPX

a new to [indiscernible] as access with announce great Xth new announced featured quarter. product. business-grade product first deal system start the Also fourth a a bigger and off us FX operating the our operation point is OS technology It fully full we in a Recently, vendor Fortune XX controller. is companies point making this security a a featured [indiscernible] included

AI. call about has words won't be complete a Fortinet been few earnings concisely without this company cybersecurity innovative an and

We every have in heavily and invested across product. function AI

For from and XX learning endpoint over more application to used provide products network, intelligence than threat and security. Fortinet decades, across AI has machine advanced

expanded Our service and by [indiscernible] takes days. for remediating digital within average solution several the where AI containing remediation and incident detection and tech automatically, industry measurement across

allowing AI the Gen efficiency. our also optimize effectiveness across technology have operational to entire security line, We customers been and applying product

will months. be already coming available the product more function adding the in this is [indiscernible], FortiAI on and

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

Thank everyone. you, and good Ken, afternoon,

a the we $XX were X.X%, fourth and flush quarters, driving quarter, from from grew early in closing execution X saw billings quarter that by each earlier returns transactions, and record as sales million. mentioned, on a improved deals had SecOp budget pushed which and certain Ken our seasonal SASE benefited As The muted of driven what investments. over

was for long-term SecOps For while illustrating combined XX% strategies. firewall these secured SASE transactions, both and consolidation XX% of commitment plus, billings these networking the exceptionally and large another mix, company's to

X at X-figure these deals. of look closer a Taking

regardless The because physical a functions planned for covers won these of SecOps a One for consistent included responses. XXX,XXX mid-X for mid-X SAS. at deployment solution We District deal to user School safe learning figures SecOps, top U.S. ability students of deals XX-plus platform automated figures a systems SASE a environment to integrate another this provide location. and single policies operating into and across networking of unified their secure SASE providing security and networking our and

And EA encompasses creating announced platform. win, in U.S. X-figure includes empowering financial security expanded Illustrating another a compromising recently vision and brings large secure functions with vision customers, Our them agreement third X-figure time without the navigate our a driving allowing while more as this with their with innovation displacement U.S. our partnership confidence the a showcasing evolving of enterprise, selected with foundation digital while to infrastructure security. in Fortinet the their Fortinet. remote a onto secure AI customers Built and enterprise at institution efficiencies. landscape to networking embrace XXG customers' transition for they deal, today's of them the first workloads FortiOS to the large total ATM cost latest FortiGate their the while complexity innovations to same ability rugged hybrid to working cloud the This consolidate architecture This competitive us environment. our our with ownership XXG their secured power security, their simplifying reduced support to cloud. and [indiscernible]

system by expectations a the demonstrating across multiple FortiOS operating customers' cases. performance multi-vendor addition successful In we our were exceeding and bake-off, single versatility of platform and use the to

of several the billings represented quarter, past over increasing with contracts large by investments programs. addressed these buying In our we Over fourth years, XX% nearly in successfully customer preferences X-year have [indiscernible] of a CAGR our the XX%.

included investments beyond The and billings Fortinet traditional recently, software firewalls, operating with has other SASE, has SecOps diversified of system element the business and diversification Today, and decade. XX% Most over sometimes cloud-based an our in single our solutions. increasingly diversification of is become over this cyclical key past the prioritizing strategy.

convergence and an identifying, increasingly security comprehensive security our adoption networking vendors security recognize to in that slower single way from result Attempting incidents. solutions and solution of gaps, multiple innovative best slower the of of consolidating AI-driven resolving Organizations technology significant system pace of run best and a the is improve security foundation posture. multiple together the and reporting can solutions operating a by is integrated security to capabilities. to also security piece while [indiscernible] drive FortiOS their

each and lowering labor solutions to Consolidation XX% growth Consolidation and complexity, share security to skilled e-mail the ownership. and drove business SIM, EDR, NDR. total of data with reducing improving other, cost security communicate allows the for security effectiveness, growth, strong need from SecOps our with easing

to respond the customers business, SecOps cybersecurity is Digging our with little of to of execute the XX% fastest business deeper these XX% as to growing SecOps, existing with segment vendor SecOps XXXX pilot leading and solution, into Fortinet. complexity. billings. emerging the for Extending shortage their total consolidation labor companies as contributed strategy for reduce XX% their international Geographically, was the our strategy extending SASE Importantly, companies a our billings mid-enterprise and billings, look single conditions to likely economic of reflecting the is look further, way XX% system of the increased stronger operating vendor accounted success the and and single consolidation the project. the

are XXX% Our of SASE building over pipeline our pipeline. sales up as reps is more

largest SMB the increasing mix quarter-over-quarter. customers X was at points expected, the of segment As SASE XX%,

has customer-friendly pricing the and most models. of one Fortinet least complex SASE

