FTNT - Earnings call transcript Q1 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fortinet First Quarter Earnings Conference Call. At this time, all participants lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions].

I would now like to hand the conference over to your speaker today. Investor go President, sir. Vice Salkowski, Relations, ahead, please Peter

Peter Salkowski

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

our that Ken via Fortinet's Chief is This Financial Chairman today's Relations will available CEO, replay and Investor call for be on on Speakers Xie, and call webcast Officer. a are Founder, Keith our website. live Jensen,

Ken our perspective today our for XXXX questions. guidance call providing on performed performance for some by our operating quarter quarter second before some review opening the the first provide the and and April will and then additional insights call provide begin our how for of a details first quarter, our business. high-level Keith financial regarding results will into

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

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

the presentation, reflect date forward-looking All we this update only any no of of specifically statements. forward-looking statements disclaim obligation to obligation our as opinions undertake and and

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

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

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

now turn to to Ken. like over call the would I

Ken Xie

partners, call like you, suppliers And our thank our you XXXX today's to we'd customers, And Thank employees, response to to their to manage commitment everyone joining to you. Thank COVID-XX results. thank review our worldwide pandemic. quarter for for Peter. first the

strong $XXX solid performance. increase regions. our product fabric, and all The solution resulted with in pleased to to three first work very our driven firewall, increased by are of XX% increased security performance core XX% revenue. an million. Billings SD-WAN quarter $XXX Revenue in We solid XX% XX% execution revenue service from and major and a home across in million, increase

VPN Shipment of increased FortiGate in appliance. and SD-WAN by the unit built our product, quarter, secure our first XX% driven ASIC-powered with home secure

especially FortiClient, demand was In addition, platform, the automated FortiToken FortiAuthenticator very fabric strong. and for security broad integrated

and the released directly Our market. by new our us FortiGate enterprise highest supply dynamic service to on ability deliver efficient environment. current the quickly to the to the a to Today, secure is performance provider chain solution manage to in cost milestone and Fortinet our the Powered ability another shipping engineered performance adjust the NPX, of industry meet XXXXF, logistics and today's companies. and XXXXF allowed scale most demand the

for competitors, our Fortinet to With to enterprise for will key way advantage as its workforce. a solution VPN teleworker remote XXx support ability be the looks competitive over efficient cost scale performance large,

across During scalability, automation, the capability, performance new and quarter, the over X.X new for providing features, XXX released we with FortiOS protection AI digital including entire infrastructure.

SD-WAN X.X in to secure our FortiOS offerings. enhancements Included the several are

with SD-WAN and to share Fortinet a only believe single gain developed the networking this fastest player internally and SD-WAN is offering continue that the one providers solution. the we'll XXXX. market provides market in major of in in We security growing SD-WAN

solution SD-WAN security home our across offering, Security and provide for offerings, infrastructure. a Fortinet best their most SPU-driven their Fabric secure and industry-validated work our is partner, as with important platform deploy an cost-efficient to strategic entire the looks along especially FortiGates, hybrid-cloud budget, companies efficiently from company digital with security the

I Keith performance and quarter our for to our call closer guidance. look like would over first the and a now turn to

Keith Jensen

Ken. you, Thank

and first for employees the outstanding our Let partners I families, our me pandemic. and customers, in COVID-XX like note, managing our their would wholeheartedly support to in join suppliers response their and Ken to thanking

With growth benefit that revenue. XX%. was security revenue million secure in segment quarter Total solutions. fabric FortiGate Fabric Both up security of start revenue mind, and SD-WAN FortiGate let's our first $XXX from XX%. revenue review the our network was continued growth was cloud to The network growth XX%. segments over with and The

industry has geographies, security quarter The sales strategic across global The to first is once of investments offerings, in business segments, internal momentum markets, expand result invest growth and verticals. our product force adjacent and revenue our made the our illustrates broaden customer experienced channel again our penetrate our diversification strong our the partners. benefit of

and revenue solutions. demand offering, secure as Fabric SD-WAN standalone solutions, home from XX% our $XXX Product to software grew benefiting integrated from appliance embedded million, as well strong security appliances, work FortiGate for and our platform

innovation. reports share we industry to and in take rates have and where growth both markets, market contributed suggest SD-WAN and firewall leadership the Our we'd continue markets

grew increased Moving revenue. service from deferred was of representing beginning predictability. to service and the revenue quarter at of revenue revenue million, to provide level XX% to XX% $XXX Over service revenue, of continues the an total XX% revenue of

to $XXX increased FortiGuard XX% million. security subscription revenue

increased FortiCare and XX% service $XXX technical to revenue million. support other

XX/X higher of our support The X now price support was over mix. to this points. And X/X just mix from represents shift XX% XX/X

to million. shift to billings $XXX Total increased XX% Let's billings.

related FortiToken cloud billings for XX%, and by offerings, our increased of FortiGate and XX% network Fabric XX% and accounted increased billings. our including from secure FortiAuthenticator access security total driven billings FortiClient. combined and work home

Once was of quarter, continuing by for account our top first again, to on industry with model our about our five the diversification vertical billings. two-thirds in verticals business display total of the

believe portion all verticals of Service providers billings total serve total quarters. in its representing we with the highest billings, MSSPs, and which market, SMB topped XX% of large five of a percent

