FTNT - Earnings call transcript Q1 2019

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, ladies and gentlemen, and welcome to the Fortinet First Quarter 2019 Earnings Announcement. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference Mr. of President Vice Salkowski, Investor Relations. Peter may you begin. Sir,

Peter Salkowski

to for This Thank Chairman CEO; a replay our a website. business. Relations Salkowski, Peter quarter questions. opening Financial Good before available of our at the Chief second webcast perspective on call on our conclude Relations call and results everyone. be Ken you, live the afternoon, then financial up is that This Xie, call to our Keith Investor via Vice everyone call I'm Ken and XXXX. the to Jensen, results the Fortinet's quarter call first by and our will is of review on pleased operating will for Keith financial for Crystal. today high providing Fortinet. XXXX welcome discuss today's begin President are Speakers of and for will Officer. Investor our Founder by Fortinet's providing level guidance

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

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

accompanies press presentation and Our GAAP found in in to earnings be that non-GAAP our today's of Investor posted which results can are remarks, website. our release on GAAP and both the reconciliation Relations

are now over a basis growth Lastly I'll all year-over-year the otherwise call to noted. unless references on to Ken. turn

Ken Xie

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

within XX% and annual over quarter revenue turnout We are results. This was Accelerate solid increased conference. landscape followed up XX% networks between of with then the to strong is $XXX state described company customer define $XXX was million, by trends success, management million and our future has XX% room Fortinet from network to with Fortinet first device has XXXX Billings the offset impacting Fortinet growth At applications flow data April, revenue. the a trouble huge best external internal and cloud, how attendees for service security or its edge hold or security users. pleased year. growth. up year's A event driven the and In in last Accelerate, disappeared. positioned this The trust to mobile and in trend

industry security-driven Fortinet to networking move more network XXx We Security accelerating same network slower network for security. this more into believe result, This is security are networking security converging throughput. requirement the a third compared and power infrastructure expensive. trend calls and the makes XXXx what As of computing the generation into to networking. requires security

high-performance. single performance next XXXF, SD-WAN firewall. the in advanced in our first industry's XXx the appliance we announced competition. ASIC gap security the software than cost Accelerate a of functionality the delivers FortiSPU At performance the technology XXXF SPU Fortinet provide SD-WAN generation other The FortiGate lower SoCX and and approaches, ASIC with eliminating a available the

with our security enterprise has technology experienced connected by consolidate few its As towards open increased adoption and vendors, our cyber customers. relations approach API

one XX% of of to next is two integrate to of enterprise in of Gartner, gets IoT on up are especially and The data to the ecosystem with years our XXXX. of the processed. each networking and is network. grow X% close the and with fiber-ready The including the data ability offer will a industry deployment And of latency high technology the than the XX% be the to We to within accelerating the immersive partnership data computing explosion XX% According XG to critical, never largest large continue and to age. more through center movement security in from computing of partners performance provision Symantec. edge XX edge focused low the

solutions security set multi-cloud of and environment. edge Fortinet the provides for both the broadest

We driving to innovations. and more announced progress artificial for than ability to This innovation with across the the machine-learning core X.X and the OS Forti in include from new the continue innovation network intelligence accelerate environments. protection edge and multi-cloud XXX

sales, to make to in In addition our and we investment marketing continue innovation, investment. channel

to We a in grow. This years. the Fortinet drivers IT increase budget faster continue few expect key cybersecurity three with spending over to for growth all than on spend coupled market to positions next percentage as the of

WiFi product, portfolio security-driven First we're integrate the transition XG of secure SD-WAN networking. with and the leading a to

SPU, the Fortinet security with automated continued a ASIC and and technology, integrated Second, performance offers towards consolidate most for security And few as automation competitive vendors. broad, third, cost provide fairly end-to-end advantage. security protection our us

and hard I announcement want FortiSPU SoCX. recent Fortinet thank of our new for partner and this their increased work for has team customer ASIC, the their support. the advantage our Our to SD-WAN ongoing

first Keith a our our quarter and Now over I call at the turn for look of XXXX guidance. to closer second quarter performance will

Keith Jensen

you, Ken. Thank

and shift growth subscriptions presentation are first revenue, Growth now to unless otherwise software comparisons of to up revenue. driven XXXX up was performance. XX% website. our to first start, posted of make revenue reference Service all quarter driven the APAC. grew was to I of figures non-GAAP strength note $XXX security references stated. a million on like I The a FortiGuard strong summary XX%, revenue by slide a except driven FortiGates Before EMEA $XXX the Investor XX%. Total provide increase quarter the XX% was I'd mix like and based Relations for million. and million to of rates are $XXX on to $XXX by I'd midrange and was the revenue Product in increasing by million in to financial

increased the revenue short-term our In total similar to our to deferred existing the revenue come second $XXX to the increased and billion, technical percentage million. About of revenue revenue balance we $XXX other million. increased a at by providing revenue balance. FortiCare total expect predictability. revenue XX% of services quarter, provided of deferred XX% XX% support level first high $X.X the quarter deferred revenue XX% deferred beginning was of quarter, to from Total a

