FTNT - Earnings call transcript Q1 2021

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Operator

Ladies and gentlemen thank you for standing by. And welcome to the Fortinet’s Q1 2021 Earnings Announcement Call. At this time all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Peter Salkowski, Vice President, Investor Relations.

sir. begin may You

Peter Salkowski

financial [Operator Please questions. unless undertake that only non-GAAP, call these forward-looking most in begin, forward-looking call risks making to financial and recent obligation update Good SEC webcast Xie, our opinions from Investor will This date on We'll all Officer. forward-looking am results by Relations we to and and and stated a will of references as statements Form today's for to our discuss that Investor available quarter perspective welcome be on live Rowanda. obligation otherwise. quarter, of Jensen, first updating and cause no via begin make Vice I'd Speakers Keith Founder, today XXXX. pleased today's our Peter our is Chairman XX-K our any President forward-looking operating and This everyone reflect full factors website. on replay could call Fortinet's on in we the we Form this to XX-Q call open are that Also, risk our first projected. second of at the are All for providing and the before our more will metrics specifically Financial for afternoon, will differ call Ken you, are the subject financial statements today's then is information. the call for which then statements. to quarter of Ken disclaim everyone. call presentation, everyone Salkowski, to review remind results Fortinet's Instructions] those Thank Keith Relations guidance for providing Chief and Fortinet. the statements high-level to CEO; on I the refer year. results actual to our to our be business. like a we for uncertainties filings, and materially Before particular

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

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

Ken Xie

Thank you joining first review quarter to thank you, Peter. call And to for result. today's everyone XXXX our

the first interface. and a firewall, announced firewall gig The world’s Access, will security million We mobile SD-WAN, are our XX.XX across five solid network very greater the quarter execution offered grew driven we edges the AF XG our by product Billings contributed XX growth quarterly XX%, growth In business remained the industry functions, the the network the are XX% label first Zero-Trust focused and we've broad growth. new unit, to tight OS to GIG first of and AF, XXx fastest MPX broad security process within revenue operators comparative first including to revenue multiple with integrated be integration hyperscale Today pleased of product than offerings. security SD-WAN XG in strong million, solutions. we CASB with with secure and with of on to product by their performance. strong Network with $XXX last released FortiOSX.X, billing. momentum quarter, increased XX.XX scalable quarter Powered highest enabled great revenue next-generation years. and services. Total to only help XX.XX to capability. $XXX the Xx a contributing Secure With security AF XX% XX% and and MSPs by infrastructure delivers XXX SASE, visibility, which

secure announced SD-WAN, on platform Fortinet. that secure AT&T The adoption Fortinet access Fabric edge. security with integrated are and consolidating for organically enterprise of set largest a cyber the along edge across In solution a SD-WAN customers. new managed and to providers. huge a multiple and holistic broad a a network solution few among platform, by broad of on ability cloud the together. Today, the of automate endpoint The service incidence SASE towards Increasingly, and organizations momentum that and March secure a delivering Security has SASE an we high-profile Fortinet cover months, major is network, occurred for approach, past need in environment. elevated powered security over networking on-premise see zero-trust to enterprise service and and the announced world’s pandemic, Telecom, technology trust designed security continue target of a can operate We our zero built the a seamlessly Bridges new platform security infrastructure

companies in expect effort percentage to for of We cyber IT spending increase security an used the their address to needs. security

growth is Our key security-driven a networking driver. approach,

expect we Additionally, service product will that our lead the organic revenue. growth to increase significant

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

Keith Jensen

you, five-year Thank total And revenue that to revenue highs. growth, and should we product billings were comment, growth note add to Ken. growth your each at

XX% the security entire illustrating Auto-driven integrated, detailed customer let's security infrastructure and products. strategy. or for revenue geographies, our and with fabric Security higher XX% services revenue and products more. experienced all we And by benefiting from The acceptance billings factors, over growth products of for revenue revenue. revenue. increased across XX%, lower also security form to was revenue Total hardware, related revenue increased and quarter was from Demand increases Okay, service services three our was subscription and not In Security more in of cloud Product driven million first machines. increased growth their security base. revenue single backlog infrastructure XX% the million. QX software, services diversity for market SaaS and regions Support Customer XX% $XXX up of all to was result for and product product $XXX few demand million both product of growth The the growth deals, was industry-leading across channel geographic was cloud our up outsized platform, provider fabric the use growth $XXX revenue discussion services levels. revenue large of inventory offerings. a Fabric broad-based virtual the partner of $XXX strong enables cases start million future XX%. growth or across XX%.

the entry-level revenue Moving powered to revenue, includes of demand approximately FortiGate XX the the Non-FortiGate week, represent Fabric high-end of FortiGates and High-end now introduced includes of XX% of These and by products new platform new platform in past shipments. XX% the FortiGate which driven mix increase today's NPX FortiGate FortiGate for the were products. that segment XX.XXF. high-end saw announcement

solutions, revenue CPUs. five The our AC accounts to ten not segment computing Our cloud. of for driving percentage computing The driven solutions and the expanding for security of to points. of firewalls hybrid saw up hosted virtual physical on form and surface integrated power from add attack the consists integrated digital and but more functionality FortiGates to to a now including and and software, system, speed, SaaS factors advantage. well give operating delivery only also professional cloud, environments center, performance over and range Together, run for non-hosted XX% the creates methods, as capacity form power that The a fabric security factors data the price advanced they provide times to appliances, the enabling solutions. complete as customers than continue our protection and endpoint, Non-FortiGate grow XX% to total range of revenue four common

year, platform our – quarter the performance, strong first a Non-FortiGate an representing this be to pace believe business of revenue performance this milestone. is billion we acceleration on a Given now $X