XX% represented total over had and services with billings billings. strong Financial of XX% a quarter, very of growth

Short-term XX% to of increased deferred quarter, end the $X.X XX% $X.X total billion. revenue billion. to the At first deferred increased revenue

Looking dollar deals by at size.

our $X deals billings $XXX,XXX up XX%, enterprise increased and million increased into and For $XXX,XXX, over XX% of move The over value illustrating continued market dollar respectively. ability the segment. XX% to deals the value

back basis as improved improved X, growth in margin XX products Moving basis lower on to the margin XX.X%. to Services and points to XXX cost. margin shown margin Product over gross basis gross slide points gross XXX XX.X%. XX.X%. XX% to income statement, from points Product increased benefited gross software indirect

the the first shift increased related margin improvement work for points basis to towards benefitting from travel to gross XXX margin expenses Operating lower from employee in XX.X%, the quarter and home.

with covenant patent our sue for payment into related agreement million a in to not cash to to a mutual competitor During the quarter, entered we portfolio return $XX seven-year Fortinet. a

operating credit a over We gain of recognized the the a the agreement. of remainder expenses, million recognize we'll $XX.X and GAAP term as to

cash $XX.X We our other million non-GAAP our gain and have excluded results. the receipt cash from margins the free flow from $XX million and

the momentum ended we improving our headcount rates last quarter investments the in an quarters. business, made few by leverage while the Total increase X,XXX, at seeing positive of to driven XX%, increased attrition over

not anticipate foreseeable future. do for layoffs the any We COVID-XX-related

for was income operating our strong $XXX.X net Given income million. the quarter first performance,

increased to $X.XX $X.XX share. Our earnings per share per diluted diluted

an Including patent-related net reported share. earnings would income of GAAP basis, share above, GAAP diluted noted a $X.XX increase gain $X.XX we of XX%. have per million the On or per or $XXX been

on $XXX cash increased this of X Moving slide place the and X. to in XX% statement new Due shelter was to week. cash summarized Free flow orders, mid-March to halted flow campus resumed building million. construction in on the the and

for $XX million million million, for including million. and the $XX activity. million. quarter of second the estate between real $XX other related $XXX capital to all were $XXX expenditures first $XX And expenditures estimate for and between quarter to Capital and construction to XXXX million We

cash approximately tax to be our full-year $XX We XX%. taxes full-year be expect and rate to million non-GAAP

approximately first buyback In the utilized an remaining approximately common and XX quarter, for we cash was investments our portion share end million purchase of authorization stock the of $XXX aggregate of a our the $XXX million. of first repurchase shares quarter, At price million. to

the two lower modeling insights. of me with light activity, In offer environment, buyback rate interest a together let

be count previously shares share year lower million full the XX First, should guided. than

income insignificant interest be of XXXX. remainder likely Second, for will the

areas offer our that in contribute in QX. steps about guidance, business to wanted two including COVID-XX, we observations to moving have certain early and and to Before to QX taken related we some thoughts

increasing in the pandemic, to employee to donations response charitable substantially taken related program COVID-XX First, million. our match we've for of one, a $X of steps, total including, number a

the further And secondly, free Last eight or to expanding NSE training and levels. certification our program free people position program. X,XXX over security the narrow online self-paced expert skilled making three and more is over public the what skills. with world security very we expanded call week, levels different network security from program, from and and COVID-XX By to a registrations first the advanced, to we we free workers we've the program first week, emerge had all NSE this marketable to NSE. In organizations. the shortage new around of from hope XX,XXX

early I'd future some anticipate that in QX quarters. We And about and will business QX. share our observations in like continue don't to these observations

However, they be thought in and light might of COVID-XX, we helpful informative.

quarters first for Looking XX% with through consistent two at at first linearity around quarter monthly linearity, the prior was months. the

elevated While two middle did was buying of March linearity level the see of an month. typical, we the weeks during

last second linearity, quarter for slightly years. it was any better than first for April our As month the performance in three

flat remained terms In XX and payment at year-over-year. payment length contractual but And contract contract length months than average increased, QX, the Turning less average XX%. terms. the

with chain In us. over was XX% our product suppliers commitment terms of line of historical backlog their our in to delivered and concerns, supply averages

billings QX To and in outperform FortiToken, we offer puts about the million from Combined our $XX above in these work Fabric FortiClient expectations. home. takes April, towards benefited for In some organizations' three significantly saw billings of on expectations. again value products, increased their in shift employees these from billings, were context three securing the and products platform FortiAuthenticator

by may was the and up of inventory, year-over-year, buying our relate level a channel at to Looking small slightly early total which flat balance customers. quarter-over-quarter

Regarding this percentage SD-WAN trend and the strong. billings. solutions, SD-WAN the SD-WAN for pipeline secure continued total were billings quarter high single-digit secure is a April for QX of billings

GXXXX to our SMB billings a Analyst segments, at within increased remain Renewal that billings total provided we the as And rates Day. XX%. slightly. customer the percentage then, of increased billings looking guardrails

percentage the one X billings, remains remained unchanged percentage our segment verticals retail a year-over-year. total of as billings, worldwide a total of And and, as of top

see is COVID-XX second did about to the uncertainty impact conditions. a starting we well. the indicates, That due said, not lot performance quarter our for and is a future first economic As quarter, of material there

the I'd for Finally, call. forward-looking to beginning the to like X, slide the second information of at the our is regarding subject provided disclaimers that on Peter which review outlook quarter summarized