with flat There deals of and the to deal operational closed value Americas, and growth management quarter. secure school to increased XX $X water and in capabilities integration top customer's utility providers to Billings. year-over-year with $X closed with solution over accounting for this solution integration based in of of XX%. XX a over students the SD-WAN deals won direct Service visibility in period. a the and turning grew SD-WAN our customer XX with million The and district. enabling our existing In importantly versus due of MSSPs EMEA the security In months. Japan we regions. quarter contract functionality dollar one deal benefiting were at quarter-over-quarter connectivity technology-focused FortiGates, Now power seven-figure a company. the the deals segments a OT with we million and transaction We deal school centralized million, the Billings in year-ago Internet and seven-figure $XXX remained an major XX,XXX of the our the simple top XX of XX% quarter, to XX% from technologies. provide Average the and ability secure deployment included The term network. management was to our strong district's each along simple APAC third-party

offerings and still growth benefited component XX% cloud in fabric and increased Infrastructure Billings FortiGate total growth and faster in products strong virtual infrastructure private quarters Billings and is fabric billings, software services. strong than FortiGate machines non-FortiGate The Benefiting for billings. from Latin play-as-you-go and and infrastructure three of for from public and billings. hardware fabric and our grew accounted largest of service outpaced services products FortiGate APAC. the non-FortiGate includes billings. America billings

to back income Moving the statement.

gross XX.X%. the Illustrating sales to points total to in basis margin, gross X,XXX. productivity. to and The commission in margin basis increase the Driving basis revenue last increase to XX a up better-than-industry decrease end operating operating XX% Total Operating commitment points XXX margin, at associated of improved gross XX%. quarter the headcount to points and the and and XXX XX.X%. improved our average marketing basis XX.X% accounting. margin services reflects quarter year's was leverage for First the increase gross change in points with sales Headcount XXX margin of gains growth. increased improvement benefit margin increased despite

net income was income $XX operating per Diluted the Given strong million. $X.XX. increased to share XX% performance, earnings

be end the income deferred Moving on and seasonally were total was the million. is management, to shares $XX Including reflects remaining quarter cash guidance expenditures the to slide second we At strong flowed spending, authorization for statement over at to XXX,XXX quarter, – repurchased cost that of second the Capital we continued we first of quarter million million, expansion profit $XX. set million, and quarter between construction The a increase X. approximately of just was flow In operating the $XX and Free of this year. through on an $XX to of per-share the first flow expected low million range. X below price the expire $XX growing expect end and XX% for average expenditures net million, first summarized of revenue. quarter, share up cash $XXX.X repurchase capital our the end year-over-year. collections, inventory capital quarter $XXX

and maintaining XXXX of our $XXX are guidance expenditures $XXX million. million We prior between capital

start everyone to turn Peter I I'd on that disclaimer of to slide the guidance to the As about presented like to X, the forward-looking call remind provide. I'm provided at applies the the guidance

of Billings to range a $XXX gross assumes margin margin $X.XX, $X.XX the count million. XX.X% of $XXX of XX% $XXX XX.X%. second of quarter, million. which million the Non-GAAP $XXX we million share earnings to Non-GAAP to share in to to For XX.X%. the $XXX of of in Revenue and operating per million expect million. Non-GAAP between range $XXX

XX%. tax We rate non-GAAP expect of a

we to security pipeline positioned the are XXXX. healthy to growth well and seeing market We continue than in believe grow are faster we

earnings non-GAAP of count share $X.XX between of Non-GAAP gross non-GAAP margin of million. operating XX.X% to $X.XXX of billion in to XXXX, of the of $X.XXX expect to billion. in billion. the range Revenue range billion $X.XXX Total $X.XXX million we in XX.X% assumes to XXX to billion. For margin XX.X%, XXX $X.XXX a which the of Billings share per XX.X%, and billion revenue $X.XX to $X.XXX range to service

non-GAAP expect XX%. rate We tax to our be

taxes cash expect million between We $XX $XX million. and to be

hand turn and all like Before work. Peter, and customers the team the partners, their call over our to our call hard back Peter. I'll support now I the over I'd to for thank back to Fortinet

Peter Salkowski

open please? you, to We'd for Thank the Keith. questions like operator call

Operator

from our Boolani Thank Fatima question you. UBS. from [Operator And first Instructions] comes

Your line is open.

Fatima Boolani

Thank you start Good I'll afternoon. the questions. Ken. with you for taking Maybe

you the remarks, in his – around that to you've you follow-up trajectory? the virtual I alluded saw business sense portfolio Keith if additive product your the of sorry I Just some user enhancement strength the on a technical to you the about advancement get be for Ken event? the I some expect -- of at the and overall And side wanted in of have virtual may. made to alluded how growth then, And the that Keith, to FortiGate-VM and talked

Ken Xie

we It's enterprise edge and either represent in outstanding we cloud has actually also both and more starting there, public horizontal approach the including see provider also – and we we that also weight we on multi-cloud emphasize data the a virtual are within the good the the pretty the like which the center function on also and that's going both approach, side. way so – growth But need prior few also where cloud in edge years. also – forward conference good In we We question. see virtual do the – Yes. last on and the cloud. the cloud have feel we more hand, emphasize also

the pretty and different to cloud good provider application the also see and So enterprise different – a in function function enables call flexibility love we place some on-premise that and approach, them both virtual also customer customer and different the between move give success different that's in also environment.

that's think we very kind the approach our of from So I get positive – a feedback customer.