Let's geographies. turn to revenue by

summarized of XX%; XX%. Americas Pacific increased XX%; on revenue growth revenue the in As area X, Slide revenue posted EMEA increased and Asia

mentioned three of growth regions revenue I more. all As earlier, or XX% product experienced

billings. to Moving

and growth $XXX The the delivered XX%. billings. first XX%, total platform. non-FortiGate XX% We accounting both growth strong Fabric segment saw Security quarter segments The billings a for FortiGate up were in of of billings at FortiGate million,

X, of a growth The the segment in acceptance Slide driving Taking single delivered of posted year-over-year very the billings strategy. integrated for together, entry-level and billings points security of growth on our billings to FortiGate four-point non-FortiGate. shift data highlight shown XX% XX%, total these strong platform quarter. mix non-FortiGate accounted market As

by billing the APAC geos, rebounded Americas, Europe, in the pandemic from a of slowdown had Americas. growth very the range. Canada outperformed all growth and In strong geos induced Latin billings America followed by posted the terms In and XX% mid quarter

first by customer acquisitions, the customer segments, driven all Fabric large small billings customer expansions, Security to channel by growth international this solid customer Moving diverse the and our geos. deals new a looks of time, solid we execution makeup segment quarter. segment posted of segment. deals. saw This across partners by the deals The is enterprise the larger for the XX strong same pipeline increased for growth year. deals the in $X XX% remainder million, in to $X of At of The million good of our number

As billings solution. billings. Ken functionality noted, as integrated were secure XX% of staffing SD-WAN a SD-WAN an and key total

rebound sector of Retail Moving providers performance. billing at solid to accelerated. with turned education XX% of MSSPs The XX%. into another all done growth up for industry and government quarter was We've billings worldwide topped XX%. and was XX% worldwide total by accounted XX%. strong The verticals billings. verticals of growth international total of billings a this for Service

single several years enables customer our our or and growing diversity. points. and which Fabric to the and drives increase operating strong across the with billings our maintaining a add functions platform capacity strategy shared features price Our The while and integrated security and platform performance advantage, over advantage, price ASIC consistent success past revenue performance a to is geographic testament system Security the

back to income the Moving statement.

total basis gross about XX lower increase – the an exchange on cost. end the in XX.X%. the from growth offset margin quarter margin XXX margin total gross product lower we count are an XX%. quarter points improved revenue points. in improved end more XX.X% the quarter X,XXX, marketing the program travel points to of to first gross revenue gross Slide margins margin to FX operating total expenses foreign from product benefiting strong by [indiscernible] increase than basis and product – the margin X, headwind headwind To and The shift of basis by basis points. offsets XXX from shown performance a from points margin quarter. It increased XXX the gross Operating drag XX.X%, the was benefitting gross basis and head As approximately The strong benefit Product the of direct for with XX on about points. driven mix from XXX revenue margin basis

$X.X year the of from a $XXX and Free quarter of first million, the quarter. billion. billion, total support The the despite advantage We ratings. in the the credit billion increase cash increase balance up as investment The $X.X issuance a flow strength with cash million triple the have XXXX, strong followed includes flow summarized partners customers our an X in million to on the came as for CapEx increase first inaugural $X of experienced issuance first geo-specific grade B proceeds leveraged year-over-year they spending. sheet our the to Slide our and ended statement quarter economic and we of Moving cash pandemic, competitive at our investments X. of Throughout $XX during debt from $XX.X challenges.

geographically XXXX. and XXXX, a quarter we saw quarter payment to days, inventory our decreased to we to on XX sales X.X payment our turns towards fourth X.X Compared Inventory of terms. efforts to risk, terms. times including in expectations provide decisions XXXX from took first increasing extended reflecting outstanding days as to DSI progress our mitigate starting chain the increased the supply levels, times, daily earlier pre-pandemic early of reflecting was line declined days seven result returning As the in six earlier with and targeted to

move We balances to and expenditures first real higher million, to Capital were quarter construction we in $XX terms be extended effect including payment $XX for estate and the other expect XXXX. as related inventory million through activity.

in campus year. We middle of expect and employees to the moving the building the new Sunnyvale begin

XXXX. XX million for second contract timing on local depend considerations. to months, estimate and between safety $XX up capital months to term We The approximately quarter the of two and first in term. of between and million the $X of all quarter in from for the XXXX of the in versus XXXX, increase XXXX, deals $XX contributed accounted expenditures protocols first quarter four than quarter average million for down of SD-WAN and the Although approximately first month XXX. quarter less from pandemic employee fourth XX XXX one Secure will and contract was the average

opportunities balance our opportunities given highlighted Analyst to we the and our Day in remains growth tilted our growth quarter as As we goal first have are next we pipeline, which bias FortiOSX.X towards profitability. look increased results, and And during released. forward, efforts, growth supported the March confirmed quarters. least system by and recently include development NPX we our The the our at new sales chip that strong several was for and a operating see capacity the

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

$XXX the of share Non-GAAP For to billings to in XX.X%. per $XXX margin expected which XXX of $XXX share points basis earnings $XXX $XXX operating million. to $X.XX, million margins in in assumes count we of to and range Non-GAAP a $XXX expect points XX.X%, an gross XX.X% second the million. includes basis $X.XX of XX.X% foreign quarter, to XXX of Revenue range between exchange. million. headwind which million to Non-GAAP the of

