Fortinet (FTNT) 2 May 242024 Q1 Earnings call transcript

Good day and thank you for standing by. Welcome to the Fortinet 1Q 24 Earnings Announcement Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to our first speaker today, Peter Salkowski, Senior Vice President of Investor Relations. Please go ahead.

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

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

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

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

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

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

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

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

Ken. to over the turn I'll now call

Thank QX, increased Peter, first joining with and our call. basis discipline you, everyone operation XX.X%. record quarter and points a to our XXX business for managed spending we've margin thank of you strong to

cash from and our cash unified a operation XX%. focused million, We We on adjusted SASE operations accounted flow of in investing market, remain generated was margin and for fast-growing billings. also quarter record combined flow which of X/X secure free first $XXX

conference market to partner and We adopting share, and customer with solutions. attendance SASE differentiated networking nearly leveraging discussion year-over-year and advanced networking accelerate AI month, secure continue our participants, FortiOS gain dominant to XX% FortiASIC increasing new our X,XXX our with security Last number increased of industry-leading an the our unified technologies annual our large offering customers. and

total solution, quarter, year to For the this for To plan our introduce XXXX. in new customer to we XX% billings. prospect unified promotions and unified SASE accounted SASE attractive run first of

For several solutions. reasons, toward service we come no universal differentiated believe secure close company

technologies, providing First, Web we SASE functionality user, set SD-WAN and awareness to and one ZTNA, location reduce content, Gateway, security have a and FortiOS. application, networking CASB our the tax. firewall of comprised and system, include into This single operation developed Secure full market-leading unified the device all

and customers as both SASE Wi-Fi IoT for deployment SASE for as Second, offer FortiSwitch traditional points easier cases such both efficient. and of traffic PoP, and more sulfur be agents cloud send in such OT with to our devices. SASE broad less solutions for security cope access increasing Fortinet endpoint unified on-premise unified and Last, can deployed peer the risk unified the and and use higher solution latency agent is

as emerge unified expect differentiated our the We SASE leader. to offering SASE

Last third-party earning secure Gartner many service for been month, awards entered years. has edge. for approach we Magic platform advanced Fortinet Quadrant

in the Slide on the investor presentation. shown XX As

a while edge to service FortiOS built the in and operating recognized the system for the offering wireless security SASE, of leverage energy network and one FortiASIC single performance lowering line better SD-WAN, infrastructure. Fortinet are is vendor network security and only increase on cost for from all secure the Magic and Fortinet consumption. vendor uniquely Gartner enterprise firewall Report and more computing functions power Quadrant

the Fortinet secure are gen FortiSOAR, is competitors which for AI our than integrated FortiAI of languages. security assistant. And generative and in networking X% ultimate ask being industry-first solution, together products. technology launched security and of FortiSIEM both total as we to FortiAI across and accounted billings, initially today, deployed can better XX-plus Customers our for part IoT announced AI help

security solutions, secure OT the the also security network leader of of device power, OT most is has the a device and the compiling new in fastest-growing experience billings effective most space Fortinet security. with making market in limited online, connected

advantage functions, the security we a XXXG, with real-time and were power customers of efficiency. petites fire Today, announced and computing SD mid-range with FortiGate industry powered a industry-leading that We're FortiASIC performance by provides SASE X new rating performance expected our networking enforcing leading unified and secure average.

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

Thank and afternoon, you, good Ken, everyone.

the Let's start quarter. with the key first highlights from

the to Ken macro guidance business range a high XXX through end the As basis continue to margin manage uncertainty quarter of first drove operating points. record the XX.X%, by of we and mentioned, successfully exceeding the

from Billings their million subsequent a their $XXX and flow margin respective Free billion 'XX ranges. were QX in $X.XX within XX% of benefiting of revenue cash collection and QX billings of $X.XX cash strong billion guidance flow represents free of 'XX.

more in billings at Looking detail.

SecOps by year-earlier occurred strong to last billings total growth, first year's contribution by that was created While billings unified SASE backlog the declined The in difficult X% quarter. expected. and billings comparison, driven as performance delivered the billings

and of were a outstanding benchmarks Unified growth bookings in first just SecOps down Total the quarter. across variety had SASE slightly.

include over large scale, SD-WAN both base. our large significant pillars with XX% SecOps mid-enterprises SecOps customers segment. addition, SASE be respectively. into SecOps delivered XX% billings. in even unified progress -- customers saw our of over an large pipeline and more increasing unified targeted are with and existing basis, billings, unified largest and for These XX% billings. SASE customer XX% SASE have of In investments proving and strong and installed unified cross-selling delivered we Even from representing unified growth, and Existing XX% XX% SASE. SecOps. in our On for enterprise of Larger SASE enterprises to