Fatima Boolani

as line That And you, sense. acceleration subscription a makes well quarter. dig saw to year-over-year revenue both the Keith for off as into item. fourth I question That wanted the

be and type us between with give regards bundle, the much the your so, working left of how you're step us And existing That adopted especially is be will enterprise you. base, bundles of there, UTM for to UTM those sort bundles? Thank you of bundles more sense then a the runway also can through super customers' uptake graduates some maybe and to broadly in seeing having really enterprise dynamics helpful. and the

Keith Jensen

Sure. Okay.

I the look in component subscription growth. at if So to revenue, you short-term that think terms in we're the see pleased the of of short-term that, very growth

growth of you If product that's it quarters, in may middle slower a you in year mark hit revenue move kind of few that off and again low-water the XXXX. a kind see back have XXXX, a in of of coming

continue at a to growth, Yes, at When I is think XxX to to ala various continues that look a about the I growth. a on also we're give outperform carte look To on the quarters I look buying customers seeing the I still even back up up they're We're I FortiGuard, little FortiGate I to a our think for from at significant I think basis comments of to very bit. ticking an the some indicator more XXxX easily. billings That you run, on very continuation through an rates, and subscription perhaps we in renewal I very, to shift high the offer would whether bundles, what really of see that approach at that's terms seeing what there level. say seeing when believe coming a some security more opposed billing has several continues side. well. move revenue lagging you're from would when and as UTM and as see us of way Other coming incrementally. FortiCare support. you stable color on additive a that

very feel very the attach much see rates. uptick good the seeing So same there. to That attach to contracts rates at I about a perhaps is in say stable I I slight look terms very we're of for the When the what appliances, there.

Fatima Boolani

you. Super helpful. Thank

Operator

question from comes Eyal you. next Thank our And Shaul from Oppenheimer.

open. Your line is

Shaul Eyal

recent a guys. afternoon, -- the XX Accelerate want Good weeks to event on ongoing back. like you. performance. Thank Congrats to I a consistent just likes team, Ken go few back the

networking. the generation into cybersecurity? the fabric cybersecurity about talked You of And third I talk your customers you move to into with follow-up. strategy a how us driven this or sits on security Can of transitioning Third have Generation

Ken Xie

sins some a starting site. device, to of inside because there's It's And across outside. you. to even because the the internet question, the so reason, of traditional the the to there company go Thank the in ways many the company. company lot also, your or within the the mobile access Yeah. all within to different own data that the bring bringing disappearing other working Also also border things because the the the security, starting the have good now, was edge, to they're cloud, and infrastructure

that's move now, the and So, to also inside the company outside security border starting the company there. where

different also cloud, put part and also also where fabric on the WiFi So of also segmentation, goes have the approach, to application the within of internal approach SD-WAN working need come like and together. different the like company of also also branch. to infrastructure And infrastructure multi-site cause is the of you working different center the the part really the to because over that, and our the network But the with side. network the that's an

across key called evolution to all product can where key, is that’s of sometimes you the make kind response different that's so we lines, But different and an to and automated without this next what this go that's approach. how – of is really across also integrations stage attack, attack all integrated it infrastructure vendor. the make and and automation. to difficult together the covered multiple cannot key the surface part and it's innovation So the broad The working automate

together. that's of where is tie where we things So the these all to fabric

internally really one. and to build working from product, make So innovate among multi-strategy day is together fabric want

So we easily point have the and more with much make compare. automation with end some more an integration Symantec also, that's formed other partner programs will effective side. like But

can we make working kind we the more broad that's and So where of sure, infrastructure. cover to tech together service the whole secure

And so that's fabric the story behind.

Shaul Eyal

Fortinet focused here. course a you. it. change doing near- distributors maybe Thank you at two-part the what remaining on Fortinet also, and channel highly largest the support Thank longer-term? discussed past to is distributors you over Got for the question few that it guiding. contribution Any in from of has quarters? your partners, And And been Accelerate

Ken Xie

the program, thing very, best service the realize our product service sure you the The partner they broader the lot also because the customer very asked we get partner. more is and security, in goes service through of the piece that's important, even a channel also make can

with a we close a together. both events where space the the the and partner of want with also win-win that's to have together relations So more have profit

So see of accelerate, attendance partner that's we the customer where up the conference XX%.

them. it's partner, our feedback some we product margin a to customers that of see we can And partner setting compared partner a maybe the and program. the success. share some more other channel of open to better limits starting see competitor a huge the to So advantage with kind also see very strong us And we the of

Keith Jensen

access to. have a echo our of that very, to it's oftentimes This it's not we Look kind and a I'll Ken that some important which end way what would said. users of have Keith. us, of in access to in we business are just jump very and part is critical partners the

probably flavor get different incentives at the partners level, we're bit you the for that and level, will our them further we working looking to for terms extend financial us with of together. enable targeting in little into customers distributor whether and really again look a incentives help training of different At and or the them you distributor-led call what how have, SMB. further we're its we that providing we're types programs If reach business. SMB At providing the trainings

that private very But even companies some buy program in to as us I think you are partner important overall looking that Ken services there. provide us. other to and the that to making alluded remains trying to are services, the MSSP-type again cloud investments see VARs

Shaul Eyal

you. Thank

Operator

Thank you.

comes Melissa Stanley. from from question next Morgan Our Franchi

Your line is open.