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

XXXX for raising Fortinet start XXXX. truly to every outstanding our like the congratulate to Before I’d of guidance, member the team

from we point of revenue For approximately of $X.XXX range billings in which of the revenue of XXXX billion to billion, approximately represents at growth share headwind the billion and debt $X.XXX share product which share and service XXXX growth Non-GAAP the assumes to the exchange. operating despite point growth represents benefit, XX%. billion, of $X.XX, billion the basis of XX%. XX implies midpoint XX%. at increase $X.XXX in margin, range of expect XX%. the count point to between a $XXX per foreign Non-GAAP impact approximately billion, the XX%. range mid to million Total guidance XXX in XXXX of Revenue the of Non-GAAP $X.XX mid in approximately expected margin growth which $X.XXX When out represents $X.XXX per earnings XX% $X.XX margin million a gross or and represents of $XXX XX% XX% $X.XXX backing T&E of to the of which to in issuance. operating about an

be and [ph] to Ken, We And and partners, XX%. these to approximately our with work cash and million. We $XX unique I'd team in the expect our for non-GAAP expect like rate tax difficult Fortinet thank customers, all be support hard to our times. taxes along their

Q&A. hand the begin back to over I'll Now call to Peter the

Peter Salkowski

Keith. you, Thank

we've to others ask and please during that limit large a reminder, got queue session, the fairly a Q&A we today. As question you yourself one to participate,

to through Towanda, at like once. the everybody questions. get please open I'd for So least call

Operator

the [Operator Rob Thank Piper you. Instructions] Our first question of from line comes Owens Sandler. with

open. is line Your

Rob Owens

And bit into to With of talk and seeing little shortages firewall potential Great. taking question. relative And you the thank is chain for shipments. security that verticals of supply some the you issues, one in a exposure? market issues with sort sneak about can other your chip Thanks. point my media,

Keith Jensen

shortages chip the think Rob. I is Well, – this Keith,

you that the industries. point of chip out shortages touch think can different I a lot is

form of balances how think something at that supply expectations chips carry, constant is I year, we different addition the having I terms will conversation six thing balance But we we're throughout in. looking inventory our our XXXX fairly to particularly the for factors in on to of one turns, talk carrying that two a basically times we inventory and a related sheet. to a down and I that understanding points issues about expect in chain you're sit think the into good of be do that will when XXXX. months Fortinet think have work be I that about inventory

Rob Owens

Thanks, Keith.

Operator

you. Thank

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

is line Your open.

Brian Essex

question. anticipate a providers can How year? as through worldwide and up about as much durable government service of really spend, segment from remainder there some will just though was an if government your the provider the acceleration there? you on secular How service it very maybe And MSSP wondering, you. rest total. Thank nice XX% side, the commentary still in for the acceleration what thank factors that, you Ken, know and doesn't about drivers are look that Who the talk out May that in XX%, talk driving play obviously billings I are. through we the is that MSSP Great. then taking then IoT way the the little maybe the year yet. and and buyers you XG seem we're seeing of particularly bit do are acceleration of you

Ken Xie

Yes. in – SD-WAN, in the of their whether lot Carrier offer kind network way. on a service early XG, this of it's starting reshaping put to now provider from this supporting SASE the and stage, all I still of work home also security

working business service shifting pretty We the I we we stage. will forward. same time, back announced tend do eventually kind the if where much a go because the high it's last to we these all like model. at – shifting, I support it's some it's service is and then month like do they And believe – testing a closely [ph] announced be we lot business that's do XX, and provider are to you of today, all very And work So a six number all of provider still some the they service the of a trial. VG the to four, also back up one the with AT&T investment the big provider do like involve have and ago, say go going new early years see so to but

to them now. growing keep business this right with together working we're So

Brian Essex

Got it. Very helpful. Thank you.

Ken Xie

Thank you.

Operator

Thank you.

Jonathan line William with Blair. comes from of next Ho question Our the

open. is line Your

Jonathan Ho

ZTNA demand of technologies? continued Good as just look sort afternoon. get and you're of legacy are that pipeline we sense Thank you more sort at wanted better and quarter. I replacements seeing the traditional products. And a connections VPN for for what Congratulations sort of the the to rise especially terms strong other oriented to seeing on SASE in of you. of

Ken Xie

also probably internal new other of Yes, best that traditional side, probably few campus, entered believe it's service fast that approach trust but inside other go – replace market, provider segmentation. so On the traditional like center, years through some the the said network we do and some the the position but is inside zero data ago probably the also expand they growing we approach, we SASE carrier. the saw inside

kind the with offer different OS them with look said tend to of so using partner different integrate inputs like is very FortiOSX.X of can at be in network them, we inside of So we also kind solution integrated more more box, and tighter different that. vendor working to some factors you

So better with directly. with customer that's much provider actually wider a working service

where new there infrastructure and also also alternatives fast now but approach, solution goes space, is whole of the dynamic do that's a are replace whole the part So but smarter team that the there going some come – not security just traditional that thing’s forward, we see growing it's will also the than away. is up

where that's different supporting the in and hands same we and at keeping customer the to region. all try address chain vertical So traditional different time is new to a solution

Jonathan Ho

Thank you.