More importantly, within SASE, over is XXX%. SSE the pipeline growth

noted, Our and investment running SSE, Magic again, We as in trifecta last by the appears recognized Quadrants, SASE. on SASE Magic being And single in system. addition operating is SASE recorded Quadrants, Fortinet to third-party recently we security SSE, single Ken agencies. month's Gartner SD-WAN all Gartner with now network X vendor a

and interest and our unique Quadrant Magic more example customers runs an operating most about customer was data surveyed platform To offer on features interest agent, Accelerate early loss month, that digital as remote one shown one SASE's increased in and connectivity. including at third-party our data experience SASE with conference new SD-WAN our learning one prevention have of active demo Trifecta, advanced lake. browser system, one monitoring, SASE system customers end-to-end the last management booth unified SASE functions With the the isolation,

the regulations about been CMO who who and us hear the marshals As breakout of our breakout accelerated would are for eager for more even this have SASE if for higher attendees offering. attendee that wasn't the number SASE partners turn a forced to fire example, it to XX% The second away the session Nearly session. joined customers

connectivity solutions effective and more We're support Fortinet. example, worldwide peers. at partner committed single the is is partner, in on most Fast one Fortinet, technology training industry SASE but technical offer consolidation launched And to already our with security a session, customer #X only third-party to SD-WAN which Track trending final vendor driving new not January, SASE SD-WAN. Fortinet, greater training to partnership designed welcome this program with attended only The

In by seat XXX,XXX new their we new Google sync activated open track Fortinet start have March, scale, with we footprint deal are on the deployment we school production on mentioned board large education enterprises. that year. on quick was our to scale a update seats the and driving of terms expanding And XXX,XXX-plus last PoPs continue and in X-figure demanded environment in and the customers' to full quarter, that to

To supporting and bridging network last follows the Its FortiAI announcement, as languages different changes remediate expand intuitive and teams manage more skill industry's NOC about on comment threats. system. our Fortinet engage using and interface natural everyone I investigate Gen XX allows to on the by and AI SOC encourage launch individuals AR-related to their shortage. to learn Gen to fortinet.com guiding Ken's visit today's configure earlier year, and they AI assistant

while retail provider be government bit Rounding out continue our best-performing was financial customer and were more top-performing financial experienced services and verticals Service our largest challenged. a services. was segment. worldwide X International billings worldwide government, service growth providers industry highest geography, the emerging and to our a SMB and commentary,

X to elevated levels. under month average As and pushed decreased the X-figure year-over-year to XX deals days. noted days down QX The contract year-over-year months, term XX contract the days XX in quarter-over-quarter. in quarter our was X.X average just and 'XX in prior DSO X DSO months term first call, in our XX quarter-over-quarter

Turning revenue for $XXX points. XX%, Service by revenue shift a services revenue service grew XX growth. X% million Total to of revenue $X.XX grew revenue XX% mix total compare to accounting and of coming by margins. to to XX% revenue over challenging and off revenue driven SASE million from of was and year unified earlier fulfillment Product a decreased prior impacted the by XX% in backlog year. revenue led XX% Service growth growth expected, SecOps. as $XXX billion,

of and was up mix XX.X% end down service a licenses FortiGuard increased $XXX and cloud revenue. and software mix cost benefited guidance the Total annual revenue bookings security to benefiting our as were of options, Total an XX% the service revenue mid- from basis shift basis outpaced increased revenue to revenues. XXX Service SaaS of represented were just up gross margin net the run security software services increases and approaching gross mix XX.X% towards higher-margin teens of rate revenue represented from margins slightly. points labor Combined points such product license as product subscriptions. range, from XXX shift high million. Software and and XX% higher-margin exceeded high

of was prudent margin pressured inventory the saw gross margin a basis XX.X% end the to XXX demand we environment. Operating to the we XX.X% above and gross transition -- and as margins more our of strong points management. challenges reflecting cost Product and levels range, of related high guidance as normalized

$XXX shares over billion $X.X in the the quarter flows which buyback $X was And while remaining the estate a investments. representing real statement flow was and not investments, million. of summarized excludes did X-plus Free have Adjusted QX, free past $XXX million we authorization $XXX taxes the is totaled $XX adjusted investments Slide buybacks free cash billion. were including Cash cash repurchase in cash margin. share years $XXX real and XX Infrastructure million. on XX% million, cash at totaled of XX. Looking estate million, flow, flow

Now a regulated X-figure and the I'd sensitive adding solution projects. in total like footprint selected and customer low Similar technologies. logo the is ownership new the to cost of included first our branch deal start center Fortinet of displacement by large this financial other latency lower data to Fortinet and customer competitive ability the share SD to win wins their consolidation data institutions to a their additional their incumbent, to our in experience in highly X separating quarter. industry and few institution our from consolidate their part This this quarter, performance this exceed financial planning U.S. large update requirements. Key as expanding and win. with I'll significant