Hamza Fodderwala

Hamza Hi. Melissa a This Franchi. had quarter. regarding the quick is Fodderwala for in I in revenue question just

I revenue So the into about guidance range down product mentioned you forward just QX. think Keith revenue visibility of did below the increasing the bit the the giving growth slowed come in deferred and quite a versus end but high revenue outlook, the more

So seasonal are or I'm any refresh you this in in more a just slowdown wondering, the seeing changes QX? like environment overall

Keith Jensen

Yeah. see organization. -- a talked a The I I'll same us don't been that have it points. think couple to kind refresh touch on have the about, cycle large not would of that enterprise impact you're going of that been on that's

you MSSP, different back and renewal go XXXX, a rate, ASPs. return different If strong look at has XXXX very probably in different XXXX, business SMB rate, us

more benchmark that's for of incumbent against particular If of I a enterprise discussion you a probably group that point that companies. traditional think

for noted services/renewals get a say to we has QX historically In on you extremely or expiration mix just think of I focusing of shift our I renewal is And and that's just product. what time different contract kind bit sales lot rich note renewing date. billings and just when seasonality terms spend in a you team a would you've a that see quarter -- relative between in customers an that us. of the quarter normal that's would you saw to energy meaning the of normal

Hamza Fodderwala

Got it. And housekeeping. its question, follow-up more a just

deals. You mentioned XX service provider being XX% of top

In terms what billings of total was mix? that just

Keith Jensen

total Service corrected. -- of provider I came in stand our total at me about of XX% excuse billings. XX% XX%,

Hamza Fodderwala

you. Thank it. got Okay,

Operator

you. Thank

Piper comes next Nowinski Andrew from question Jaffray. from Our

open. is line Your

Andrew Nowinski

you for the Thank Good. taking question.

geographic So, I to ask wanted split. on the

in provide the outperformed the there in no regarding consistently was wide versus has the other disparity you can quarter and Europe different. color Europe in regions U.S.? growth any this Your rates growth Is

Keith Jensen

historically mature work It's very, there I performed The many worked is years. very partner that's over and European has stable orders team continue team the well. with extremely to for again. think program and the just a sales same over together many,

very, about feel very we we're So good what seeing there.

U.S. number the had compared compare you that year-over-year. think I pretty if think a tough I

push wouldn't So U.S. that further is that. think towards further too enterprise. there into particularly the much read for significant do we in I us opportunity I the and as

Ken Xie

try results. when harness the you Also six up also some months time ramp ourselves, we Yeah. some XX they have but like the to enterprise the need momentum and lag you also enterprise speed to up got also enterprise and behind some to

Andrew Nowinski

strong for deals pulled in Okay, to follow-up relates have below got performance it. maybe guidance as like into it the Did but And then little billings, get question just a is a looked bit QX may any QX? consensus. QX it your that boosted very QX

Keith Jensen

not about if our look you you talking eight-figure us No about see deals, mix you'll And deals. us don't seven-figure at again a really. talking see

quarter would it I'd think year for look at very likely underneath I that our I the unlikely think something expected the be pulling It outperformance seem billings say into it would was And came belt, a I much in. line this expected we on point is very in. after come would QX it the very that like. nice like overall in say much I quarter. the to looking So

Andrew Nowinski

Okay, very good. you Thank much. very

Operator

from Barclays Capital. next our Kalia And from Saket question you. comes Thank

open. is line Your

Saket Kalia

taking guys. for Hey, Thanks you for here. Maybe questions my Keith.

product services in ask go just back to to different a and way. Just bit little it the and split

mix that any, in your year-on-year appliance on that prepared you the particular revenue? product of, midrange the had quarter. think in in compare well impact touch did on remarks you I in Can just sort mentioned whether

Keith Jensen

their saying to us. introduction, XXX with had and the not success is XXXE. mid-range high significant the to seeing quarter think about product continue that end from will introduction impact the XXX that the much you're And more on the what previously recent saw end for on the well product am that expect the I the XXX and given a you I the going very steal I very, particularly family not think if low And I sure in offer mid-range product. we but the product I'd of it. than both E-series there XXX the I the and do share talked

Saket Kalia

That's Got Maybe for my of maybe built level. a it. for security-driven helpful. networking capability that idea just FortiOS. follow-up lot Ken with and success a Obviously, this SD-WAN into of higher you bit

pricing so question you appliances it's a nice there on And but the here way firewall. other in like strategy SD-WAN consolidating change network kind is do are market, to you're any the the share the since all? It for for that the customers at could now right the there potentially for of with down if How the in road? gain how future SD-WAN monetization thoughts about security and feels think packaging