Operator

you. Thank

Our comes from next Bollin question the line Cleveland Research. Ben with of

open. line Your is

Ben Bollin

existing over return evening, from view customers? they customers Good Thanks. – or the versus and to discussions completely a touch question. as with how changing hoping about bit to contemplate And wallet the you opportunity see and you could taking you how could to for their Thanks new Ken, time share your then Peter. Keith, evolving offices was talk expansion you hoping start growth Peter on little work. I also customer

Ken Xie

need secure all data traditional but more doesn't more of company. the the security, broad and cover a or view instead become border they whatever infrastructure customer important, The edges in to other also much and as

more infrastructure to So need covered. user, that's more more be device,

change from simple negative as it's not also refresh. It's into part mother together the vendor now working with working a cover, that's whole So whether and – point really a of infrastructure approach end security. a on a traditionally

consolidation a of and multiple prefer, together. when they Now infrastructure have cover working they're looking they different some of part for

pretty the to see But we can a times well it’s also the CPU. quite other fabric which and growth traditional vendors years software healthy the that quarter approach, really did to now you created, doing compared that increased what power the but border few advantage, and because as So security. they traditional security double we not almost traditional the XX X computing the much also compared starting secure every more network loaded to growth the the ASIC see beyond that expanding approach ago on

of So also increase assumption, that’s more cost, to a able a park add more function the lower also green. kind and performance, car low and

keeping probably infrastructure keeping that better. like product that consolidation like keeping the say the to So better And that next, going approach going to worlds within and few years. that few whole us, see the the quarters And this actually we will for that’s do will making keeping this we industry. even a a

Keith Jensen

then I with would Ken’s on just continue comments. Yes,

the I companies that permanently of and that think many he’s is be back back to surface work to model hybrid combination being to work in the many, talked a companies. expanded seems headline that now attack previously many the for about really the

And more being now to for of where those One business. growth of at But mix opportunities, several There’s And logos use of new we partner and in non-FortiGate a expansion model increasingly initial expansion our And is or installed we’ll seeing business, of else. look products. customers you see mix sale customers, quarter. at displacement new that XX% to firewall terms mix inside it second look cases Ken and different the we’re with of ways XX% to easily there non-FortiGate, is fabric with every simple come perhaps we from the is base In where I was two will. of that going from shift FortiGate our opportunity and if thousand of and the something the billings, this and billings finding from then you think that the going if more is opportunities. firewalls is, our expand. add how is, organizations

strategy and two, numbers. affirmation it you’re of the the in I think as it’s taking one seeing

Ben Bollin

Thank you.

Operator

you. Thank

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

open. Your line is

Tal Liani

because last you And year anniversary firewall and non-FortiGate concern your to year. by the the some take related Hi the guys, to demand, driven strong the going is I’m being was basics with any And just my question. question is extremely COVID-related was there market to Last a the that whether grew expect slowdown second again. of is strong of of work-from-home. you demand trends question the

you bring us what basics, products and there? through are are the to can you Just market? Thanks. what If take are the do the that the trends growing what

Ken Xie

I can said take the first Wi-Fi part, to to easily maybe fundamental like Keith gain four side. single XX a technology got side, one FortiGate our and function and like a second half. the and the helping box I X there’s home work-from-home in traffic compared also don’t a market I see computing It share, any different we’re power on the slowdown box and even there. like times architecture that keeping with competitor for with because we – manage a is difference is apart, an like these replace the more even for performance of three, can a add like security like

networking, to that’s this the like security of whole starting also whatever company home also working or called to reliability, standard environment. a expand the to lot branch So kind branch to meet of home the better

kind driving the of some provider we adapt the some early a point also It’s see a to That’s this be even and They after sales. infrastructure also of other not change need So also of fast. enterprise, are that’s yet. work-from-home whether the of asset reason some actually say most pretty keeping going your in helping But to of might grow solution. look more forward is stage. the still lot for service after a low home the

potential all, going that’s So we a Keith. Yes, do there’s big see forward.

Keith Jensen

I that provided. it’s necessarily the of of of to Peter Fortinet that's grew It's of a and billings some vendors the was and VPN And I little be me down fab product same to lifting glad year. look think getting. and question tough pleased the getting firewall and the of part know very know a second level you'll the or that maybe and like that where your of and did. but same then standing that was participated product any tailwind I not the out I a the so work to growth the second how every in from an other and was Ken stages in like really Well, of the coming quarter. didn’t for sit second something things rising quarter in we’re home, boats. that other the was each products said at over up feel try look the distinguishing quarter period more at keep numbers And itself. is we last really the I something on and continued early all with the to conclusion tide find If one time. back that don’t I year revenue extended that Yes. and and one than non-FortiGate to last quarter play the we’ve that, in out year from growth That their

Ken Xie

it's because internally day that integrate making one, of Yeah, it's the really together. part from we develop operate most

is other to and easier more long tried a the company manage. that So we want difficult different acquire reason, outside time number It's integrate. make it – to buy company of from customer that's consolidate, one some our take key is to part probably when than to some they

internally been We've So day we developed have working making one. together. from

Tal Liani

Right.

know SD-WAN, the what was else? up non-FortiGate? what growth driving So, we more it's basic, the So are of that are products my question key much

Ken Xie

what I FortiGate. of the I see think part

Tal Liani

Got Yes. it.

Ken Xie

which the all and So non-FortiGate, read we Yes, is comment out part I product, on of it’s but don’t to difficult given point thing. infrastructure is [indiscernible] the XX, is we whole ready. key like the XX touch have a said one

Tal Liani

it. Thank you. Got

Operator

Thank you.

from with next Auty Sterling the question line Our comes of JPMorgan.

open. is line Your

Sterling Auty

me Thanks. especially understand in EMEA internationally, the Hi, the you you improvement disproportionate to relative guys. the better saw you that help in if could Wondering improvement saw U.S.?