Next, well and company simplicity, serves attempt Keys the of firewall their and advantage that FortiGate and solution a firewalls win, different X-figure to locations dozen and access the our another pillar annually, the price to devices our branch ability various operational included over uses. for to solutions, Fortinet a as Fortinet customer to as discover hotel our X join purchased integration for network, relationship down together centralized FortiGates million solutions deal, solution updated performance the software that footprint XXX SD the our competitive switches solutions. a and The In their included guests and proven solutions chain network from their points on including variety products. enhanced a firewalls, of next in lock data hospitality as security and with well expanding X-figure as our management security. center restaurant Fortinet

is enabling their The devices. solutions and other to digital experience deploy, over Key growing expand this array and branches security improved customers' efficiency in and of solutions and performance. opportunities to SE in-store to deliver a their line branch win support IoT increase retail their top bring retailers and

management the pillars, unified one Security the in of open of portfolio our system, our includes backed third-party FortiOS; and with customers illustrate, networking, AI-driven agent, by unified increasing integration one security SecOps consolidate wins competitor security integration operating console, XXX FortiClient; it integrated products. while South, APIs secured products FortiManager; FortiAnalyzer data effectiveness. Fabric over reducing allows customer This making these each thereby As industry platform security most and solutions, lake one most open one to operational and and other costs,

Moving to guidance.

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

of the per of between margin and XXX tax $X.XX, of share $XX non-GAAP to expenditures to count For assumes to to X%. XX.X% in $XXX a the $X.XXX at of $X.XXX $XXX million of Capital range decline which taxes to second to $X.XXX which billion the operating share million, of range earnings Non-GAAP in XXX billion to X%. and million a million. the Non-GAAP Revenue billion, at quarter, of midpoint cash growth of margin of we expect $X.XXX $X.XX XX.X%, midpoint billings of billion $XX million rate gross non-GAAP the of represents which XX.XX%. a represents million. XX.XX% XX%

on Before believe and are XXXX to the guidance, firewall updating full what elaborate nearing completion. is of I'd share the as year digestion the we second the headwinds in we to early easing like half that signs cycle see backlog starting

headwind XXXX. in $XXX headwind And throughout quarter. And last a drawdown for early normalized First, no more we're year second, backlog million the looking fourth the with from is billings the firewall signs of diminishes market. gradually year's in over

behaviors is One is customers to XXXX, the which are on to watch path pace the the firewall with a A by registered decreased consistent is security consistent In metric about we stocking to SP that buying the are second a and of recently, shown customers levels. contracts, we digestion from return that on data the metric More time. now It average increased register XX. XXXX. as the behavior. of about with days user process and on service the buying noted was XX% more has half Slide in late levels at this to read-through XXXX reasonable is completing and normalized normal inventory XX%,

on updating $XXX XX.X% million million billion $X.XX between represents $X.XXX the of the million a XX%. and expenditures our $XXX count operating the Revenue and assumes million. range And tax billion, billings $X.XX, quarters. I in Non-GAAP progress of which share X%. Service for XXX of with million million, taxes of non-GAAP XXX in range which $XXX that, forward the you of per XX%, $XXX share $XXX at $X.XXX XX% margin of of at expect Non-GAAP XX%. of midpoint growth look which earnings XX.X% the million. to billion of revenue to to the coming year, gross we in to of of margin billion. the $X.XXX between to represents to growth $X.XXX a Capital midpoint rate $X.XXX non-GAAP cash range billion in and to of to

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

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

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

provider a in healthier. Ken shoots spoke both growth your prepared to remarks, service Keith, and for Perhaps lot little a SMB of green you looks

spoke competitive versus in to high getting a of You're recognition your on end lower you said, the closer SASE the to a and was bit QX billings the end. That replacements. guidance

the your top seeing that? drove you're year? in the reacceleration what line the guidance of on what based assume confidence to continue a back curious and you gives just on to half the maintain And in So pipeline what

about Yes, I'll talk year. full the

more that we ended the all bit where our you with think I where at we we're will. end months, to where numbers, off we off some improvements if guidance to results move we little terms on that look don't out. I together thought. midpoint. you pipeline if kind inside saw with toss the weakness point, of we some X we Maybe about we to movement quarter, far last feel think enough for in in range, I there's I year, as that at if Europe, the there in but the big the not at from we But with to today, your maybe better total that where the really for midpoint, you're mix And that up just full the X we end of hygiene look look us we the at up in think the a first pointing to a plan our the in worked final that of the an pipeline, of the see we think are compared up just year

same at numbers I some up with time, and number margin a the look bringing that the the in of the bringing same and the line see you you revenue, point. us will, the on think up But number at revenue service better X/X product little performance, bottom at outperformance time, by about also bit. the see if or of importantly, when quarter a you us full you year

I enterprise of have expensive probably kind a of of the think more security interest instead project. kind making bank CapEx working lot more high some a rate, money for of favor of the OpEx the

reason -- same company of really time. the kind of is starting cost focus OpEx where of the helping at So of shifting the kind model. which kind also up, on that's that's skin we're more the some secure -- more the saving

per competitive certain of And in unified a the change QX, So expensive. more a sureties. impact, things product the we drive they're and these I strong, all tend level from it's of -- product, more especially to we at do be overall, -- has function, some back that's SASE, the think the our in including of launched. these still interested competitive the OS to lot bit probably price make month more the but new see of we customer, the product happening like with is and still new in have little our to before and more adjustment which product new function probably pedamic lot time, replacement introduced last and all foot the That's same a

Goldman next Our of Gabriela is Borges question from Sachs.