Ken Xie

more more a like see approach said to the I networking top a like ago like the to kind times XXX times think the item have is We and just compared most like to when WiFi need security like networking. XX I of did process into security security FortiGate. go like especially built years computing traffic a power XX a same starting to and we're together, because

and customer have and -- pass because more networking parts the to in easy room security to to the also for latency bigger function more security where like can It's of manage secured it's no difficult more lot into So and consolidate to have some much function there. But costly, a and computing one normal single on side, the the and power more offer can like you better. path a offer additional multiple that's function a there. vendor

then starting and monitor in part what also the keeping And see part So like helps customer additional that's because just helping go because ago function years security some service the the SD-WAN that that want customer also that's to we're we few service of XXX but constantly XX/X, that's that's you so to the up, a deployment. didn’t like to the of of service increase on and feedback not service. QX the XxX, traditional compared a like to Fortinet buy network offer

FortiGate grow very the mentioned XxX. is so that's quickly XX/X that grow to rather certainly So the to starting products, also Keith also compared And started quickly.

margin of So service helping drive all this for additional additional us. kind

Saket Kalia

helpful. Very Thanks.

Ken Xie

Thank you.

Operator

Thank you.

Michael from Our Raymond next question comes James. Turits from

line is Your open.

Unidentified Analyst

is maintaining direct at your focus for with This Hi. How your today. you balancing Michael SMB [indiscernible] in sales on strength in enterprise the in in on are and actually improving both Robert doing channel?

Ken Xie

starting – you I side to have -- sometimes to coverage think, need and structure the we enterprise then supporting. we And whole process long-term need the from the to also from marketing the the behind sales because also some investment.

build of enterprise So time marketing and that to starting lot sales ready also infrastructure starting out now. to support we all enterprise like in starting be -- to this people same to get get we're for at the and onboard also the supporting also

Keith Jensen

business the would that ratio. enterprise many ratios, it's We've in I framework that that operating framework, in out very is we're that into say that investing track there. question. within And set be region. of is that what parts will And the process is SMB there to growth enterprise improve from through in in the our that proceeds thing And signed and the we're coming rep have how to which using many terms we're coverage fair I the going you believe I is account we're we if MSSP this that years. is channel, segment talked excess moving to in fund as a And very expectations see Ken One market. our of then think both what the closely a within space. continuing I looking the very what individual growth successfully call about then we where Yes, the accounts to continually very, profitability think strong success in to

pipeline, at looking just those the worthwhile push Looking worth we to at ratios enterprise. continue it's that the a to into very believe continue and to -- investment

Unidentified Analyst

the And step you taking feeling environment, macro caution just Last here. as quarter you point? just a around back follow-up question expressed helpful. maybe this a are at really That's how in

Keith Jensen

various little Yes. -- I January for interesting was a around -- was companies.

I off the for about would or hit after what Billings to little the it happens the I expected than slower as January -- been year. up of seems between think QX in think have pretty and us rest think a we feel quarter has end I concerned we the and Started belt, underneath about line to government the quarter. bit bit we're the its at the don't that call day, China the have the impacted the of U.S. think liked, a of we'll shutdowns with with I Brexit the I shaped see QX I But moment, commented deferred, we At earlier on but good little think outperformance stride. like

Unidentified Analyst

Appreciate it.

Operator

you. Thank

next Brad Our Credit Suisse. comes Zelnick from question from

open. line Your is

Brad Zelnick

specialized Great. FortiGate how comments Thanks customer's go in think OT you after you this market? EMEA-based and taking Ken you power and opportunity, questions. careful you your big win And much paid are feel the your it the and win visibility it? capabilities water OT about do to into and you the utility integration really much do When had that to using for attention in product need provide to I How so about particular product the we is? to seven-figure network. investing management SD-WAN

Ken Xie

That's -- the a us. OT one of Yes. engine for engine growth -- IoT is driving

the will OT market be copy which our we security. sure a can $XX By estimate the information XXXX public look the is IoT for for website. So, in the in billion

some But very see early space. progress happy huge is like also and even also security. are us base but we small, size one right emerging to are also in and fast probably very fast, compared is But to potential sales enough going compared cost also side very, of it the the we we same the of like infrastructure And securities a traditional triple area the security the strategy growing cloud and different in there other for some now function side need the some time, and fast rather the and numbers. space growth it's forward lot to and engineer go-to-market or need the different the network do both that investment on leading in at So, other or also. product coverage

Brad Zelnick

XXXX. CapEx should Great, it's sense helpful. think I of about forward the just next we And you going a at bit investments any into on Can know that's comments very appreciate give early. the us Keith year? how in

Keith Jensen

a bit early. that's Yes,

offer would me. going the occupy don't have we in occupy to on I XXXX, conversation to with plan on building XXXX. -- is October painful very think building Ken that October of I -- If a we the

Brad Zelnick

Fair Thanks. enough.