Ken Xie

go I to also we back [indiscernible] photo how once is in couple like get of quarters, the to starting it's a comment pandemic, try think think last similar improving, there mother. like about

You studying mentioned across. we'll since be infrastructure

[indiscernible] up So however like faster quickly. that's APAC be where catch U.S. by it'd

Keith Jensen

I on little to us Sterling, for play the just a I'll into – markets part different. are the think comes add certainly the maybe somewhat that And the bit, that. that market. the international of European,

you'll think oftentimes the pandemic, incumbent and incumbents the during market are share the one have I We have an advantage. number when particularly

second going the if refreshes of firewall bit I And a perhaps and with in on the dynamics. a the of mind of and with think quarter there's And have we're also the the challenger CTOs challengers. will. bit were the when a know lot don't share I more U.S. partner you a probably of partners. Then through quarter I you're that, in CIOs incumbent, ecosystem. think competitive do more year you and When you focused last third a

said here having we relation States, forward, that look the and we the the end as the second in particularly go through as at Now, to our look pipeline, we all of quarter to of the United year. rest

the that think good I feeling headed. we're is direction organization of very about

Ken Xie

in more your think for Yes, helping some will PGA be growth will like the growth and sponsorship we we further supporting into U.S. did the the keeping drive the mass U.S. for I also things

Sterling Auty

Got it. Thank you.

Operator

you. Thank

Gray comes Powell question of the next from with Our line BTIG.

is Your open. line

Gray Powell

taking for good congratulations on numbers. Thanks and my great. Okay, question the

SASE think I to could want but So, similar side there. just about SD-WAN when ramp maybe was XX the get ramping How you product, – SASE product how should started? Thanks. that to business. a billings and think on up too getting to we in under don't XXXX it what potentially should the and then overall Just upsell yeah, just the follow XXXX of back we aggressive, saw growth quickly have of with

Ken Xie

similar a say question. bit can I also, I little

you also together. I better this of model and solution look other – and which also but what's different the – function kind partner have to to of do is want SD-WAN, to We manage. and integration SD-WAN maybe study market a we also like with a the of SASE part and better at performance a a a also best like but feel that there, similar need also part it's including some SASE

closely more – catch our closely some growing, working and take also to position to with to but partner watching launch way So what's SASE time But market also to definitely do best that's trend. where that. and the it's the we the we ourselves a

Gray Powell

much. Thank very you Okay.

Ken Xie

you. Thank

Operator

you. Thank

Our next Cowen the question line from Shaul of . with comes Eyal

open. line is Your

Shaul Eyal

there's Ken times. on performance. platform, refresh past, and its discussion concurrent it? the that away you thinking in Fortinet gentlemen, months concert that internal around the it. probably is relevant so appear or that it say you. to XX some historically is issue? It for cycle a many Keith a congrats from provide Thank disruption gradually business. becoming at even cycle or it or around about of less broadening There's over strong that Do refresh think less focus specifically noise afternoon, so. What's your used given the the shifting is would of some would Good I

Ken Xie

[indiscernible] company, prevention, was anti-virus proxy. I it's all even VPN, from firewall upper this probably into go side They're infrastructure and the intrusion broader, also outside home. one see use can expand expanding hesitate XXXX, major to which firewall the you a the them both that's much and replacing functions. it's a traditional some work that compared And internal the inside bigger XXXX. company time, to But firewall that other refresh has time where the last to

So to expanding kind it's also together. be more part same security working more kind need different of of and of

integrate, – more them they from IT So company that's if side, be help they will important. and can automate to manage consolidate look and

people be multi-wise, you be, a they than like servers GSP it's what of, the would they that's and feel be where integrated to nuisance important different of model also [indiscernible] five service more technology that be we the provider. approach, at, supporting in that and kind I a make are service product also a large, broad can also also and I helping computing kind a like because once liquidity, we when, customers also – connected add would that's additional and same power hand important, is more a be So huge but keeping where the customer and need, said, making and adopt bit little the there's feel

of So biggest that's general. growing that also that keeping the keeping – in kind

Keith Jensen

harder. even this I would reference and and way, you touching with, in on harder to say are think of same to, get going Ken thing I it it's kind

discern firewall six, number it much larger. where simply for industry to bigger compared than to much, seven reasons. refresh One, think Their ago maybe I a years of the is five vendors cycles, it it or was are before. footprint was

that Secondly, little those point, XX% of to starting your if to the also continue evolve you and going the it's sort get discern us different coming to will as it of when customers, in the of have again, are from of sheer the billings but harder evolve number some a inside terms of cases strategy, the used showing are success and to on your platform, to footprint size, organizations. platform you

together, it's murkier to to I get and going a think murkier comes find refresh ready go that forward, to cycle. all

some you have price Florida where for internal have firewall competitors large not may individual some machines their like may approach noise cycle see that, or have the very You that's own something very, that but maybe that really or they points around, refreshes. refresh

Ken Xie

firewall traditional It's way be but expanding match working motto five as They being a modern away. out this kind new be need The putting beyond the also walking, security the are and of every way. probably to need deployed. of, to rarely updated one, going they not that and not that also to speed all infrastructure, also one years they to a

Shaul Eyal

much. Well Understood. Thank so done. you

Ken Xie

Thank Yeah. you.

Operator

you. Thank

Tindle James. Adam with question Our Raymond. from comes next

Your line is open.

