Q4 2024 Fortinet Inc Earnings Call

Yeah.

Okay and thank you for standing by welcome to the fourth and.

Speaker Change: First quarter 2024 earnings announcement conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need a press star one on your telephone you will then hear an automated message advising you. Your hand is raised to withdraw your question.

Please press star one again.

Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today.

Diva: Oh, the Diva senior director of Investor Relations. Please go ahead.

Eric: Thank you and good afternoon, everyone. This is Eric.

Speaker Change: Director of Investor Relations at Fortinet.

Speaker Change: Welcome everyone to our call to discuss Fortinet financial results for the fourth quarter and full year of 2024.

Speaker Change: Joining me on today's call are Ken Xie, Fortinet, founder Chairman and CEO, Keith Jensen, our CFO Jan <unk>.

Speaker Change: And Christiana Olive garden, our CEO and sales operations leader.

Speaker Change: This is a live call that will be available for replay via webcast on our Investor Relations website Ken.

Speaker Change: Ken will begin our call today by providing a high level perspective on our business. Keith will then review our financial and operating results for the fourth quarter and full year of 2024.

Speaker Change: Before providing guidance for the first quarter and full year of 2025, we will then open the call for questions. During the Q&A session. We ask that you. Please limit yourself to one question and I wanted to follow up question to allow others to participate.

Speaker Change: Before we begin I'd like to remind everyone that on today's call, we will be making forward looking statements and these forward looking statements are subject to risks and uncertainties, which could cause our actual results to differ materially from those projected.

Speaker Change: Please refer to our SEC filings in particular, the risk factors in our most recent Form 10-K and Form 10-Q for more information.

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

Speaker Change: Also all references to financial metrics that we make on today's call are non-GAAP unless stated otherwise our GAAP results and GAAP to non-GAAP reconciliations are located in our earnings press release and in the presentation that accompanies today's remarks.

Speaker Change: Of which are posted on our Investor Relations website.

Speaker Change: The prepared remarks for today's earnings call will be posted on the quarterly earnings section of our Investor Relations website following today's call.

Speaker Change: Lastly, all references to growth are on a year over year basis, unless noted otherwise I will now turn the call over to Ken.

Ken: Thank you Erin and thank you to everyone for joining our call. We are pleased with our strong performance in the fourth quarter.

Ken: Thankfully balancing growth and profitability.

Ken: <unk> record operating margin of 13, 9%.

Ken: Total revenue growth of 17%, including product revenue growth of 18% our highest growth rate in six quarters as we further strengthen our market leadership into Qunar working.

Ken: Our strong royalty unify SRT and secure accretion with the 2% to service H billing growth at 85%.

Ken: Which drove our unified SaaS improving growth of 13%.

Ken: Hunting for 23% of our business.

Ken: A strong unified SaaS growth highlights the value that our customers see in a single vendor's asset strategy, we are the only vendor.

Ken: Frankly develop a key functionality into a single operation for us.

Ken: With market, leading next Gen firewall.

Ken: <unk> Wang the TMA secure web gateway Casspi DLP and other innovations.

Ken: Simply unified networking, that's acuity delivering user experience and security and access to application across on premise and cloud environment.

Ken: <unk> firewall and SD Wan customer can deploy 40 SaaS in the cloud on premise with the minutes.

Ken: Also unable solving SaaS fee for service providers and large enterprise to hold 40 SaaS within their own data center.

Ken: And tightened control of their data.

Ken: <unk> connectivity, while leverage all for the AC technology salaries as a function for superior performance.

Ken: Generally pulling us AI powered acuity unified management and single agent approach provides consistent protection across all location on devices.

Ken: Ensuring full control visibility.

Ken: We simplified the deployment by also offering industry has seen many instances on our key external facts better performance per user.

Ken: Sure.

Speaker Change: Hey, guys. Good evening secure accretion accounted for 11% of total 1 billion while our.

Ken: Our growth.

Ken: 72%, we recently.

Ken: Secure our portfolio by our quality perception point, a leader in advanced E Mail and collaboration security. This acquisition strengthened our end to end separates acuity by extending protection beyond E mail to the entire modern workspace addressing the growing advanced.

Ken: In two days and innovative threat environment.

Ken: <unk> networking, we continue to lead the industry with the.

Ken: Convergence and consolidation strategy.

Ken: We had been treated for 25 years.

Ken: Industry forecast predict a secure networking will surpass traditional networking by 2026.

As the number one secure networking vendor fully secure over half of all global firewalls and lead the convergence trend.

Ken: Also as shown on slide four Fortinet continue to be the only vendor to leverage a single I appreciate system for the U S.

Ken: Cause five secure networking Gartner magic quadrant.

Ken: Customer increasingly recognize that our 40, <unk> and 40, <unk> technology delivery of fire backs with comex better performance than competitors.

Ken: Hudson security effectiveness, and reducing total cost of ownership.

Ken: This is especially evident in the accretion technology, where Ot sales approached 1 billion in 2024.

Ken: We introduced the 40 days 30, 50, 87, and Chi next generation firewalls unified SaaS solution designed for SMB and distributed enterprise with cognate performance.

Ken: Security deliberate optical fiber to connect five to Singapore, and a better threat protection the industry average.

Ken: And our supporting a wide range, obviously Q&A interface for remote access.

Ken: In addition, we recently acquired the remaining shares of Linzess.

Ken: A leading provider.

Speaker Change: Connectivity solution to expand enterprise grade security to our employees.

Speaker Change: What you remotely home business and consumers.

Speaker Change: Lastly, we're proud to share that Fortinet was recently recognized for.

Speaker Change: <unk> Most trust company, yes, Mark can list.

Speaker Change: Ranked number seven overall.

Speaker Change: On these type of such a company in the top 50 list.

Speaker Change: Highlighting our transparency and commitment to our customer as the most trust cyber security company.

Keith: I would like to thank our employees customers partners and suppliers worldwide for their continued support and hard work I will now turn the call over to Keith.

Keith: Thank you Ken Thank you Erin and good afternoon, everyone, let's start with the key highlights from the fourth quarter, we delivered strong execution and financial performance with top line results above the high end of guidance together with record operating margins at 39%.

Keith: Total revenue grew 17% driven by strong product and service revenues as product revenue growth pushed up to 18%.

Keith: In addition, we added a record 6900 new logos.

Keith: Driven by close alignment with our channel partners.

Keith: Looking at our financial results in more detail total billings grew 7% to $2 billion.

Keith: Double digit security operations and unified SaaS fee growth are.

Keith: <unk> grew 12% to $6 4 billion.

Keith: Our growth was very strong with respect ops and grew 32% and unified SaaS, which grew at 28% to a combined total of over one 5 billion.

Keith: Within unified SaaS SSD continues to gain traction with a growth of 96%.

Keith: As we continue to see early success Upselling 40, SaaS to our large <unk> customer base.

Keith: 40, SaaS deals increased over 60% and the pipeline was up 90%.

Keith: The typical 40 SaaS journey.

Keith: Sorry for the customers first purchase of our ASIC based market, leading 40 gig firewall followed by an expansion of the SD Wan and then to a single vendor SaaS solution.

Keith: The expansion journey is particularly significant as over 70% of our large enterprise customers have adopted our SD Wan functionality.

Keith: <unk> to expand to 40 SaaS fee.

Keith: Our large enterprise 40, SaaS penetration rate increased to 10% that's up two points just since our November analyst day reporting.

Keith: Rounding out the billings commentary.

Keith: Deals between $5 million and $10 million increased over 90%.

Keith: F&B was our top performing customer segment with growth of over 30%.

Keith: And EMEA was our best performing geography, driven by growth of over 25% from international emerging.

Keith: Among our top five verticals worldwide government service provider both grew over 20%.

Keith: While financial services saw the expected challenges from the difficult year over year comparison, driven by several seven figure deals in the fourth quarter of 2023.

Keith: Turning to revenue and margins total revenue grew 17% to $1 66 billion.

Keith: Product revenue increased 18% to $574 million, our highest growth rate in six quarters, driven by hardware revenue growth of 19%.

Keith: On a sequential basis product revenue increased 21% and represents the third quarter in a row with elevated sequential growth.

Keith: Software license revenue continued its double digit growth and represented a mid to high teens percentage of total product revenue.

Keith: Service revenue of 1.09 billion grew 17% to 65% of total revenue.

Keith: Service revenue growth was driven by SaaS solutions at a.

Keith: 130%.

Keith: Which includes way it's works as well as strong organic services growth in unified SaaS, <unk> and SEC ops.

Keith: Combined revenue from software licenses and software services, such as cloud work and other SaaS security solutions increased 41%.

Keith: And provides an annual revenue run rate of over $1 billion.

Keith: Total gross margin increased 340 basis points to 81, 9% and exceeded the high end of our guidance range by 140 basis points.

Keith: Product gross margin of 69, 3% increased 920 basis points as inventory related charges normalized from last year's highly elevated levels.

Keith: 840 basis points to product gross margin and 290 basis points to total gross margin.

Keith: Service gross margin of 88, 6% increased 50 basis points to a quarterly record.

Keith: Service revenue growth outpaced labor and hosting cost increases while benefiting from the mix shift towards higher margin <unk> security subscription services as well as some early AI related savings.

Keith: Operating margin increased 720 basis points to a record 39, 2% there was 520 basis points above the high end of the guidance range.

Keith: Reflecting the strong gross margin.

Keith: An FX tailwind of about 110 basis points.

Keith: As well as the topline over performance that flow through to the bottom line.

Keith: Before moving to the statement of cash flows I'd like to summarize the financial impact from the lease work next DLP and perception point acquisitions.

Keith: Acquisitions increased fourth quarter billings by 115 basis points versus.

Keith: Versus our expectation of 75 basis points.

Keith: And decreased operating margins by 190 basis points versus our expectation of a decrease of 230 basis points.

Keith: Looking at the statement of cash flows summarized on slides 18 through 21 free cash flow was $380 million and free cash flow margin was 23% up 11 points adjusted free cash flow was $549 million, representing a margin of 28% up 16 points.

Keith: Cash taxes were $156 million down $186 million, reflecting the prior year's regulatory extension of estimated tax payments.

Keith: Infrastructure investments were $98 million or up $71 million.

Keith: Average contract term in the fourth quarter was 29 months down one month year over year and up one month quarter over quarter.

Keith: DSO decreased 10 days, reflecting improved linearity year over year.

Keith: And the remaining share buyback buyback authorization is $2 billion.

Moving to an overview of our 2020 for full year results.

Keith: Billings exceeded $6 5 billion.

Keith: While total revenue grew 12% to $5 96 billion.

Keith: Driven by revenue growth of around 25% for both unified SaaS <unk> and SEC ops.

Keith: Service revenue grew 20% to 4.05 billion driven.

Keith: Driven by a 22% increase in security subscriptions.

Keith: 33% growth in unified SaaS services.

Keith: Gross margin was up 390 basis points to 81, 3% benefiting from the revenue mix shift to service revenue.

Keith: 140 basis point tailwind of inventory related charges normalized during the year.

Keith: Operating margin increased 660 basis points to a record 35%.

Keith: Resulting in operating income of $2 1 billion.

Keith: Which was up 38%.

Keith: Our GAAP operating margin of 33% continues to be one of the highest in the industry.

Keith: Earnings per share increased 45% to $2 37.

Keith: Free cash flow was a record $1 9 billion, representing a margin of 32%.

Keith: Adjusted free cash flow was $2 2 billion, representing a margin of 37%.

Keith: If I were just sum up 2024, I think it's important to note that we have now met or exceeded the rule of 45 for the fifth consecutive year.

Keith: Now I'd like to share a few significant fourth quarter win in showcasing our SaaS the expansion and our leadership and operational technology.

Keith: And a seven figure new customer win that healthcare provider strategically included 40, SaaS and its first fortinet purchase alongside SD Wan, while replacing a competitor's firewall.

Keith: With a new leadership team focus on vendor consolidation reduced operating costs and complexity and addressing technical debt. The 40 OS consolidated multiple security functions onto a single platform.

Keith: Modernizing outdated firewall infrastructure and.

Keith: And replace VPN technologies with a 5000 seat SaaS solution that relies on Fortinet Pops.

Keith: And another seven figure SaaS deal an existing fortune 500, SD Wan retail customer purchased 40 SaaS for 2000 users with the potential to scale up to 12000.

Keith: They chose fortinet for its flexible and consistent security enforcement, which enhances user experience for securing access to both on Prem and cloud applications.

Keith: Additionally, they valued our strategy of building our own SaaS delivery infrastructure powered by our proprietary ASIC technology.