Operator

Thank you.

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

Dan Bartus

higher-level on is Thanks one. I'd This Dan taking with to like start Tal. the for a Bartus for questions.

with really a network you're now. products well So, clearly for doing while the

provide et which you I'm have you point, curious think just or control, what in could areas a other Wondering And of do So, could access thinking network email, I'm cetera. you about surprise end XXXX. upside the areas more most newer emerge as leader? adjacent potentially

Ken Xie

for think we partner because areas Symantec space with and been partnership have has leader a I some already which while. some prefer also there the the there a like

both for more some we are have February Symantec because that's I for internal than In to security at we why more internal more side we solution. with Forti Like approach. also tried have to intent the year acquisition the the other especially area endpoint program mostly the the security more fabric internal last product partner maybe in look area do a on XX we space. least side also not -- and technology and R&D new said additions For two innovation max close like that manage partnership,

It's is have latency out solution whole bad Normal network customer together. other keeping is multiple a this endpoint by sometimes there customer line security, the in or most box you the And the may existing have cost a also look and landscape one like helping availability So, some reduce in of a more more the really there you prevent to and multiple traffic. security you manage can In to vendor, integrate integrate. will be pretty the space, then that's is. function because where and ready. grow not we interesting innovative

very, same that's together very, to other win partner of is keeping So, situation. effective some of we very important to integration also is, and us. time. that still key And also we for Partner refuse by with part player growing where gain we part found infrastructure it's is market share us a for very innovation the out and try also way the

Dan Bartus

across market, And office been entire looks campus mostly the firewall branch with also it to That gaining gains and the then share the you're the but Great. like have sense. share sense make makes weight which trends. SD-WAN

just market it's market So, curious been for you of the Thanks. of weighted coalition to first of that of who combination as are guys you second your for coming gains firewall just SD-WAN view have main a wondering then that that if you kind most rare the guys? And and you agree the because share segment with?

Ken Xie

average office in there. faster Actually, Fortune than it's branch faster XXXX, than of course, how the grows and much the probably the

we advantage where of security other we leading some the do player share very the also compared fast. one and keep that's is are big to gaining grow the or SD-WAN XX% we some feel have provider. enterprise SD-WAN year-over-year growth the more more very, also. in And player one other the So, market about and we It's

So have also doing last we few starting -- we for years. been this also

above that's more other also average. very are and very, some heavily fast we also the growth, the where but promoting we the into investment see part, SD-WAN, enterprise So fiber also

the So I give see us lot good multiple of and competitor by and a do each think a also forward. going quite potential fronts our over varies we them advantage growth

Keith Jensen

to add Thanks Yes. just Ken. you said. what I'll

the that government, segment doing move think, banks the OT. history within now trading of earlier us with into international, segments offer offer that being and such, and institutions. areas what There those allowing at to seeing out vertical services. of extremely with about of the you look We would other I look seeing an loan state, are if education, think And -- active in I the a those financial when within come I very I pleased was engaged at local, I'm that and that, comment of very well.

utilities, you if such some think seeing as transportation, think I started well. into verticals we're OT I translating real as success there

Dan Bartus

Great. guys. Thanks,

Operator

you. Thank

next Owens Our Capital Markets. Rob from comes question from KeyBanc

open. is line Your

Mike Casado

was is but did to I'm you Hey, up at comparison, wanted Casado North Mike Owens. weakness checks a guys. I in region, tough least, your initial trends in compared I circle to hoping Rob some it the year-over-year pick back the our since that specifically in to America. North for as execution can This know America, speak on on expectations?

Ken Xie

The behind there. hiring of sale resources add behind, rep the speed up, we to also bit accelerate is will which little more hiring

American the we So keeping the as somehow little behind also program but bit product, that's of little and the North things. that's to bit in is and just have all have and headcount the other impact full a allotted growth, difficult productivity

there, than hiring behind do very things to So Other America there. quickly. that's on the also salaried big to more competitive issue where -- hiring we but any said believe to resource don't see add be there. because We we North come tend that, back will you our

Mike Casado

okay. sounds That

Ken Xie

Sorry?

Mike Casado

Go sorry. I'm ahead.

Keith Jensen

Ken, that. spot on with

more my focus that bit I that think move saw the of I of short maybe think our sales of is within help comment us the revenue, with key tandem below of talked our to within things the -- roughly that. earlier area we area like presentation. we'd do U.S. really And as that that, in fell We a you in in in first the little see before terms to hiring just

direction That to said, bit moving that very extremely does the lumpier, than well be Now SMB penetration. offer, I business. U.S. enterprise the continue MSSP move done they're the tend obviously, They has with to think, would and quickly. and I little a in that

Mike Casado

relative And you these OT competitively? truly engagements or And That's do who IoT, then that seeing are engagements involve what helpful. proportion greenfield? are to of

Ken Xie

our want new to a IoT some our network space. the leverage cumulative smaller I other innovation market, infrastructure because technology for view think a we new but also lot of get niche is, to company applied into it's see from player, part of security do a market, us, OT, we

like of, other, actually of a whether with offer kind solution huge do see next other time in And be service with potential, unrecognized some provider also, and space. lot that’s So the years, the to of three different, kind space take like, to invest provider approach, to also traditional working also the that to but will a and mentioned, management environment, the in some some better space. we growing the solution or I But some in equipment potential in segmentation service building is space. need have there different huge into the fit

Mike Casado

Great. Thank you.