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

of XX%. expected tax We non-GAAP rate

For full-year guidance. believe to increased due do the associated XXXX, the previously is impact our to issued the we from withdraw to prudent thing COVID-XX, uncertainty economic with

like Along with and and their unique Ken, support for hard difficult these I team Fortinet the our during times. all would partners, to thank work customers and

listen Lastly, to the Accelerate held you I May XX. also would our being virtual at keynote like on to management presentations invite of all to

registration You can Peter link. for contact

And to back call with the that, I'll Peter. hand over

Peter Salkowski

Michelle, open you there? you questions, ready Operator, if can the Keith. are the lines to please. we're you, Q&A do for Thank up

Operator

question from from And Morgan. Instructions]. comes your [Operator Sterling first Auty JP

Sterling Auty

guys. Hi, thanks. Yeah,

off June the Wondering, in half demand demand quarter back same is that you're is fast the in did high think can do to products that into that perhaps mentioned or actually March? you lift in you – the are you a that this so, April that temporary continue seeing saying? a April You start. And

Ken Xie

a we think And mentioned, FortiToken, overall, work related, pretty end. still some Authenticator, home see think I similar. continue, very same. like do are Fabric the FortiClient, I Like it's from lower especially strong. But, we also,

product And strong introduced XXXXF, interest. we quarter, very the both in and XXXXF also, the introduced, a the also see new the last

similar far I so we see pretty think demand.

Keith Jensen

Ken month activity, what what we a were the we setting Yeah. April. insights one of process, of to pipeline to look like what month your in And we obviously three. guidance normally probably seeing gave two, frame I'd obviously, look in for your terms at pipeline add month by would look saying, in what Sterling, as does said part does response and what's on your some

those at for So, can the of we've I quarter. part the you think assume setting second looked that factors as guidance

Ken Xie

have also secure has announced average Yeah. to VPN quarter, really and our had competitor efficient. lot feedback Also, the any It's will a one we that of very competitor times reputation. [indiscernible]. other is The because be faster new a the few product capability performance last so and cost good compared more XX

– XX%. they from actually company So, probably work a – population, have that's of enterprise, home a a lot of usually lot less than

they Now, XX%. jumped over

a headquarter, and office both that's So, some demand also other for for home work for huge for solution.

critical that's are all very very, for VPNs So, these where enterprise.

need So, we customer of competitors. solution for see the a to compared lot other required

Sterling Auty

XX% you channel. makes That sense. one MSSP the follow-up of then, mentioned the from would And be, revenue

as always about think SMB us Can what and in worried that from I demand exposure. the give sense terms in just segment? pipeline April, you of saw of rates investors you as well renewal a that March

Ken Xie

bit of actually. a kind Not It's surprised. also a We're little area. very interesting

increased and X% as Our to where X%, grow average. faster they overall SMB a business than that's our of percentage actually

reasons. two, there's Probably research. some did of kind we three So,

very using network or even as percentage, average probably digit. low an very, only single The SMB about home seeing or security first, whether endpoint like from work X% low the the

a network home small SMB very as solution. it's security So, from work percentage a

they where starting to from more kind that's home this of kind take So, of work solution. to may opportunity SMB implement

we we're cost believe and SD-WAN both Wi-Fi – because can of second combined so some other also a solution save efficient. The SD-WAN lot with cost, whether or also one,

also that's using the where probably to chance So, also new customers product. for the

And we the low refreshed end we the you believe, look quarters, in do all last third with the F first if model. few one,

work first XXF It's XXF So, SMB ago, from then like and from almost announced. helping home quarters XXF driving an the solution. three or all we then

even average. than grow two, these factors faster actually three contribute SMB maybe So,

Sterling Auty

Thank it. guys. you, Got

Ken Xie

you. Thank

Operator

And your Fatima comes next Boolani UBS. the from of line from question

Fatima Boolani

overall in us architectures the your XX or months, SKUs as wondering how can is you, just And you're that lower-end you how the follow-up Keith. around branch branch you office the the I'm for about momentum maybe you to SD-WAN I questions. you the have. for would on office I as SD-WAN footprint accretive how if that of think to branch accretive have taking have start give think And sense Ken, Thank some impact change, do think to with you XX business. to SD-WAN your just next you seeing, portfolio? a confusion conflicts is do then, a there's

Ken Xie

Yeah. from developed I the with Like very beginning. in internally we and so are the only built said security SD-WAN script, company also

also and function together. it's combine So, very multiple cost-efficient

of customers that's So, the value. where see lot a

somehow a other because low the At same work from grow relatively that – also a of very and small SMB some still time, still said, like or the percentage SMB home market I fast. helping overall SD-WAN is

three So, a we grow also the become already top and farthest one.