And lastly in a high seven figure deal a large entity energy company expanded its partnership with us by assigning US first enterprise agreement to protect us global critical infrastructure.

Keith: This customer secures its infrastructure using 40 gates across approximately 1000 sites spanning branch locations data centers and cloud environments.

Keith: Key factors in this win include our ability to support their global critical infrastructure, both technically and through World class support programs.

Keith: Our leadership in Ot infrastructure capabilities, and the automation of seamless integration of our 40 OS system.

Keith: With fortinet supplying over 50% of the firewall is worldwide for the security solutions themselves have become critical infrastructure protecting the critical infrastructure.

Keith: And the threat landscape, where there have been it has been a step level increase in sophistication and risk.

Keith: Given our scale innovation and broad adoption.

Keith: And national Cyber security agencies around the World view, our partnership is key to protecting the most important customers and entities in this dynamic landscape.

Keith: Next I'd like to review some of our key AI solutions for threat intelligence networking knockin socks LLM leakage.

Keith: For threat Intelligence 40 Guard AI power security services combined with real time threat intelligence.

Keith: Helps organizations comeback combat known unknown zero day, and emerging AI based threats.

Keith: For networking.

Keith: AI ops reduces the time needed to diagnose networking issues.

Keith: Monitoring trends in the network and with full access to logs across a fortinet security fabric. Our AI engine uses machine learning to understand the optimal conditions for the network and highest potential issues.

Keith: For the knock on Sock 40, AI uses natural language and generative AI.

Guy simplify and automate analysts activities.

40, AI is integrated into seven different network and security operation products with additional products to be added.

Keith: For LLM leakage.

Our AI based DLP services accurately identify and block sensitive information from being uploaded or shared with AI systems.

Keith: Before discussing our guidance I'll offer a few updates on the record level firewall upgrade opportunity that we shared during our November analyst day and.

Keith: In the fourth quarter, we saw early upgrade movement with large enterprises, both on buying plans and actual purchases.

Keith: We expect the moment the momentum to build as we move into the second half of 2025, as we get closer to the 2026 and the service dates.

Keith: The 2026, and 2027 cohorts present, a substantial upsell opportunity for SaaS being switches access points and <unk> solutions.

Keith: To maximize our upgrade and cross sell potential we're implementing several initiatives, including creating sales plays for each customer segment and key vertical.

Keith: Expanding our account plans for larger enterprises to more specifically target the upgrade and expansion opportunities.

Keith: And collaborating with our channel partners on SMB opportunities incentive programs and user data and developing targeted bundle offerings for these customers.

Keith: Moving onto guidance as a reminder, our first quarter and full year outlooks, which are summarized on slides 23, and 24 are subject to the disclaimers regarding forward looking information that are provided at the beginning of the call.

Keith: I should note, we expect linksys and perception point to increased fourth first quarter billings and revenue growth by approximately 90 basis points and decreased operating margin around 40 basis points.

Keith: For the full year, we expect <unk> and perception point to increased billings and revenue growth by approximately 125 basis points and decreased operating margins by around 50 basis points.

Keith: Alright for the first quarter, we expect billings in the range of $1 $520 million 1.600 billion, which at the midpoint represents growth of 11%.

Keith: And the range of $1.500 billion to $1 billion $560 million, which at the midpoint represents growth of 13%.

Keith: non-GAAP gross margin of 80% to 81% non-GAAP operating margin of 30% to 31%.

Keith: non-GAAP earnings per share of 52 to 54, which assumes a share count of between 774700 $80 million.

Keith: Infrastructure investments of $80 million to $100 million and.

Keith: non-GAAP tax rate of 18% and cash taxes of $30 million to $35 million.

Keith: For the full year, we expect billings in the range of 7.200 billion to $7 $400 million.

Keith: Which at the midpoint represents growth of 12%.

Keith: Revenue in the range of $6.650 billion to $6.850 billion, which at the midpoint represents growth of 13%.

Keith: Service revenue in the range of $4 billion 575 million to $4 $725 million, which at the midpoint represents growth of 15%.

Keith: non-GAAP gross margin of 79% to 81% non-GAAP operating margin of 31% to 33% non.

Keith: non-GAAP earnings per share of $2 41 to $2 47.

Keith: This assumes a share count of between 773780 $3 million.

Keith: The infrastructure investments of $380 million to $430 million and non-GAAP tax rate of 18% and.

Keith: And cash taxes between 525% and $575 million.

Speaker Change: And on a personal note you may read in todays 8-K filing that after a four decade career in finance, including 11 years of Fortinet.

Keith: Time for me to enjoy retirement.

Keith: I'll continue to serve through the next quarter earnings call and up to May 15.

Keith: We plan to stay at Fortinet to help with the transition through June 30.

Keith: Most importantly, I'm, leaving for net in very good hands.

Keith: Similar to our succession plan and Christian on Olive Garden, who as discussed in the 8-K has served in various roles at Fortinet for almost six years will take over as CFO and I stepped down in May I would like to.

Keith: I can Michael in the Fortinet team and all of you for making this chapter of my life. So rewarding.

Keith: We appreciate the time I've had it for networking with Ken Michael the entire team and certainly with the investors and financial analysts.

Keith: I know I missed fortinet as people customers and noble mission to protect and serve important customers entities around the world.

Keith: Thank you for your service and contribution and Christiana <unk> looking forward to working with you Nino to.

Speaker Change: To continue to have the <unk> and Fortinet. So I will now hand, the call over to Aaron for the Q&A session.

Aaron: Thank you Ken as a reminder, during the Q&A session. We ask that you. Please limit yourself to one question and one follow up question to allow others to participate operator. Please open the lines for questions. Thank.

Aaron: Thank you and as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.

Our first question comes from the line of pseudo Waller with <unk>. Your line is open. Please go ahead.

Aaron: Okay.

Jonathan: Hey, Thank you for taking my question. This is Jonathan license, an entre hamzah.

Speaker Change: First off Keith Congratulations on your career and best of luck with retirement and with your next endeavors.

Jonathan: So Ken for you.

Speaker Change: So I believe some of the hyperscale areas like Oracle.

Speaker Change: Big customers and partners with Fortinet.

Speaker Change: So just curious as you have oracle and some of the other hyperscale or is building out new data centers, just curious to what extent Fortinet is involved in securing these thank you.

Speaker Change: Thank you it's great question.

Speaker Change: Fortunately as the only company, we develop the secure ASIC processor.

Speaker Change: The increase.

Speaker Change: The increase in the post acute.

Speaker Change: Computing.

Speaker Change: <unk> quite a lot compared with using general purpose CPU.

Speaker Change: A lot of our growth into.

Speaker Change: Recall, the internal segmentation within a data center Hyperscale and all these hands. So we see a huge opportunity.

Speaker Change: And not just that secure networking there, but also a lot of our data center also the data. The AI. We also see a huge opportunity to drive the AIC acuity, whether secured infrastructure itself our secured debt.

Speaker Change: Data of secure the access so there's a lot opportunity I do believe that that's.

Speaker Change: A huge potential for growth because of our unique advantage of using the <unk>.

Speaker Change: Thank you and we'll move on to our next question.

Speaker Change: Our next question comes from the line of Kelly <unk> with Bank of America. Your line is open. Please go ahead.

Kelly: Honor for me to ask a question after John My ex associated across the line.

Speaker Change: Sure.

Speaker Change: I wanted to ask you two things number one is about billings why is billing guidance.

Speaker Change: Guidance.

Speaker Change: Second question is product revenues outperformed so much this quarter.

Speaker Change: And that might be a cycle refresh cycle, but the guidance for next quarter I don't see outperformance. So why is it just this quarter phenomenon you don't carry the strength into the next few quarters.

Speaker Change: Yes, I wasn't sure on your first question about billings, if youre asking about the fourth quarter for the first quarter.

Speaker Change: Got it.

Speaker Change: I'm asking billing general so billings for the fourth quarter.

Speaker Change: What's better but for the first quarter is weaker so.

Speaker Change: Why is the weakness.

Speaker Change: I think yes.

Speaker Change: If you look at the fourth quarter, but it will start there a little bit.

Speaker Change: As you recall, we talked last quarter about the fourth quarter guidance process. There was a lot of concern around the eight quarter pardon me the eight figure deals and what we're going to get out of that and we were being cautious on the guidance.

Speaker Change: That was logically or rather a prudent approach where we got the upside was on those deals from $5 million to $10 million.

Speaker Change: And I would say that the close rate and the opportunity there was probably $40 million to $50 million more than what I anticipated in the guidance setting process.

Speaker Change: And you saw that same over performance on those larger deals show itself in the product revenue line.

Speaker Change: And then also we saw on the product revenue line.

Speaker Change: Our significant growth in product revenue was in the mid enterprise pardon me the midsize firewalls in the large firewalls.

Speaker Change: And when you Peel back the onion, you start to see enterprise companies have actually started their purchasing of the refreshes that we talked about at the analyst day.

Speaker Change: So I think obviously the information of that news about Q4 is very good I think if you look at.

Speaker Change: Q1, whether it's billings or product revenue.

Speaker Change: Just a little more caution there as we kind of got exposed to the tariffs here over the last week and we saw the reaction.

Speaker Change: And some of the concerns for us with a more of a multinational footprint, particularly in Latin America, and Canada for example, a customer footprint.

Speaker Change: A little more exposure there and then of course, the direct impact of perhaps some disruptions in the U S government, where we do have appropriate footprint also so maybe a little caution in that regard.

Speaker Change: The other probably may impact some other buildings rally.

Speaker Change: It will also drive in the.

Speaker Change: Akio rich.

Speaker Change: Liberty different than before.

Speaker Change: It's more about building but.

Speaker Change: Sure.

Speaker Change: Probably with the first time, some built into the future.

Speaker Change: But what will kind of a secured a customer and resolve it.

Speaker Change: The platform.

Speaker Change: Unified SaaS approach, that's where the SaaS <unk> tend to have higher growth in the IPO then the buildings.

Speaker Change: Thank you one moment as we move on to our next question.

Speaker Change: Our next question is going to come from the line of Gabriela Borges with Goldman Sachs. Your line is open. Please go ahead.

Gabriela Borges: Hey, good afternoon, thanks for taking my questions.

Gabriela Borges: To hear a little bit more on the refresh opportunity for this year I know you have broken it out for us and product versus cross selling a couple of different ways. I wanted to ask you specifically about the implications for subscription revenue as you see it the hardware come up for renewal and as you saw some of the networking components on the hardware side.

Gabriela Borges: Sure.

Speaker Change: So either Keith or maybe Christiane, how do you think about the implications for subscription specifically as hardware. Thank you.

Speaker Change: Which one you want to jump in there okay.

Speaker Change: I think at the analyst day, I explained a little bit that.

Speaker Change: Listing hardware has subscriptions in order to grow subscription revenue, we need to upsell.

Speaker Change: These are more subscriptions with the same hardware are more services. So we have put plans and incentives in place for our sellers and our channel partners to do so, but that's kind of the prerequisite for us to grow our service revenues.

Speaker Change: Accelerate that service revenues.

Speaker Change: Also the new Howard tend to be.

Speaker Change: We have more capacity to have additional function and better performance. That's also kind of evil.

Speaker Change: Additional service.

Speaker Change: Including a lot of new services, we will develop in the formula in the last few years.

Speaker Change: All of this unified SaaS function.

Speaker Change: Yes kind of dysfunction.

Speaker Change: The new.

Speaker Change: New opportunity leveraging new Howard.

Speaker Change: Thank you for the detail congrats on the quarter and congrats to Keith and Chris Jonathan.

Speaker Change: Thank you. Thank you one moment as we move to the next question.

Speaker Change: Our next question comes from the line of Brian Essex with Jpmorgan. Your line is open. Please go ahead.

Speaker Change: Good afternoon, and thank you for taking the question Keith I thought when you started with key highlights for the quarter your retirement would be up to the top.

Speaker Change: Yeah.

Speaker Change: Seriously it's been.

Speaker Change: A real pleasure working with you and best of luck on your retirement, well deserved and Christina looking forward to working with you. So congratulations on the appointment to CFO.

Speaker Change: I guess the question I had was with regard to the Billings guide for for this next fiscal year fiscal year, we'd love it if.

Speaker Change: Maybe cristiano I think you've done a lot of work on it if you could unpack the assumptions behind that how much is upgrade.

Speaker Change: Growth is set up in SaaS and how much is product related refresh cycle that baked into that and maybe if you could share an exit rate that would be super helpful.

Speaker Change: So.

An hour an hour.