Operator

Thank you.

from from Citi. comes Walter question Pritchard next Our

Your open. line is

Walter Pritchard

like some had it on and like XXXX you the Has side. the the anything been explain enterprise Thanks. during in had you traction questions difference? mix. Ken, attrition on more -- to Hi. it that confidently Two feels product the the talked on One enterprise here hiring you're or ramp side, about follow-up up product you I would mentioned there any then, there. a need And feels

Ken Xie

competition space hot few hiring. secured in last with the Just somehow the the is pretty quarter all on

We really of because -- the additional America, there North -- also kind said, us -- starting faster if which also, up growth the we to effort on step is the is the it's resource. in actually. you add our But hold hiring time hiring

more comes also -- grow program but North from need America, can For to kind faster and the we where now. us, in we comes training that's from enhance of account coverage the additional that's growth hiring, also

Walter Pritchard

us guess, versus help on on I -- and difference the you non-FortiGate? on what the the product attaches Okay. FortiGate Can Or the non-FortiGate. the mix subscription annuity -- either line what's within FortiGate of of remind the of And non-FortiGate? relative FortiGate, attach and then the understand us

Keith Jensen

I and will points. margins. So of and And from there's those I product company. very, the very then of think relative products. And of richest non-FortiGate to it. suite, software in licenses what that's is access, -- the we The access -- the versions also include will comparable is seeing secure products has also the and margins software throughout the also obviously the support that it. product of we're rest with the Overall, -- those versions are which software, see attached in think software switches what There's fabric

Walter Pritchard

up? And there it And non-FortiGate non-FortiGate, product made the so safe of was just to on think the in XX% Keith billings. than color it more say XX% any on Is much how it of I was total product?

Keith Jensen

It looking ready that me kind stood with the right way have I'm on color that don't something wasn't me I one or of to out around. other.

Walter Pritchard

Okay.

Keith Jensen

told. I'm more little A

Walter Pritchard

Okay. Thank you.

Operator

you. Thank

question comes from next Patrick Research. Arete Our from Colville

is Your open. line

Patrick Colville

Keith line very just taking But really is circle really the by XQ for billings? coming one fiscal on I lifted in much was the is? about mean Thank you into can and some why healthy. you guide you with year. to that quarter. the billings color expectations give the for that quarter Can I my And question. ask haven't So the much heading back

Keith Jensen

Yeah.

how good Ken the very put of year the feel we about back think that over-performance QX, has prudent for hire that's think the year. in quarter take took metrics looking pipeline, it to at second to the we I half a the sales faster probably we on approach the the tenure, of top and full talked the raise the guidance And some at the guidance the I I of coverage, the and basically do we're is about. key look Certainly to coming that up. think first shaping off things. year that meeting when people absent sales

up. I shaping very how year good feel the about think is we

Patrick Colville

firewall competitors, a service? that whose of constructively your I with Z, talking a as a a as One and very first Great about opportunity Ken service is ask the about a begins and firewall letter can question future? in for into Fortinet that how your and And market. could maybe that the a play long take What's as and how industry the your take? on in in could service? been You've firewall evolve time what's

Ken Xie

Yeah.

for revenue important of is now us of think see very, two-third very I from part Service service. the offering. you come the can the a

us. side. of do And invest also service like so of revenue And the driving a service function SD-WAN, additional there's keeping more also for we additional lot

than also thing? the service very, we that's into So enterprise go support where we additional to and so customer other the that, and very important. you is also -- enterprise when really Service any service where part, that's Keith, keeping and

Keith Jensen

No.

Operator

you. Thank

Ken Xie

please? question next Operator,

Operator

Deutsche question our next take We'll Powell Gray from from Bank.

Your line is open.

Gray Powell

for thanks questions. Great, my taking

if that's Just couple a okay.

just Was of should for ASC I comparison or then, And product in how product benefit a a we think revenue year? side. to was on a just neutral we sure that So, remainder dynamic the the the revenue have trying to XXX, make headwind clean Thanks. that QX? about

Keith Jensen

Yes.

to pretty color question. it's you To much both are XXXX the think obviously -- XXX. neutral I I think XXXX, answer on give

the are comparable. So numbers

move related go look that typically than of periods, where software our some to inventory back we saw as the U.S. $X to million from and are little recognized was continue prior you a I at forward. in probably things you believe the at less some of disclosures being channel we're components and If that's but the faster those and kind

Gray Powell

Got QX? it, thank you and just follow-up, give any unit volumes in a on quick you can color

Keith Jensen

tandem moved Unit much revenue with in growth. volumes product very

Gray Powell

Got it, okay. Thank you very much.

Keith Jensen

You’re welcome.

Operator

Thank you.