For either specifically, the a strategy on you portfolios how about the More from value cross-selling discounting such of able or update capture to that get I'd of broadly. when an trade-off trade-off? love you're about do Ken cross-sell. think SecOps think your to more pricing or Keith, the broader do between some as SSE versus services How being bundle you

to it's over when our follow think I also product of the we all product, in margin margin in increase to which the partners. maintain new And consistent for is we focused product new healthy change And kind the really to healthy this want also XX-plus just missing match I price and last It's a and a is see years. the We pricing pretty certain on gross think probably make healthy all we're But healthy parties. a strategy price for margin like the costs when think doing the and more cost level. we and shortage, to kind pyretic some existing guideline. anymore. a per margin some on now costs introduce of I of the the also supply the some adjust price on focused costs returned we chain coming don't also more product margin a have sure any want whether component shipping down, for the increase we low of partner kind But the or we price. increase,

comes Essex Our from next JPMorgan. from question Brian

market? could Ken, Maybe traction little the some we in a business, you saw was maybe it. of lining that a how you spot competitively bit SASE quarter, up in can the Appreciate if the peers give -- of the split a SASE the more that of made be so terms in you get in that and saw how little color you conversion us maybe customers against the much small that for enterprise, large on of of might sense SD-WAN -- and

I think that's a great question.

I have think slide for a that. we

Yes. question. Try to ask that

in I'll XX% think for SecOps. I answer that and think follows SASE tap both prepared for somebody also included you, actual existing while we number I for the Brian. over the and slide customers But the were

of there few more it customer by the SMB my that traditional of kindly give have sales. you context #X both lot a those that they we seeing customer pie we that first expect about more dominating may did So enterprises the What One values, get were now those me is with it. some you -- And opportunity, growth. were talk of dollar expansion actually that notice you the are converted and seen actually expansion out number eventually. to is we've quarters to mix which counts, to is is the And charts to penetration the get just Slide it that little pointing larger where with Ken's start deck large we a mid-enterprises space. going where in believing and pillars to patterns. for And that, was change for we've when a we

just as quick that on follow-up topic. Okay. a Great. Maybe

I'm if iterate think might mentioned, SASE billings. of given SASE into sorry, mistaken, you metric I'm unified -- that XX% And last that if was? unified what you quarter, think XX% have SD-WAN I to back could not of I maybe SD-WAN, you

there we're to and by think say the there's probably trying lot SASE going existing cross-selling belief solution that we're a internally is to SDN What have success Brian. a our customers. -- with I we're that common of Yes, externally

number was the were of that SD-WAN And I this so XX% the SaaS existing saw quarter buildings customers. we those believe

into have like XX%, have close build believe XX% FortiOS, function. by FortiCare, you which we FortiCare. function also, whenever a the all HVM customer to have automatic the And we They

fully do tracking free were we where because that's so our of list other function which the of And SD-WAN not charge. customer, see -- part SD-WAN

SASE of there. lot interest believe SASE function do them we into are a for come So

from Boolani Fatima Our from is Citi. next question

bit I have spent the little of talking you performances. more level to wanted Keith, geographic a about theater some -- of time

been seen deceleration we've material relatively a Americas shrunk and actually has pretty resilient APAC And So he this business. quarter. in your

I or hoping or talk from perspective geographies a idiosyncrasies to those any lens on from each end could an customer put you demand standpoint about attribution a one market buying was So a of nuance and/or standpoint? And pipeline an to follow-up with about such then SD-WAN with for that future important the just seeing pipeline proper a you if regards can conduit sappy growth upsells. you're and talk considering is secure

Okay. where to begin. Kind some of cherry data picking points. through

think continues company sources, first SMB resilient. perform other it's the said I channel of success past, -- of you whether one with, I've expectations, simply and as in to the the the external it's I the from the think than to together space breadth program. stronger foremost, SMB that's or very And the if will,

our I us was Europe said and to a enough, on business the before, as midpoint of probably that and think just move side the light just tab their of I quarter off of in a guidance. bit enterprise little the

majority think of the coming that. I fair recently if an as The looking a at looking quarter, U.S. the and the deals are vast deal is let's the spent example deceleration is we what enterprise. take X, more you're U.S. enterprise Last time with about business. we from. the And in in where those talked at of X-figure X-figure amount of