Speaker Change: Billings and revenue guidance of course, we have the two components right product. That's what we said this year services, what we what was off the balance sheet, mostly anabolic.

Speaker Change: And 15% is from from new services that we're selling this year and.

Speaker Change: Our assumptions of course are as we presented at the analyst day that we have significant upside component, but we also are planning to.

Speaker Change: Let's certain incentives for again, our own sellers as well as our channel partners to drive new logos.

Speaker Change: And from an exit rate perspective on Sir.

Speaker Change: Looking at exit rate for services.

Speaker Change: I guess.

Speaker Change: Overall for billings and then maybe if you can.

Speaker Change: Help us understand how much product revenue is baked into that but it's really just trying to get a sense of the trajectory that youre baking into billings to kind of get to that.

Speaker Change: Full year billing.

Speaker Change: Billings guidance that you have.

Speaker Change: Yes.

Speaker Change: <unk>.

Speaker Change: Product revenue growth.

Speaker Change: Is around 10% right now.

Speaker Change: As we saw already a significant traction.

Speaker Change: This year, but yes.

Speaker Change: That's the current running assumption.

Speaker Change: Okay. That's helpful and does that does that require like that like.

Speaker Change: Exit rate in <unk> like teens like high teens billings growth or are you expecting a more moderate builds throughout the year.

Speaker Change: Right now it's more moderate.

Speaker Change: Okay Super helpful. Thank you so much and.

Speaker Change: Congrats.

Speaker Change: Thank you. Thank you one moment as we move on to our next question.

Speaker Change: Our next question comes from the line of Fatima <unk> with Citi. Your line is open. Please go ahead.

Fatima <unk>: Good afternoon, and thank you for taking my questions and Keith Congratulations I hope you're very much have an enjoyable ride into the sunset and terrific partnering with you.

Fatima <unk>: I wanted to go back to some of the commentary you made on the tariff impact.

Fatima <unk>: Did want to dig into that a little bit so.

Fatima <unk>: There is significant amount of uncertainty.

Fatima <unk>: These parents they are in flux.

Fatima <unk>: Potential retaliatory policies being thrown around July.

Fatima <unk>: So I wanted to dig into some of the demand comments, you made and how far ranging.

Fatima <unk>: Or and how they are being contemplated in guidance and then also from a supply chain perspective.

Fatima <unk>: How is that influencing or potentially impacting.

Fatima <unk>: Your supply chain and ultimately.

Fatima <unk>: Thank you.

Fatima <unk>: Yes.

Fatima <unk>: It's as you pointed out it's really dynamic time, if you will and trying to understand where these may end up I would say that.

Fatima <unk>: For selling purposes for demand.

Fatima <unk>: We have a fairly significant footprint in.

Fatima <unk>: Both Latin America, and Mexico, as well as Canada.

Fatima <unk>: Over the weekend when the tariffs were announced.

Fatima <unk>: There was a lot of activity here internally Sunday night, and Monday morning to understand what the what the disruption would be more about those economies and their buying habits. If you will of our products.

Fatima <unk>: And I think that type of reaction that we are focused on.

Fatima <unk>: I would also supplement that a little more context, our 40 authenticated product I believe it is is actually it's a very small product line, but it is manufacturing in Canada.

Fatima <unk>: And we were looking at what the tariff impact would be like that and then by Monday night all of those things all bets are off so.

Fatima <unk>: Chasing a a little bit.

Fatima <unk>: We do have similar to our sales leadership in Latin America, raising their hand immediately and what they were seeing I would be concerned about with Mexico. Our U S. Federal team. Similarly raise their hand, and said if there arent going to employees in the federal government to sell to it's going to be challenging. So I just think we're acknowledging that it's a very.

Fatima <unk>: Dynamic situation right now and let's try and not get too far ahead of our out over our skis until we know more.

Fatima <unk>: On the other side I think in terms of tariffs coming into the country.

Fatima <unk>: Alex.

Fatima <unk>: Keep in mind that our peer U S business is around 25 26, 27% of our total business.

Fatima <unk>: So obviously that.

Fatima <unk>: At 30, if I may a 70% plus international would not be subject to the tariffs schemes of the U S.

Fatima <unk>: Okay.

Fatima <unk>: I think theres, obviously, if we had to respond in some way to the market I think the tariffs will be broad brush it would affect not only ourselves in our U S business for that remaining 25%, 26%, but our competitors as well and I would expect that we would still at this early stage still have the pricing advantage that we currently have.

Christina: Thank you Christina congratulation.

Christina: Thank you.

Speaker Change: One moment as we move on to our next question.

Speaker Change: Our next question comes from the line of Shaul Eyal with TD Cowen. Your line is open. Please go ahead.

Shaul Eyal: Thank you so much for taking my question. Good afternoon. Congrats on the results Congrats Keith Congrats Christiane.

Speaker Change: Keith.

Speaker Change: My question May be builds a little bit on the prior question, but Texas more specifically on your U S performance.

Speaker Change: This year you had I think this quarter the best quarterly performance in 2024.

Speaker Change: Do you see that being sustained into 2025, given some of your prior investments what are the plans specifically as it relates to.

Speaker Change: U S sales operations. Thank you.

Speaker Change: Yes, it's a great question, so I think probably starting a little over one year ago, we are studying.

Speaker Change: The U S enterprise sales and also more focus.

Speaker Change: Mike.

Speaker Change: Adding sales capacity.

Speaker Change: Yes.

Speaker Change: And also kind of working closely with our channel partner to profit growth.

Speaker Change: Which both in the high call and also.

Speaker Change: Drive the program itself is.

Speaker Change: As a partner there.

Speaker Change: Thus, we see some pretty good result, and so we do see there is a lot of known to grow in the U S.

Speaker Change: And at the same time, we have a huge advantage.

The resource on a facility on the people here in the U S.

Speaker Change: Canada, the companion would drive there to.

Speaker Change: The future growth. So that's why we see the.

Speaker Change: U S could be.

Speaker Change: Fast growing region in the next few years.

Speaker Change: Thank you so much.

Speaker Change: Thank you one moment as we move on to our next question.

Speaker Change: Our next question is going to come from the line of Rob Owens with Piper Sandler companies. Your line is open. Please go ahead.

Rob Owens: Great. Thanks for taking my question.

Rob Owens: I was hoping you could expand a little bit just on the links to this relationship.

What you hope it brings and I know, Ken you did outline some expectations relative.

Rob Owens: To revenue and billings, but just strategically where it positions you better thanks.

Rob Owens: Yes.

Rob Owens: Actually we acquired.

Rob Owens: About 51% of share about three years ago, and then we keeping private shaping the company towards more line up with our own kind of a secure networking strategy.

Rob Owens: But also this all come about.

Rob Owens: The new market, we feel fortinet properties on a payer.

Rob Owens: Complain.

Rob Owens: Tumor Homebase network security because we have this that technology like AC we have all this unified SaaS.

Rob Owens: And together represent links as consumer and also the huge user base, which they have a 25 million active users and has been shipping almost.

Rob Owens: 250 million devices in the last almost 40 years.

Rob Owens: Our leading brand and.

Rob Owens: With this customer base with our technology.

Rob Owens: Combined resource be few.

Rob Owens: We can ready to go after new market for consumer to supporting a work from home.

Rob Owens: Also to cover some SMB space, we see pretty fast growth.

And our strategy, but that's also probably will take some time to.

Rob Owens: To continue.

Rob Owens: And the debate about this technology market together, but we do feel this could be.

Rob Owens: A huge potential in the next five to 10 years, nor the company growth.

Rob Owens: Thank you and we'll move onto our next question.

Eric: Our next question comes from the line of Eric <unk> with Keybanc. Your line is open. Please go ahead.

Speaker Change: Great. Thanks for taking the question here and Keith.

Speaker Change: Keith Congrats as well.

Speaker Change: Keith and Christiana I wanted to understand a little bit just to add a refresh opportunity that starting in the second half how should we be thinking about inventory levels in anticipation of that demand and then secondly, maybe to follow on to Brian's earlier question, just the assumptions embedded in the product guidance specifically from the end of service refresh are you assuming.

Speaker Change: Half of that $400 million to $450 million opportunity happens in 2025.

Speaker Change: Yes, I'll cover off the inventory question, a little bit and maybe Christian can come back over the top and talk a little bit more about the model for 2025 and I don't know that we explained it will clinic specific dollar amounts to each individual item in that but in any event.

Speaker Change: Ken I have been at this for a long time, you'd like to see inventory turns or too early to see inventory turns of five or six.

Speaker Change: Luiz constantly on the inventory turns.

Speaker Change: <unk> gotten.

Speaker Change: Gone through the supply chain cycle here you saw the inventory turns so we did very well with those.

Speaker Change: Storing inventory if you will on our balance sheet, if we got into covenant supply chain crisis.

Speaker Change: It really helped fuel the super cycle for us on our income statement and.

Speaker Change: With that in mind, I think a healthy number for us I'd have to agree with Ken now is probably in the range of two X with returns.

Speaker Change: Imagine that you would expect you could expect us to target that each quarter in terms of our inventory balances.

Speaker Change: Sure.

Speaker Change: Yeah on the linearity of that product revenue assumptions, while there is definitely a compelling reason to refresh in the second half year, because you can you can.

Speaker Change: You can now get renewed for one year.

Speaker Change: We've seen refresh activity happened already especially for large customers and we will try to accelerate that.

Speaker Change: Upgrade cycle as much as we can so we've assumed that there is.

Speaker Change: And more gradually than kind of spiky.

Speaker Change: Upgrade path.

Speaker Change: Thank you.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: Our next question comes from the line of socket key risks.

Speaker Change: With Barclays. Your line is open. Please go ahead.

Speaker Change: Okay, Great Hey, guys. Thanks for taking my questions here.

Speaker Change: Tip my cap to both of you on your respective exciting next steps.

Speaker Change: So very clear numbers and a lot of helpful questions, Keith and Christiane, maybe I'll ask just a couple of housekeeping questions.

Speaker Change: If I may.

Speaker Change: First can you just remind us I think you touched on it a little but can you remind us how big.

Speaker Change: And in Canada are just in terms of percentage of billings and then maybe.

Speaker Change: On top of that can you just remind me of the 12% growth that we're guiding to roughly in 202025, how much of that is organic versus inorganic.

Speaker Change: Yeah.

Speaker Change: So your first question Latam and Canada.

Speaker Change: 15% of total business.

Speaker Change: And.

Speaker Change: Sure.

Speaker Change: On the organic growth number.

Speaker Change: We expect about one point inorganic.

Speaker Change: Very helpful. Thanks, guys.

Speaker Change: Thank you one moment as we move on to our next question.

Speaker Change: Our next question comes from the line of Adam Borg with Stifel. Your line is open. Please go ahead.

Speaker Change: Hey, guys got Max on here for Adam at Stifel. Thanks.

Speaker Change: Thanks for taking the question.

Speaker Change: Over the last few quarters, we've talked about SaaS and checkups billings coming primarily from existing customers. So as we look out into 'twenty five just wondering what the opportunity is for SaaS and SEC ops to become.

Speaker Change: A more meaningful contributor to new logos and or do you expect that to kind of remain as primarily an upsell motion.

Speaker Change: I think the.

Speaker Change: Do you have a huge consolidation phase.

Speaker Change: Next Gen firewall and also SD Wan.

Speaker Change: I still feel.

Speaker Change: Grow upgrade from not part probably will come in most of the new unify sassy.

Speaker Change: That's also.

Speaker Change: When a cell source and also for the partner.

Speaker Change: <unk> the last few quarter, probably over 90% now come from existing customer which are already all.

Speaker Change: Firewall.

Speaker Change: Maintain firewall and also SD Wan customer.

Speaker Change: We just gave US also more advantage compared to all of these SaaS fee.

Speaker Change: The player.

Speaker Change: So thats, where and that's also the reason is also because we have the <unk>.

Speaker Change: All of these networking.

Speaker Change: Security resolve this SD Wan and also the auto sassy functioning of <unk> are easy upgrade.

Speaker Change: On the auto side, we do have a see a lot of new customer and.

Speaker Change: And especially some of the kind of price some of them.

Speaker Change: Do you have an issue with some <unk> player.

Speaker Change: We still have a lot of advantage on the better function better integration single OLED solution.

Speaker Change: Much better performance on the pricing that I mentioned, probably three to five X more price advantage and Pos our own kind of infrastructure.

Speaker Change: In this kind of a.

Speaker Change: Lower cost better margin and same ton nuclear function together as a more easy to manage and the patent protection. So thats My advantage, we have and Thats why we also pretty confident we'd be.