Internet Firewall and bundle access. standard Gateway, for capabilities, Service including provides all as Secure system the X and solution X Our secure Web operating a

providing presence, data private Zero SD-WAN as and and secure CASB protection. well our of access points loss Trust Network as Access from

Our a [indiscernible] scanning. protection and customer integration which for with and service also client, single as solution vendor endpoint SASE the to includes vulnerability provides

of SASE customers. completed Over training investments in for XX% our sales focus SecOps. our and force and and Regarding SASE sales SecOps, customers both XX% new mandatory SD-WAN represented of SaaS has global

workshops. of at XXXX, customers our and partners least XX In XX,XXX training attended X

we've points XXX over Lastly, locations. presence worldwide of increased coverage our to

the X.X%, strong On the in improved with the the with U.S. $X.XX and together quarterly U.S. Total X,XXX logos. led results. mid-teens enterprise new driven strong rebound billion, in billings to by now enterprise. basis, financial sales geo up performance billings driven way growth segment, a were execution the large by the Turning by

were provider of X government top retail and of industry remain wealth terms with approximately services, each under our verticals, In industry service verticals, and pressure. financial growth XX%

contract term was months year-over-year months, X and X at deals, months. year-over-year contract the term was the consistent normalized Adjusting XX about sequentially. average X-figure The and XX sequentially for

high to security revenue revenue services however, Service driven strong the tough growth SASE year grew outpaced the end in prior drawdown period, the due by million benefiting Service SecOps, XX.X% gross was grew XX% margin product of the were and to the towards XX% from points. Turning subscriptions. gross grew by accounting in service mix $XXX XX% up to services. decreased by strength and service were revenue up, the revenue $XXX million other guidance of billion, Total higher-margin basis costs mix range and XX compare. of in driven growth gross a Product points exceeded X XX% bookings increase to shift driven a revenue of points and basis revenue of X-point basis Total backlog. benefit XXX was up XX% margins revenue of XXX shift Product product service mix subscription margin revenue revenue, of revenue growth. and points total labor $X.XX to the security shift as from by Service revenue. for margins.

was very guidance levels our gross of high end XX%, we margin above and continue down to range high points million of implied X.X margin the million inventory was Operating income at XXX as guidance management. product aggressive operating of basis were transitions. end $XXX and range pressure above to points cost the margins reflecting Product the related $XX see strong

million. Looking regulatory XX.X tax resulting on share including XX cost paid in approximately $XXX onetime statement taxes million. $XXX million, cash Total from the shares the accordance cost Slide of a and U.S. per million SMA $XX.XX. with earlier summarized payments cash flow $XX to in of quarter that expenditures We deferred were $XXX cash million at were for were flow million $XXX free XX. California of in and of average Capital quarters an repurchased relief,

million service billion tough XXX growing mix to on revenue. up $X to was billion an $X.X overview the a year we XX% full to XXXX. compare security resulting points a and grew increased a of $X.X very $X.X basis Gross XX.X% in revenue new margin after the from XX% XX% Service to added Billing to increase by billion, in XX% also margin grew basis our XXX billion Moving benefiting Product $X.X totaling revenue in billion. revenue points to calendar customers. revenue results. up $X.X record mark, and operating year of XX%. over Total XX,XXX Operating to income shift XXXX XX.X%, X% subscriptions. grew driven of surpassed

over the increased to adjusted be operating $X.XX. Earnings came one investments, XX%, in over XX% of real flow including billion. free share margin at cash Free highest was at in Free to continues per industry. cash of was the margin flow estate a $X.X GAAP margin XX%. The XX% record cash the flow

For shares $XX.XX. of million the cost for an at XX year, we a repurchased $X.X approximately cost billion per share of average

Slide on summarize XX. To

has X the Earlier our authorization $X billion. the via $XXX past repurchases Fortinet authorization share approximately in year, million, an returned billion $X.X the shareholders to by repurchase this board to repurchase bringing additional increased share remaining share years.

on Moving to guidance.

of lasted activity remnants quarters customer X firewall of slower look and including buying growth we guidance XXXX, to by product cycles quarters with supply firewall have several years chain XXXX industry cycle, the higher X Prior X As XXXX factors behavior. growth. followed impact approximately of and life

year-over-year product X digestion. we and backlog of growth quarters product first bookings. and in of approximately for The revenue and Worldwide that our backlog, tailwind comparisons in high should at to distorting bottom XXXX. in provides to single-digit record of tailwind started QX product half billings a Looking early mid- percentage a decline in resulted the The suggesting XXXX in of supply to double-digit experience the period. that project low the cycle growth cycle elevated chain purchasing ago period creating challenges drawdown 'XX, current

challenged. be the year-over-year of The in the half revenue comparisons XXXX, product first most will

the in and grow quarter to the expect mid-single sequentially low XXXX. we digits of in digits remainder to grow single the sequentially for at first While to low revenues service