This quarter, we deal. that had generally noted X-figure we one

there those really that other if we rate of deals opportunities bit other and geos U.S. the geographies of the that because the see are quite can don't some don't We the X-figure some maybe in see a have around these for enterprise whipsaw really opportunities And growth X-figure U.S. in APAC those in that have. so deals that can you

or other mean, now with ability openness I puts and SASE to I the than probably the of in in a solutions are that, it where and we solutions. maturity for sell have of understand industry. Europe, growth to of the to I larger And or think little pressure U.S. to think the I the economies the sell SecOps in And growth, opportunity is a seeing the us we SecOp part buy in in think terms the lot and more you're the APAC. you SASE firewall the right solutions

also Japan again. of the may of also probably X/X for like U.S. some the APAC Japan is there. biggest of in kind currency slowdown We have probably APAC, currency country some impact us and is more strong which currency about the pretty that

the definitely other more side, set in SD-WAN the see more do saving. SD-WAN also On customer SD-WAN in current more customers a the and give most cost and we interest because environment, them definitely in terms

other savings NPI So there. it's average, about compared in cost to XX% traditional on the function or networking

So we converting same do SD-WAN more see more and SASE using the customer then to there. and additional function customer first adding [indiscernible]

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

You -- market? end its You -- you comments to recover? the gave some two? own you in does recover? correlation with quickly firewall the expect of the it, the a Is at remarks also that? to Do the to is over or you there non-FortiGate expect the And of do have non-FortiGate cycle. repeat between mind went your And prepared would about signs of question recovery it

On share to the X dynamics it's what down change slow or the recovery, you do that changing, maintain market meaning stay the to stable? How recovers, drives the you're about market gain? or going does going firewall you the reason the share change share it to any share gains to to have believe cycle, market when first years which experienced do you see that boom is is question, of in situation the the

to XX. I'll want and share the you make Do then go take and -- Slide market through algebra the

firewall a whether kind like give have advantage, and networking, even now better for we with more continue because secure market quarter order like of strong also we WiFi gaining and quarter we which can And return in the think share call better security firewall. -- ROI right the the space there. case also think I I deployed more FortiSASE customer and performance believe some function both traditional the all compared a last the the

to say market have XX% gaining secure XX% more the that like on in digestion keep our we share gone or market we're year-over-year. share But answer share. market the So I question. keeping in we condition, even to whether has will definitely down overall, probably feel market the Keith -- network environment. market medical that gaining But this

And can that is why equipment, now saw a started for access the you that, the increase delaying and we hit, -- beginning you that's quite there it, the But contract chart, really see that yes, customers from in Russia, about we end at pressure you're have of revenue kind when those put of you to the it talked shelves look not in on quickly you the contracts. to early customers remember and days on a bought the that for believe of but in we software as for hardware followed of the registering things you in chain the register that supply as that the the impact while like also need if the register. did deck. the and down. have And Slide to XXXX, of of service end what at have 'XX, the were at lot delay attached XX the and some a company people we has and seeing contracts the pandemic, plateaued seeing that activity And peaked that moved

We're return return that, just to not and move it. quite I would we but inventories that cycle. were to I the that's very by And as half the said, are indicator half a starting there, close the of actually days think again, And the you've quite we year we those register on current off second I offer we're digestion would at customers we their cycle, seen are to good pace, on where this digestion as that of come normal. to Now and through the where think, shelves metric. pre-COVID in to second

And what are cycles on it. the Got the FortiGate question What non-FortiGate within on about non-FortiGate. side? the

to talked but term bit. of age We first in all, about little SASE trouble our me for going here using Well, non-FortiGate. we're a all SecOps, get the and you're showing

other some down see our like around pretty all a probably whether XX% strong the side, product, networking we other but FortiMail we bit, FortiWeb, see little notice some probably The there's of -- for the growth. definitely that's

much mix. And using our think But on FortiSWitch do a we a of the definitely, side, SASE. the similar it's for a other we overall, FortiGate see hardware like full AP early interest WiFi it. But mix. some the as agent see I customer So pretty signs

one of going probably to that's So they for also really the some Wi-Fi, some promotions they some a got can FortiSASE function we're fully free run customer. offer time. If

It's growth. firewall actually, FortiGate, be product, see that the whether like we non-FortiGate the for we called host of FortiSwitch. a with non-FortiGate FortiLink. liquid host we or also technology driving kind So or could have additional that's aging working all FortiGate, WiFi all But -- a together

of Rob Piper from Sandler. Our is question next Owens

to believe technical And a the just want as ask the you're large relative Fatima's we you I relative to I build to of in setting on pipeline. I saw we question similar the and term of wanted QX. earlier. Keith, deals seeing terms it little in bit here in in what whipsawing And And think transactions, throughout and comes year? you large answer to growth transactions those the types health used health enterprise when how it very up large and move very enterprise? in do your the you And of X of results is expect when pipeline to QX should

saw is was or the -- get deals $X million billion whipside SMB from couldn't you that it. expanding the feel went in beyond company about Yes, $X back -- but think we're away then. I good you we drawn there parallel them I if I've the by that 'XX, to the moving conversations that and And before deals XXXX, that wasn't doing enough it space

dollar got can plenty always -- we've of take plenty million more but I well, are $XX million deals, whipsawing bit. little us around a Now the deals