Speaker Change: We're now down at one meeting.

Speaker Change: The number one player in the next Gen firewall and SD Wan. We also gave US. Some time, we're also want need and become a number one unified SaaS player in our space.

Speaker Change: I think Ken spot on in terms of the factors that build on one of those which is.

Speaker Change: Removing or reducing complexity and reducing costs and making things simpler.

Speaker Change: And was really impressed with the first deal that I talked about in the script here when I talked to the sales team, which was a pure white space account that started off as a competitive firewall displacement and we know we're really good at that and we know how to do that but then to see them consult and collaborate with the customer and make it not only an SD Wan deal, which made a ton of SaaS, but also to get them in the boat on the SaaS deal.

Speaker Change: I think that speaks to what a very good sales team.

Speaker Change: Brought that to the table for us, but the evolution of the maturity that you are seeing in our own organization as we get more experience with our fleet and our ability to branch out and sell into those organizations that are focused on.

Speaker Change: Consolidation play removing complexity and controlling cost.

That's also.

Speaker Change: The benefit from a lot of our long term investment.

Speaker Change: In the <unk> and.

Speaker Change: And Howard also in the Asics, we had only a designer in the whole space.

Speaker Change: A lot of new ASIC design will apply the new SaaS <unk> function, well keeping gave us a much better performance lower cost lower power consumption and and also the sovereign SaaS fee for service provider for enterprise for data Center, we see a lot of growth potential <unk> unique advantage Fortinet has.

Speaker Change: Thank you and we'll move onto our next question.

Speaker Change: Our next question comes from the line of Nick Qatari with Baird. Your line is open. Please go ahead.

Nick Qatari: Hey, yes, thanks for taking my question.

Speaker Change: Just really.

Speaker Change: <unk> unified SaaS fee growth rates, you guys are seeing increased penetration among larger enterprises, which.

Speaker Change: On your commentary.

Speaker Change: Building momentum for this <unk> can provide.

Speaker Change: Provide an update on specific incentives that are tied to our upselling Safran Tech ops, and how does and sandoz are impacting overall within our profit metrics.

Speaker Change: Version.

Speaker Change: Yeah, and then I had a follow up question as well.

It's really we do want to Santa Rita the training to both our sales.

Speaker Change: Sales team the technical team and also our partner.

Speaker Change: And.

Speaker Change: Yes.

Speaker Change: But they do see the lung the customer definitely see some of the long term benefit.

Speaker Change: Using a single OIS to gradually adding more function and adding more security and easily upgrade to the next.

Speaker Change: Kind of a security function they need it.

Speaker Change: And on <unk>.

Speaker Change: Other side I think we also need to keep in that.

Speaker Change: Keeping the high end keeping add sales capacity.

Speaker Change: At the same time provide better training.

Speaker Change: On the other side, we see a feedback from customers.

Speaker Change: You see there is the upgrade of our SaaS.

Speaker Change: It's a much easier compare to this new SaaS approach and a much shorter sales cycle and you can see it seems like.

Speaker Change: We only have about our own SaaS approach.

Speaker Change: A little over one year and you can see the ramp up is bomber equate them, probably the fast growing in the SaaS space right. Now so we do see a lot of great potential going forward.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: Our next question comes from the line of G&A Citigroup with.

Speaker Change: Securities. Your line is open. Please go ahead.

Speaker Change: Great. Thank you for taking my question.

Speaker Change: And Kristina and congrats to both of you.

Speaker Change: You mentioned SMB being one of the top performing customer segments, which is a bit different from what we hear from some of the other vendors.

Speaker Change: Curious what is underpinning that demand and what are you seeing that others are not.

Speaker Change: Thank you.

Speaker Change: Well I think the channel program at Florida is probably fairly mature I mean, it has been doing it for a long long time.

Speaker Change: I don't think we're scrambling to find channel partners, Okay well.

I would also give autocratic cristiana, where she is done on an every year here, which is really focus on the channel in and getting the more senior levels.

Speaker Change: <unk> leadership to understand what's important to them and how to structure incentives.

Speaker Change: That are tailored to what the channel is trying to accomplish.

Speaker Change: There is just much more collaboration with channel partners today than I've ever seen before here.

Speaker Change: I think we have some fairly.

Speaker Change: Specific and targeted incentive program for the fourth quarter that crusher to help develop and I think those were.

Speaker Change: As you see in the numbers for the new logos and six.

Speaker Change: 900, and the mix of the business extremely successful.

Speaker Change: Yes.

Speaker Change: I also see we have probably the best product.

Speaker Change: Because none of our competitors are not as small as that technology.

Speaker Change: Single OLS with so many is almost certainly functionally integrated.

Speaker Change: And with that.

Speaker Change: Is that about half a function about 14 15, using anything plus salaries, thus gave us huge performance and functionality of vantage and how to competitor because the SMB the like.

Speaker Change: Unlike the three model, we announced today the same 40 loss compared to some other big.

Speaker Change: Big box pickup highest there and that's where the SMB and even the downturn hone users see some huge advantage.

Speaker Change: You've seen the same 40.

Speaker Change: They can they can kind of a way to connect to the enterprise holiday can that they can connect to the cloud and <unk>.

Speaker Change: Also.

Speaker Change: Maybe Todd is a new unified SaaS approach.

So that's what we see.

Speaker Change: <unk> argued point advantage gave us huge.

Speaker Change: And a unique benefit to a customer SME customer event and it can be the whole user and consumer space, which we feel is.

Speaker Change: Because so far even in the.

Speaker Change: In the U S and Europe developed country.

Speaker Change: The SMB still had single digit of SMB customer.

Speaker Change: In the network security to protect now will come there. So we do see there's a lot of growth potential but addresses.

Speaker Change: Technology, you need to be easy to deploy easy to use easy to sell quality and that user AI and.

Speaker Change: Our days, that's where we kind of.

Speaker Change: Quite a long time and we do see.

Speaker Change: It's kind of a long term benefit obviously of <unk> investment also huge potential going forward.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: Our next question comes from the line of Joseph <unk> with Jefferies. Your line is open. Please go ahead.

Joseph: Hey, guys. Thanks for the question Keith Congrats on the much deserved retirement and congrats to Kristina I'll look forward to working more with you.

Speaker Change: It was great to hear about the early end of life refresh demand in those early renewals how does the average deal size increased versus four years ago I'm, just trying to understand how youre thinking about the size of the cross sell opportunity first at $450 million product refresh.

Speaker Change: Yes, I think I tried to make a point that what we've seen and I guess it kind of makes sense is that the larger enterprises are probably moving first.

Speaker Change: We expect that the Smbs may move a little bit later on the timeline.

Speaker Change: They probably have less advanced purchasing departments, and maybe less regulatory pressures and things of that nature, there's probably a lot of reasons for it.

Speaker Change: I think what we would you see in our large enterprises historically.

Speaker Change:

Speaker Change: They often have a deployment schedule that may not necessarily take all the equipment at one point in time, but rather take a certain amount each quarter, maybe nothing in one quarter and more in the third quarter and that it was that same buying behavior patterns that I think we started to see in the fourth quarter, which are looking back at.

Speaker Change: Some of these more regulated industries also some technology companies and we could see the swapping out of the.

Speaker Change: <unk>.

Speaker Change: Mid major products that are being end of life and then taking on new products and we've talked to the account person about yes. That's the run rate there on that runway and they will continue doing that now over the next several quarters.

Speaker Change: Let me add to what Keith just said.

Speaker Change: Regarding your question of average deal size.

Speaker Change: As we have a lot of large customers that have enterprise agreements.

Speaker Change: Pretty much half and.

Speaker Change: Ongoing.

Speaker Change: Purchasing habit.

Speaker Change: Replacement devices that they bid out during the EAA. So you don't necessarily see creeping up.

Speaker Change: Largely it is because they negotiate at a certain point in time, what they need for the next five years and then they buy ads they are ready to upgrade.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: Our next question comes from the line of <unk> Kidron with Oppenheimer <unk> Co. Your line is open. Please go ahead.

Speaker Change: Thanks, and congrats as well for both of you Keith and Kristina Good luck and enjoy retirement case you earned it.

Speaker Change: Questions for me just again on this upgrade cycle. If you note the devices and you can pick them and you know exactly where they are and when they get retired for the vast majority.

Speaker Change: And to just be a little bit more specific on what was the contribution of this upgrade to revenue this past quarter and what is the exact dollar contribution you expect from the upgrade in your 25 guys.

Speaker Change: And the second question is for Ken on SaaS.

Speaker Change: Great to see the progress and adoption over there can you comment how much of it.

Speaker Change: The adoption with the large enterprises.

Speaker Change: Against brownfield displacement of all SaaS solutions are walking into a vacuum would love to understand how much of your footprint in your opinion has something that you need to displace versus your stepping into a vacuum.

Speaker Change: You.

Speaker Change: Yes, I think it is.

Speaker Change: Great question and.

Speaker Change: Keep in mind, the two tier distribution model.

Speaker Change: Yeah, we sell through distributors as a result of this other end users and oftentimes just SMB.

Speaker Change: The quality of the data about the end user gets better and better the closer you get to the end user whether it be the reseller and Thats why you heard are referenced in the script about the importance of working with them on data gathering.

There's a bit of an honor system when they registered the devices and maybe.

Speaker Change: More intuitive is that of course, you get a device you register it like our phone or something like that but that's not what happens in practice, particularly in the SMB.

Speaker Change: And really there is a heavy reliance there on a channel to spend time and energy.

Speaker Change: If you want to get good reporting and tracking on that so we'll get better at it as we go and as part of working closer with the channel partners.

Speaker Change: It is easier quote unquote easier with the enterprises, because we can talk to the to our sales Rep, who is working on the large enterprise and understand the account plans on what they're seeing but youre still only getting a partial set of information.

Speaker Change: I think the reporting and the information we will get more mature as we go along is moving pretty quickly right now on us in terms of how we're developing it.

Speaker Change: Okay.

Speaker Change: For your second question actually refer to the presentation slides number five so the two gave some.

Speaker Change: Some.

Speaker Change: Penetration rate I think for SaaS is around 10% increase two points.

Speaker Change: From like two months ago on analyst day, and then.

Speaker Change: Also Isd Wan.

Speaker Change: Enterprise, probably about 70%, so that's where.

Speaker Change: We see with our leader in the in the.

Speaker Change: The firewall with next Gen firewall market.

Speaker Change: That does.

Speaker Change: It's actually drive a lot of our ICT one growth and then also.

Speaker Change: For the SD Wan the SaaS it will be the next growth while keeping.

Speaker Change: Helping customers build better security infrastructure.

Speaker Change: And in terms of your question, whether its brownfield or not we are seeing some of our biggest SaaS deals as displacements of either legacy VPN providers or legacy SaaS providers.

Speaker Change: I appreciate it thank you.

Speaker Change: Thank you and I would now like to turn the conference back over to Aaron <unk> for closing remarks.

Speaker Change: Thank you I'd like to thank everyone for joining today's call we will be attending investor conferences hosted by Morgan Stanley during the first quarter. The fireside chat webcast link will be posted on the events and presentations section Fortinet Investor Relations website.

Speaker Change: Do you have any follow up questions. Please feel free to contact me have a great rest of your day.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

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Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: <unk>.

Speaker Change: Yes.

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Speaker Change: Good day, and thank you for standing by welcome to the Fortune fourth quarter two posted a 24 earnings announcement conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one on your telephone.

Speaker Change: Well the inherent automated message advising you. Your hand is raised to withdraw your question. Please press star one again.

Speaker Change: Please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today.

Speaker Change: Oh, the Diva senior director of Investor Relations. Please go ahead.

Eric: Thank you and good afternoon, everyone. This is Eric.

Speaker Change: Senior director of Investor Relations at Fortinet.

Speaker Change: Welcome everyone to our call to discuss Fortinet financial results for the fourth quarter and full year of 2024.

Speaker Change: Joining me on today's call are Ken Xie, Fortinet, founder Chairman and CEO, Keith Jensen, our CFO, John Whittle RSV.

Speaker Change: And Christiana Olive garden, our CIO and sales operations leader.

Speaker Change: This is a live call that will be available for replay via webcast on our Investor Relations website.

Speaker Change: Ken will begin our call today by providing a high level perspective on our business. Keith will then review our financial and operating results for the fourth quarter and full year of 2024.

Speaker Change: Before providing guidance for the first quarter and full year of 2025, we will then open the call for questions. During the Q&A session. We ask that you. Please limit yourself to one question.