And it's better inside functions probably multiple lot other. we performance own function, the time, handle time. Other advantage, the much but security our a is little same also, a with bit offer the company function do SD-WAN a ASIC same than different offering. because computing other power then at our of At has only huge

fact, grow also last XX%. SMB, FortiGate also one highest also or years. all whether to the probably SD-WAN we continue the the contribute still to I see SMB contribute or few unit contribute these That's from April. pretty that see we in it's in – That's work home interesting to in and think, and overall, – both shipment

from so, home customer watching and work also react SMB any address And the both solution. try to quickly, and for closely the we're requirement also to in SD-WAN still from

have can a Like react security, we other they then to They develop all all to they product, to this much SD-WAN, I integrate, with have have the internally competitors. solution the different said, because way compared we quicker – others. find

to gave that some advantage us competitors. think compared other quite I

Fatima Boolani

and in wondering shipment I'm you, for activity. and much characterize trends quarter And, April. us Keith, can pulled-forward on you the appreciate maybe helpful. in volume just super the That's shipment that is how of if color for that

the contextualize you If for rest the can that year. pipeline with of the

to rush wanted a or there actually was activity. if Just buying get of accelerated sense buying any

And that's you. Thank for it me.

Keith Jensen

Yeah.

and your there way. that's and things expecting, There's got any and that was section you in that you've titled that some QX with that other I really begin puts things of commit any in don't are any we to maybe push that in way. come why weren't quarter, think that think out. takes some I that kind weren't different

April. in of happy saw some we're of in April, at into think which seemed April that the what commentary I terms QX how in to because there we're with regard, it purpose pull-forward looking bunch about be contradictory that we providing thought to QX was a a from – of

Fatima Boolani

you. Thank

Operator

And the your from Brian next Sachs. Goldman line comes Essex of question with

Brian Essex

And if versus in challenging maybe question, you weakness? the right, Hi. growth. guess results maybe Can saw first Ken, times. had strength financial maybe I strong vertical, taking Good the for pretty heard by you you on you afternoon. where the some services growth question. that the pretty economic some in Thank congratulations better comment I some on billings quarter for maybe

also well, spectrum. And actually rest product for from near-term be the of it did versus might what work range as of release-driven Any surprising anticipated seemed terms at in the though change the entry-level maybe your mid expansion of more activity home-driven and pretty you sales? type year product

Ken Xie

Yeah.

as strong a actually see service the – still just we the fast-growing finance help is can it's bit. still First And few grew – It's the in answer also enterprise. also, Keith It think X,XXX we but enterprise, for pretty XX% I Enterprise top than big the growth. five. okay. among weak, probably the overall Especially not faster years. it's little is bit vertical last later even few top grow starting pretty the still probably service, Retail, probably quarters, see and provider strong. some the governments a pretty the – little

for VPN, handle found workload, a suddenly, from especially we think, new cannot the especially the do to And home. pandemic. lot the anymore. almost XXx need work a NPX out, going big it products lot enterprise, forward, interest of compared provide see before of I competitor They

of this see average, to starting performance. better requests So, we the the IT, VPN XXx ASIC, using advantage enterprise a we accelerate of on get lot which from solution because our

now VPN, actually competitors handle. they before which – need much see, that's maybe but they're that's cannot oh, that So, advantage huge to not a starting

So, product XXXXF, XXXXF, end, And last starting the today, and see also growth where and middle high previous we that's strong also we're strong released to we the quarter also very see now. demand. pretty the

Keith Jensen

Yeah.

good very Ken job think did verticals. recapping the a I

vertical, as of had We for kind call Just – retail state the MSSPs. to the largely local, year-over-year to it, as a Tech services. talked about three I script, We was flattish was terms color to of in government five. percentage didn't put is very international, not talked of, need quarter us and it little the think which I a good more on about performed billing. it it well. Ken well, but but clearly financial get enough the in We indicated, pretty top guess, top in in out

Brian Essex

just Got if deployment maybe one it. access branch within you was see helpful. quick the color or questions office lot would helpful. accelerated any it of of closures potential a a I environment the a That's Did Maybe better this and there as office to networks hit branch the of investors had one due maybe quarter to closures. closures Maybe little be quick result? – on because about concerned just more I from SD-WAN. could change in

Ken Xie

Yeah.

opportunity some infrastructure, zero-touch have – a we to whether don't the see We call they branch leverage little upgrade see this bit. deployment I at a likely. a even think office IT, probably or and this deployment, we accelerate slowdown we some

Brian Essex

Thank so helpful. you much. Super

Ken Xie

Thank you.

Operator

And Credit Zelnick from of the question line next comes Brad with your Suisse.

Brad Zelnick

during and of congrats being much. you. I've times. the strong constituents Thank Ken, for all for got question crazy so for you these And Excellent. your to SD-WAN there another all momentum you

of whether acquisition has solution leverage comparing technology help One SD-WAN more an maybe to one competitors a efficacy? to and space is your architecture. your by and approach in you made or Can SD-WAN us the thin in plans recently more Thanks. with contrasting cost-effective their branch inherently just