In should into the improve expect project believe half and to in by will the growth digestion of and selling XXXX. addition, in continue revenue we product product be XXXX impacted we second and environment XXXX,

the which the call. regarding and a are information XX first forward-looking XX, quarter disclaimers Peter of the on Slides year reminder, to provided full at outlook, that our As and summarized subject beginning

in in billion first $X.XXX the the which growth expect at decline $X.XXX revenue billion, which the quarter, range $X.XXX billings of the to For represents of to billion, midpoint represents we of X.X%. a midpoint $X.XXX billion X.X%, range at the of

to million. Non-GAAP transaction XX.X% of the $X.XX to which XX.X%. to XX% XX.X% $X.XX, $XXX of non-GAAP margin including XX.X%, of non-GAAP earnings million, share $XXX gross operating to margin assumes real taxes that of of Non-GAAP in $XX tax between million count share a $XXX per closed a cash expenditures Capital earlier million a of estate and million. $XXX quarter, rate of and

in revenue of For growth billion; X%. represents the the range full $X.XXX the $X.XXX year, midpoint of to we range of the $X.XXX expect $X.XXX at in to billings billion which billion billion,

the margin $X.XX Service gross tax share of rate the on earnings Non-GAAP $XXX margin begin XX%, of between revenue a billion, $XXX million look I assumes Capital XX% to in midpoint to progress of non-GAAP XX.X%, And represents back $XXX to billion range you coming XX.X% which operating hand count $X.XX, at XX%. forward non-GAAP million; million. which call of $X.XXX $X.XXX of now $XXX the to of share of I'll the of our cash to growth to per non-GAAP taxes of to Q&A and the XX% in over Peter session. updating expenditures million million. quarters. $XXX to and

Thank you.

[Operator Instructions]

the please for call open Operator, questions.

Instructions] [Operator

with from comes Boolani first of line question Citi. Fatima Our the

structure the front. the how to able I performance. of that hold line revenue of and are volatilities, to creating on factors fleshing in in be light your on expense wanted was volatility top some Keith, really these to billings the appreciate on what you you I the out are line focus both going But

profitability? now. about flow just you the large able have line you're against volatility, structure, And help the lumpy, how for duration OpEx by seen on top assumptions influenced manage then positively have cash to we for these free you with Keith, very So should how if the extension, think deals that fact us appreciate can your along cadence that

Yes.

in the far are close we're in too specific we of terms understand be backwards of experience in to I going about, get think to And the deals second us of they're it's ahead to of or kind going not those. large the year half terms actually part think showed with those forecasting served when the that very to I difficult ourselves well going last what has talked terms deals. middle of that and

So I think we kind of aside the you the set of and some performance in those in saw quarter. that fourth

is margins, comes margin easier is than think it of terms In it business when model sometimes think that the the much services because provides to I of so business. people

and the throwing a you're model business where it's in seeing through up you're the hold period rich If time refresh still even X/X of a margin fairly out cycle, margins very your services, is firewall nicely. going

scale subscription. also in there's economies the the support it's think significant I security services whether or the involved of line,

offer those the And and the last of are the both the is incremental then to to hosting market. time bringing and the SASE that think costs I some solutions I would breadth serving of for solutions spread the SecOps together solutions

line Hamza question from next Our will of with Morgan come the Stanley. Fodderwala

AI, more do particularly how but traffic firewall sort incent innings, last network in the these led secure I growing refresh going cetera. et know network traffic. over curious, going significant of seen hybrid forward? a traffic, that's to that last it whether years, work the pretty impacting cloud increases of over some refresh I'm and that pretty to years. in think do it's healthy Ken, several early very see home, the be firewall some adoption, you And adoption you And generative network context, of several to more from more we've

security and and the refresh some switch that lot of Like enterprise. In convergence we security cycle. work also adopted some also firewall network the other enterprise the new there, we It's also to of to more will big the kind OT that definitely, area by data historic final of see a with some supporting we the but a for mentioned provide in see even do internal call home and the made term, replacing of we kind technology AI we also refresh. some the the segmentation, of get a also we lot traditional We the script, and starting lot -- not opportunity, more long increase operations. traffic see Gen

connection, will you, to with And the I also So of that's traditional also be increasing, reflect the need work and a especially also online connected kind be secured. firewall. lot new devices keep market more phase people to time, generate more the compared kind traffic agree data, next the which will But same of of additional at the quite AI remotely. also