They're very I some pretty typically X, X doing is those strongly. the or with had a at QX in at I QX that . that time and years on condensed X-figure have ago order the see and And in have in looking you history, certainly QX. or does of the you're over some to something other setting X that back as QX X deals in the saw to quarter. quarter more in the certain obviously forward, and we'll say, of now last deals going You per X-figure model by quarter. perform see think outperforms get quarters. we X you're a our number spent we perhaps One open that looking quarter, and look the a X about for, of suspect as sometimes And years, of probably we a maybe maybe first. on concentration little in going the for quarter the thing business fourth where average opportunities With fourth performance were we year strong model expectations full

question is Saket Barclays. from next of Our Kalia

firewall sense? is customers plans that maybe you Does little I of for firewall to one was refresh around if that you. to conversations about their Ken, would we begin? their wondering Great. appliances. when And sort make bit could how maybe the your with talk expect sort of specifically, just going a Okay. first are refresh

Yes. the really The X is whatever the One, of chain digestion supply parts Keith mentioned, issue. business. like

more the IoT do OT, environment, I maybe the new the And customer really months in see which second over, current slowdown is just little part be the there. pretty which much longer. replacement better few security. we the think normal. and have over is And more we refresh, say, it call all all to performance, may has interest also current things of stretch high a a area I new but -- economy the the rate some a product, product customer bit like that's cases, the will

up big new replace have We better like a measure requirement offer like quite function our to So enterprise the state FortiGate in a function, match use need face of and we efficiency. more which we lot the for to they the power product ecomet U.S. in And function, pick to the they well, like an solution multiple using when or have much a performance competitive a see also where product for product new SD-WAN there. do because the our they every starting product.

some case, need time The picking to that's quite refresh still replacement come. up probably would So well. definitely

strong the see side, we security, other new growth. on OTT the area other And like

to new or now impossible different online not protection So because and all of really connected a has this market run operating devices pretty canola power. because much that's software system endpoint kind OT of living computing

up OTL pick That's we So new see market. new this quite space well. the

little towards but I market can FortiOS, environment, more -- cloud a differentiation we model, is the OpEx in FortiGate long-term us, have probably system -- the of will the which in the believe but So customers in And all staff bit pop. wise, and -- mix current be for same on-premise network the grow. continued still run to more probably a kind operating and is with the the which or the really, the security

do starting function, see turn customers the in that then service. a function additional strategy maybe lot So we function, on additional the of to sat SASE strategy first,

way So now. that's the doing they are starting

Got Got if the kind you. I on of with point, it. maybe it. is stay that And follow-up can

pricing mean, during pricing mentioned of about pushback change did there the of of supply sort of getting replacement And topic sort are in prior chain? you you those of thinking earlier, versus is that part that refresh and you of firewall any I just adjustments as any on discussion, SASE? the of the appliance since sort for on sort customers Just round

and we We has. none have competitor of ASIC of not better much seen any pricing because be more pressure discount to performance tend technology our and function because

for very, in other needed new firewall competitors the network just all very the or is consider function like a their higher they in function I keep side, us think speed SD-WAN to compare they sometimes do cannot environment, some us function On competitor you for security customers existing because different.

SASE kind device all FortiOS in into the there. IT of the all the So new on different running FortiCare same we built function function, have

So to really with And function our also functions kind and big really especially without that's adding additional of competitor keeping there. that's replacement secured so existing really replacing that's enterprise lot also hardware, in had customer helping of surveys of the solution, the a environment. the sometimes customers kind keep driving of new helping also, adding

But growing enter of in a So they customers, which which better performance, the stretch see not there. area because low strongest our for cost the do also space that's high money. actually we we see the solution a efficient enterprise more the competitive and consumption energy strong that -- the finance enterprise using replacement FortiGate function, is strong some cost growing the more has of the lot us or and are on

analysts. question Zelnick of Our next comes Brad from

I Can change buybacks surprised not Keith, with of in just of remind I for buyback thinking generation strong Keith, we us business, cash in the I'm stock your buy see Ken, the back was X think, to with one, and of we to in just any M&A? left could. authorization your for quarter. any and And specifically use think had and you cash $X straightforward going if approach now and because go to X the I first pretty if billion around

Peter's M&A point, for answers. COO get our

wants it. We put here listen, Street one term of very the So firms -- -- program I do real use we're philosophy. we're any to quarter is renew We we in with our change forward we in leaning a and each all buyback say. the there's don't think opportunistic. been Wall place

market really to in chance -- a John regard. is that part important companies see It bought opportunities to them. over last join. and that. the we or looking $X the billion like do think looking steps other typically x at doing I now free that something been years, there the would something of some and X get And we set percent flow and that can has we're going in when not have for cash Whittle is back it's up

for approach be We been -- at consider open-minded. We've you about we M&A I will it And very although some very very, you'll been minded tuck-ins. as our you'll think see the so M&A, question. we've we're it strategic disciplined. and that's Thank but the always tech makes on done far. I see M&A And approach continue, definitely sense. makes sense, think that as talent

And my please. sorry, I'm maybe just follow-up.