Ken Xie

years. XX already like a like quite X to developing We time SD-WAN, Yeah. spent long

can very And that be function decide combine so, in can so the from be the security how with it used to security beginning, routed. together, SD-WAN

security that's They other together. to or limitation, side major acquisition, on whether security So, come the side. or a lot than they very the different combined whether function all a have which of performance in the competitor, have networking networking in from function,

huge So, enjoy. continue that's the we to advantage

all ASIC gave time, is of same which also also the function accelerated, a ownership. boost and At total kind lower XXx much of this performance cost

we more. how kind see that's of more So, benefit the and

balance the part. product other within a like FortiClient, Fabric the SD-WAN previous huge easy we related to triple be together, FortiToken, solution. And And whether the the or the the home suddenly or SD-WAN or That's function found also double, be also growth cloud work lot – deploy we And computing And a huge together whether definitely working products well home, part or but have of mentioned quarter, with combined easy in to time, from a hybrid also we the it's among Combined from office, some also cloud the the faster. at security a branch how increase. the infrastructure suddenly on cloud all of the keeping cloud. manage same work the a processed Fabric the that's can total FortiAuthenticator pack out other single headquarter, see how about side, needs solution, working advantage, to to than and are even approach. is edge the

also benefit so, that. a And Fabric approach the lot from we

Brad Zelnick

QX. of your a are actually I lot you follow-up you makes of have? hiring you're seems Keith, It And That light how sense. plans pretty off Ken. in limited you, with like to just visibility if strong start can about you, the a Thank in thinking

Keith Jensen

Yeah.

year, into – of the of saw over has we executing towards the coming that that against, in the we quarter, those first and quarters and about of we quarter hiring investments thought we hiring were we're this and the year. going some this And end of last to made profitability last that we this of growth. balanced the growth think throughout the the context been we framework within investments couple think continue with talked we I XXXX tilt that towards

growth I think hiring those in we'll higher or or QX QX. start to percentages lap some of

so, And that start what in back point seen time, with historically. at we've moving in we'll line

Brad Zelnick

guys. much, so Thanks Awesome.

Operator

question line the Eyal And from Shaul your next comes Oppenheimer. from of

Shaul Eyal

Thank performance. you. Good strong guys. afternoon, Congrats the ongoing on

very I few performance you quarter, a specifically mixed-use the are quarters. the had over performance. reporting doing relations European respect But some the region? think it have also past in to solid strong You or been different in partner outlook first companies is mix European What with other driven by your that

Keith Jensen

I this look at way. Yeah. probably

when East part our I the think that meaning Europe. say the also from and as Middle up business Europe, into to Africa Eastern we includes it emerging emerging, of Southern everything well,

to that has And think good do think great now go ways, I many to do it's forced a market some strong I also think in with job a I that, component are row. they, they by how execution one, And quarters in for of team. latter that that. been yes, very

Europe, probably if saw, bit you saw think with what pandemic. pandemic, outperformed kind kind quarter look quarter, the Europe probably the that's with and of a you I with would we US Americas at of during as little consistent a more the and the we Continental the overall, expect

Shaul Eyal

seen expecting is Got gross with that for should more probably quarters. you, gross recent appliance-driven? company, bit we we little margins, had And which highest be driving it. slightly what's we margins, been And have of Keith, the an uptick specifically forward? What while in that going also

Keith Jensen

partnering cost feel for we is the years than I with gross comfortable the good And our margin we're guidance of provided partners the little had past. our that do over we think with I quarter. with more bit a that some structure effectively think couple as of that changed think I products. our little newer the we're benefiting that. perhaps a for last in bit I channel

Shaul Eyal

you. Good Thank job.

Operator

next your comes the line of from Melissa Stanley. Morgan from Franchi question And

Melissa Franchi

question. Thank business. want to taking you on the discussion very the my I much go to back for branch

some just for what are trajectory like given retail. looks branch, I think verticals understand to investors exposure the trying economically-sensitive to the like

I anticipating up pipeline, be that of know I shaping expect into what the but rates should probably branch? are terms for is to the So, half it's second early, any look in And but your as you year? renewal the pretty that April of change we for well, pretty you know

Keith Jensen

think we didn't of of the comment renewal I rates, that I made we the first And band changing lot based we quarter year. the So, Day. guide within in to that see what on the don't half was second that what specifics seeing. were a we a And really provided don't renewal saw that at but rates that I'm I Analyst upon give

consider bit I about to kind a of think just I by it's of it probably little helpful And and strongly of very harder. the made performed context the moment our Europe when a diversification. was to reference kind I US ago talked hit probably pandemic the

its in and geographies. of from focus now there the business Latin recovery passing the a and company it's started a Europe but about less the impact that's and that's headlines in retail the of already US on probably XX% is may America than talking be other lot over perhaps You're US, in

Melissa Franchi

a expecting following just could know I QX are that if guide. give you, more of seems a your with up or just maybe through April you bit to continues wondering the very Thank you color that's And assuming close? healthy assumptions pretty of challenging I'm so the underlying you. you little some on rest helpful. Keith. Okay, for but are the more be quarter far,

Keith Jensen

support the products, ability about to strategy good partners. we're feel about about executing, and about the about that our ability to the our the very business, we think execute, customers the our sales team's I ability support to

the of slicing I'm And at pipeline, at mind, with that looking the in the pipeline. I'm the looking dicing and

than more We do a customer smaller have reference at assumptions of looking As We're pandemic moment whether new ago, or for at our an a assessment. deals risk status existing deals I'm a deal based as renewal. I of typically geographies. sizes. different made part geographies or Larger at looking look upon kind of the those logo not it's in the different or

those go setting the into things all the mix terms guidance quarter. So, of for in the

Melissa Franchi

Thank you.