Taz Our from Partners. comes from next Guggenheim question Koujalgi

is open. Your line

Taz Koujalgi

for but did thanks this my I'm if not Hey taking guys regions? missed give the you I questions. call, different sure billings on by guys their growth

Keith Jensen

investor the back regions. revenue see in growth growth slide you'll -- of the We in deck by No. the the revenue gave

Taz Koujalgi

that metric Can give we guys you by I quarter think right? every region? The it? have billings

Keith Jensen

No No. don't. we

Taz Koujalgi

more And quarter the growth the question provider was housekeeping vertical? then, in one the excluding enterprise well service how Okay.

Keith Jensen

is growth enterprise growth. months XX%, XX The trailing XX%,

Taz Koujalgi

quarter, For QX? this for

Keith Jensen

give XX number Trailing we months is what historically….

Taz Koujalgi

Okay.

Keith Jensen

was it XX%, XX%. and …

Taz Koujalgi

you. thank great Okay,

Keith Jensen

You’re welcome.

Operator

Thank you.

question comes Our Ken next from ISI. Evercore from Talanian

Your open. line is

Ken Talanian

us the could you about bundle, customers you for protection your to for if Thank wondering across and think potential help as uplift maybe how the market to think my customer opportunity taking understand segments adopt question. XXX I Hi. was to about how that ACV that?

Ken Xie

there. service and about but additional quickly, network function customer need we that. up service relate potential, to in our also one rather personnel support It's check can security function up especially health or see huge to some promoting ramped like that there, We're need starting supporting there, there's deployment help additional that Yes. to ago year the

than us We growth also product also, some is also side. and starting of our training side see do side this strong of better quickly the Fortinet margin partner support service the both and for we one the future much but has the on also area

call stage and also also support ramp see still also while early need us. it's overall line, of more acquire customer they additional We is to so XX/X, this but in and also supporting we're up that to stage anything promotion the trouble the And training XxX help when time. improving the a us, do can has for we helping because and in check -- happen so margin -- like proactively effort the customer is prevent far ahead call and health

from feedback especially can do positive is very enterprise very, a this and other other part large than support customer keeping see we're going be the we of customers service forward. So whether faster growing

Ken Talanian

your to the year think level did about of in personnel how XXXX? this that, and support you quick a what that we necessary follow-up investment just versus to And should

Ken Xie

probably don't hiring behind one I the eventually too limit but productivity to think the hiring thing which kind do -- to think will growth, try much, we of growth. behind also than we more improving the trend are I want we

the keep the of bit not kind it's -- hiring a by too revenue in So of little but growth want build much. to we ahead

Keith Jensen

services if we're on impact that reported the not seeing Keith This with from in comment. is there to labor Ken's obviously Then start Yeah. go just was you gross that. If will a growth FortiCare significant margin will appearing XXX line. we it the

Ken Talanian

Thanks Got it. much. very

Operator

Thank you.

Our next question Northland Capital comes from Market. Robert Breza from

open. is line Your

Robert Breza

Thank taking my been you. for regarding But have hiring questions Thanks answered. Hi. my questions.

Operator

our next Thank Ives question from Daniel Wedbush. you. And from come

open. Your is line

Daniel Ives

Yes. Thanks.

coming continues in quarter the obviously, pipeline? it So I on have Is mean deal to question I just just large be that tremendous. flow. the that expecting trend a given a you're

Keith Jensen

remarks. I the probably we I metric expend on that guess prepared would the Well gave

-- offer about that over at talked that deals $XXX,XXX we quarters $X over XX% I we has deals give think some also number. and should I million been grew that about

very range. that above of and we and area $XXX,XXX quarters us don't. But for Some growth it's consistent

Daniel Ives

having the these you is numbers on of that more driving And Thanks. defy the what's of do think success competitively deals direct terms in large haters? on you're some side that the to just continue partner

Ken Xie

that's come all -- bigger part. like to And in like the and call enterprise compared cash. growth, other we drive the the from big deal partner the these Symantec the which the and the are a also the effort to driving partner also -- is helping it enterprise like where direct is partner the both our closely help working of lot so partners So with sales much

Daniel Ives

again. Thanks it up. guys. Great, Keep job

Ken Xie

Thank you.

Operator

to I now Thank phone back our lines. like you. over to Peter the turn from Salkowski am remarks. questions I any further showing would conference And for no closing

Peter Salkowski

the May you, on Chicago of joining conference the look Blair conference on you X June conference everyone forward seeing and quarter. Investor X thank Hills, over conferences several following JPMorgan Crystal. Beverly Baird let to the We'll in New like of XX, attending York the next Jeffries and in at call on many in during for to San today the that I'd in -- the weeks. Xth, Fortinet second be on the know the be and conference in William at you the May will Boston Thank June Bank X. conference June the Francisco We America X

an follow-up Have call please have questions feel good me Thank your or me give free you to you email. of day. a send much. a If rest very

Operator

a great day. Everyone today's the program your does Ladies and may participating and gentlemen have thank conclude you you This in for all disconnect. conference.

Fortinet (FTNT) 2 May 192019 Q1 Earnings call transcript