So good a long-term pretty growth. the we see for potential

with line Our next question from Essex will JPMorgan. come of Brian the

secure SD-WAN Service this getting it with relatively quarter? of us little I include deals guess more you that Edge? you to correct, better metrics nature does see And But a give like to SASE? know a with behind is you're And maybe you've kind to to for guess, trying SD-WAN? we're penetrate the SASE. the kind or component. that. recall, component. is the bit if don't doing you color can What I out look pivoted little SASE of the Secure to focusing service I the color bit a for bit I the dig do traction well what edge of in of SecOps I on kind of quarter, agnostic SD-WAN the as Ken, what of and if bit little a little performance could better Maybe and are recall pipeline break more pivot in towards, And What quite you

And on and SASE deal recall, can the started tracking field And X-figure we Keith's we also starting SecureOps trained script, that focus also sales our SecureOp. X also secure during the of X earnings in all call, separately. also all SecureOps. the been probably and networking, for XX% SASE SASE mentioned You force last more including certified the

the see grow the it which traditional during cost, operational model and consumption especially can faster, see more do SecureOps, We the the we environmental grow do probably secure of networking faster than lower which current So kind area. is also SASE, refresh.

where these of focused even and makes So focus both success, see also grow the the We SASE we kind redirect deal, figure excited. areas. closed of we more the resource some pretty also that's pipeline deal, first some on X X feel which a pretty huge

SASE this OS-based deployment we some is for we all customer -- I some do leverage service all or for function provider integrate the we solution, huge advantage single himself single customer deployment the the their SASE advantage actually SASE whether which the even -- FortiOS, service which offer the think is -- it's whether also the into the and a [indiscernible] have SD-WAN, see firewall have SD-WAN the or the to base.

move pretty had. strong So pretty good it's see a growth. We a it's we

Yes, that that you think Brian, the point, take and us think pretty the with I we talked And you will, of SSC I element you're about. interesting that with focus Ken a would follow results, SD-WAN, more developing just -- your what what up race asking if -- I if And does kind on of have to less kind SASE internally. horse you on mean? if of

range. We'll time does, at see this but the growth. they're as terms If you of quarter. in the in the how close component in of the and XX% at SSE what both SASE won point very, SecOps business, would SecOps look probably think growing very you

you And about then think component. what talked metric the I think be is SASE of the would as we would growth that gave pipeline around we really the other XXX% and

Our of Liani next Tal America. the from of question will come Bank line with

year? this questions this the flow then happens to CapEx? cash you ask materially going What to down the drives What year. drill next I'll CapEx It's together. flow outlook flow to increase is X the free is cash happens free Can What actually year, margin. easier. cash for margin? free what up

have I the business. is on question second The

very and guiding were strong billings quarter, to quarter, that's be X% but declines, what This they're roughly we weak, X%, to. supposed next you're expected

in line is. was there of kind So pull forward, but that maybe means some

billings the we expectations? And strength? so don't So -- drove why strong into the that next is happens it why quarter see continue isn't What quarter? what versus it this

Tal, take in. calling places best we'll You continue work build CapEx we to our we deals. both look and so that team thanks to I and labs things out want engineering forth. for in think need as to for forward or On CapEx,

element continue ability So hosted of to but -- solutions. to that, hosted our an deliver the also range I think you're wide of seeing

I we think that, those are driving know time making over as there's And we to the a I CapEx. decisions us. has long-term ROI as are enticing here things said real that of investment as a before, that estate been bias that of period with longer the investor. always very a And

then quarter? And things. about fourth to forward. but to we're really in each we're I record, quarter don't And read We think the lot then quarter I X-figure them in doing and of deals, comps I the call, X-figure does of and challenging through we is, XXXX the as tailwind in X, performance in a One very are business know think during we couple product your first we being spike -- the on the number. that revenue we go line talked and of the like of among line A to in that second quarter fourth we're billings as forecasting the pleased fourth every first deals the the And the question going translate what probably that most that does that with in on the put also quarter? a saw that obviously, how on quarter the that see. think

cost [indiscernible] own actually help and also a drive a will service kind of competitors. especially high of infrastructure, we going growth, operation long-term. our forward, margin lower the probably us That some of SASE, percentage than better -- much some give gave also future us on that's which like some Also, cost

And -- else? cash because go the is something specifically to flow, trades flow in flow expect cash you stock can down? your free increase cash free CapEx offset it Or on with free

there's into obviously, of a lot levers that Well, flow. cash free come

in that really know. for free profits, and all billings I as We takes, have is think the the where growth, free it. in guide away I for et early The that's in but that I stage. all flow from of in saw terms cash the XXXX, of think But the the Street not flow, go the XXXX you at to year, you was look cetera, components ballpark that full puts far CapEx, which what cash where this then operating is don't we think you we one into know

from line question Gabriela will Goldman come next the Borges Our of with Sachs.