Speaker Change: Follow up question to allow others to participate.

Speaker Change: Before we begin I would like to remind everyone that on today's call. We will be making forward looking statements and these forward looking statements are subject to risks and uncertainties, which could cause our actual results to differ materially from those projected please refer to our SEC filings in particular, the risk factors in our most recent form 10.

Speaker Change: K and Form 10-Q for more information.

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

Speaker Change: Also all references to financial metrics that we make on today's call are non-GAAP unless stated otherwise our GAAP results and GAAP to non-GAAP reconciliations are located in our earnings press release and analyst presentation that accompany today's remarks.

Speaker Change: Of which are posted on our Investor Relations website.

Speaker Change: The prepared remarks for today's earnings call will be posted on the quarterly earnings section of our Investor Relations website following today's call.

Ken Michael: Lastly, all references to growth are on a year over year basis, unless noted otherwise I will now turn the call over to Ken.

Ken Michael: Thank you Erin and thank you to everyone for joining the call. We are pleased with our strong performance in the fourth quarter.

Ken Michael: Therefore, a balancing growth and profitability.

Ken Michael: And record operating margin of certain 9% total revenue growth of 17%, including product revenue growth of 18%.

Ken Michael: Highest growth rate in six quarters as we further strengthen our market leadership into Qunar working.

Ken Michael: Our strong we're also unify Asahi unsecure accretion with the 2% to service H building growth up 85%.

Ken Michael: Each group of new SaaS <unk> growth of 13%.

Ken Michael: Coffee for 23% of our business.

Ken Michael: The strong unified SaaS growth highlights the value that our customers see in our single vendors that the strategy we had.

Ken Michael: Only vendor to organically develop the key SaaS functionality into a single operation 40 Pos.

Ken Michael: With market, leading next Gen firewall.

Ken Michael: <unk> the PMA secure web gateway.

Ken Michael: DLP and other innovations.

Ken Michael: Instantly unifying networking, that's acuity delivering enhanced user experience and securing access to application across on premise cloud environment.

Ken Michael: Lithium firewall and SD Wan customer quality 40, SaaS in the cloud.

Ken Michael: Within minutes.

Ken Michael: Also enables solving SaaS fee for service providers and large enterprise to hold 40 SaaS fee within their own data center.

Ken Michael: Labeling and tightened control of their data.

Ken Michael: <unk> connectivity, while leverage all for the AC technology salaries as a function for superior performance.

Ken Michael: Similarly, fooling us AI powered acuity unified management and single agent approach provides consistent protection across all locations on devices.

Ken Michael: On ensuring full control visibility.

Ken Michael: The simplified deployment by also offering industry is simply licensing and <unk> better performance per user.

Speaker Change: Hey, guys. Good evening secure operations accounted for 11% of total billion why AAR grill.

Ken Michael: 42%, we recently.

Ken Michael: Secure our portfolio by our quality perception point, a leader in advanced E Mail and collaboration security. This acquisition strengthened our end to end security by extending protection beyond E mail to the entire mobile workspace addressing the growing advanced so at risk.

Ken Michael: In two days elevated threat environment.

Ken Michael: Thank you and I are working we continue to lead the industry with the convergence and consolidation strategy region, we had been treated for 25 years.

Ken Michael: We forecast predict secure networking bypass traditional networking by 2026.

Ken Michael: As the number one secure networking vendor fortinet secure over half of all global firewalls and lead the convergence trend.

Ken Michael: Also as shown on slide four Fortinet continue to be the only vendor to leverage a single <unk> system for the U S.

Ken Michael: Five secure networking Gartner magic quadrant.

Ken Michael: Customer increasingly recognize that our 40, <unk> and 40, <unk> technology delivery of fly backs with comex better performance than competitors.

Ken Michael: Hudson security effectiveness, and reducing total cost of ownership.

Ken Michael: This is especially evident in the operation technology, where OTC sales approached 1 billion in 2024.

Ken Michael: Today, we introduced 40 days 30, 50, 87, and Chi next generation firewall in a unified SaaS solution designed for SMB and the distributed enterprise.

Ken Michael: With cognate performance.

Ken Michael: Security delivering optimal flyback through cemex part of Singapore, and a better threat protection in that sort of average.

Ken Michael: It is supporting a wide range, obviously Q&A interface for remote access.

Ken Michael: In addition, we recently acquired the remaining shares of Linzess.

A leading provider.

Ken Michael: Connectivity solution.

Ken Michael: To expand our enterprise grade security to employees.

Ken Michael: Working remotely home business and consumers.

Ken Michael: Lastly, we're proud to share that Fortinet was recently recognized Forbes Most trust company, Yes, Mark can list ranked number seven overall the army cyber secure company in the top 50 list.

Ken Michael: Highlighting our transparency and commitment come.

Ken Michael: Customer asked the most trust cyber security company.

Keith Good: I'd like to thank our employees customers partners and suppliers worldwide for their continued support and hard work I will now turn the call over to Keith.

Keith Good: Thank you Ken Thank you Erin and good afternoon, everyone.

Keith Good: Start with the key highlights from the fourth quarter, we delivered strong execution and financial performance with top line results above the high end of guidance together with record operating margins at 39%.

Keith Good: Total revenue grew 17% driven by strong product and service revenues as product revenue growth pushed up to 18%.

Keith Good: Addition, we added a record 6900, new logos driven by close alignment with our channel partners.

Keith Good: Looking at our financial results in more detail total billings grew 7% to $2 billion.

Keith Good: Including double digit security operations and unified SaaS fee growth.

Keith Good: RPM grew 12% to $6 4 billion.

Keith Good: Our growth was very strong with tech ops and grew 32% and unified SaaS, which grew at 28% to a combined total of over one 5 billion.

Keith Good: Within unified SaaS SFC continues to gain traction with a growth of 96% as we continue to see early success up selling 40, SaaS to a large SD Wan customer base.

Keith Good: 40, SaaS deals increased over 60% and the pipeline was up 90%.

Keith Good: The typical 40 SaaS journey.

Keith Good: Sorry for the customers first purchase of our ASIC based market, leading 40 gig firewall followed by an expansion of the SD Wan and then to a single vendor SaaS solution.

Keith Good: The expansion journey is particularly significant as over 70% of our large enterprise customers have adopted our SD Wan functionality.

Keith Good: Poised to expand to 40 SaaS.

Keith Good: Our large enterprise 40, SaaS penetration rate increased to 10% that's up two points just since our November analyst day reporting.

Keith Good: Rounding out the billings commentary.

Keith Good: Deals between $5 million and $10 million increased over 90%.

Keith Good: S&P was our top performing customer segment with growth of over 30%.

Keith Good: EMEA was our best performing geography, driven by growth of over 25% from international emerging.

Keith Good: Among our top five verticals worldwide government service provider both grew over 20%.

Keith Good: Financial services saw the expected challenges from the difficult year over year comparison.

Keith Good: By several seven figure deals in the fourth quarter of 2023.

Keith Good: Turning to revenue and margins total revenue grew 17% to $1 66 billion.

Keith Good: Product revenue increased 18% to $574 million, our highest growth rate in six quarters, driven by hardware revenue growth of 19%.

Keith Good: On a sequential basis product revenue increased 21%.

Keith Good: And represents the third quarter in a row with elevated sequential growth.

Keith Good: Software license revenue continued its double digit growth and represented a mid to high teens percentage of total product revenue.

Keith Good: Service revenue of 1.09 billion grew 17% to 65% of total revenue.

Keith Good: Service revenue growth was driven by SaaS solutions.

Keith Good: 130%, which.

Which includes way it's works as well as strong organic services growth in unified SaaS, <unk> and SEC ops.

Keith Good: Combined revenue from software licenses and software services, such as cloud latest work and other SaaS security solutions increased 41%.

Keith Good: <unk> provides an annual revenue run rate of over $1 billion.

Keith Good: Total gross margin increased 340 basis points to 81, 9% and exceeded the high end of our guidance range by 140 basis points.

Keith Good: Product gross margin of 69, 3% increased 920 basis points as inventory related charges normalized from last year's highly elevated levels, adding 840 basis points to product gross margin.

Keith Good: 290 basis points to total gross margin.

Keith Good: Service gross margin of 88, 6% increased 50 basis points to a quarterly record.

Keith Good: Service revenue growth outpaced labor and hosting cost increases while benefiting from the mix shift towards higher margin <unk> security subscription services as well as some early AI related savings.

Keith Good: Operating margin increased 720 basis points to a record 39, 2% and was 520 basis points above the high end of the guidance range.

Keith Good: Reflecting the strong gross margin.

Keith Good: An FX tailwind of about 110 basis points.

Keith Good: As well as the topline over performance that flow through to the bottom line.

Keith Good: Before moving to the statement of cash flows I'd like to summarize the financial impacts from the latest work next DLP and perception point acquisitions.

Keith Good: These acquisitions increased fourth quarter billings by 115 basis points.

Keith Good: Versus our expectation of 75 basis points.

Keith Good: And decreased operating margins by 190 basis points versus our expectation of a decrease of 230 basis points.

Keith Good: Looking at the statement of cash flows summarized on slides 18 through 21 free cash flow was $380 million and free cash flow margin was 23% up 11 points adjusted free cash flow was $549 million, representing a margin of 28% up 16 points.

Keith Good: Cash taxes were $156 million down $186 million, reflecting the prior year's regulatory extension of estimated tax payments.

Keith Good: Infrastructure investments were $98 million or up $71 million.

Keith Good: Average contract term in the fourth quarter was 29 months down one month year over year and up one month quarter over quarter.

Keith Good: DSO decreased 10 days, reflecting improved linearity year over year.

Keith Good: And the remaining share buyback buyback authorization is $2 billion.

Keith Good: Moving to an overview of our 2020 for full year results.

Keith Good: Billings exceeded $6 5 billion.

Keith Good: Total revenue grew 12% to $5 96 billion.

Driven by revenue growth of around 25% for both unified SaaS <unk> and SEC ops.

Service revenue grew 20% to $4.05 billion.

Keith Good: Driven by a 22% increase in security subscriptions.

Keith Good: 33% growth in unified SaaS services.

Keith Good: Gross margin was up 390 basis points to 81, 3% benefiting from the revenue mix shift to service revenue.

Keith Good: 140 basis point tailwind of inventory related charges normalized during the year.

Keith Good: Operating margin increased 660 basis points to a record 35%.

Keith Good: And operating income of $2 1 billion.

Keith Good: Which was up 38%.

Keith Good: Our GAAP operating margin of 33% continues to be one of the highest in the industry.

Keith Good: Earnings per share increased 45% to $2 37.

Keith Good: Free cash flow was a record $1 $9 billion, representing a margin of 32% <unk>.

Keith Good: Adjusted free cash flow was $2 2 billion, representing a margin of 37%.

Keith Good: If I were just sum up 2024, I think it's important to note that we have now met or exceeded the rule of 45 for the fifth consecutive year.

Keith Good: Now I'd like to share a few significant fourth quarter win in showcasing our SaaS the expansion in our leadership and operational technology.

Keith Good: And a seven figure new customer win that healthcare provider strategically included 40, SaaS and its first fortinet purchase alongside SD Wan, while replacing a competitor's firewall.

Keith Good: With a new leadership team focus on vendor consolidation reduced operating costs and complexity and addressing technical debt. The 40 OS consolidated multiple security functions onto a single platform.

Keith Good: Modernizing outdated firewall infrastructure.

Keith Good: And replace VPN technologies with a 5000 seat SaaS solution that relies on Fortinet Pops.

Keith Good: And another seven figure SaaS deal an existing fortune 500, SD Wan retail customer purchased 40 SaaS for 2000 users with the potential to scale up to 12000.

Keith Good: They chose fortinet for its flexible and consistent security enforcement.

Keith Good: <unk> enhances user experience, while securing access to both on Prem and cloud applications.

Keith Good: Additionally, they valued our strategy of building our own SaaS delivery infrastructure powered by our proprietary ASIC technology.

Keith Good: And lastly in a high seven figure deal a large entity energy company expanded its partnership with us by assigning US first enterprise agreement to protect this global critical infrastructure.

This customer secures its infrastructure using 40 gates across approximately 1000 sites spanning branch locations data centers and cloud environments.

Keith Good: Key factors in this win included our ability to support their global critical infrastructure, both technically and through World class support programs.

Keith Good: Our leadership in Ot infrastructure capabilities, and the automation of the seamless integration of our 40 OS system.

With regard to supplying over 50% of the firewall is worldwide for the security solutions themselves have become critical infrastructure protecting the critical infrastructure.