last all now is the years time look at different companies. Probably most busy XX, the to XX in

for base sure. the in a securities Yes. lot of see opportunities We

product And well. the we we reach as out consider sales a as along build and and pipeline like pipeline, so yes, build they just come on them

throttle Got Keith, just Maybe in guys the the going on update you and the should are the we're us and of something in and it. maybe an of I on pushing where say think to plans that where hire. world, quarter, And in about the count on give you If or that continue how a ago, maybe the pulling great you discipline we're OpEx? seeing job you X the done That can margin as and can, head to makes back sense relative years. how to all year-to-date? it just and over enthusiastic have leverage are you we are -- on months hiring sort

okay. It's

I think we continue margin. to invest gross balance the

lot long-term of selective this ratio area invest, the the we or also on continue better. like the structure and do management product, So we will take also, be mixing hiring. we a And the opportunity to to

the kind sales field also more on more area and engineering the certain the in invest and more it's flat the management and efficient. level So company R&D of whole making

Yes.

if Ken mix XX% X.XX big think that the services, was Clearly, that start and we resources just that look to -- shifted that, XXXX. And see The imagine, business and number, not. fact but rest slowdown for you let's comfortable need points -- start the finance, I by hardware, to that now bit. was really as targets the think little I at market announce at the very you've of going we seen the with think point probably that's at and if you of feel way. the a aside look raised rich and the margin. right -- you was it's model, would then the of very the it with more cycle in firewall see margin the of mix That's XXXX, at margin situation pretty that we see a cycles think it but I think the it achievable, And in the XX I setting making through Brad, midpoint the point you the example, when for hoping that a we're I shift the as services. pause, market to I move you the at gross put gross back relationship look full year. change the to I where a recovers, this

question comes Our from of Ben next Cleveland Research Bollin Company.

are made talk Keith, remarks on it I could DSOs I look you below believe years. your prepared but drawdown bit you what collections, like comment was about does a last in little the the performance. a large receivables and hoping we've impact DSO the about few seen deal for

management. in a So curious change there's Anything notable if working there? capital I'm

No, I don't think there's really a change.

will. puts I think if few a there's takes, you and always

real believe all was X-figure driver quarter. last had quarter, I think the the of X in and those those that I X we last deals, or closed the week

quarter this the only I on in a of having in closed lot the last but early fairly believe mid-quarter, DSOs quarter, that put which deal X-figure week. one and not pressure So in

really to that's point I would I So there. all think

me. the for one last And Okay.

You little about duration. talked a bit

manage how there you kind of to is done of Any being this CapEx thoughts the on be the thoughts community. OpEx by back, partners partner a any to step If financed Do business your have is through you that much of appetite? themselves business would lot helpful.

Yes.

captive. you white through distributors product, with their I partners, think it's would working some say But there the that think labeling not, you it financing will. if somebody be I say often that else's offering when we're I cases, large might all more in either programs, own

that some of the financing. larger think resellers I are offering also also

for I payment is deals, move working on the where or with you if more a OEM will, it sense extended the for larger them capital, ourselves we an as program channel the whether little think to that and financing. provide makes

are I issue. a so good credits, don't of I suffering can't don't go But I to the there's ways think find credit. lot speak, different there. they think think that's to because

from Borg Our Stifel. comes next of question Adam

agreements, hoping half last bit you especially agreements. more Maybe with a a of to is in Obviously, quarter. Ken, was enterprise increasing Awesome. great know the talked a this and little could enterprise Maybe talk. quarter, year? XQ efforts go-to-market more overall back traction systematically typically about strategy I I you talk these smaller with And job about for the drive the EA

more customer us see definitely now. Yes, and also have when a at products kind I to same now. do can right also the they think be different have with long-term customers of the consolidation see with customer long-term we more of like a we deal kind many EA. bigger they We we time, enterprise more right with a see want also strategy And and that and one,

Yes.

that John think -- I this took over. and

as make a see lot -- of enterprise. to kind EAs. to usually to your as on So larger it tends you're lap it when of alluded a he going make most that gets [indiscernible] of Ken to it, expansion inside But sense of part --

You're frequently the know reached combination of support, to probably group. that But very relationships. I very for have EAs customer customer into been it could. see make received They FortiPoints about think they et start more. they're with you that And long-term with starting and and that to going comfortable we're where may They not in first the FortiPoints, the thinking what. has for they're I sale see going buy the technology by new nature customers we a know some cetera, really things think, available our well and and not the are resonate things logo, that point that new program are to where there

breakout I there sales I recently. you by indicator the recall meaningful maybe less quick the a of as size. FortiGate has anything about slide follow-up. And FortiGate small, was there the interesting more as know seeing great. large. been just I That's and didn't that just In the medium by curious, deck, think

No.

really on us you it's us, two want -- SASE. see we increase this the the point to take it focus really for in cycle, think that the firewall I at

we see on or that that it shattering information your some anything good there. think the to very you it. feel about was more wasn't And earth I us point new adding really FortiGates.