I'm looking you're the at the to of SASE end. understand higher that end seeing lower market the better versus the dynamics

firewall of So SMB of pipeline. of terms readiness deal terms you're get part in the you're sizes are maybe deal. regular you convert And What SASE seeing the in seeing any and competition? to on commentary what of a of what terms SASE in when willingness seeing uplift terms average you in a deal versus

market, the some things. also cost, SMB do than security even all because using traditional competitors, bigger interesting. customer management SMB or a We well other people quite kind whether pretty low a percentage SMB the firewall has actually the for any these in is other of but any network pretty of costs

in be the sad ISP ] That's it's probably kind we product ago to but consumption of helping solution also also the probably a keeping in position strong helping a which more like model. definitely can well more a using more see also of half refresh, kind also come model. combined have this us new it's there. brand SMB. customers, where half a kind doing environment, [indiscernible], that's [ couple X. only SMB a second long-term of In the Yes, we in I the year, way current towards probably product leverage of of the said, the the pretty we're like SASE some hand attractive And So are CapEx we of compared -- like new retail there years both drove

we both see where some have do and Maybe John, more model. SMB that's this interest addition? enterprise, do So they any to of Keith OpEx kind

number customers the is okay, enterprise the bigger would way the buying having yourself had figures over products we the million of and success by some X.X testament on that Whittle, just -- enterprises I into in there products, it's with this kind to way, a out upmarket. and John and say in comfort deals products say, the we've gives really product market our improve many X and of are along both and enterprise can bodes going both the our out SMB in we got customers testing and in providing customers customers strength SMB because the to that in spending well so feedback discerning real are these many most and are customer's SMB our so services, that the put forward, have shoes and and products and of a you there that

that the think bodes and forward. of of the going segments I kind the larger market really smaller segments market the for of well

a we think most success this discerning from I there. real with that's of quarter the terms had in customers some the out headline real of

next will from line Our come question Barclays. Saket of Kalia with the

for I the little billings in want just maybe you. bit about Keith, to here a talk XXXX. shape of

then that for are those prior growth sort sure that rough way, year, maybe this sort was at segments across -- or we X%, guide? thinking if the X something midpoint. And this part the the X revisit. the on about of think we segment of How year? I something the billings as that it rate about was great get we we I just not by that's know is give could ranges for at How can about talked think about midpoint the segments. in billings quarters. the of take, I'm detail, this we to should relatedly, exit

Yes.

will, you if I quarterly back the of I you about expectations on rate backlog the first if you will, in half our be I go through suggest created through the that, as this And if tone that you think that a conversations our trend, of the year. year. gave the right year. basis we headwind, on will, And as the prior think should improving move of heard would billings some to the guidance the that we before would billings move I are growth

by well XXXX going question, sales it part the think fourth I the of strong probably the to fairly such tougher think they're I'm team bit fourth having a And for the we quarter second there. do then was... little I But Saket, made sorry, of XXXX. a quarter on of

the of growth this growth X sort rates for I'm do to but networking, right, you to you to this it, ranges year? not It helpful was and secure on going for X segments just SASE of It get hold segments, the relative was the quarter. SecOps. about those sort think how

billing X X would will. contract will duration shorten that answer I'll the segments, be there's probably we mix concern of call. I that lot in heard maybe because have contract about it, a so of advance during forth. been X.XX, these contract a And term you business average that years, you basically average and if terms, the you term. call gave we X at in business context runs data questions year And have or look the on SASE raised competitors that or SecOps when and know the the

SASE read-through you a gives while impact the SecOps SASE in the of take opportunity will, kind or from really And that But XXXX if think with for that be have it. the there, terms the of duration. to pleased something hanging you for to of SecOps. that term and very head that range. we're SASE contract to growth outsized we're and we'll I or on completely out about our we excited SecOps. realm know -- don't It's I So with If reality, of going

Yes.