Keith Good: And the threat landscape, where there have been it has been a step level increase in sophistication and risk.

Keith Good: Given our scale innovation and broad adoption, we are national cyber security agencies around the World view, our partnership is key to protecting the most important customers and entities in this dynamic landscape.

Keith Good: Next I'd like to review some of our key AI solutions for threat intelligence networking Knockin Socs.

Keith Good: <unk> M leakage.

Keith Good: For threat Intelligence 40 Guard AI power security services combined with real time threat intelligence.

Keith Good: Helps organizations combat combat known unknown zero day, and emerging AI based threats for.

Keith Good: For networking.

Keith Good: 40, AI ops reduces the time needed to diagnose networking issues.

Keith Good: Monitoring trends in the network and with full access to logs across a fortinet security fabric.

Keith Good: AI engine uses machine learning to understand the optimal conditions for the network and highest potential issues.

Keith Good: For the knock on stock 40, AI uses natural language and generative AI to guide simplify and automate analyst activities.

Keith Good: 40, AI is integrated into seven different network security operation products with additional products to be added.

Keith Good: For <unk> leakage.

Keith Good: Our AI based DLP services accurately identify and block sensitive information from being uploaded or shared with AI systems.

Speaker Change: Before discussing our guidance I'll offer a few updates on the record level firewall upgrade opportunity that we shared during our November analyst day.

Speaker Change: In the fourth quarter, we saw early upgrade movement with large enterprises, both on buying plans and actual purchases.

Speaker Change: We expect the moment the momentum to build as we move into the second half of 2025.

Speaker Change: As we get closer to the 2026 and the service dates.

Speaker Change: The 2026, and 2027 cohorts present, a substantial upsell opportunity for SaaS switches access points and <unk> solutions.

Speaker Change: To maximize our upgrade and cross sell potential we're implementing several initiatives, including creating sales plays for each customer segment and key vertical.

Speaker Change: Expanding our account plans for larger enterprises to more specifically target the upgrade and expansion opportunities.

Speaker Change: And collaborating with our channel partners on F&B opportunities incentive programs and user data and developing targeted bundle offerings for these customers.

Speaker Change: Moving onto guidance as a reminder, our first quarter and full year outlooks, which are summarized on slides 23, and 24 are subject to the disclaimers regarding forward looking information that are provided at the beginning of the call.

Speaker Change: I should note, we expect linksys and perception point to increased fourth first quarter billings and revenue growth by approximately 90 basis points and decrease operating margin around 40 basis points.

Speaker Change: For the full year, we expect <unk> and perception point to increased billings and revenue growth by approximately 125 basis points and decreased operating margin by around 50 basis points.

Speaker Change: For the first quarter, we expect billings in the range of $1 $520 million $1.600 billion, which at the midpoint represents growth of 11%.

Speaker Change: Revenue in the range of $1.500 billion to $1 billion $560 million, which at the midpoint represents growth of 13%.

Speaker Change: non-GAAP gross margin of 80% to 81% non-GAAP operating margin of 30% to 31% non.

Speaker Change: non-GAAP earnings per share of <unk> 52 to 54, which assumes a share count of between 774700 $80 million.

Speaker Change: The infrastructure investments of $80 to $100 million and.

Speaker Change: non-GAAP tax rate of 18% and cash taxes of 30% to $35 million.

Speaker Change: For the full year, we expect billings in the range of $7 $200 million to $7.400 billion.

Speaker Change: Due to the midpoint represents growth of 12%.

Speaker Change: Revenue in the range of $6.650 billion to $6.850 billion, which at the midpoint represents growth of 13%.

Speaker Change: Service revenue in the range of $4 575 million to $4 $725 million, which at the midpoint represents growth of 15%.

Speaker Change: non-GAAP gross margin of 79% to 81% non-GAAP operating margin of 31% to 33% non.

Speaker Change: non-GAAP earnings per share of $2 41 to $2 47.

Speaker Change: This assumes a share count of between 773780 $3 million.

Speaker Change: Infrastructure investments of $380 million to $430 million, and non-GAAP tax rate of 18% and cash taxes between $525 and $575 million.

Speaker Change: And on a personal note you may read in todays 8-K filing that after a four decade career in finance, including 11 years of Fortinet. It's time for me to enjoy retirement he'll continue to serve through the next quarter earnings call and up to May 15.

Speaker Change: I plan to stay afforded to help with the transition through June 30.

Speaker Change: Most importantly, I'm, leaving for net in very good hands.

Speaker Change: Similar to our succession plan and Christian on Olive Garden, who as discussed in the 8-K has served in various roles of Fortinet for almost six years will take over as CFO and I stepped down in May.

Speaker Change: I'd like to if I can Michael and the Fortinet team and all of you for making this chapter of my life. So rewarding I very much appreciate the time I've had it for networking with Ken Michael the entire team and certainly with the investors and financial analysts.

I'll Miss Fortinet as people customers and noble mission to protect and serve important customers entities around the world.

Speaker Change: Thank you Keith.

Speaker Change: A brief survey on contribution and.

Speaker Change: And obviously looking forward to working with you.

Speaker Change: <unk>.

Aaron: Continue to have the <unk> and Fortinet. So I will now hand, the call over to Aaron for the Q&A session. Thank.

Aaron: Thank you Ken as a reminder, during the Q&A session. We ask that you. Please limit yourself to one question and one follow up question to allow others to participate.

Aaron: <unk>. Please open the lines for questions.

Aaron: Thank you and as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.

Speaker Change: Our first question comes from the line of pseudo Waller with <unk>. Your line is open. Please go ahead.

Aaron: Okay.

Jonathan: Hey, Thank you for taking my question. This is Jonathan <unk> and Entre Hamzah.

Speaker Change: First off Keith Congratulations on your career and best of luck with retirement and with your next endeavors.

Speaker Change: So Ken for you.

Ken Michael: Some of the Hyperscale players like Oracle or big customers and partners with Fortinet.

Ken Michael: So just curious as you have oracle and some of the other hyperscale or is building out new data centers, just curious to what extent Fortinet is involved in securing these thank you.

Ken Michael: Yes.

Ken Michael: Yes, great question.

Ken Michael: Fortinet is the only company with develop the secure ASIC processor.

Ken Michael: Is it increasing the computing.

Ken Michael: Computing.

Ken Michael: <unk> quite a lot compared with using general purpose CPU.

Ken Michael: We have a lot of our growth into.

Ken Michael: We call the internal segmentation within a data center Hyperscale and all these hands. So we see a huge opportunity.

Ken Michael: And not just that.

Ken Michael: And that will continue but also not of our data center also related to AI.

Ken Michael: Also see huge opportunity to grab the AIC acuity legacy acute infrastructure itself our secured debt.

Ken Michael: The data of secure access so there's a lot opportunity I do believe that that's a huge potential for growth because of our unique advantage of using the <unk>.

Speaker Change: Thank you and we'll move on to our next question.

Speaker Change: Our next question comes from the line of Kelly <unk> with Bank of America. Your line is open. Please go ahead.

Speaker Change: For me to ask a question after John My ex associate them across the line.

Speaker Change: I wanted to ask you two things number one.

Speaker Change: <unk> billings why is billing weekend guidance.

Speaker Change: Second question is product revenues outperformed so much this quarter.

Speaker Change: And that might be a cycle refresh cycle, but the guidance for next quarter I don't see outperformance. So why is it just this quarter phenomenon you don't carry the strength into the next few quarters. Thanks.

Speaker Change: Yes, I wasn't sure on your first question about billings, if youre asking about the fourth quarter for the first quarter.

Speaker Change: Got it.

Speaker Change: I'm asking billing general so billings for the fourth quarter.

Speaker Change: Better but for the first quarter is weaker so.

Speaker Change: Why is the weakness at the meeting.

Speaker Change: I think yes, I think the if you look at the fourth quarter, but it will start there a little bit.

Speaker Change: As you recall, we talked last quarter about the fourth quarter guidance process. There was a lot of concern around the eight quarter pardon me the eight figure deals and what we're going to get out of that and we were being cautious on the guidance.

Speaker Change: That was logically or rather a prudent approach where we got the upside was on those deals from $5 million to $10 million.

Speaker Change: And I would say that the close rate and the opportunity there was probably $40 million to $50 million more than what I anticipated in the guidance setting process.

And you saw that same over performance on those larger deals show itself in the product revenue line.

Speaker Change: And then also we saw on the product revenue line.

Speaker Change: Our significant growth in product revenue was in the mid enterprise pardon me that midsize firewalls in the large firewalls.

Speaker Change: And when you Peel back that onion, you start to see enterprise companies have actually started their purchasing of the refreshes that we talked about at the analyst day.

Speaker Change: I think obviously the information in the news about Q4 is very good I think if you look at.

Speaker Change: Q1, whether it's billings or product revenue, probably just a little more caution there as we kind of got exposed to the tariffs here over the last week and we saw the reaction.

Speaker Change: And some of the concerns for us with a more of a multinational footprint, particularly in Latin America, and Canada for example, a customer footprint.

Speaker Change: Little more exposure there and then of course, the direct impact of perhaps some disruptions in the U S government, where we do have appropriate footprint also so maybe a little caution in that regard.

Speaker Change: The other probably may impact some of the build it internally.

Speaker Change: We'll also driving.

Speaker Change: The IPO, which.

Speaker Change: Liberty different than before.

Speaker Change: It's more about building but.

Speaker Change: It probably.

Speaker Change: Probably with the first time some building into the future.

Speaker Change: But what will kind of are secure and our customer to resolve this.

The platform.

Speaker Change: Unified SaaS approach, that's where the SaaS <unk> tend to have a higher growth in the AI and IPO then the buildings.

Speaker Change: Thank you one moment as we move on to our next question.

Speaker Change: Our next question is going to come from the line of Gabriela Borges with Goldman Sachs. Your line is open. Please go ahead.

Gabriela Borges: Hey, good afternoon, thanks for taking my questions.

Gabriela Borges: To hear a little bit more on the refresh opportunity for this year I know you have broken it out for us and prompt versus cross selling a couple of different ways I wanted to ask you specifically about the implications for subscription revenue as you see it the hardware come up for renewal and as you saw some of the networking components on the hardware side.

Gabriela Borges: Sure.

Gabriela Borges: So either for Keith maybe Christiane, how do you think about the implications for subscription specifically as hardware. Thank you.

Gabriela Borges: Which one you want to jump in there okay.

Gabriela Borges: I think at the Analyst day, I explained a little about that.

Gabriela Borges: Listing hardware has subscriptions in order to grow our subscription revenue, we need to upsell and even more subscriptions with the same hardware or services. So.

Gabriela Borges: We have put plans and incentives in place for our sellers and our channel partners to do so, but that's kind of the prerequisite for us to grow our service revenues.

Gabriela Borges: Accelerate that service revenues.

Gabriela Borges: Also the new Howard tend to be.

Gabriela Borges: We have more capacity to have additional function and better performance.

Gabriela Borges: So abel.

Gabriela Borges: Additional service.

Gabriela Borges: Including a lot of new services we.

Gabriela Borges: We are developing.

Gabriela Borges: For the last in the last few years.

Speaker Change: It's Mike <unk>.

Gabriela Borges: Unified SaaS function and some other AI kind of.

Speaker Change: This function not asking for new.

Gabriela Borges: Yes.

Gabriela Borges: New opportunity languish, a new Howard.

Gabriela Borges: Thank you for the detail congrats on the quarter and congrats to Keith and Chris Jonathan.

Gabriela Borges: Thank you.

Gabriela Borges: Q1 moment as we move to the next question.

Speaker Change: Our next question comes from the line of Brian Essex with J P. Morgan. Your line is open. Please go ahead.

Brian Essex: Good afternoon, and thank you for taking the question Keith I thought when you started with key highlights for the quarter your retirement would be up to the top.

Brian Essex: Yeah.

Brian Essex: Seriously, it's been a real pleasure working with you and best of luck on your retirement, well deserved and Christina looking forward to working with you. So congratulations on the appointment to CFO.

Speaker Change: I guess the question I had was with regard to the Billings guide for for this next fiscal year fiscal year, we'd love It if may.

Brian Essex: Maybe Chris Jonathan.

I think you've done a lot of work on it if you could unpack the assumptions behind that how much is upgrade.

Brian Essex: Growth of setup in SaaS and how much is product related refresh cycle that baked into that and maybe if you could share an exit rate that would be super helpful.

Brian Essex: So.

Brian Essex: An hour an hour.

Brian Essex: Billings and revenue guidance of course, we have the two components right product is what we said this year services, what we what was off the balance sheet, mostly anabolic.