Operator

from the your question comes line Kalia And from of Saket next Barclays.

Saket Kalia

into Maybe maybe for customers questions about just and of longer-term here. expect so, lot a Thanks their how strategies Fortinet but guys. and taking think even my Hi, enterprise of Ken. are Hey, you, your thinking you understandably to on questions enterprise, the first you thinking do VPN play sort how do the branch for about that?

Ken Xie

this VPN. work people there Like is of on XX% I pandemic remotely, think patterns. some said less the probably access I changing probably working before, than

due reopen, Now even and XX%, vertical. back, to it whatever, the go XX% lockdown, over XX%. if this depends probably, maybe we we Maybe still all see on

to can whole to different even headquarter these this whole a branch that's address the need device. starting you are sometimes, And Wi-Fi, especially combined VPN But there. have [indiscernible] on making of or like, more the network to side, secure be there. with office manage access networking certain enterprise Endpoint important, the can and pretty home whatever and like this starting that and see actually can strong you of work family So, kind if with get different more you endpoint. the from demand the remote was member bandwidths. We all home different

Fabric. Actually, we good growth. of of triple And other some these Fabric, other some see also authenticated even products component double, some like different products, – pretty

Saket Kalia

of the trends Got you it. talked as if in as opting of I for home? customers any result material my Keith. the in makeup trends that nice But from a different That's increased seen on FortiGuard you've XX/X. have result that any bundles you the uptick the in of with curious very you work work maybe home? helpful. subscription some Or FortiCare shifts follow-up about in a with as FortiGuard know of bundles you, Maybe comment from for can

Keith Jensen

Not no. No, really.

Saket Kalia

helpful. got Okay, it. guys. Thanks, Very

Operator

question comes And Owens the with line Sandler. Rob of your from next Piper

Keith Jensen

are Rob, you there?

Saket Kalia

Hi. you hear Can me?

Keith Jensen

can. We

Saket Kalia

Okay.

about Sorry that.

You the in around remarks, supply as ability mentioned quarter the demand manage to towards chain shipping at still all any FortiGate those I'm bed surge look strong forward concerns chain time? you put and And your are relatively and curious, you should prepared logistics. this see in your directly second supply or to solutions,

Keith Jensen

do. has the manufacturing I head feel some think to good but about I of work it,

Ken Xie

see don't only also in and pretty see supporting. shipping manage We own but we supply the we own also issue. our would far, our recover They so logistics quick not good. pretty any shipment, chain, it Again, also

can So, any supporting. team, like can outsourcing quickly or with why whatever, downside shipment the and customer these to quickly. not with also it address all or make we're we adopt That's resistant redundant of to more all any facility, kind

Keith Jensen

at still that inventory on Malaysia lined Japan be component. individual been which that may mind, less X But than a is looking like have turns, two components an spot or We or of the or have keep part business in our of Philippines our in something recently. or model up

carrying we're months means four point about at that really, So, time. of inventory any in

the was even XXX% level, though with consistent that other at at execution, even we backlog And weren't quarters.

we And we're we quarter through slightly go risk inventory to up as level this so, and as ever thinking start our the probably, to next that move for further maybe looking pandemic. transitioning guard at or two possible so just against

Saket Kalia

may, they're talking of I I discussions then, cloud, you're on And work at branch just color. but customers what's been arguments? kind from come customers as where as you response strategically, SASE around from guys the of And people home, if know briefly, your others? considering looking lot solution versus been a of office, the that do of appreciate down there's home, work as I to are kind

Ken Xie

home these also weeks working NTT ourselves, of together. but West, today, and do model work on-premise SD-WAN even and believe with working provider best the from for or have the like few feel ago, both a security. technology, approach with solution really with be service a the this edge said all cloud I we a we SASE, is we announced And need Like to kind this a morning, provider. service also partnership whether do offer [indiscernible] Like we

So, whether lot we endpoint the to provider It's to cloud. approach bit from traditional the your have also they is right which also now, service Forti and than traffic, the with in device because a office the home the structure. SASE working a in the all different forward little from the approach, and SASE all of testing

device So, the process, we SASE, call is which sense home, your for to we mobile to approach we have some SASE, cloud endpoint the all work believe the solution. when to of for forward maybe better from makes the Forti But the quite increases traffic the much sense. also, it's traffic does not slow. make office network of to much very latency, when cloud your because in the you quite high office, And secure, forward, a forward encrypted. it not not lot It's and

And most of very SASE the more of interestingly, freeware to companies, these leveraged, whether security. like source open do

company as [indiscernible] for do testing all because not this research other people So, we few and years. have dedicated this intelligent hundred security the doing a just their done as XX of good when has security, some security you the

better from where and latency like better networking better cost-wise. that's So, security,

premise, traffic to Some if cloud. will be better all using [indiscernible] probably to of this on-site you locally office much process than traffic the offers, like more a lot forward solution

And is They a So, SASE a we a – SASE, profit model data but little lot have – money. different. where Forti with have of lot it's also service a them also, of other a which center, compared providers, making we we're bit to keeping make working invest losing it's company. that's when proper to

service this all their infrastructure. they own of own Eventually, have do provider, kind

So, leverage security it they effectively be issue, right, current much process in office secure management their all with whether will what this solve and on-site they mobile this or more cost solution. to manage infrastructure, is and can

little both that's on-premise where of So, also solutions. cloud on different the bit provider on leverage service have edge approach. More a leverage and also we and

customer. the the feedback very very, in of enterprise the also good service kind that's this, think in all side, I So, provider, from both in

be we approach. that will feel the So, right

Saket Kalia

Thanks for the color.