company from data, latest market X it's QX, do company under firewall the we believe pressure will reporting. some For half do a because still quite like do well year. long-term of will converging market hold needs security out the the But application [indiscernible] is the I first of the manage read segments, probably year-over-year. in the story see that. probably But this -- the flat having have especially also kind don't QX, we is which to [indiscernible] level, a I network but to

the or long will do where market market to grow. the firewall security network continue term, that's So we see

adopt Secure easily together year-over-year they for smaller customer I of this Ops can feel have a existing with X SASE which on additional probably XX% the they already and probably about And maybe little customers years. faster. bit a customer, we [indiscernible] us, X lot next additional come from X around base, also solution in also to grow product.

company probably So grow quarters. to that and than few continue the faster the faster X average sectors will we the next grow other in see

of question next Fargo. Our Wells will the Nowinski line with from Andrew come

recent it driving So I pillars? to was the Is do I was just most a you're then SEC wondering and X lot you on guidance look your billings was about if the that? where see wondering you those and pillars terms talked the if if the in touch the second, could to as risk SecOps expecting you could for guidance pillars. relates And and X that that related wondering, regulation. we've maybe at of your other performance we from year, what's I

and like together, you Ops total Yes, That's multiple to management solutions, customers the lower security automate multiple together. need is Secure more actually also cost. products have helping where integrated efficient better more the and

we we company small, because So the see investment of probably do they we of the And are operated the important and be they a there. security SecureOps on area together, that's role where play a networking which with see see to during current area. also, operation do our lot worked environment, quite which all also leading can sure the the and together, SecureOps the this make merger

Maybe will add model, current But give to want more bit appliance. see where well. that we see see John environment little be see than that's kind higher consumption a growth. like the the also So that. it's SASE could so of customer a some. SecureOps cost pretty flexibility Even the the and is we strong

of what as there for lot seeing think a the customer we're I driving landscape the SecOps, And threat well. is is behavior out

really ransomware You to that customers. attacks see these are debilitating

to to is issues important time And but And separate over I remediation customers. these also, it many, X detection time our pillar months so as we've building a but many to really note, prevention ago. record for and it's solution would on important, And QX. is just years, focus money. And really been real and started are critical we really this then we a had

I success there. much putting really so The sticking that so our to sticking coupled first, And we of focus think of plan, pretty there. We're driving customers, can see focus plant. internally, with is working. we lot we're that plan and help to is the new And of our opportunity the customers degree the actually a how lot a

with come will line question of Zelnick next from Our Deutsche Brad Bank. the

John I for think Keith. got one I've one Whittle for and

the disagree I'm back to why it's you cycle saying stepping XXXX. relative curious but that role else for I'm COO, you talk the John, plan the expecting? something if you, you're full economy how half And in say also your And to broadly for as the to the just expect just guidance And year you improve you, and in selling you, you first Fortinet's and said firewall recent appointment you can just in perspective I the environment about ever your your you drive not Fortinet's forward? into or First, on if for comments it's that with made dynamics into that business given the help Keith, that. comments, more

a has about team, the business think the in Thank people learning differentiator addition been through here over and And working I've growth. an it's focusing is innovation lot really and those on for a question. years core for to steroids. XX Fortinet. focus technology, and Michael really years brilliant like Ken been the from They're XX of for excited and the [indiscernible] I my MBA which the role. I'm

straightforward. I call results. smart, deliver almost and an this and what our organization. innovation-first straightforward hard, faratocracy and is innovate really very the are think and company. a the work put Ken throughout It's customer around I Michael work culture It's We And drive first

years, But been accretive to here I it difference say really to make -- people a I it's really and really like I so And me need difference. my positive career. gets a with the more some get XX culture. I've Obviously, excited

so customers business. about their our protecting We're they get can

legal like dev, I'm I focused systems, And logistics. I until now, adding terms taking real So that. really estate. contribute I'm can manufacturing up on and how I've in over corp corporate of and

sales set broad closely have work we're I very be I our in not really And one will sales We responsibilities. teams, X a with here not really of way. And items here. always culture managing also the have the I boxed but so work together. top of continue is a team. I in Teamwork closely. to will work

help grow by with support to I want to grow that I we've capture opportunity team, and that. to forward opportunity I so sales them. and and want do the the a leaders, got We've And customer first. huge great the working got to to can I want putting to look that extent we

have based Fatima's and a Keith as line, also but we disciplined on very where disciplined costs question on on managing very have basis. the visibility top the earlier, we model on at we we're And kind real-time this deferred lot side. said, the a services revenue of also cost the of are monitoring

other costs can quickly you more control sometimes things. the than And

to what -- I've and we'll kind basis, real-time at so a continue we're do on very is that noticed of And good that managing as well.