Adam Tindle

being afternoon. for a thanks. you've year Maybe about for growth. Okay to this talked Keith, Good one invest

working unique. results healthy pretty is in clearly profit that's doing $X say a billings QX with and high at Your scale approaching that growth billion XXs

wondering the growth, above to Thank as year was at you're something on question, logic returns if on you this more evaluated touch for point, maybe even early whether given So, you. there level, I is this would the why you if this seeing? could my lean the are results reevaluating consider that just And not progresses? you of diminishing

Keith Jensen

of listening it are and of Ken conversations I in you to the respective sounds Adam, point think. some that view, Yes, like I our have with

about quarter, by the execution the the raising year the is and taking XX up I XX%, firewalls high. products think, year, with at probably what's level four XX same with points, really I be and And of the then being line shown business very the the Non-FortiGate we’re to for the for been and think pleased putting happening very, very – and time above, growth very, then level have points how billings there. of billings the success the with on pleased X.X points in up we're the XX% executed the quarter to first

whether GDP, I We think the tailwinds were of how ways, was And team's see it that out. we at whether we'll it we this into of there plays year number through year execute. continue stimulus, the rest different us that it was felt as for coming how sales the we trajectory, ability on or product the to whether see do had, suite was our a hopefully year. let's this

Adam Tindle

That's Thank fair fly be to for those enough. wall you. a I'd love on conversations. the

Operator

you. Thank

next question Davidson. D.A. line Andrew with Nowinski Our from of the comes

Your line is open.

Andrew Nowinski

have some historically about mentioned to quarter. Zscaler. Great. want strong with AT&T the Thank on I for you. great of MSPs partnerships BT. ask that Those been partnerships you another And congrats and the

customers you at they Zscaler’s or think you eating these just partners are to maybe share SASE do into those another their mind wondering I'm trying are offer So, offering?

Ken Xie

Let we working one long, have some say, companies, time. point But the do we their the of telecom base, them a some years long providers also, also the could some for of customer their Zscaler last for with few have us as and been of partnered. which used infrastructure service in be they

So, service-based [indiscernible] of where kind other has during also adopt quickly. whether which SASE provider high offers being supporting of once, sort the to pandemic, especially been service interesting. pressure IT internal some on need That’s or a in approach more based

also all SASE with and of solution. So relation leverage we and vendors the and technology, our across much partner tighter, network also that's product offer where integrated kinds

bigger Some put they lot, I this in partner like it telecom a way.

we're So work them. that's to continuing with why

I go OT whether of one other mode some few other So the a to may IoT to closely believe do new the have be I carrier back and partner the the years provider, that when a a with also infrastructure, the work ago, the and some in we mention high even or some number service XG XX business infrastructure, in SIPG, or also thing. other or SD-WAN can like

can business think potential together. the result, a I will lot which do keep a expanding provider service of there's security how

Andrew Nowinski

Yes, good. it Thanks sounds a lot, Ken.

Operator

Thank you.

of from Irvin comes with the question line Evercore. Liu next Our

line Your is open.

Irvin Liu

on the congrats Ken great quarter.

to key also factor deal? also, a S&D color your a to this share you was go-to-market expansion in whether continued about can customers, identified, talk the And Can contributor gains. to motion SME, about here, when you previously You growth for large into selling enterprise be any large as a outperformance? required QX example, differences talk So, versus helpful. enterprises timetable close will key any Thanks. and/or in

Ken Xie

that some Through $X bookend little million, Yes, you I a bit well. continue think to the SMB we in in also will. quarters we the than saw us a geographically where color have provided bit think a we maybe coming good little growth script, success did in before we do and over both seeing think enterprise. term metrics pandemic, online that an was deals the unusual I try we're And for which segments. is the the on and pretty the you mid-segment is being we think proxy that to And XXXX there I that of year, stronger if across the large give deals, XXXX. believe used I've for customer about

And particularly deals And made helping to the of et bring oftentimes, of it challenger. There's comment with the But you partners. to I versus be SMB, channel of the doubt well you absolutely say enterprise. kind plays how have cetera. incumbency carriers, in those partners. about that In force is distributors, very successful cadence, role absolutely, I the enterprise a to there, channel about a in and channel to large make play terms to the the partners no in a sell sales that versus would MSSPs, those terms a direct have earlier investment

with together strategy. you've I linked share I I them, hold really And to think vendors. for got starting and that deals to key to track think with large and mind even see you're of than bring them we're geography partner challenger with them those you're get are resellers perhaps to that more the convince firewall some that the where from the of mean, us. trying some take legacy to important that's and

Irvin Liu

it. you. Got Thank

Operator

you. Thank

Boolani comes of the question UBS. with Fatima from line next Our

line Your is open

Fatima Boolani

how you, about thank you that And questions. guidance. we How details some afternoon. the for Good of DIY think you the going carrier budgets areas could share come you where certainly, thinking enterprise within embedded have SD-WAN And for to that? mix in I expectations And are from are between market? as well market, around the as the Keith and more SD-WAN/SASE the share taking you should incremental or was dollars ultimately of about gains hoping it? your the

Keith Jensen

hear Yes, you again. nice I from to Fatima, – think hi

we're Gardner to micro-segmentation, we think we things terms models, prone that not and if SD-WAN, make zero the go the to before, firewalls, of and would and for our sure you by we do growth similarly et heard sanity describe a the I in SD-WAN for trust, budget will, SD-WAN our to We OT case us at check building in pipeline necessarily the projections range, similar you our as to use cetera. of we're if for will. nature used you way necessarily by products. that against And do look is firewalls, cases nor

I expect So, that. would

been it and to offer got the got there and I has comment Ken we XX%. XX%. early clear would moved there on, for goal setting he SD-WAN moved billings. to And that other is be quite he he The it of now And wanted to has X% we

question are really own that's Ken, We of And in think I of hand to for So, terms guess cheese, investments. think, for SD-WAN kind setting But for terms those areas it's in key money, bit investments. we you of I'll opportunities for spend provider that. fine. it goals that your and would service answered a I I Where like us. growth Ken. little But carrier SASE back of movement both

Ken Xie

still even do want work-from-home stage believe we And were to where of lot a long-term had potential SD-WAN bigger, be one. the enterprise also lot [indiscernible], number small will a like to the provide do do of we I and SD-WAN. percentage see early this lot market to be Yes, using a service of

– that's advantage second solution to better about much our times have chip XX we to the nearest and performance where has this using SoCX also, compared like which and one-box supporting lower huge cost competitor. So a

closely that's SD-WAN. with where there the So towards best working is and huge keeping growing opportunity partner a technology with

So we trying And soon. the number do see to there’s one a be huge potential. are we also

Operator

Thank you.