Brian Essex: And 15% is from from new services that we're selling this year and.

Brian Essex: Our assumptions of course are as we presented at the analyst day that we have a significant upsell component, but we also are planning to.

Brian Essex: The incentives for again.

Brian Essex: And our own centers as well as our channel partners to drive new logos.

Brian Essex: And from an exit rate perspective on Sir.

Speaker Change: Are you looking at exit rate for services.

Brian Essex: Yes.

Brian Essex: Overall for billings and then maybe if you can.

Brian Essex: Help us understand how much product revenue is baked into that but it's really just trying to get a sense of the trajectory that youre baking into billings to kind of get to that.

Brian Essex: Full year Bill.

Brian Essex: Billings guidance that you have.

Brian Essex: Yes.

Brian Essex: Sure.

Brian Essex: Product revenue growth.

Brian Essex: Is around 10% right now.

Brian Essex: As we saw already a significant traction.

This year, but yes.

Brian Essex: The current running assumption.

Speaker Change: Okay. That's helpful and does that does that require like that like that.

Speaker Change: Exit rate in <unk> like teens like high teens billings growth or are you expecting a more moderate builds throughout the year.

Speaker Change: Right now it's more moderate.

Speaker Change: Okay Super helpful. Thank you so much.

Speaker Change: Congrats.

Speaker Change: Thank you. Thank you one moment as we move on to our next question.

Speaker Change #100: Our next question comes from the line of the team of <unk> with Citi. Your line is open. Please go ahead.

Keith Good: Good afternoon, and thank you for taking my question and Keith Congratulations I hope you're very much have an enjoyable ride into the sunset and terrific partnering with you.

Speaker Change #101: I wanted to go back to some of the commentary you made on the current path.

Speaker Change #101: I did want to dig into that a little bit. So I think there is significant amount of uncertainty.

Speaker Change #102: These parents there in.

Speaker Change #102: In flex there are some potential retaliatory policies being thrown around.

Speaker Change #102: So I wanted to dig into some of the demand comments, you made and how far ranging.

Speaker Change #102: We are and how they are being contemplated in guidance and then also from a supply chain perspective, how is that influencing or potentially impacting.

Speaker Change #102: Your supply chain and ultimately.

Speaker Change #102: Margin. Thank you.

Speaker Change #102: Yes.

Speaker Change #102: It's as you pointed out so it's going to be dynamic time, if you will and trying to understand where these may end up I would say that.

Speaker Change #102: For selling purposes for demand.

Speaker Change #102: We have a fairly significant footprint in both Latin America, and Mexico as well as Canada.

Speaker Change #102: Over the weekend when the tariffs were announced.

Speaker Change #102: There was a lot of activity here internally Sunday night, and Monday morning to understand what the what the disruption would be more about those economies and their buying habits. If you will of our products.

Speaker Change #102: And I think that type of reaction that we are focused on.

Speaker Change #102: I would also supplement that a little more context, our 40 authenticated product I believe it is is actually is a very small product line, but it is manufacturing in Canada.

Speaker Change #102: And we were looking at what the tariff impact would be like that and then by Monday night, all those things all bets are off so.

Speaker Change #102: Chasing a little bit.

Speaker Change #102: We do have similar to our sales leadership in Latin America, raising their hand immediately and what they were seeing a bit concerned about what Mexico. Our U S. Federal team. Similarly raise their hand, and said if there aren't going to employees in the federal government to sell to it's going to be challenging. So I just think we're acknowledging that it's a very.

Speaker Change #102: Dynamic situation right now and let's try and not get too far ahead of our out over our skis until we know more.

Speaker Change #102: On the other side I think in terms of tariffs coming into the country.

Speaker Change #102: Alex.

Speaker Change #102: Keep in mind that our peer U S business is around 25 26, 27% of our total business.

So obviously that.

Speaker Change #102: At 30, if I may a 70% plus international would not be subject to the tariffs schemes of the U S.

Speaker Change #102:

Speaker Change #102: Okay.

Speaker Change #102: I think there is obviously, if we had to respond in some way to the market I think the tariffs will be broad brush effect not only ourselves in our U S business for that remaining 25%, 26%, but our competitors as well and I would expect that we would still at this early stage still have the pricing advantage that we currently have.

Speaker Change #103: Thank you Christina congratulations.

Christina: Thank you.

Speaker Change #104: One moment as we move on to our next question.

Speaker Change #105: Our next question comes from the line of Shaul Eyal with TD Cowen. Your line is open. Please go ahead.

Shaul Eyal: Thank you so much for taking my question. Good afternoon. Congrats on the results Congrats Keith Congrats to <unk>.

Speaker Change #105: John.

Speaker Change #105: Keith.

Speaker Change #106: My question May be builds a little bit on the prior question, but touch it's more specifically on your U S performance.

Speaker Change #106: This year you had I think this quarter the best quarterly performance in 2024.

Speaker Change #106: Do you see that being sustained into 2025, given some of your prior investments what are the plans specifically as it relates to.

Speaker Change #106: U S sales operations. Thank you.

Speaker Change #106: Yes, it's a great question.

Speaker Change #106: I think probably starting a little over one year ago, we are studying.

Speaker Change #106: The U S enterprise sales and also more focus.

Speaker Change #106: Mike.

Speaker Change #107: Adding sales capacity.

Speaker Change #106: Yes.

Speaker Change #106: And also kind of working closely with our channel partner to profit growth.

Speaker Change #106: Which both in the high call and also <unk>.

Speaker Change #106: The program.

Speaker Change #106: As a partner there.

Speaker Change #106: We see some pretty good result.

Speaker Change #106: We do see there is a lot of known to grow in the U S and at the same time, we have a huge advantage.

Speaker Change #106: Yes.

Speaker Change #106: <unk> on our facility.

Speaker Change #106: People here in the U S Canada.

Speaker Change #106: Tenant at the companion would drive.

Speaker Change #106: The future growth. So that's why we see the U S could be.

Speaker Change #106: Fast growing region in the next few years.

Speaker Change #106: Yeah.

Speaker Change #106: Thank you so much.

Speaker Change #106: Thank you. Thank you one moment as we move on to our next question.

Rob Owens: Our next question is going to come from the line of Rob Owens with Piper Sandler companies. Your line is open. Please go ahead.

Rob Owens: Great. Thanks for taking my question.

Rob Owens: I was hoping you could expand a little bit just on the linksys relationship.

Rob Owens: What you hope it brings and I know, Ken you did outline some expectations relative to revenue and billings, but just strategically where it positions you better. Thanks.

Rob Owens: Yes, Vincent thanks.

Rob Owens: Acquired ABA.

Rob Owens: 51% of share about three years ago, and then we keeping private shaping the company towards more monopolies are on kind of a secure networking strategy.

Rob Owens: But also this all kind of.

Rob Owens: The new market, we feel Fortinet properties Ali Payor complain.

Rob Owens: Complain.

Rob Owens: Tumor Homebase network security.

Rob Owens: We have this technology like AC we have all this unified SaaS.

Rob Owens: And together with analytics as consumer and also the huge user base, which they have 25 million active users and has been shipping almost.

Rob Owens: 250 million devices in the last almost 40 years.

Rob Owens: Our leading brand and.

Rob Owens: With this customer base with our technology.

Rob Owens: Combined resource be few.

Rob Owens: We can read it to new market for consumer to supporting a work from home and also cover some nice N b space, we see pretty fast growth.

Rob Owens: That's been our strategy, but that's also probably will take some time to continue.

Rob Owens: Debate about this technology market together, but we do feel this could be.

Rob Owens: A huge potential in the next five to 10 years, nor the company growth.

Rob Owens: Thank you and we'll move onto our next question.

Speaker Change #108: Our next question comes from the line of Eric <unk> with Keybanc. Your line is open. Please go ahead.

Speaker Change #109: Great. Thanks for taking the question here and Keith.

Speaker Change #109: Keith Congrats as well.

Speaker Change #111: Keith and Christiana I wanted to understand a little bit just out of the refresh opportunity. That's starting in the second half how should we be thinking about inventory levels in anticipation of that demand and then secondly, maybe to follow on to Brian's earlier question, just the assumptions embedded in the product guidance specifically from the end of service refresh are you assuming.

Speaker Change #111: Half of that $400 million to $450 million opportunity happens in 2025.

Speaker Change #111: Yeah I'll cover off the inventory question, a little bit and then maybe christiana that can come back over the top and talk a little bit more about the model for 2025 and I don't know that we explained it will clinic specific dollar amounts to each individual item in that but in any event.

Speaker Change #111: Ken I have been at this for a long time you'd like to see inventory turns of two other to see inventory turns of five or six.

Speaker Change #111: I lose constantly on the inventory turns.

Speaker Change #112: <unk> gotten.

Speaker Change #112: Gone through the supply chain cycle here you saw the inventory turns so we did very well with those.

Speaker Change #112: Storing inventory if you will on our balance sheet as we got into Covid supply chain crisis.

Speaker Change #112: And that really helped fuel the super cycle for us on our income statement.

Speaker Change #112: With that in mind, I think a healthy number for us I'd have to agree with Ken now is probably in the range of <unk> <unk> with returns.

Speaker Change #112: And I would imagine that you would expect you could expect us with target that each quarter in terms of our inventory balances.

Speaker Change #112: Sure.

Speaker Change #112: Yeah on the linearity of that product revenue assumptions, while there is definitely a compelling reason to refresh in the second half year because you can.

Speaker Change #112: You cannot get renewed for one year.

Speaker Change #112: We've seen refresh activity happened already especially for large customers and we will try to accelerate the upgrade cycle as much as we can so we've assumed that there is.

Speaker Change #112: And more gradually than kind of spiky.

Speaker Change #112: Upgrade path.

Speaker Change #112: Thank you.

Speaker Change #112: Thank you and one moment as we move on to our next question.

Speaker Change #113: Our next question comes from the line of socket key risks.

Speaker Change #114: With Barclays. Your line is open. Please go ahead.

Speaker Change #114: Okay, Great Hey, guys. Thanks for taking my questions here.

Speaker Change #116: My cap to both of you on your respective exciting next steps.

Speaker Change #116: So very clear numbers and a lot of helpful questions, Keith and Christiane, maybe I'll ask just a couple of housekeeping questions.

Speaker Change #116: If I may.

Speaker Change #116: First can you just remind us I think you touched on it a little bit can you remind us how big.

Speaker Change #116: Latam and Canada are just in terms of percentage of billings and then maybe.

Speaker Change #116: On top of that can you just remind me of the 12% growth that we're guiding to roughly in 202025, how much of that is organic versus inorganic.

Speaker Change #116: Yeah.

Speaker Change #116: So your first question Latam and Canada.

Speaker Change #116: 15% of total business.

Speaker Change #116: And.

Speaker Change #116: Sure.

Speaker Change #116: On the organic growth number.

Speaker Change #116: We expect about one point inorganic.

Speaker Change #117: Very helpful. Thanks, guys.

Speaker Change #117: Thank you one moment as we move on to our next question.

Speaker Change #118: Our next question comes from the line of Adam Borg with Stifel. Your line is open. Please go ahead.

Speaker Change #117: Hey, guys, you've got Max on here for Adam at Stifel. Thanks.

Speaker Change #117: Thanks for taking the question.

Speaker Change #117: Over the last few quarters, we've talked about SaaS checkups billings coming primarily from existing customers. So as we look out into 'twenty five just wondering what the opportunity is for SaaS in SEC ops to become.

Speaker Change #117: A more meaningful contributor to new logos and or do you expect that to kind of remain as primarily an upsell motion.

Speaker Change #117: I think the.

Speaker Change #117: Do you have a huge consolidation phase.

Speaker Change #117: Next Gen firewall and also SD Wan.

Speaker Change #117: Steve.

Speaker Change #117: Grow upgrade from that part probably will come in most of the new unified SaaS.

Speaker Change #117: Thats also sell.

Speaker Change #117: Sell falls when a cell source and also for the partner.

Speaker Change #117: <unk> the last few quarter, probably over 90% now come from existing customer which are already all.

Speaker Change #117: Firewall.

Maybe on firewall and also SD Wan customer.

Speaker Change #117: We just gave US also more advantage compared to all of these SaaS fee.

Speaker Change #117: The player.

Speaker Change #117: So thats, where and that's also the reason is also because we have the <unk> networking.

Speaker Change #117: Security resolve these SD Wan and also.

Speaker Change #117: I'll just ask you <unk> are easy upgrade.

Speaker Change #117: On the other side, we do have a see a lot of new customer and.