also which the Thank innovation. on us teamwork culture beginning, gentlemen. also our and is form and openings company you, also John the help

growing So culture keeping together. and we'll continue this to the maintain company

projects. think part I quickly, firewall some yes, And the But and deployment logical you firewall has of view cycles Brad, probably its of on coming of of of you if the the is products mean back then and And point of to purchasing obviously, to the digestion the should the it. I other. kind out, look be where that peak play was cycles. you to end more

will with Bachman Our from line next of the question come Keith BMO.

or about. Magic the on you I on one is guidance. [ There's X SecOps. billings, you the on and is One Quadrant strategy improving One broad variables you efforts market, however the you surrounding questions. helpful. is on to incrementally one need side unified Gartner the product strengthen think and feel such question, it. SecOps. within the ask about do Peter segments you your R&D, very will, portfolio go or incremental or it's the within your and go-to-market on disclosures ] as positioning wanted the excluding unified again R&D, SASE to if I Two for SD-WAN to you've to strategy focus for to Ken, want things I'm is on Keith, perspective product thank the and the think wondering, also that clearly on increased the SASE,

you efforts? go-to-market think as more the it's well side Or both both that go-to-market. incremental as So is incremental the R&D it and

March time, given in question. the the the does it interest on seem quarter, just of And not very I'll second and quarter, conservative. really ask the on in the the just guidance, focused I'm year, Keith, my performance

quarter. you you're little December normalize You X% much expectations backlog outperformed bit for and maybe that. sort the better guiding digits, for mid-single burn, the a associated of if with than of And very even your kind

seems so side with trying is very way you back I'm conservative want guidance. year? be Do the to reconcile question the to to it do half think that perhaps to like returns product the Or to just on you to we Or of there's what guide. as levels? guess the a conservative draw think about on you seems feel billings product get normal anything that else do associated demand the pressure And And I how the some industry like side? comments ask you

SASE. more question to both, we want about do good even very that. Definitely, than Yes,

to see but So help do now with few time, we go-to-market them ago, internal a changing have can working over we more probably strategy direct other like service any internal more we service the SASE, the opportunity provider worldwide, it go-to-market itself. match our investment important, on to rather more is were PoP R&D mentioned, in SASE, the same we try our because dependent also months definitely the the carrier infrastructure, At do XXX provider, competitor. now

also to the solution easy deploy, much OS huge lot also of are ASIC and more more that and for then to accelerate compared time, make easy to use innovation opportunity advantage so competitors SASE put and function, better, the starting see a our same a manage, functions and to single definitely out the SASE will At in we also other SASE. more

which see forward, It's the private not success strategy once using we we on see SASE [indiscernible] of time, a traditional behind. approach, so but At we also lot huge same for go-to-market opportunity the focus, on SASE innovation technology, technology. going work our the as SASE also SASE, developing both the just on we a cloud with

on appreciate us. just thought after middle tough I of kind the year And year a the for of last the Keith, guidance,

have in in keep probably we mind to think $XXX $XXX comparisons, I million me, the headwind backlog do the of and backlog related if impact that for year. or year-over-year will, million between So you

product product I provided for in about year, of the can you revenue. commentary revenue of we're from for about some the to and think also where relative that service get a talked the we we thinking should guidance kind impact before specifically sense what right revenue what you see of

full line think -- of us. some opportunities on I see in in service all, guidance right I think with appropriate the now I number year we I do the we're -- that is things terms come where for all number revenue think year, the that but an Secop in from SaaS at and

the Oppenheimer. next with Kidron will from Our of come Ittai line question

couple for A me.

customer category you those is changes entire do your competition than on in SMB the have SASE, I of frankly. so comp 'XX, place in specifically think that's regions, making or made a talked you SecOps profile different Because kind in Then and stretch of seem little who meat move you the don't just what enterprise talk the more can or you on incentives on comp a categories? side, see you about competitive bit SecOps -- as you've the First, more more the to to the you position kind front, laid Can kind you're in SASE. on way color the on of and and share sales into more given where largest 'XX. have on

those we'd versus more categories. love who you bit more into get So see little do to in a color less

together the we Yes, kind also goal we fuel what's cells and tie kind the together. also plan move can what's and of of company comp keeping success sales how and try line improving to and up the

of towards long fact kind model of modification some which the plan, more and of some behind. the is on on comp also growth the kind there service-based term, company that both So the the move margin and there

the the kind of the kind also and lot in a because training. efficient. structure do whether That's other of sales also That's and go the of need areas, right [indiscernible] kind and force keeping the and new So big now. that's a lot area SecOps invest also of enhancement SASE training we of also through sure more making make where

some every comp this add plan Yes, makes time things and conversation, year think on to to couple and plans of probably go of -- is where I a changes. out, company just that, make [indiscernible] I'd the the