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

Your line is open.

Hamza Fodderwala

Hi from these sort for recent guys, firewalling particularly given of used come the demand question. you good cases thank cyberattacks? core on evening. side, wondering And my seeing I was micro-segmentation, you the how are taking much some of around of

Ken Xie

power My to center. in usually We be managed and company to X,XXX that do may need security speed we ten the computing you still was That's power lot times company and pass process more X,XXX it’s company a so approach. have to estimate solution. probably have still maximum AC to large a difficult. other where whether show power advantage of I of also better needed. are traffic ton about asking other obviously major in solve cannot than more software-only five takes deployment, performance kind a the issue a the within But internally more That's if secure compared ourselves data how to say then is lower

be approach. in requests, more the times need than the to with to of lot the connection. have requests, internal, mean, XXX one easily solutions network tend within but it's summer say, I not a XX a campus faster many whether a I speed can or it's one because So, data to center,

have But where is that's be, are partner security both make And the the the combined we or the and the LAN security So Access directly. whole working you also secure. whole the with work-from-home customer infrastructure with important. security, and the infrastructure Network WAN Zero-Trust to with today more

but data it’s requirement, center easily compared see and it also challenging and a deployed managed. a security, the speed be segmentation to networking huge can potential also for a meet easily So, inside campus job I internal sure of market make

Hamza Fodderwala

color. for you the Thank

Ken Xie

you. Thank

Operator

you. Thank

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

Your open. line is

Saket Kalia

only question multiple And do because business, willing business, with I taking for specialist is the thanks market see growing at the just in guys. enterprises to more that imagine Hey, enterprise Non-FortiGate for your Keith, the Non-FortiGate geography higher you to with would growing is, going be ask maybe with the here, work that vendors. enterprise more of or great. part that perhaps back rates? of segment I business, would maybe adopting Okay, trends my you any

or of services? kind there. of that perhaps is part that products Non-FortiGate the business, business brush more broad how mid-market perhaps is relatedly, Does Non-FortiGate is weighted there's a split sense? lot and of towards sort And Sorry, make So between international? just the

Keith Jensen

that and the of selling the It's typically we're Non-FortiGate solutions, see terms cell. you're actually so very business, with us firewall from bit no look bundling sense. the think when you previously, I service if And FortiGate is there lot we look would excited. XX% different the that? where seeing mix at think, I again, about between way, meaningful How obviously is little makes Yes, billings, number itself. mix. a in versus about Look the product is mix And makes me growth service the – will, not and a this in non-FortiGate, answering at that that To there. mix don't of counter-intuitive a any you product talking the

calls has very more enterprises done the the the very that know For much I've with last with to quarters about And been large on well the Americas Fabric. very, several want selling phone Fabric.

at willingness probably day, a you a doing Fabric engage enterprise go end to has of number the is, think is went to with the it. of expectation in is, One much of more do willingness the I was probably does. become way plays this about big that I a U.S. budget enterprise same a that to that think more the everybody sign I of the the the of and it of part conversations those see may enterprise. you on that they've SMB the And which firewall. things. got the something do cost-effective Now into with the described, side comfortable socket business perhaps and be

exciting. much then infrastructure single can that’s your as running the manage or than common perhaps You integrated I system it on an about vendor strategy OS/X OSX SASE offering the vision talking running operating to very a integrated is being you that's well. might start system, you And a And easier to with otherwise. something think on

lot I there. customer gave shown to would But to I give So, geography. it it, the be, a not response long-winded color you to is size a to or unique think, be a of to

Saket Kalia

Thanks, That Keith. makes sense.

Operator

Thank you.

Bachman Keith question line the net of with from Bank Our comes Montreal. of

line Your open. is

Keith Bachman

you I'm question into one sub much. within follow-on going break have going parts. but Saket. of to keep couple it to and a I'm Thank I to rules, Peter's very

that exciting? is would On to attach Keith, rates? It the look over break months side to wanted that next of could into: non-FortiGate rates, to in you non-FortiGate XX side it room anything particular attach of a) as to that seem on think a well. currently there. run I you interesting on me there the is hell you b) at, the is a lot anything you there's breakout there where stand or still

Thanks dollar situations Is a installed non-cloud to partition cloud that to particular? to a way it much. I of then words, is to non-FortiGate just if XX% base if cloud, deployments. versus versus XX% there's out think, products you where any that at cloud opportunities. other look of your Just on-premise kind c) lot the on-premise way wise, deployments of, non-FortiGate had in And FortiGate break out aligned you the relevant in there and in to it's but break are some into there's very percentage side in

Ken Xie

by to look I am forward charging I to Yes, think, you. going question, the

Keith Jensen

Then I'm broke.

in fun over it to I'm to going what's question that is, out off if months, November some products as call in between in I Analyst we Analyst non-FortiGate. do we we going didn't if and Keith, March, point we you it what for end didn't XX, – Day you the being call Ken of which question breakdown where there. And take you would was hardware cloud can Fabric lead answer back in tough in there the think we to what probably the or think that the help of infrastructure. I at to gave look XX the question your do me Day

attach rate, term use use the you when think term penetration rate. the we I may

Keith Bachman

Yes.