Ken Xie

Thank you.

Operator

And Raymond from question line Turits your from James. of next comes the Michael

Michael Turits

authentication, so those terms endpoint, some it terms in in strong home are that a feel work further? capacity are that seeing quarter, April. of in the Is you for we extend to of got finish trends need for level is, or demand product? XQ of where you the does have customers The VPN, driven, do same all that, from you into far question token, You and commented clearly up they getting

Michael Turits

the Well, whether SMB low I X%. said, maybe like around very percentage. or US, work for Probably still home,

lower region, country, other even than Some that.

the whether home a on SMB the almost need huge worker, it's then, office potential office, increase or VPN home. remote So, whatever suddenly, home, try need to XXx headquarter work to you or And huge or to access you increase, when still this worker. supporting on all the

time, the authenticator. you at solution other also whether then, the same side, need secure the And device in a from level home or

we see demand So, there. where quite that's strong

Michael Turits

you but is payment question terms. anything Keith, know I you if to add to for my follow-up about don't have that,

duration invoicing. months think XX about was that you on I commented

it help those have if shortening. XX% in and terms. about payment And flow. that to of concern on concern was about impact you any Just remind where your any customers us out one of that and about need extension in talked you of the cash either Again, terms

Keith Jensen

I be and look, headline Well, that is model going sheet opportunities share we're And to a your want free but balance use in doubt a basis. a balance others. I do the guide us partners. flow, to to position balance flow don't would and think free case-by-case cash our sheet expect to there's there's quarter help have where strong because to and you customers gain make that I we to real We our for our mind. that on support that second our certainly to do Fortinet in adjustment cash sheet no that channel to think my some to probably market There's about leverage the

Michael Turits

Thanks, Okay. guys.

Operator

from Walter Pritchard question Citi. comes next the of your line And from

Walter Pritchard

I for One, guess, questions. Two Thanks. Ken.

product was forth. end it of actual I'm was that from strong pretty Authenticator customers you work a understanding the wondering around strong. and of Just shipped, the you and so part that that low looked strong trend being the end taking home products boxes FortiClient saw and what line of Token, low how

appliance the wondering Just side. how much that contributed on

Ken Xie

Like, from both the triple, the FortiClient strong. SMB double, they're also of that shipment some come see, think strong. end unit if probably whether end, from And The not appliance, middle even much low That's then, home, pretty work XX%. relatively shipment. from small increased end, base. but unit will the pretty low I you contributed the because range impact high mostly the the or

current, I like get the still still see competitor's VPN they the of product of is whether some a the work-for-home solution. – other – in lot trend the think the I suddenly or said, cannot increase still, enterprise and huge the handle also we

lot we a interest. So get of

them of them the deploy time, so, to IT the the busy, some whatever. them to whether try whether supporting try like demand. also same called super guy zero-touch from we be the meet maybe the higher And see higher, see all do this people headquarter after – percentage strong we have to help pandemic. branch And will a do But deployment at other and or help this I quickly times also to few or home work we deployment, trend down yet. solution slow the even compared to pandemic, the starting don't before probably

Keith Jensen

It's just add Keith. I'll to that. to

working home, model, the a they're that speak, that and to that start going see likely so to home it's when think people I them. not firewall taking you're with from more is

installing on think they're laptop. their I FortiClients

going drive to not low that's probably really So, a by end business itself.

capacity organization, and authentication On and of – so greater forth. like IT VPN throughput greater and the to they're they the need now of trying corporate because side other things

not they're it's And what actually up, again, in of if terms so, firewall you you home. is may see buying. the moving the will, But, corporate buyer for

I beast is, then, favor, in new of that has of produced. called other think cost our than product the which we in just it the have in And XXF, real a quarter terms little was aspect different it its the bit predecessor. a it the structure a volumes

So, little it's giving lift of on us bit margins. a

Ken Xie

also only device. one it's laptop that on interesting load can secure but your or FortiClient think probably your mobile, I really, the

other very, these It's and where That's handy. manage for with bandwidth also your together, could very also be when device, this in. very things like work the need other to then monitor things. home, So, appliance, some FortiGate Very, you all kids some you from the solution. remote competing you're come probably how good

compared total to manage better much managed They even bandwidths, better being and I'm it's they much whole how of have not different really from so together So, load house the can device some much secure offers but but device. the SD-WAN, different – sure one secure, still product it's – use much Wi-Fi function. can

from one So, and security a that's just also better it's making of better device. as – much kind them much work can home than

Walter Pritchard

then, point looking wondering, be just of now, of wide times. think you for sort back you to range days you'll there seeing on we're your understanding to lots unstable what if Specifically, forecasting XX be the get that are call are of of guidance because be a at things from in of guidance, able at pull And too to Keith, able look and what the I'm just things this the unprecedented to of companies annual sort guidance? your or about sort to forecast giving watching?