comes Our next from BMO. of Bachman Keith question

anything on interesting. if SASE, my you And that. to look question slides. within pretty Peter XX%. Is -- that or us to And And appreciate X I have from that interesting. and to that as just And cede guide me kind I'm a of number you X -- and on interesting clarification really XX% any about the then find at the interesting I first item was purchase gets the on XX%, the then the is or FortiCare chance will could then question. frequent count a you floor to about going I it quite serving enterprise. cut as SecOps off. that be correlation the -- And sales, product think and is I thought of anything just one we portfolio Peter before focus want the I enterprise of XX% to there SD-WAN? amount And there up the is that be to as Keith, billings quite or And the just did SecOps. if patterns I bubbling of at just that's much is how look any SecOps not, I support line think the to believe

to I reverse what FortiCare, need I covered FortiGuard.

I going to And is being to products think what it's sales, it. FortiCare is traditional and indicator. right, before talk you services fewer what's really now. did is more FortiCare, offering, is great a sell attach what support lagging we because about important question a to closely you're recognizing recent that which linked the have rep more be you product It's

a see more there. . on FortiCare probably So pressure little you'll

bundled, is FortiGuard, from those two variety subscriptions, is a of and other they which now can SecOp solutions fair amount the solutions can tailwind but security be which be getting a SASE also of pillars.

call have FortiGuard. think, higher as FortiCare own And at goes prepared actually FortiGuard little our seen and think So I you more FortiGuard rates has we I'll through call that look licenses. and if the SASE cycle it in and out you will SASE we the divergence currenty growth I that software between if the tried broadly margins. start the and to to not just In which remarks a business, see, the SecOps in FortiCare

service in million impressive, a I start rate nonattached $XXX now say non-hardware think. has company run and see to pretty about is which that contracts, a of You

there think pretty few we launched ago, only growth six own months since a has strong our I for FortiSASE also been but we years. see SD-WAN And

look comes script. is if have I SASE most, there. the pipeline, to then more -- that's the really majority is say, leverage So probably indicator not in SD-WAN from better That's SD-WAN, chart said pretty still XX%. which so pipeline growth better the -- it's He also key our way say and the probably SASE a for the Maybe a a the on at most to grow market-leading unified like interest strong pipeline and there. firewall a over XXX%. position And maybe the SSE as both

what as time, approach same also forward. So differentiated the strong a of FortiWiFi unified to agent them customer will we now. also is competitor That's And SASE do like come lot like of SASE service. adding from adding SASE AP about XX% right other of the additional in of also quite the certain drive SASE hardware to program right the customer at see compared trial interest the offers a our -- the And market, specifies SD-WAN the convert lot a which some -- of free going business the which SASE, drive and some like the now. service, probably we very the over using additional

the So market. that's #X a reason a the -- or the probably few few years, we believe be leader we'll sag in that's quarters also within

Gallo comes question of Joseph next Jefferies. from Our

around A conference. lot AI stuff your at cool of

FortiAI, that? margins? any thinking top impact can monetizing that how about to And early And feedback? any when And gross line? benefit are we

their high there. which additional out end, it's we benefit Could how our I'd agree, ramp-up we that's but be -- manage interest some -- do fully service, are stage, AI more products, time product see also different lot And still materializing. there. additional we will there's early say the a -- but operation what the is to customers in very soon helping and efficiently in already started more of Yes. interest drive more

plug. I out demo website has on responses it enable LLM additive charging you at you're the It's eat I tactical In really It's was Yes, really on at we're maybe technical and shameless list. you. some more But separately. I it. it offer should there's somebody the push customer Accelerate see go can own think think to general, FortiAI, cases really my to price knowledge, done and to to out. then me an it's for you, some I here their going the in to would go tell look And and it with buy was a fantastic. our that

Yes. We saw it live.

appreciate register really, trying if follow-up after to really firewall really Just a on time a we any metric interesting. a better Was another if to potential or to levels quick there's metrics before at understand the or leg there in floor days find register to should Just expect seasonality cycle? historically down? XXXX that

the X, Otherwise, drive have whatever certain sometimes some And may register. a back there's years to maybe big XXXX don't when distributor if time it years, probably actual some then inventory. customer customer look inventory the But to of now. think on deploy, it's a a attack in more new they really some to by kind pretty function, know, pretty try kind supply I them. order they some there's bit to some space, because and normal, the I changing much also I then chain then the takes last something X X rush little some impact X, of to partners a try that's channel normal of

better anymore. you No much deliver lead order, right the longer play can to you has If pretty away. time

where digestion normal go that's pretty it's pretty environment we the now. see is and the back to current in much So over,

that seasonality goes out by we terms there. jumps call have quarter of to quarter in way out all by actually can it. And I of you it charts the XXXX. would the that think I back see really Nothing And me to

turn now to This remarks. now would I Salkowski session. it back for concludes the closing Peter question-and-answer to like

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

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

conference. for today's This you in your does conclude program. participation Thank the

now may You disconnect.