Keith Jensen

area get engineering we're team. I been of really many market, think of marketing team. start that's really and last your an more – And by of of couple penetration that's it, for I that you inside recently customer don't focus, a Keith a opportunity customers, think internal how seeing extent the we're over me firewall as is, for type with moment our at or our And more using quarters. these team an vendor, expansion you at are us encouraging looking what the the wrong. to marketing say with to metric But more that if and to something how and our some with And are of I number say, penetration. that's you sales increasing you that's the going pleased And I whatever that's sales now will, team that would right the is and would team

Ken Xie

great. Yes,

one. they doubled fabric to need detail together, I go in – reason which see to from working security far outside [Indiscernible] of infrastructure together what's I us few goal or there. of all day the right But now. kind end solution to are quite working they the we last really well from make trend also also managers think then of consolidate, be the all more we asked And whole non-FortiGate gig design automate, a this definitely working probably so the making so. working changing are XX things, it’s because customer almost number any I integrate, the the with years not FortiGate product. a world the whole don't

there's customer still where the that's productivity new [indiscernible] has gig. the but there's and to working up with a XX coming also same grow see So small we – time to percentage

faster. and few where the And see keep eventually the maybe trend, So XX grow than years. we do keep business, probably that's gig, probably will more maybe non-FortiGate a we – the in even

Keith Bachman

Okay. Thank you.

Operator

Thank you.

line from the with Turits Our comes Michael next of KeyBanc. question

is open. Your line

Michael Turits

Hey guys.

that, of that a that And part Keith, to and think, you saying this year. Keith are seeing, year, difference any more this also do as primarily Is well it? of type you in Ken I year, seeing you from as projects, move do the part back-to-office? as firewall work-from-home mentioned, willingness replacements For the think, were last or you I security worked in that we've versus of some for to home see

Ken Xie

Yes, have. environment whatever thinking, more last redesigning of technology where leverage secure. this patch, time that’s much year to and at better without definitely in infrastructure changing work-from-home is more make SD-WAN like like a a or other, is kind some the a zero-trust infrastructure making And better solution much they of a same

a – patch of So in probably to lot but a We potential infrastructure still changing of quicker see there. solution. whole our the that's early kind gross But compared like stage. do it's last year,

Keith Jensen

I comments. to Michael, Yes, add would Ken's

share right was CIOs security and that's now, year year, to about so of I conversation last tailwinds on in while of money from CIOs your is mind different solo say and focused it's this many little difficult and for just in how performance the about more it Ken ramp a their a top a that is companies or reasons. headline whether CIOs that market, if coming many to mind think for a so you up to security it's save in I and improving talked the of of – for think – work-from-home are a whether a is have to think, of little middle the I a SIOs a part wins, firewall. get it's year, SIOs It's can has do you lot U.S. will, us the challenge lot there kind Microsoft, was before, to and SIOs ransomware.

I that deployments a having on think those will, and prospects, some appear these those larger getting customers last stalled of perhaps deployments, more of some take terms couple opportunities think, for, I of go look starting a they online at and meeting years, also, take you bit that over XXXX. are were we a as coming to if year back of out there's year if you in well or I think can will. And are their

Michael Turits

clarify, to deployments are just larger So starting online. back to come

about answer And more are last so that is the competitors this of year talk to than people displacements year? that willing

Keith Jensen

it seeing asking Is if are you’re driver of to you I'm asking yes; or that business, the say of be that's the – if so. answer business, yes, driver I which think I if that's asking if you're would the the the don't answer is

Michael Turits

you No, just if see more.

Keith Jensen

Yes.

Ken Xie

be beyond spend secure. there like a more the deployment. and Yes, are And device, need traditional infrastructure to multiple more also more

Michael Turits

guys. Thanks

Operator

Thank you.

line Deutsche from Patrick comes question Bank. final Our with of Colville the

Your line is open.

Patrick Colville

year, just Thanks off the first just linearity. just for linearity I of two I is would the of me. a kind and multi-part? it a one unusual. one kind be Last about between guess on squeezing finish Can

So just help like kind was is the play I of Baked may guidance, how revenue, product there's phenomenal. more growth rest if quarter XXXX? understand out mid-teens second this in rates. might kind of of into guess, I a year that a us fiscal is, kind guess of And part, my the I then

in the to help Just in us of versus you. year the understand, performance Thank is of XQ? flagging that worth kind the rest to regards is anything

Keith Jensen

comfortable margin the that, business and revenue very how get predictable higher you Yes, the services you and I if that services model, with think is. product understand

think guidance if our we the full will, by about implied of five opportunity guidance, now the in engineer revenue. raise year. when year plays after I We terms we'll And that takes take revenue for you see points. reverse that product the about guidance XX% we to think product how you out. to as And you I did give revenue this the service

about it. good I think we feel

in QX. of probably guidance we from QX, I one for had In to QX QX actual you results in would linearity And of year that last of to QX point our terms our this results year our and QX. actual and

Patrick Colville

That's very your for clear. time. Thanks

Operator

closing turn remarks. to will Peter I like back over you. the for now call Thank to

Peter Salkowski

Thank you, Rowanda. the I like today. to for everyone thank joining call

up X. the attending on and And great and Have America XX, June on our on be questions. is webcasts day. will great other Bank you. of you a if the Alliancebernstein very a links we J.P. Conference a in X, out Have Presentations Thank any have conferences Fortinet reach quarter, much. please Bye-bye. are website. you few May day. Morgan June second Thank have

Operator

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

now may disconnect. You

Fortinet (FTNT) 30 Apr 212021 Q1 Earnings call transcript