Keith Jensen

year. severity going And hit? economy that's going you the be it I our or are, else, second And to second a going hit provide those what are ultimately, is in guidance into? concerns to Like be? in geography really, And trying interests wave? unknown when the now to of is to half geographies? of just the there to right the everybody the What's our it going is What think second wave

Walter Pritchard

Okay, thank you. Understandable.

Operator

next your of And Bank America. Tal question from Liani comes from

Daniel Bartus

security is share you second they Curious any year. in budgets This back half. just if wondering thoughts how they're think can to trend this XQ cut if I from Tal. and customers some hearing might you already for on you're Bartus looking or that Dan was overall maybe on

follow-up for MSPs help your SD-WAN just about MSSPs? and of driven you think business by much quick a just then, probably. how is us Keith, And Can

Ken Xie

pretty [indiscernible] where be And well this think XXXX, to guidance. from also the that's security XXXX, hold for any time careful different. during But budgets we I this recession. try very it's

to these April, try impact. material the we But Keith any so get and worse, low We since And no very pretty careful. different. if are impact, feel comfortable. said, in we we first like times far, see pretty not quarter, be also see in And good

Keith Jensen

it in we're it's with of if you that very incumbent quantifying would say But a it, already SD-WAN that Obviously, in internally. MSSPs that is that and MSSPs, interested large would very terms opportunity, I I because focused market I on the something characterize the displace. without will, to to a come that have as very think market. an we're being we're trying the

Daniel Bartus

Great. Thanks, guys.

Operator

next comes Amit line from question of your Daryanani Evercore. the from And

Amit Daryanani

question replace proposition a how through next first well. Thanks gains follow-up enterprises think guys guess, no few over impressive go to gains you given probably a we legacy the have the for in given share of over effectively. share stack TCO gear happen wants you the years Do up do one a have seen off, to recession I you guys. last you I'm wondering taking the couple as question, I my fairly share guys accelerate that years. is think gains and as at unlikely actually can or this that have point?

Ken Xie

whether the technology a gave competitor We developed, this which most XX unit, to strong is internally the broad and process leverage which ASIC XX, product leverage, have probably not fabric call SPU, advantage or working, quite which already huge product, function is or a approach, function VPN we continue automate advantage. a security integrate, together, the and performance also and a

of we we have continue same found a on biggest enterprise, with starting And university probably program a that other up we'll continue this to for and work to people And we hire, some hundred invest. also continuing the we need high-quality cybersecurity started more service at to whole to we only found to a home easy part the – it's We're And also, but training our outlets and the time, to lot the out will huge see user, also for industry. big in provider, hire we not of a all training. train open few free. a working of are lot but student, the lot

new set we few that every found second. we registration Actually, a

trained get new benefit training X.X So, and for security. million the a a – handle help people year, security we this shortage there's seconds, last the few it's every huge because, set a space, registration in of it's up in to

out to So, help problem. them also then quickly solve people recruit industry that's and also we and us found whole the the train opportunity

on make more big as we the all working secure. before with continued hard a us this and we to the opportunity customers team the very also the for Internet investment all based try So, made we where and see partners, huge whole all the

Keith Jensen

making things that I and point three this reference or summarize I'd making them a think way. probably there's Ken's of,

mature I our even with and more expand continued three breed. continued in favor the product things think best of will, become of the to if at in and is are these features working to One set our terms competitive, you functions has some fabric of has moment. and

moving much that now and prospects, and seeing and platform. least You those of away more every interested at security to, that I'm for from enables and a are platform best-of-breed aspect in automation a more approach integration the more solution customers, talking

and are if in where into third messaging. you cost-effective be then, the can By an this you more go-to-market that probably premium lower aspect is environment successfully that cost, of we moving can deliver market. that, cost And that it, your effectiveness successful and option, in produce a argue

Amit Daryanani

really guys. And Keith, helpful, That's a then, for you. quick one

average what's about contractual terms statement? us for XX%. What's way read that talked about You best out pushing that the of impact to and the

Keith Jensen

the in your mentioned little take not I would second XX% a it QX. terms, length slightly than are payment that just It's what flow free your I was less assumptions want of at collection cash will. bit looking increase, the for you to of right? cash And And you contract, think probably model if

Amit Daryanani

Got it, thank you.

Operator

Salkowski, conference back Relations. to like Investor President, to I Vice now the turn over would Peter

Peter Salkowski

invitation extend contact presentations to the on everyone the to call me keynote Michelle. an for I'd you, today's listen May to for registration XX. Thank management Americas link. Accelerate and Please at thank like Virtual event the joining

of Also, Fortinet and for quarter, on JPMorgan webcasts links these investor Conference website. June are XX, on Investor will be also during William following Relations May the and the webcast be events our June the available will X, second the on or will available including Presentations America Blair attending conference conference X. these virtual on conferences to be Bank the

follow-up have free me. to If you any questions, please contact feel

day. very Have much. good of Have a day. a great Thank rest you your

Operator

participating. Thank Ladies this you concludes and gentlemen, today's conference for call.

disconnect. You may now

Fortinet (FTNT) 11 May 202020 Q1 Earnings call transcript