Speaker Change #117: And especially some of the kind of price some of them.

Speaker Change #117: Do you have an issue with some <unk> player.

Speaker Change #117: And we do have a lot of advantage on the pattern of function better integration Cisco OIS solution.

Speaker Change #117: Much better performance than the pricing that I mentioned, probably three to five X more price advantage in the past our own kind of infrastructure.

Speaker Change #117: In this kind of a.

Speaker Change #117: Lower cost better margin and same ton nuclear function together as a more easy to manage and better protection.

Speaker Change #117: By advantage, we have and Thats why we also pretty confidence.

<unk> not only one meeting.

The number one player in the next Gen firewall and SD Wan. We also give us. Some time, we're also will lead and become our number one unified SaaS player in the space.

Speaker Change #117: And I think Ken spot on in terms of the factors that build on one of those which is.

Speaker Change #117: Removing or reducing complexity and reducing costs and making things simpler.

Speaker Change #117: I was really impressed with the first deal that I talked about in the earnings script here when I talked to the sales team, which was a pure white space account that started off as a competitive firewall displacement and we know we're really good at that and we know how to do that.

Speaker Change #117: But then to see them consult and collaborate with the customer and make it not only an SD Wan deal, which with a ton of SaaS, but also to get them in the boat on the SaaS deal and I think that speaks to a very good sales team that brought that to the table for us, but the evolution of the maturity that you are seeing in our own organization as we get more experience with our fleet and our ability.

Speaker Change #117: To branch out and sell into those organizations that are focused on.

Speaker Change #117: A consolidation play removing complexity and controlling cost.

That's also will benefit from a lot of our long term you last month.

Speaker Change #117: <unk>.

Speaker Change #117: Howard also in the <unk>. So we had only a designer in the whole space and a lot of new ASIC design, well flagged the new SaaS <unk> function, well keeping gave us a much better performance lower cost lower power consumption and also the sovereign SaaS fee for service provider for enterprise for data Center, we honestly.

Speaker Change #117: A lot of growth potential that's already that unique advantaged fortinet has.

Speaker Change #119: Thank you and we'll move onto our next question.

Speaker Change #120: Our next question comes from the line of Nick Qatari with Baird. Your line is open. Please go ahead.

Nick Qatari: Hey, yes, thanks for taking my question.

Speaker Change #121: Really solid unified SaaS fee growth rates, you guys are seeing increased penetration among larger enterprises.

Nick Qatari: And the earlier commentary.

Speaker Change #121: We're still building momentum for this year.

Nick Qatari: Okay.

Speaker Change #122: Provide an update on on specific incentives, which are tied to our upselling talking tech ops, and how does and sandoz are impacting overall within our profit metrics.

Nick Qatari: Version.

Speaker Change #123: Yeah, and then had a follow up question as well.

Speaker Change #123: It's really we do want to Santa Rita.

Speaker Change #123: Training to both.

Speaker Change #123: Our sales team the technical team that also our partner.

Speaker Change #123: And.

Speaker Change #123: Thanks.

Speaker Change #123: But they do see the customer definitely see some of the long term benefit.

Speaker Change #123: Using a single OIS to gradually adding more function and adding more security and easily upgrade to the next kind of a security function they need it and.

Speaker Change #123: The other side I think we also need to keeping that.

Speaker Change #123: Keeping to the high end keeping add sales capacity.

Speaker Change #123: At the same time provide better training.

Speaker Change #123: On the other side, we see a feedback from customer partners didn't see data upgrade of our SaaS.

Speaker Change #123: Is it much easier to compare to this new SaaS approach and a much shorter sales cycle and you can see it seems like.

Speaker Change #123: We only launched our own SaaS approach a little over one year and you can see the ramp up is Barbara mcquade from probably the fast growing in the SaaS space right. Now so we do see a lot of great potential going forward.

Speaker Change #123: Okay.

Speaker Change #124: Thank you and one moment as we move on to our next question.

Speaker Change #125: Our next question comes from the line of G&A Citigroup with.

Speaker Change #125: Securities. Your line is open. Please go ahead.

Speaker Change #126: Great. Thank you for taking my question.

Keith Good: Keith and Chris.

Speaker Change #127: And congrats to both of you.

Speaker Change #127: You mentioned SMB being one of the top performing customer segments, which is a bit different from what we hear from some of the other vendors.

Speaker Change #129: Just curious what is underpinning that demand and what are you seeing that others are not thank you.

Speaker Change #129: Well I think the channel program it forward and that's probably a fairly mature I mean, it has been doing it for a long long time.

Speaker Change #129: I don't think there were scrambling to find channel partners, Okay well.

Speaker Change #129: I would also give autocratic cristiana and what she's done in every year here, which is really focus on the channel in and getting the more senior levels.

Speaker Change #129: Leadership to understand what's important to them and how to structure incentives.

Speaker Change #129: That are tailored to what the channel is trying to accomplish.

Speaker Change #129: Just much more collaboration with channel partners today than I've ever seen before here.

Speaker Change #129: I think we have some fairly.

Speaker Change #129: Specific and targeted incentive program for the fourth quarter that Krishna to help develop and I think those were.

Speaker Change #129: As you see in the numbers for the new logos.

Speaker Change #129: 900, and the mix of the business extremely successful.

Speaker Change #129: Yes.

Speaker Change #129: I also see we have probably the best product.

Speaker Change #129: Because none of our competitors are not as small as that technology.

Speaker Change #129: Single OLS with so many is almost certainly function integrate.

Speaker Change #129: Okay.

Speaker Change #129: Is that about half in a function about 2015, using anything plus salary, thus gave us huge performance and functionality of vantage and how to competitor because the SMB the like.

Speaker Change #129: Like the three model, we announced today the round the same 40 OS compared to some other big.

Big box speak a pause there and that's where the SMB and even the downturn to home users see some huge advantage.

Speaker Change #129: You've seen the same 40.

Speaker Change #129: They can they can kind of connect to the enterprise holiday can that they can connect to the cloud.

Speaker Change #129: And also.

Speaker Change #129: Maybe Todd as a new unified SaaS approach.

Speaker Change #129: So that's why we feel.

Speaker Change #129: Technology product advantage gave us huge.

Speaker Change #129: And a unique benefit to a customer SMB customer event and it can be the whole user and consumer space, which we feel is.

Speaker Change #129: Because so far even in the U S and Europe developed country.

Speaker Change #129: The SMB still had single digit of SMB customer.

Speaker Change #129: The network security to protect and that will come there. So we do see there's a lot of growth potential, but how to address it.

Speaker Change #129: Technology, you need to be easy to deploy easy to use easy to sell quality and less use of AI and.

Speaker Change #129: <unk>, that's where we kind of quite.

Speaker Change #129: Quite a long time and we do see.

Speaker Change #129: It's kind of a long term benefit obviously of <unk> investment also huge potential going forward.

Speaker Change #130: Thank you and one moment as we move onto our next question.

Joseph: Our next question comes from the line of Joseph <unk> with Jefferies. Your line is open. Please go ahead.

Speaker Change #131: Hey, guys. Thanks for the question Keith Congrats on the much deserved retirement and congrats to Christina.

Speaker Change #131: Forward to working more with you.

Speaker Change #133: It was great to hear about the early end of life refreshed demand in those early renewals.

Speaker Change #133: The average deal size increased versus four years ago I'm, just trying to understand how youre thinking about the size of the cross sell opportunity versus that $450 million product refresh.

Speaker Change #133: Yes, I think I tried to make a point that what we've seen and I guess it kind of makes sense is that the larger enterprises are probably moving first.

Speaker Change #133: We expect that the Smbs may move a little bit later on the timeline.

Speaker Change #133: They probably have less advanced purchasing departments, and maybe less regulatory pressures and things of that nature, there's probably a lot of reasons for it.

Speaker Change #133: I think what we what you see in our large enterprises historically.

Speaker Change #133: They often have a deployment schedule that may not necessarily take all the equipment at one point in time, but rather take a certain amount each quarter, maybe nothing in one quarter and more in the third quarter and that it was that same buying behavior patterns. I think we started to see in the fourth quarter, which are looking back at.

Speaker Change #133: Some of these more regulated industries also some technology companies and we could see the swapping out of the.

Speaker Change #133: <unk> products that are being end of life and then taking on new products and we talked to the account person about USS runway there on that runway and they will continue doing that now over the next several quarters.

Keith Good: Let me add to what Keith just said.

Speaker Change #134: Regarding your question of average deal size.

Speaker Change #134: As we have a lot of large customers that have enterprise agreements.

Speaker Change #135: Pretty much half and.

Speaker Change #134: Ongoing.

Speaker Change #134: Purchasing habit.

Speaker Change #134: Replacement devices that they paid out during the EAA. So you don't necessarily see creeping up.

Speaker Change #134: No I think it is because they negotiate at a certain point in time, what they need for the next five years and then they buy ads they are ready to upgrade.

Speaker Change #134: Thank you and one moment as we move on to our next question.

Speaker Change #136: Our next question comes from the line of <unk> Kidron with Oppenheimer <unk> Co. Your line is open. Please go ahead.

Speaker Change #137: Thanks, and congrats as well for both of you Keith and Kristina Good luck and enjoy retirement Keith you earned it.

Speaker Change #138: Questions for me just again on this upgrade cycle. If you note the devices and you can bring them and you know exactly where they are and when they get retired for the vast majority.

Speaker Change #138: And to just be a little bit more specific on what was the contribution of this upgrade to revenue this past quarter and what is the exact dollar contribution you expect from the upgrade in your 25 guys.

Speaker Change #139: And the second question is for Ken on on SaaS.

Great to see the progress and adoption over there can you comment how much of it.

Speaker Change #138: The adoption with the large enterprises.

Speaker Change #140: Against brownfield displacement of all SaaS solutions are walking into a vacuum would love to understand how much of your footprint in your opinion has something that you need to displace versus your stepping into a vacuum.

Speaker Change #138: Yes.

Speaker Change #138: Yes, I think it is.

Speaker Change #138: Great question.

Speaker Change #138: Keep in mind, the two tier distribution model.

Speaker Change #138: We sell to distributors, who sell resold or sell to end users and oftentimes just SMB.

Speaker Change #138: The quality of the data about the end user gets better and better the closer you get to the end user which would be the reseller and Thats. Why you heard are referenced in the script about the importance of working with them on data gathering.

Speaker Change #138: There's a bit of an honor system when they registered the devices and maybe.

Speaker Change #138: More intuitive to us but of course, you get a device you register it like our phone or something like that but that's not what happens in practice, particularly in the SMB.

And really there is a heavy reliance there on a channel to spend time and energy.

Speaker Change #138: If you want to get good reporting and tracking on that so we will get better at it as we go and as part of working closer with the channel partners.

Speaker Change #138: It is easier quote unquote easier with the enterprise us because we can talk to the to our sales Rep, who is working on the large enterprise and understand the account plans on what they're seeing but youre still only getting a partial set of information.

Speaker Change #138: I think the reporting and the information we will get more mature as we go along is moving pretty quickly right now I want us in terms of how we are developing it.

Speaker Change #138: Okay.

Speaker Change #138: For your second question actually refer to the presentation slides number five so the two gave some.

Speaker Change #138: Some.

Speaker Change #138: Enterprise penetration rate for.

Speaker Change #138: For SaaS is around 10% increased two points.

Speaker Change #141: From <unk>.

Speaker Change #141: Two months ago in analyst day, and then.

Speaker Change #141: Also Isd Wan in.

Speaker Change #141: Large enterprise, probably about 70%, so thats where we.

Speaker Change #141: We see with our leading.

Speaker Change #141: A firewall with next Gen firewall market and then Thats actually drive a lot of our SD Wan growth and then also.

Speaker Change #141: Last year when the SaaS it will be the next growth while keeping.

Speaker Change #141: Helping customers build better security infrastructure.

Speaker Change #141: And in terms of your question, whether its brownfield or not we are seeing some of our biggest SaaS deals as displacements of either legacy VPN providers or legacy SaaS providers.

Speaker Change #141: I appreciate it thank you.

Andrew: Thank you and I would now like to turn the conference back over to Andrew <unk> for closing remarks.

Andrew: Thank you and I'd like to thank everyone for joining today's call. We will be attending investor conferences hosted by Morgan Stanley during the first quarter that fireside chat webcast link will be posted on the events and presentations section Fortinet Investor Relations website.

Andrew: Do you have any follow up questions. Please feel free to contact me have a great rest of your day.

Andrew: This concludes today's conference call. Thank you for participating and you may now disconnect.