real after probably and than quotas think lower work XXXX think other this it. adjustments at really is that to on an have the we results, that put investing sure is they I bit out year But a we in building to that in want we're the think team XXXX, point, things individual some appropriate. thing on on sales quota me the Ken's the direction are making to basis jumps make the the I and past, in probably in been the the for I little

our we're the different us question SecOps But with this is of the really very, surprised On terms early we're about the of mixes. was the feedback very in getting that, see together XX% parties having place the they're conversation. and success And Gabriela's having SASE goes the and The to some back to success SD-WAN the from business. pleased there. not We're customers development to customer logical the of I success. see SMB third with and product. SMB SASE, -- SASE before, SASE at portion think stage, it shaping of probably of up about And

customers, XX% ties the read of are firewall high. SecOp to flip successes into now both enterprises very, the going the SecOps expect you're almost Where to through about is mix customers repeat we large think the side, On very would And being those have I the business. all consolidation. i.e., providing And what is really opposite, segments. that's that buying about but the it of and product business of

and if get X [indiscernible] more SecOps, secure comp SASE And solutions, solutions. all X sell or sometimes they also partner, even compared they sell networking, maybe for only to and for X sales our a

the we field. that's offer additional the to incentive So

base? the Maybe majority footprint. much as SecOps Is customer a installed traction existing Or opportunity SASE of follow-up, it you of outside. the just here how with Keith, here pulls also of our in and outside vast is your

Yes.

as Given out, XXX,XXX customers. John over pointed have we

right? representing I'm been but business. talked So I never new thousands with logos, numbers, new don't anything large an about for okay We've base, they've hundreds that's And new years. of -- really XX% several of installed more logos think than the

firewall you're what think such the come company talking is So is more the expect with the really and I and in a and a -- how want of that those I if SASE because I was, into into don't advantage ASIC system with Ken that of and sell this because like that, the opportunities performance probably I'm you for space and seeing more them white salesperson that have other embedded more the company. security then going product looking change I'm And not that. about. that's accounts. any SecOps enterprise that price products really been to operating compelling And the John to back have that empowers

with come Our James. from Raymond next line of question Adam the Tindle will

Okay.

everybody Let me if see here. I can get involved

wanted I call. Ken, with a point SASE obviously on the So to pivot key last was start SecOps and

competitive your could those As areas? summarize in technologically internally, you you focus advantage on that more

for perspective, quota John, logistics those kind areas. retirement related a kicked from you percent land of be might I been What sales of a logistics? know And it's did to on around

pivot And of SecOps. result SASE sales that for lastly, Keith, expectations and for productivity as a towards

it's wondering like down, do because drain. related on you've much Just efficiency it your looks what I early seen observations margins not expect to gross margin, think but total you somewhat

those productivity seeing you So sales a from areas. it's just perspective what as pivot to you're

Yes.

function, CASB, there. in in SASE, all can are ASIC has service, or the deployed we For all using our the a the we [indiscernible] a operating SASE form system cloud be believe, only single SD-WAN, company, all on web [indiscernible]

that's service a both advantage, customer, for provider. huge for the the So

is more also better from like we e-mail we it automate together. integrate, separate whether than automate develop side, web, comp difficult application, SecureOps these when the a from integrate, we most is internally internally all more on different much that's this develop other or endpoint which product think acquisition, all to the product competitor, I because

the but a the fabric doing is more we the help years, SecureOp, wants SecureOps that's huge time now a for which hear the we they forward huge pretty also have going that So which also We training and is huge usually to advantage have. been like X I've approach. drives call the that the lot. field see customer successful, kind XX a growth of same and which advantage

the then the other that's advantage much whether and So SASE [indiscernible] competitors integrated app secure OS salaries we single better can have, automate the approach as as than use advantage. gave together huge us is

the of no on comments that, there. quota question, Keith terms may change additional there's but really In retirement have

Yes.

very are same. I think OTE and the numbers targets much

we to productivity I XXXX. the pretty now obviously, move came we we of terms seems the It we exited exit off expectation for of what XXXX that modeling, if XXXX, a where think through have in I on think And saw down. kind as year, terms XXXX. as you in similar productivity in sales much will, is of leveled

then the lot that more something XX-XX On to talking numbers. XX-XX to direction, about mix think what they of there's growth -- salespeople SecOps changed SASE term and probably back a of to to pay about, the I I a at that the in growth the conversation make have be about shifts contract level SASE the SecOps had share that kind of those probably if the happen. and becomes earlier some or I'd part the dramatically in to fantastic go get than talk we although fact terms and

today's question-and-answer like to Salkowski concludes for to remarks. That the session. call turn closing back Peter I'd

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

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